17 Jun The Reserve Bank of India has made it easier for cooperative banks to lend to the housing sector:
The Reserve Bank of India has made it easier for cooperative banks to lend to the housing sector – Today Current Affairs
Why is this in the news?
The Reserve Bank of India (RBI) has decided to raise the current limits on individual housing loans provided by cooperative banks.
Today Current Affairs
What is the RBI’s current position?
The Reserve Bank of India (RBI) has increased the lending limits for individual housing loans issued by Urban Co-operative Banks (UCBs).
Additionally, Rural Co-operative Banks (RCBs) would now be permitted to lend up to 5% of their total assets to commercial real estate or residential housing projects. The Hindu Analysis
Limits for tier 1 and tier 2 urban cooperative banks (UCBs) have been increased from 30 lakh to 70 lakh to 60 lakh to 140 lakh.
The limits for rural cooperative banks (RCBs) have been raised from 20 lakh to 50 lakh for those with a net worth of less than 100 crore, and from 30 lakh to 75 lakh for the rest.
What is the state of India’s cooperative banks? The Hindu Analysis
Co-operative banks are financial institutions that are owned and operated cooperatively by its members (the customers of a co-operative bank are also its owners).
In India, co-operative banks are separated into two groups: urban and rural.
Rural cooperative banks (RCBs)—RCBs can be either short-term or long-term.Short-term cooperative credit organisations are further classified into the following categories:
Cooperative State Banks : The Hindu Analysis
District Central Cooperative Banks are a type of cooperative bank that operates in a district. Agricultural Credit Institutions (Agriculture Credit Institutions) (Agriculture Credit Institutions) Institutions with a long-term focus are Rural Development Banks and State Cooperative Agriculture Banks UCBs are either scheduled or non-scheduled urban cooperative banks.
There are two types of UCBs: scheduled and non-scheduled.
- UCBs with several states
- UCBs with a single state of operation
Co-operative banks are regulated in India under the States Cooperative Societies Act.
They are also regulated by the Reserve Bank of India (RBI) under two laws.
- The Banking Regulations Act of 1949 was enacted to regulate the banking industry.
- The Banking Laws (Co-operative Societies) Act of 1955 was enacted to make it easier for cooperative societies to operate.
What are the problems that cooperative banks face? The Hindu Analysis
- The advance to deposit ratio for UCBs is roughly 60% at the aggregate level, which is significantly lower than that of scheduled commercial banks.
- The fact that these banks’ credit bases are smaller can be attributable to a variety of factors. The Hindu Analysis
- Only leading states have a disproportionate presence of UCBs.
- Regulation-related concerns of duality
- credit limitations in high-potential industries such as housing
- Increasing non performing assets (NPAs) combined with a need to lend to the primary sector. The Hindu Analysis
- Banks’ expansion through banking correspondents and FinTech acceptance
- Borrowings are a major source of income for the RCBs (27 percent of total liabilities compared to 1 percent of UCBs).
What is the benefit of the RBI’s move? The Hindu Analysis
UCBs have a credit exposure of around $3.25 billion, with one-third going to MSMEs and about 8% going to the housing sector.
The RBI’s decision to increase credit to the housing industry will improve credit flow and protect banks from rising non performing assets (NPAs) by increasing the amount of secured loans available. The Hindu Analysis
UCBs and RCBs, on the other hand, must increase their asset base by expanding access through banking correspondents and seizing the current loan flow opportunity to the household sector.