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DAILY NEWS ANALYSIS

  • 28 December, 2019

  • Min Read

RBI directs large cooperative banks to report exposures above Rs. 5 crore

Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Prelims and Mains focus: about CRILC, Cooperative banks and how they are different from commercial banks

News: The Reserve Bank on Friday directed large cooperative banks to report all exposures of Rs 5 crore and more to the Central Repository of Information on Large Credits (CRILC), a move aimed at early recognition of financial distress.

Background

  • Earlier in its bi-monthly monetary policy review this month, the RBI had announced that to bring UCBs with assets of Rs 500 crore and above under the CRILC reporting framework.

  • “It has been decided that Primary (Urban) Co-operative Banks (UCBs) having total assets of Rs 500 crore and above...on all borrowers having aggregate exposures of Rs 5 crore and above with them to CRILC maintained by the Reserve Bank," it said in a notification.

What is CRILC?

  • The Reserve Bank has created a CRILC of commercial banks, all India financial institutions and certain non-banking financial companies with multiple objectives, which, among others, include strengthening offsite supervision and early recognition of financial distress.
  • It was set up to collect, store, and disseminate credit data to lenders.
  • CRILC is a borrower-level supervisory dataset that keeps the record of loans of Rs 5 crore and above.
  • In India, there are four privately owned credit information companies (CICs). They are CIBIL, Equifax, Experian, and High Mark Credit Information Services.
  • The RBI has also mandated all its regulated entities to submit credit information individually to all four CIC.
  • “It has been decided that Primary (Urban) Co-operative Banks (UCBs) having total assets of Rs 500 crore and above...on all borrowers having aggregate exposures of Rs 5 crore and above with them to CRILC maintained by the Reserve Bank," it said in a notification.
  • Aggregate exposure will include all fund-based and non-fund based exposure (like partial credit enhancement) including investment exposure on the borrower.
  • To start with, UCBs will be required to submit CRILC report on quarterly basis with effect from December 31, 2019.

About Cooperative Banks

  • Initially set up to supplant indigenous sources of rural credit, particularly money lenders, today they mostly serve the needs of agriculture and allied activities, rural-based industries and to a lesser extent, trade and industry in urban centers. Anyonya Co-operative Bank Limited (ACBL) is the first co-operative bank in India located in the city of Vadodara in Gujarat.
  • Registered under the Cooperative Societies Act, 1912 → Under the state government
  • Managerial aspects of these banks, — registration, management, administration, recruitment, amalgamation, liquidation, etc are controlled by the state governments
  • Regulated by the Reserve Bank of India under the Banking Regulation Act, 1949 and Banking Laws (Application to Co-operative Societies) Act, 1965
  • Matters related to banking are governed by RBI directives
  • Cooperative banks are owned by their customers and follow the cooperative principle of one person, one vote
  • Work on the principle of “No Profit, No Loss”
  • Priority Sector Lending (PSL) does not applies to cooperative banks
  • Reserve ratios viz. SLR & CRR applies to them

Difference Between Commercial Banks & Cooperative Banks

Cooperative Banks

Commercial Banks

Co-operatives banks are co-operative organisations.

Commercial banks are joint-stock banks

Governed by the Co-operative Societies Act as well as Banking Regulation Act

Governed by the Banking Regulation Act

Subject to the rules laid down by the Registrar of Co-operative Societies

Subject to the control of the Reserve Bank of India directly

Borrowers are member shareholders, so they have some influence on the lending policy of the banks, on account of their voting power

Borrowers of commercial banks are only account- holders and have no voting power as such → Voting power as per shareholding

Have not much scope of flexibility on account of the rigidities of the bye-laws of the Co-operative Societies

Free from such rigidities

PSL does not applies

PSL Applies

Do not pursue the goal of profit maximization

Works for profit maximization

Source: Indian Express


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