Presentation On
Urban Co Operative Banks
To
Hon. Shri Arun Jaitley
Finance Minister
Government of India
By:
Gujarat Urban Co-Operative Banks’Federation
Sahakar Bharati
5, Wagle Sadan, opp. Bhagshala Maidan, Near Rationing Office,
Dombivli (W) 421 202 Dist. Thane. Tel. 0251- 2493678
sahakarbharati1@gmail.com
1
Structure of UCBs
UCBs
[1606]
Non
Scheduled
Scheduled
[51]
Single
state [26]
[1555]
Multi-state
Single state
Multi-state
[25]
[1534]
[21]
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
2
Profile of UCB Sector
• Urban Co Operative Banks play an important role in
mobilizing deposits and meeting the credit requirements of
weaker, small and medium income segments, both in urban
and rural India.
• They cater to different geographic locations and to almost
all demographic categories.
• The wide network of UCBs supplements the commercial
banking network for deepening financial intermediation by
bringing in a large number of depositors and borrowers
under the formal banking network.
• 90% of borrowal accounts are with limits with less than ` 5
Lacs
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
3
Financials as on 31st March 2013
Deposit
`276,900
Crores
Advances
`181,000
Crores
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
CD Ratio
65.4%
4
Financials as on 31st March 2013
Return On
Assets
1.09% of
UCBs
Net Interest
Margin
3.35% of
UCBs
IBA
Benchmark
1%
IBA
Benchmark
>3%
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
CRAR
11.9 of
UCBs
RBI Norm
9%
5
Financials as on 31st March 2013
Gross
NPAs of
UCBs
6%
Net NPAs
of UCBs
1.4%
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
Provision
Coverage
Ratio of
UCBs
77.3%
6
Rating-wise UCBs
Rating
No. of
Banks
Percentage Percentage
share in
to
Total
Total
[Business-wise]
A
B
C
D
Total
214
861
432
99
1606
13%
54%
27%
6%
100%
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
43%
42%
13%
2%
100%
7
Profile of UCB Sector
• The role of UCBs has been commendable in
enhancing the inclusiveness of the financial
system.
• At the end of March 2013, 1075 UCBs i.e. 67%
[61% as at end March 2012] of the UCBs had
composite ratings of A and B, accounting for
about 85% [78% as at end March 2012] of the
total business [Deposit plus Advances] of the
UCBs.
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
8
Profile of UCB Sector
• Around 27% of the UCBs had a composite
rating of C accounting for 13% of the banking
business of the UCB sector.
• The lowest rating of D representing the
weakest financial health was assigned to 6% of
the UCBs accounting for 2% of the banking
business of the UCB sector.
9
Deposit-wise profile of UCBs
No. of
UCBs
% share
Upto ` 100 Crores
1162
72.4%
13.8%
Above ` 100 to ` 250 Crores
241
15%
13.4%
Above ` 250 to ` 500 Crores
113
7%
14.2%
Above ` 500 Crores to ` 1,000 Crores
47
2.9%
11.9%
Above ` 1,000 Crores to ` 5,000 Crores
37
2.5%
24.3%
Above ` 5,000 Crores to ` 10,000 Crores
4
0.1%
9.9%
Above ` 10,000 Crores
2
0.1%
12.4%
1606
100%
100%
Deposits
Total
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
% share
Deposit-wise
10
Profile of UCB Sector
• The number of UCBs with an asset size of more than
`1,000 Crores increased sharply between 2008 and
2013.
• Notably, the percentage share of such UCBs in the total
assets of the UCB sector increased from about 37% to
50% during this period.
• UCBs with a deposit base of over ` 1,000 crores
accounted for 47% of the total deposits as at end
March 2013.
• UCBs with a credit size of over ` 1,000 crores also
accounted for about 40% of the total UCBs advances.
Figures based on RBI Report on Trend & Progress of Banking in India 2012-13
11
Urgent Issues Confronting UCBs
1. Income Tax :
• Co Operatives by definition are largely Mutual Societies. Therefore,
they are subject to soft tax laws in all parts of the world.
• RBI is also inclined to promote enrollment of Depositors as
Shareholders and giving them representation on the Board of UCBs
• As per World Organization of Co Op Credit Union, 67% countries in
Asia, 62% in Africa, 81% in Latin America, 94% in Caribbean and 38% in
Europe do not taxed Co Operatives.
• UCBs cater to the needs of the SME/Professionals, middle class, the
urban and rural poor including the weaker sections of the society.
• Retained earnings is the major source for them to meet Capital
Adequacy norms.
• We, therefore, request you to withdraw the Income Tax on all Urban
Co Op Banks.
12
Urgent Issues Confronting UCBs
Income Tax – Continued..
• Deduction allowed to Scheduled Urban Co
Operative Banks for making provision towards NPA,
as per RBI guidelines, need to be allowed to all
UCBs.
