A year after PMC Bank scam, RBI says NPAs rise in urban co-operative banks, losses balloon up

The number of non-performing capital assets (NPAs) in co-operative banks in urban areas increased by FY20 to 10.8% compared to 7.3 percent last year, the Reserve Bank said on Tuesday. In hindsight, the number of lenders in the “D Category” lower bank has increased during the last financial year, says a central bank in a report by Trends and Progress of Banking in India.

It is unknown whether dud assets in co-operative urban banks (UCBs) are a major source of pressure, and the problem of lenders such as PMC Bank, which remains low even after one year, could be caused by the high number of NPAs.Earlier this year, the government amended the Banking Regulation Act to give the RBI full control over its lenders.

The Reserve Bank of India (RBI) said the number of major NPAs in 1,539 UC5s had risen to Rs 33,010 crore at the end-FY20 from Rs 22,093 crore last year. The rise of NPAs could be part of steady growth in credit and development and balance sheets, the report said.

For those that may raise concerns, the supply chain or the amount set aside for potential losses has dropped to 60.3% from 63.5% in FY19, the report said. Depot growth, accounting for 90 percent of UCB’s resource base, was slashed by 2019-20 after a renewal last year, the report said.

From a profit point of view, all UCBs combined reported a loss of Rs 4,806 million FY20 compared to a profit of Rs 3,544 crore, mainly due to interest revenues due to higher NPAs and lower investment, the report said.

It can be noted that the RBI was due to cancel three UCB licenses by 2020 due to financial pressure. In a review of the entire co-operative banking sector as a whole, the report said, the fraudulent acquisition of a large UCB in 2019-20 affected the quality and its assets and had a detrimental effect on other lenders.

This article highlighted systemic risks based on low cost, weak corporate governance, slow adoption of new technologies, and inadequate systems of checks and balances, that is, pointing to lessons learned from PMC Bank’s crisis. The expansion of the availability and availability of commercial banks in rural and remote areas through the use of technology and a network of bank clerks has also intensified the competitive pressure on co-operative banks, the report said.

However, the need to strengthen the sector and make a living cannot be overemphasized in the interests of the communities they serve, it said. The report said amendments to the rules could improve the management and financial performance of co-operative banks and empower the RBI to regulate them more effectively.


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