In a remarkable move benefiting the co-operative banks, the RBI said that it will soon allow co-operative banks to raise capital through innovative instruments. This was suggested by the RBI deputy governor Usha Thorat, who said that the guidelines would issue soon. This new development came when she was speaking on the sidelines of a MoU-signing function between the Indian Institute of Banking & Finance (IIBF) and National Co-operative Union of India/National Council for Co-operative Training on 29th of May, 2008.
Presently, only commercial banks can come up with a premium issue that helps boost capital, however, co-operative banks cannot. Therefore, there is a need for innovative instruments. “We will be issuing a circular on capital raising soon,” added Ms Thorat. In the present scenario, the co-operatives improve their capital through the issue of shares to customers and by ploughing back their earnings.
Clarifying on the farm debt-waiver scheme, Ms Thorat stated that no benefit under the debt-waiver scheme will be allowed for farm loans that have fallen overdue after December 2007. “Loans overdue after December 2007 will not be covered by the scheme and it is very clearly spelt out in the scheme. Those, who have their payment overdues for up to February 29, 2008, will have to meet their payments obligation,” she said. Stated otherwise, those, who have already repaid their dues by the date, stand to lose out.
Besides recovery of NPAs, an issue plaguing the co-operative sector is the concentration of exposure to a few individual entities. She also emphasized on the need to impart training on understanding and handling their investments, besides improving governance and professionalism in the sector.
She said co-operative banks need to focus on safety of the depositors, though there would be a close regulatory eye on them. She said that the directors of banks will be responsible for that. Speaking on the topic of financial education, in addition to educating school children, there is also a need to have separate such programmes for senior citizens, defence personnel, women, slum-dwellers and retirees, Ms Thorat said.
The deputy governor also said that the people skills will be the biggest challenge to meet in order to reap the benefits of the huge demographic dividend. She also expressed the need for educating the common man on simple things as calculating the equated monthly installments, and things like compound interest, fixed rates and floating rates. This is going to be increasingly important as we will have to manage our future savings on our own in the coming days. “People need to be made these understood, right from the beginning.” Ms Thorat added.