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Bad debt Ordinance to cover co-operatives

New Delhi, Aug. 27: The recently promulgated Securitisation Ordinance giving banks and financial institutions powers to recover bad debt will be extended to co-operative banks as well. Freshly sworn-in minister of state for finance A. V. Adsul told newspersons here after assuming office that he had spoken to finance minister Jaswant Singh and indicated this was likely to happen soon.

The co-operative banking sector is reeling under a huge backlog of bad debts of more than Rs 60,000 crore and has been seeking government dole to get back on its feet. Adsul said the new Ordinance making it easier for banks to foreclose assets and auction them had been made “to enable the entire financial sector to reduce their sticky assets.”

The new minister also supported bringing co-operative banks under the direct control of the Reserve Bank of India. He also agreed that the best way to stop the large number of scams involving co-operative banks was to end dual control by both the RBI and registrar of co-operatives. “People have taken advantage of this dual system.”

Adsul, while admitting that politicians had had a hand in the co-operative sector scams, said his ministry would come out with a package of measures including new disclosure norms, and quarterly reporting to the RBI.

The government has already agreed in-principle to a Rs 10,000-crore bailout for co-operative banks. The money to be pumped into these banks would be garnered through bonds issued by the central and state government.

These bonds, which will have a maturity period of 10 years, will be of a self-extinguishing nature, which means the principle amount would not be redeemed. The move came in the wake of a series of co-operative banks going bust, led by the Madhavpura Co-operative Bank. The co-operative banking sector has become extremely weak due to lax implementation of financial prudential norms.

All states willing to pay their 40 per cent of the contribution towards co-operatives would be eligible for central help in reviving their co-operative banking sectors. The Centre, however, has recommended up to 90 per cent assistance for the north-eastern states and Jammu and Kashmir. This is being done as these states normally get Plan help from the Centre in that ratio as they are considered weak states.

However, states interested in getting the revival package for their co-operative banks will have to accept greater control of the RBI over their banks. Besides the new prudential norms already being enforced for co-operative banks, a whole set of guidelines will be brought forth which virtually gives the RBI far more control over these banks instead of the joint control now exercised with the state registrar of co-operatives.

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