• Interest accrued but not received by Co Operative
Banks is added while computing Income Tax.
However, it is not so the case in respect of
Schedule Urban Co Op Banks. This treatment
should be extended to all Urban Co Op Banks [Sec
43 (D)]
13
Urgent Issues Confronting UCBs
Income Tax – Continued..
• The deduction of Disallowance of Claims of Bad
Debts written off U/S 36 (i) (vii) allowed to
Scheduled Urban Co Op Banks should be
extended to all UCBs.
• TDS : All Co Operatives are exempt from this
provision and hence, it is our fervent appeal
that depositors who are shareholders should
be exempted from this provision as hither to
before.
14
Commitment - BJP Manifesto 2009
Every effort will be made to encourage
the Co Operative sector. Towards this
end, the BJP will do the following:
1. Exempt Co Operative Banks from
paying Income Tax.
2. Frame a model law for Co
Operative societies for nationwide
implementation.
3. Amend the Multi-State Co
Operative Act to remove current
lacunae and anomalies.
4. Set up a Central regulatory
authority for Co Operative bodies.
15
Urgent Issues Confronting UCBs
2. Licensing of New Banks
• Despite good performance of the UCBs, its share
in total Banking Business has been consistently
reducing on account of the following restrictions:
No new licenses have been given since 2001 for
starting New Urban Co Operative Banks
Restrictive policies relating to opening of Branches
and setting up of Off-site ATMs
Even though about 600 Banks have implemented Core
Banking Solution, restrictive policies relating to
Internet Banking, RTGS, Mobile Banking
have
hampered their growth.
16
Licensing of New Banks
• The contention of the RBI that in India we have
too many UCBs is untenable. In our vast country,
both in Urban and Rural areas there exist
thousands of centers that lack basic banking
facilities. Hence, there is unlimited scope for
setting up new Urban Co Operative Banks.
• We give here below details of some countries
which are smaller in size and whose population is
also small (though they are bigger in size) than
that of India:
17
Licensing of New Banks
Country
No. of Co Operative Banks
Austria
570
Finland
220
France
2,500
Australia
135
US
8,400
18
Licensing of New Banks
• RBI needs to liberalize Bank and Branch Licensing Policies and
promote induction and use of technology to optimize cost of
operations, promote financial inclusion while helping UCBs to attain
higher business levels.
• Even though the share of UCBs has all along been declining at the
national level for past several years, it is important to note that the
UCBs account for a sizeable share in the states of Maharashtra,
Gujarat and Karnataka.
• This indicates that with licensing of new Banks and branches, the
sector has potential to grow and play a meaningful role in other
states as well in mobilizing local resources and strengthening credit
delivery channels in rural and urban areas thereby supporting
financial inclusion.
19
Urgent Issues Confronting UCBs
3. Raising of Capital for Co Operative Banks
• The business of all Urban Co Operative Banks has been
continuously increasing and resultantly the need for capital
/ own funds has also been increasing.
• As per the existing guidelines, the Banks can solicit capital
only to the extent of 2 ½ % to 5% of the Credit amount
from borrowers. However, this contribution is highly
insufficient to comply with Reserve Bank of India
requirements of Capital Adequacy of 9%.
• UCBs have no access to Capital Markets nor do they get any
support from Central / State Govts for augmenting capital.
• We need a totally new and fresh initiative to bridge this
yawning gap.
20
Raising of Capital
Public Sector
Banks
Private Sector
Banks
Urban Co Op.
Banks
• Access to
Govt.
support
• Capital
Markets
• Access to
Capital
Markets
• Foreign
Capital
No support to
Capital
Markets
Govt.
21
Raising of Capital for Co Operative Banks
• Since no Co Operative Acts prohibit issuance of Bonds and
their Rating, it is suggested that guidelines be formulated
for issue and listing of Rated Irredeemable Bonds by the
Urban Co Operative Banks.
• The Union Government should enact a law for formation of
a special Exchange Alternate Mechanism where such Bonds
can be listed. Once listed, it will provide both depth and
liquidity resulting in flow of funds to UCBs, depending upon
the performance of the listed UCB.
• We suggest that a Committee be constituted comprising of
Representatives of the Government of India, RBI and the Co
Operative Sector to work out the modalities / details.
22
Other Requests
1. SARFAESI Act :
UCBs registered under State Co Operative Acts
are not recognised as Banking Organisations
under this Act.
This anomaly needs to be corrected to facilitate
initiation of action against defaulters and speed
up recovery.
23
Delegation
• Shri Jyotindra Mehta
Chairman, Gujarat Urban Banks Federation
President, Sahakar Bharati
• Shri Uday Joshi
• General Secretary, Sahakar Bharati
• Shri Satish Marathe
Patron, Sahakar Bharati
• Shri Lakshmi Narayan Gupta
President, Sahakar Bharati, Delhi
24