Reserve Bank's indication of all is not well in urban co-operative banks

Mumbai, Ta. 30 December 2020, Wednesday

The ratio of gross non-performing assets (NPAs) in the country's urban co-operative banks (UCBs) increased to 10.50 per cent in FY20 from 5.50 per cent in FY16. At the end of FY2017, the NPA figure in UCB stood at Rs 304 crore, but by the end of FY2030, it had risen to Rs 4,010 crore. Net NPA has risen from 8.50 per cent to 8.10 per cent.

In terms of viability, the number of such low-ranking banks in the D category increased at the end of last financial year, according to a report by the Reserve Bank. Failed assets at UCB with poor management have been instrumental in increasing stress.

The crisis in banks like PMC is also responsible for the high number of NPAs, the report said. The government has given more powers to the Reserve Bank earlier this year to increase oversight of the UCB.

The provisioning rate against weak loans has come down to 20.50 per cent in the last financial year from 8.50 per cent in the previous financial year. Banks have to set aside a certain amount to cover possible losses. The report also noted that a reduction in provision could be a cause for concern.

The growth of deposits, the main source of money in UCB, has also slowed. In the financial year 2016, against a profit of Rs 3 crore, each UCB of the country together made a total loss of Rs 206 crore. This loss is due to the high proportion of NPAs.

In the last financial year, some of the country's UCBs, especially PMC banks, have been forced to take drastic action by the RBI, which has shaken the confidence of depositors in such banks.