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Presentation OnUrban Co Operative Banks

To

Hon. Shri Arun Jaitley Finance Minister

Government of India

Sahakar Bharati5, Wagle Sadan, opp. Bhagshala Maidan, Near Rationing Office,

Dombivli (W) 421 202 Dist. Thane. Tel. 0251- 2493678 sahakarbharati1@gmail.com

By:

Gujarat Urban Co-Operative Banks’Federation

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Structure of UCBs

UCBs [1606]

Scheduled [51]

Single state [26]

Multi-state [25]

Non Scheduled

[1555]

Single state [1534]

Multi-state [21]

Figures based on RBI Report on Trend & Progress of Banking in India 2012-13

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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

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Financials as on 31st March 2013

Deposit`276,900

Crores

Advances`181,000

Crores

CD Ratio65.4%

Figures based on RBI Report on Trend & Progress of Banking in India 2012-13

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Return On Assets

1.09% of UCBsIBA Benchmark

1%

Net Interest Margin

3.35% of UCBsIBA

Benchmark >3%

CRAR 11.9 of UCBsRBI Norm 9%

Figures based on RBI Report on Trend & Progress of Banking in India 2012-13

Financials as on 31st March 2013

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Gross NPAs of UCBs

6%

Net NPAs of UCBs 1.4%

Provision Coverage Ratio of

UCBs 77.3%

Figures based on RBI Report on Trend & Progress of Banking in India 2012-13

Financials as on 31st March 2013

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Rating-wise UCBs

Rating No. of Banks

Percentage to

Total

Percentage share in

Total [Business-wise]

A 214 13% 43%B 861 54% 42%C 432 27% 13%D 99 6% 2%

Total 1606 100% 100%

Figures based on RBI Report on Trend & Progress of Banking in India 2012-13

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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

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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.

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Deposit-wise profile of UCBsDeposits No. of

UCBs % share % share Deposit-wise

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%

Total 1606 100% 100%

Figures based on RBI Report on Trend & Progress of Banking in India 2012-13

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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

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Urgent Issues Confronting UCBs1. 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.

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Urgent Issues Confronting UCBsIncome 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)]

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Urgent Issues Confronting UCBsIncome 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.

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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.

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Urgent Issues Confronting UCBs2. 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 BanksRestrictive policies relating to opening of Branches and setting up of Off-site ATMsEven though about 600 Banks have implemented Core Banking Solution, restrictive policies relating to Internet Banking, RTGS, Mobile Banking have hampered their growth.

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• 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:

Licensing of New Banks

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Licensing of New BanksCountry No. of Co Operative Banks

Austria 570

Finland 220

France 2,500

Australia 135

US 8,400

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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.

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Urgent Issues Confronting UCBs3. 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.

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Raising of Capital

Public Sector Banks• Access to

Govt. support• Capital

Markets

Private Sector Banks• Access to

Capital Markets

• Foreign Capital

Urban Co Op. BanksNo support to Capital

MarketsGovt.

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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.

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Other Requests1. 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.

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Delegation

• Shri Jyotindra MehtaChairman, Gujarat Urban Banks FederationPresident, Sahakar Bharati

• Shri Uday Joshi• General Secretary, Sahakar Bharati• Shri Satish Marathe

Patron, Sahakar Bharati• Shri Lakshmi Narayan Gupta

President, Sahakar Bharati, Delhi