Mumbai, May 19: The Reserve Bank of India (RBI) today allowed non-scheduled urban co-operative banks (UCBs) with bad loans under 7 per cent and a three-year profit-run, to park deposits with non-scheduled peers.
The April 2001 monetary and credit policy statement had hinted that they would not be permitted to increase term deposits with other UCBs, and that outstanding amounts must be unwound before June 2002.
The course was reversed in last month’s monetary policy, where RBI governor Bimal Jalan said UCBs struggling to find avenues for their cash should be allowed to keep deposits with their robust peers, on conditions.
One of the terms laid down is that only strong scheduled UCBs that fulfil a set of regulations could accept deposits from non-scheduled counterparts. The bank where the money is stashed should have a comfortable capital adequacy ratio, should have a clean record on maintenance of reserve requirements in the past two years and must have secured an “A” rating from auditors in the last three consecutive years.
That apart, the bank should be complying with prudential norms on income recognition, asset classification and provisioning, exposure ceilings and the entire gamut of rules on loans and advances to directors.
The total volume of such deposits should not exceed 10 per cent of a scheduled bank’s own deposits on March 31 of the previous financial year. The rate of interest offered should be in line with those in the market. Total deposits placed by a non-scheduled UCB should not be more than 20 per cent of its capital funds.
UCBs were prohibited from keeping fresh deposits with their peers, except through balances in current accounts to meet their clearing and remittance requirements. The government-approved committee decided to review the regulations after it was told about difficulties faced by urban co-operative banks in managing their short-term surplus funds because of the curbs.