In contrast, the bad loan ratio of scheduled commercial banks stood at 7.5% as of March 2021, having eased from 8.4% a year before, the RBI said in its latest report in July.
The number of frauds in urban and state cooperative banks dropped in FY21 from a year ago with tighter oversight by the central bank, Parliament was informed on Tuesday.
Finance minister Nirmala Sitharaman said urban cooperative banks reported 323 frauds in FY21 as against 568 in the previous year and 1,193 in FY19. Similarly, state cooperative banks witnessed 482 frauds in FY21, down from 508 in the previous fiscal but much higher than the FY19 level of 290, she said in a written reply to a question.
While Maharashtra, home to the highest number of cooperatives, accounted for 67% of the fraud cases in urban cooperative banks in FY21, Kerala made up for 44% of the frauds in state cooperative banks.
The finances of cooperative banks came under heightened scrutiny recently after the government carved out the department of cooperation from the agriculture ministry to make it a full-fledged ministry under Amit Shah.
Before that, affairs of the cooperative sector came under focus following the crisis at the Punjab Maharashtra Cooperative (PMC) Bank in 2019. This had prompted the government to amend the Banking Regulation Act to empower the RBI for more effective regulation of cooperative banks. The idea was to better protect the interests of depositors and avoid a PMC Bank-like crisis in future.
The amendment was also aimed to ensure that the “affairs of the cooperative banks are conducted in a manner that protects the interest of depositors by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through RBI’, Sitharaman said in the reply.
Last month, the minister had told the Rajya Sabha that gross bad loans of district central cooperative banks (DCCBs) were among the highest in the banking system, at 12.6% (Rs 35,298 crore) of their advances as of March 2020.
The gross non-performing assets (NPAs) of urban cooperative banks (UCBs), too, remained elevated at 11.3% (Rs 35,528 crore) at the end of March 2021. However, the gross NPAs of state cooperative banks were 6.7% (Rs 13,477 crore) as of March 2020, Sitharaman had said in a statement in the Upper House.
In contrast, the bad loan ratio of scheduled commercial banks stood at 7.5% as of March 2021, having eased from 8.4% a year before, the RBI said in its latest report in July.
There are 34 state cooperative banks, 351 DCCBs and 1,534 UCBs in the country. Many of the cooperatives, thanks to their opaque structure and severe governance issues, have been allegedly used to funnel black money for long.
In a conversation with ETBFSI on its transition from an urban co-operative bank to a small finance bank. Shivali Mercantile Co-operative Bank’s Chief Executive Officer and Managing Director, Suveer Kumar Gupta talks about the reason behind the transition, how it’s relying and investing in digital capabilities and partnerships with FinTechs and MSMEs being a key focus customer base. Journey from UCB to SFB
Shivalik Mercantile Co-operative Bank started in Saharanpur District in Uttar Pradesh is the first urban co-operative bank to transition into a small finance Bank. It acquired Bhoj Nagarik Sahakari Bank Maryadit in Dhar and became a multi-state co-operative bank and further expanded in Indore after acquiring Malwa Commercial Cooperative Bank Limited.
Suveer Kumar Gupta, Managing Director & Chief Executive Officer, Shivalik Bank
The bank has 31 branches and business size around Rs 2050 crore with a deposit base of Rs 1225 crore and advance of Rs 825 crore as of March 31, 2021.
Suveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank Ltd on the transition towards the small finance bank said, “Right from the very start we wanted to be a strong and well managed one of the larger co-operative banks in the country and had aspirations to grow and be professional. For the past few years we’ve been improving our systems, controlling measures, risk management practices and most of all working towards building a strong technology infrastructure. At the same time our focus was on financial inclusion and MSMEs.”
When the Reserve Bank of India in 2015 put forward the small finance bank vision the bank realised they’re in sync with the vision they had set for Shivalik Bank. Gupta said, “The synergies were significant towards a transition to SFB and then RBI came up with voluntary transition guidelines and we jumped to the opportunity and applied for the transition and got an in-principle approval in January 2020 and the final license was in January 2021 and are in the last leg of the journey and hope to go live very soon.”
While the SFB transition will bring in more regulatory oversight and compliance norms, the bank sees numerous benefits with the transition to SFB as existing SFB proven the business model of lending to priority sector with small ticket sizes is successful and as a co-operative bank they have been following for some time.
Gupta said, “We are clear and no two thoughts on how the business will progress. Becoming an SFB will allow us to raise capital for growth and becoming a commercial bank will make it easier to approach investors and infuse a greater trust among the customer base. Further as co-operative banks miss out on government and institutional business, becoming a scheduled commercial bank will help them to reach out for institutional business.”
