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Umbrella unit to shore up urban co-operative banks

Mumbai: The central has given its nod for an umbrella unit to strengthen urban cooperative banks (UCB). The proposed entity is expected to provide liquidity support to UCBs, besides providing IT infra. The National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB) has been given the regulator’s approval for setting up an umbrella organisation as a non-deposit taking NBFC (NBFC-ND), according to a report released by the RBI .

“In view of the pressing need for an umbrella organisation for the sector, which can provide liquidity and capital support to member banks, the RBI has given approval for its formation,” the report said.

“This organisation is also expected to provide IT infra and capacity building facilities to UCBs, and would contribute to their strength and vibrancy.”

The umbrella organisation could be in the form of apex entities, as is the practice in many countries that provide access to resources/capital to financial co-operatives at the base level through their ability to tap into the capital market, while maintaining the cooperative character, RBI said.

The apex central body also provides services to its member banks and regulates their activities. UCBs cannot raise capital through public issues, limiting their ability to comply with the regulatory requirements.

UCBs caught media attention in September earlier this year when RBI put curbs on Punjab and Maharashtra Co-operative (PMC) Bank for under-reporting bad loans and concentrated exposure to a realestate company. Umbrella organisations can also exist as a distinct entity where the credit unions are its members.

Source: Economic Times