Urban Cooperative Banks’ capital adequacy dips, bad loans rise: RBI report

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The health of scheduled urban cooperative banks (SUCBs) worsened in the second quarter with a fall in capital adequacy and a rise in gross non-performing assets (NPAs), the Reserve Bank of India (RBI) said in a report.

As on September 2019, the capital adequacy ratio of SUCBs fell 9.8 percent, down from 13.5 percent in the quarter that ended in March. Also, the gross NPA ratio rose to 10.5 percent, down from 6.4 percent in the same period, the RBI said in the Financial Stability Report that it released on December 27.

The provisioning coverage ratio (PCR) of SUCBs also took a plunge to 40.9 percent, down from 61.1 percent in March, the RBI said, adding that their Return on Assets (RoA) turned negative in September 2019.

Under different credit risk shocks, the tests revealed that anywhere from 10 to 34 SUCBs will fail to maintain their minimum capital adequacy requirements, depending upon the severity of the shock.

These banks also face liquidity risks as 24 banks may be hit if cash outflows rose by 50 percent and 39 banks if it rose to 100 percent, as per RBI’s analysis.

The health of cooperative banks came under scanner this year after restrictions were imposed on Punjab and Maharashtra Cooperative (PMC) Bank in September. In the report released earlier this week, RBI said that dual control with state governments hampered timely action against weak lenders in this category.

The RBI also said that there was a need for an independent audit system while existing regulations were being reviewed to improve supervision for cooperative banks.