The bank is eyeing MSMEs as the key are of the focus and 90% of its book is fully secured and about 10% of their portfolio is microfinance. Going forward they tend to retain the philosophy of secured lending and are not shy of unsecured lending as well and will be looking forward to introducing some products in the unsecured side but major focus will be on the secured part.
We are clear and no two thoughts on how the business will progress. Becoming an SFB will allow us to raise capital for growth and becoming a commercial bank will make it easier to approach investors and infuse a greater trust among the customer base. Further as co-operative banks miss out on government and institutional business, becoming a scheduled commercial bank will help them to reach out for institutional business.Suveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank
Ecosystem Partnerships
Gupta says as a bank they realised that the thought process of ownership mindset will not work for them because they are not experts in everything. He said, “ and have partnered with India Gold providing gold loan to customers at doorstep, Airtel Payments Bank for digital sourcing of loans, we’ve tied up Atyati, a microfinance banking correspondent partner and we are in discussion with other few fintechs as well some on customer onboarding side and some on digital sourcing side and invoice financing side where they’re using blockchain.”
They are very much open to digital partnerships and believe having a pan India license the best way to is by not being asset heavy with physical branches but can be done digitally too. “Any customer sitting anywhere can open and operate a Shivalik bank account just using a mobile phone and that is the way we want to go forward.”
We are bankers and will stick to banking. As for technology and other services, let’s seek experts and partner with them. We’ve been looking forward to partner with FinTechsSuveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank
Physical Expansion
On Physical expansion, they want to be a global local bank. He adds, we would do it in the northern region and by physical I would not only consider bank branches but also digital assisted channels like banking correspondents moving around with micro-ATMs. We also have micro-ATMs which are being used by banking correspondents and are connected to the core-banking system in real time.
He explained, customers can withdraw by swiping card or Aadhar and deposit money too among other banking services like bank-in-a-box kind of thing. This would eventually help us in expansion.
Digital Savvy
As the bank is heavily relying on digital partnership and capabilities they’re adequately focusing on cyber-security. He said, “We are focused on the safety aspects of digital exposure. From a customer point of view, we’ve put in all safeguards like two factor authentication, info-sec testing before release, customer education programmes, vulnerability testing, applications have biometric logins. From an organisation perspective, there’s an information-security (info-sec) team in place and internal policy on info-sec has been designed by one of the Big 4 and are one of the first co-operative banks to get cyber-insurance much ahead of the RBI mandate. “
Gupta also said, The bank has hosted its data in a tier-4 data center which is considered to be the best in Asia and its core banking system provided by Infosys is on a hosted model making Shivalik Bank as the first bank to do it.
The bank is ready for the transition and is waiting for the final go-ahead from the regulator, concluded Gupta.
Meanwhile, the regulator has also extended the restrictions placed on PMC by three months till March 31, 2021, until the proposals are studied.
The Reserve bank of India has further extended restrictions of Punjab and Maharashtra Cooperative Bank (PMC Bank) by another three months. RBI said that it is considered necessary to extend the directions, keeping in view the best interest of all stakeholders. The restrictions will now be imposed till 31 March 2021, instead of 23 December 2020. The RBI further said that all other terms and conditions of the Directives under reference shall remain unchanged. PMC bank was placed under restrictions with effect from 23 September 2019, and the directions were last extended on 19 June 2020, up to 22 December 2020.
The PMC Bank had invited Expression of Interest (EoI) from eligible investors for investment or equity participation for its reconstruction, for which the last date for submission of EoI was 15 December 2020. The RBI further said that in response to the EoI, four proposals have been received. These proposals will be examined by the bank, on the basis of their viability and feasibility, taking into account the best interest of the depositors. The central bank underlined that the bank would need some more time to undertake this process.
Last year, the RBI detected certain financial irregularities, and hiding and misreporting of loans given to real estate developer HDIL. It’s exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of 19 September 2019. Initially, the RBI had allowed depositors to withdraw Rs 1,000 which was later raised to Rs 1 lakh per account to alleviate their difficulties.
Meanwhile, during the last fiscal year 2019-20, the PMC Bank had registered a net loss of Rs 6,835 crore and had a negative net worth of Rs 5,850.61 crore. The proposal to invite investors for the bank stated financial institutions, including banks and NBFCs; and individuals or group of individuals or companies, societies, trusts, or any other such entities having adequate net worth, eligible for investment.
In contrast, the bad loan ratio of scheduled commercial banks stood at 7.5% as of March 2021, having eased from 8.4% a year before, the RBI said in its latest report in July.
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