Page 38 - Banking Finance September 2020

ARTICLE

assessment basis .The results of the rating classification are sector was first mooted in the year 2006 by the Working
supplemented by further analysis using a data pool which Group (Chairman: Shri N S Vishwanathan) set up by the
provides risk indicators to identify and examine particular Reserve Bank on Augmentation of Capital of UCBs. It was
abnormalities in the member institutions. examined in greater detail by the Working Group on
Umbrella Organization and Constitution of Revival Fund for
Y Preventive Management Urban Cooperative Banks (Chairman: Shri V S Das) in 2009,
The aim of preventive management is early identification and the Expert Committee on Licensing of New Urban Co-
and rectification of adverse financial indicators with a view operative Banks (Chairman: Shri Y H Malegam) in the year
to preventing the need for financial support from the 2011. The need for UO was also stressed by the High
scheme. Besides data analysis, additional discussions with Powered Committee on UCBs (Chairman: Shri R Gandhi) in
the banks under stress are arranged by the BVR to decide the year 2015. Reserve Bank of India through its statement
about the suitable measures for stabilizing and improving on Development and Regulatory policies dated February 07,
their business performance. Based on the risk ratings, the 2019 had announced that a decision on the specifics of an
preventive management process is triggered whenever a umbrella organization for UCBs in India shall be taken.
bank is classified as B- or lower . In addition to financial-based
risk ratings, the impact of environmental factors such as Conclusion
interest rate is also taken into account for the BVR Co-operative banks play an important role in the social
protection scheme. In addition, the protection system also cohesion, financial inclusion, and economic development in
involves monitoring of large institutions simply because of the geographical and demographic areas they operate.
the size of their balance sheet. Establishment of a network of cooperative banks with a
central institution and umbrella organization could boost
Y Support Mechanism their financial and operational strength. An institutional
The objective of restructuring management under the BVR protection scheme not only binds the cooperative banks in
protection scheme is to ensure that the member institutions' a common network but also strengthens the member
annual financial statements are able to receive an unqualified institutions through its preventive and supportive measures.
auditors' opinion. It ensures that the respective bank regains The success of co-operative banks, central institutions, co-
its economic viability while accommodating the interests of operative financial network, and the institutional protection
all members of the Cooperative Financial Network .The scheme in Germany is worth deliberations for possible
principles followed aim at regaining competitive position implementation in India.
through recovery and restoring their fundamental References
profitability. Banks are obliged to complete the restructuring/
rehabilitation phase within a period of five years. 1. DICGC Annual Report, 2017-18, Annex VIII
2. Data Source - DZ Bank AG, https://www.dzbank.com/
International Experience and the Indian 3. Bundesverband der Deutschen Volksbanken und
Raiffeisenbanken (BVR)
Context
4. EinSiG - German Deposit Insurance Act of 2015 - Euro
The co-operative banking in India, though quite old and 100,000 compensation payment for each deposit.
spread out in the country, has not been able to come up
5. BundesanstaltfürFinanzdienstleistungsaufsicht (BaFin) -
with a cohesive network and protection scheme like the
German Federal Financial Supervisory Authority.
cooperative financial network in Germany. It remains divided 6. BVR Consolidated Financial Statements 2017, https://
between the rural and urban banking streams much like the
www.bvr.de/Press/Consolidated_Financial_Statements
Raiffeisen and Volks Bank in the German structure. However, (Retrieved on July 14, 2019)
unlike the German model, where these banks have gradually
7. BVR's 'manual for future-proof bank management
combined, in India, they continue to remain in separate
streams with a certain overlap in their functions. guidelines (2017)' for restructuring arrangement.
The views are personal and do not necessarily represent
In this context, it is worth mentioning that the idea of the official views of the Reserve Bank of India. Usual
setting up of an umbrella organization (UO) for the UCB disclaimers apply. T

38 | 2020 | SEPTEMBER | BANKING FINANCE