RBI plans discussion paper on capital raising routes for urban co-op banks

Despite the improvement, the gross NPAs of district cooperative banks continue to be at highly elevated levels.

The Reserve Bank of India (RBI) plans to issue a discussion paper on capital raising avenues for urban co-operative banks (UCBs).

“The Reserve Bank has undertaken several initiatives in recent years to strengthen the UCB sector. Such initiatives include issuance of regulatory guidelines in 2022 for issue and regulation of share capital and securities by UCBs. To provide more flexibility and avenues for UCBs to raise capital, a Discussion Paper on Capital Raising Avenues for UCBs will be issued for feedback and suggestions from stakeholders,” Governor Shaktikanta Das said in his monetary policy statement on October 9.

How strong are co-op banks?

As per the National Bank for Agriculture and Rural Development (Nabarad) annual report 2023-2024, as of March 31, 2023, state cooperative banks had gross non-performing assets (GNPA) of 5.4 percent, compared with 6 percent last fiscal. Similarly, for district cooperative banks, the GNPA stood at 9.6 percent in March 2023 compared with 10.8 percent a year back. Despite the improvement, the gross NPA of district cooperative banks continue to be at highly elevated levels.

When it comes to capital adequacy, another key financial parameter, the CRAR of state cooperative banks, improved slightly to 13.3 percent in March 2023 from 13 percent last year. For district cooperative banks, the CRAR, however, deteriorated to 12.1 percent from 12.2 percent in the previous year.

The provision coverage ratio of both state and district cooperative banks has improved between FY22 and FY23 to 67.2 percent from 65.1 percent in case of state cooperative banks and 78.4 percent from 70.7 percent in case of district cooperative banks.