Financial Daily from THE HINDU group of publications
Saturday, Jun 29, 2002
Money & Banking
Urban co-op banks to remain out of loan recovery Ordinance
Sarbajeet K. Sen
NEW DELHI, June 28
THE Ministry of Finance has decided not to accede to the demand of the urban co-operative banks (UCBs) to be given the same powers that have been provided to other banks and financial institutions for recovery of their distressed assets under the Ordinance for restructuring of financial assets.
Consequent to the promulgation of the Ordinance, UCBs have written to the Ministry of Finance protesting against the Government's decision to leave them out of the new legal framework for recovery of bad debts.
However, according to officials, the Finance Ministry has decided to that the case of the UCBs would be taken up only after assessing the functioning of the recovery procedure under the Ordinance at the operational level.
"The UCBs may be given the powers later. We have to first see how the law works for the other banks and FIs,'' top Finance Ministry officials told Business Line.
They pointed out that UCBs have powers of recovery of bad assets under the respective State co-operative laws. "Bringing them under the new law would require looking into these State acts also which could result in delays,'' officials said.
Confirming that a communication has been sent to the Ministry, Mr D. Krishna, Chief Executive, National Federation of Urban Co-operative Bank and Credit Societies (NAFCUB) said, with a large portfolio of bad assets, UCBs should also have been provided the benefit of the law of the recovery procedure under the new law.
"UCBs currently account for 10 per cent of the resources of the banking sector. It is quite sad that the sector has been denied the benefit of the provisions of the Ordinance. It seems to have become a sort of practice to leave out the co-operative sector from all progressive legislation and then to consider the request after a lot of hue and cry,'' Mr Krishna said.
The Ordinance for securitisation and restructuring of financial assets provides that the banks and FIs can directly take possession of assets the secured assets of the borrowers in and subsequently sell them off to realise their dues. The same powers can be exercised by the securitisation or reconstruction companies once the bad assets are transferred to them.
Mr Krishna said that the recovery procedures of UCBs outlined under the State co-operatives acts is not as effective as the procedure that is likely to come up as a result of the new Ordinance.
"We do not go through the courts but the co-operative courts under the State acts. Moreover, there is no appeal against the orders of the co-operative courts,'' Mr Krishna said.
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