Saturday, September 17 2005 16:17 Hrs (IST) - World Time -

Bangalore: Reserve Bank of India Governor Dr. Y V Reddy today (Sept 17, 2005) said consolidation of Urban Cooperative Banks (UCBs) in the country is not on the agenda of RBI.

RBI is not even encouraging UCBs in this respect, Reddy told reporters here.

"Question of consolidation in urban cooperative banking system is entirely on the basis of an enabling mechanism", he said. "The very nature of cooperative is that essentially it's local. Consolidation is not on top of the agenda (of RBI) under any circumstances".

RBI is prepared to consider any proposal on mergers and acquisitions if concerned bank came forward, and the country's central bank would give its opinion, which would be based on the balance sheet and protection of depositors. "The final decision is still with the State Government".

"So, if you are asking if we are trying to encourage (consolidation); (we are) not even trying to encourage. We are only enabling", he said. "If two banks feel they are better off if they come together, we give our view".

But Reddy also added: "Consolidation is also a mechanism by which some the UCBs can get strengthened".

Reddy said the RBI would hold consultations with the States to put an end to 'overlapping' in respect to dual control of urban cooperative banks by the central bank and State Governments.

Pointing out that while prudential aspects in respect to UCBs come under the jurisdiction of the RBI, and that of governance under State Government, he said when the banks are registered under the companies act, some governing aspects also come under the purview of the RBI leading to overlapping in some areas.

"The problem of dual control is because the overlapping issue has not been handled", Reddy felt.

"So, wherever there is overlap, let us (RBI and State Governments) sit together and sort out overlap issues", he said. "It's always possible of dual control issues being solved by addressing them through coordinated mechanism".

Earlier, Reddy inaugurated the first meeting of the state level Task Force on Urban Cooperative Banks (TAFCUB) constituted for Karnataka following the September five MoU between the State Government and RBI with regard to UCBs in the State.

According to RBI's information, he said, 142 of the total 296 UCBs in the State are in a healthy position, while TAFCUB would undertake an exercise to find how many of the remaining ones are potentially viable.