dep governor presentation kula lumpur conference

8/8/2019 Dep Governor Presentation Kula Lumpur Conference

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Usha Thorat

Kula Lumpur Chairperson, DICGC and

November 01, 2007 Deputy Governor, Reserve Bank of India

Issues and Challenges in Regulating,

Supervising and providing Deposit Insurance

to Rural Banks and Cooperatives in India


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Outline of presentation

Indian Financial Intermediaries

Deposit Insurance in India

Rural and Cooperative Banking -Issues, Challenges and Strategies:

Regional Rural Banks (RRBs)

Rural Cooperative Banks

Urban Cooperative Banks (UCBs)


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(Figures in brackets indicate number of insured deposit accounts in millions)Indian Financial Intermediaries

Banks(683)

NBFCs PACS

Commercial

Banks (552)

Coop. Banks

(131)

Public Sector Banks(451)

Private Sector Banks

/LABs(48)

Foreign Banks(2)

RRBs(51)

Urban Co-Op Banks(55)

State Co-Op Banks(5)

Central Co-op Banks

(71)

Deposit Taking

Non-Deposit

Taking

Deposits

insured

(mandatory)

Deposits

not insured


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Indian Deposit Insurance – a quick view

DICGC (Since1962) - Wholly owned by RBI.

Pure Pay Box System of deposit insurance

Limited to INR 100,000 (US $ 2,500) per depositor.

Mandatory cover & uniform flat rate premium.Fully Protected: 95% of total deposit accounts;Insured Deposits: 59% of total assessable deposits;

(coverage: 2.72 times of per capita GDP )Insured accounts : 683 million;Insured deposits : U.S $ 352 billion;

Reserve Ratio : 0.80 %


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Co-operative Banks Vs. Commercial Banks(Share as of March 2007)

28.76 %2.08 %Recovery Rate

(Overall 5.13 %)

11.00 %89.00 %Claims Settled

85.25 %14.75 %Insured Deposits

Commercial

Banks

Co-operative

Banks


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Aptly summarized

“We are adopting a three-track approach with regard

to capital adequacy rules. On the first track, thecommercial banks are required to maintain capitalfor both credit and market risks as per Basel Iframework; (urban) cooperative banks on the second

track are required to maintain capital for credit riskas per Basel I framework and surrogates for marketrisk; RRBs (and rural cooperative banks) on the thirdtrack which though subject to prudential norms donot have capital requirement on par with the Basel Iframework”

- Governor Dr.Y.V.Reddy


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in India

Rural Banking


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Rural / Cooperative Banking - Salient Features

Key role in Financial Inclusion

Limited area of operations; Local flavour

Client profile: Typically farmers, small businessestablishments, small scale industries, retailtraders, professionals, self employed persons

New outreach: Self Help Groups / Joint LiabilityGroups and other micro credit vehicles.


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Rural Cooperative Credit Structure - 3 Tiers

StateCooperative Banks

(SCBs)27

DistrictCooperative Banks

(DCCBs)363

Primary AgriculturalCredit Societies

(PACs)109,000

5 Million AccountsInsured for USD 3,080 Million

71 Million AccountsInsured for USD 14,125 Million

128 Million AccountsNo Deposit Insurance availableNot regulated by RBI


10/2010

Regional Rural Banks (RRBs)

Since 1976; Owned by Central/State Govts./Sponsor Banks.

196 RRBs (Sept. 2005); now, 95 following Mergers.Sponsored by 28 banks in 26 States; 14,519 branches.

Business ranging from US $ 6 Million to US $ 1,200 Million each

Local flavour; a major vehicle for inclusive growth.

Higher Cost-income ratio & NPAs; lower profitability.

Recap of RRBs having negative net worth – GOI plan.

Challenges – Governance, Skills, IT, Payment systems.

Deposit Insurance available; No impact on DICGC as yet.


11/2011

Task Force for Revival ofRural Cooperative Credit Structure (CCS)

National level Task Force attributedproblems of CCS to:

Impairment in Structure

Impairment in Governance

Impairment in Management

Financial Impairment


12/2012

Rural Cooperative Credit Structure

Recommendations of Task Force

Special financial assistanceInstitutional restructuring; Changes in legal framework

Capacity building ; Fit and proper criteria

Road map for CRAR

Current position

Implementation of recapitalisation package underwayin MoU States.

No challenges posed to DICGC by Rural cooperativebanks.


13/2013

Urban Co-operative Banks - a few large failures


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Dual Control – Cooperative Banks

Multi State Co-operative Banks

State Subject

Federal Subject

RCS State Govt. BR Act (AACS) -RBI

Central Act

Registration / Audit / Liquidation Licensing / Supervision / DI


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Urban Cooperative Banks (UCBs)

Mushrooming of UCBs.(1993-2001)

Weak governance, managerialfailures, poor financial health.

Dual Control.

Failure of a few large UCBs since2001.

Out of total claims of US $ 650million admitted for all banks so far,

over 88% was in respect of 176UCBs alone.

Current concern to DICGC.


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Confidence in UCBs shaken!!


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Addressing UCBs Problem – Our Approach

Bank / branch licensing on hold since April 2005.

Vision Document.

MoU/TAFCUB mechanism.

Merger guidelines.Fit and proper criteria for CEOs.

Twin tracked Regulatory/Supervisory regime.

Incentives for stronger banks in MoU States.

Graded Supervisory Action.


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UCBs - Current Challenges and Strategies

Restructuring of problem banks- our experiences.

Avenues for raising Capital:

working group recommendations.

Scheme of amalgamation.Restructuring liabilities of problem banks.

Expeditious settlement of claims: revised guidelines.

Coordination mechanism between DICGC and RBI.


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UCBs

Emerging Trends

Rising Strength & Public Confidence

17.027.673219262004

Advances(US $ billion)

Deposits(US $ billion)

Of which:

Weak banks

No. ofUCBs

As onMar 31,

(Figures in brackets indicate YoY Growth )

16.7 (-1.6%)

26.3 (- 4.8%)

725 18722005

17.9

(7.1%)

28.5

(8.6%)

677 18532006

19.7

(9.8%)

30.2

(6.1%)

563 18132007


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dep governor presentation kula lumpur conference

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