Page 28 - Banking Finance August 2020

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For augmenting capital, specifically indicating the manner and returns, pertaining to the specified weak area, at
in which the capital would be increased either by fresh quarterly/half-yearly intervals. In the second stage, the
infusion, conversion of deposits into equity for improving supervisory action would be in the form of prompt action
CRAR to 9% within three months; b) UCB would be advised aimed at arresting further deterioration in the financial
to reduce its exposure to the sensitive sectors like capital position of the bank. With the introduction SAF, it is expected
market, real estate, non-SLR investments and not to to facilitate the UCBs to improve their overall financial
mobilize high cost deposits and raise resources at market health. In this regard, it would be interesting to study
related rates and review its credit /investment policy; c) In performance of UCBs after the introduction of SAF in 2012.
case CRAR of the UCB is less than 3%, it will have to explore
options by seeking a Board-approved proposal for merging Performance of UCBs:
the UCB with another bank or converting itself into a credit Referring to the RBI Report on Trend and Progress of
society; d) Prohibition on declaration/payment of dividend/
Banking in India for the period 2011-12 to 2018-19, changes
donation; e) Restriction on incurring capital expenditure
in the financial position of Scheduled Urban Cooperative
beyond a specified limit without prior approval of the
Banks (SUBCs) with the help of three triggers of SAF namely,
Reserve Bank; f) Reduction in exposure limits for fresh loans
4
Capital Adequacy, asset Quality and profitability . Regarding
and advances; g) Restriction on fresh loans and advances the first trigger i.e. Capital Adequacy, SUCBs are required
carrying risk-weights beyond the specified limit; h)
to maintain a minimum statutory capital under the Basel I
Restriction on expansion of size of the balance sheet; i) norms to risk weighted assets ratio (CRAR) of 9 per cent. As
Restriction on fresh borrowings except for meeting
of end-March 2019, more than 96 per cent of SUCBs
temporary liquidity mismatches; j) Prohibition on sanction/ maintained CRAR of 9 per cent and above.
disbursal of fresh loans and advances other than loans
against collateral security of term deposits / NSCs / KVPs /
But, data also suggests deterioration in CRAR of SUCBs to
insurance policies; and, k) Prohibition on expansion of size 9.8 per cent in H1:2019-20 from 13.5 per cent in H1:2018-
of the deposits.
19. Further, over the years, CRAR declined from 11.8 per
cent in 2011-12 to 9.8 in H1 : 2019-20. This deterioration in
Besides, Common and Specific supervisory actions by RBI CRAR is on account of high and increasing level of GNPA ratio.
as discussed above, Reserve Bank, as under section 35A of
Coming to the second trigger i.e. Asset Quality, during 2019-
the Banking Regulation Act, 1949 (as applicable to co-
20. SUCBs' GNPA ratio witnessed a an increase from 7.1
operative societies), shall also consider to issue a show cause
per cent in H1: 2017-18 to 10.5 per cent in H1: 2019-20 and
notice for cancellation of banking license when continued
further to 10.5 per cent in H1: 2019-20> This reflects large
normal functioning of the UCB is no longer considered to be delinquencies in Punjab and Mahahrastra Cooperative
in the interest of its depositors/public. It is important to note
(PMC) Bank, the fraud hit bank. This bank, which is among
that the RBI shall initiate supervisory action on the basis of
the financial position of UCBs as assessed during the
statutory inspection.

However, action may be taken also on the basis of the
reported/audited financial position. Besides these actions,
the RBI shall initiate any other action based on merits of
each case. These supervisory actions would be in two stages.
In the first Stage, the Reserve Bank would commence the
active monitoring of the performance of the bank.

The monitoring would be done by directing the UCBs to
submit to the Regional Office of the Reserve Bank, the
action plan for improving their performance in the specific
areas where there is a deterioration or cause of concern

28 | 2020 | AUGUST | BANKING FINANCE