2nd March 2012,Friday
The Reserve Bank of India on Thursday directed the management of urban co-operative banksto keep their financial positions strong, failing which, it said, it could resort to tough measures, including cancelling their licences.
If a co-operative bank's deposit erodes beyond 25%, the central bank would issue a showcause notice for cancellation of the licence of the bank concerned, which it calls supervisory action. Other conditions are not specific.
The action "would increase in terms of severity as the financials deteriorate and could include restriction on pre-mature withdrawal of deposits, freeze on the level of advances/deposits, prohibition in acceptance of deposits, issue of showcause for cancellation of banking licence etc," the RBI said in a statement.
Banks should shore up capital if it falls below the regulatory requirement of 9%.
"The management of the bank should identify the cause of deterioration and take necessary corrective actions on its own, with a view to improving the financial position of the bank," said the RBI. "Such corrective action should be prompt as any delay could be detrimental to the interest of the depositors and other stake holders of the bank," it said.
"The corrective action should include measures for augmenting capital, close monitoring of NPAs and their recovery especially the large NPAs, improving profitability by curtailing expenses, mobilising low-cost deposits, etc, depending on the nature of the deficiency," said the RBI.
"The UCBs should also prepare time-bound specific action plan for bringing about necessary improvement in their functioning and the board of directors should monitor the progress in implementation of the action plan in every meeting of the board," it said.
If the management failed to revive the bank, the RBI would initiate supervisory action, which would include active monitoring.
This would be followed by pre-emptive actions aimed at arresting further deterioration of the financial position of the bank concerned, the central bank said. "The extent and nature of supervisory action would depend on the level of capital adequacy and the extent of erosion in deposits, if any, in the bank," said the RBI.
The Reserve Bank of India on Thursday directed the management of urban co-operative banksto keep their financial positions strong, failing which, it said, it could resort to tough measures, including cancelling their licences.
If a co-operative bank's deposit erodes beyond 25%, the central bank would issue a showcause notice for cancellation of the licence of the bank concerned, which it calls supervisory action. Other conditions are not specific.
The action "would increase in terms of severity as the financials deteriorate and could include restriction on pre-mature withdrawal of deposits, freeze on the level of advances/deposits, prohibition in acceptance of deposits, issue of showcause for cancellation of banking licence etc," the RBI said in a statement.
Banks should shore up capital if it falls below the regulatory requirement of 9%.
"The management of the bank should identify the cause of deterioration and take necessary corrective actions on its own, with a view to improving the financial position of the bank," said the RBI. "Such corrective action should be prompt as any delay could be detrimental to the interest of the depositors and other stake holders of the bank," it said.
"The corrective action should include measures for augmenting capital, close monitoring of NPAs and their recovery especially the large NPAs, improving profitability by curtailing expenses, mobilising low-cost deposits, etc, depending on the nature of the deficiency," said the RBI.
"The UCBs should also prepare time-bound specific action plan for bringing about necessary improvement in their functioning and the board of directors should monitor the progress in implementation of the action plan in every meeting of the board," it said.
If the management failed to revive the bank, the RBI would initiate supervisory action, which would include active monitoring.
This would be followed by pre-emptive actions aimed at arresting further deterioration of the financial position of the bank concerned, the central bank said. "The extent and nature of supervisory action would depend on the level of capital adequacy and the extent of erosion in deposits, if any, in the bank," said the RBI.
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