Search the Internet          Tips  Sites: Finance, Investment

RBI tells banks to report co-op bank losses

The Reserve Bank of India (RBI) has asked all commercial banks to report losses expected from dealings with co-operative banks, some of which face a cash crunch due to over-exposure to the country's volatile share markets.

The RBI's directive follows the loss reported by a state-run bank last week after pay orders issued to it by a co-operative bank bounced.

"We have asked all scheduled commercial banks to inform us of the losses they expect through call money, pay order, bullion transactions with urban co-operative banks by April 3," a RBI official said on Monday.

Last week, Bank of India said it had suffered a loss of Rs 1.3 billion after cheques issued to it by a troubled co-operative bank, the Ahmedabad-based Madhavpura Mercantile Co-operative Bank, bounced.

Madhavpura Bank ran into a liquidity crunch due to excessive exposure to the stock market, which fell sharply last month. The RBI has suspended the board of the bank and placed its operations under an administrator after the payment problems emerged.

Two other co-operative banks, the Lucknow-based City Co-operative Bank and Ahmedabad-based Classic Co-operative Bank, also face a cash crunch due to over-exposure to shaky share markets.

There are more than 2,000 co-operative banks in India.

The Sensex has plummeted more than 20 per cent since March 1.

Bankers do not expect the problems faced by co-operative banks to seriously affect the rest of the industry.

"So far it appears that only three co-operative banks out of more than 2,000 are facing problems," said a senior Bombay-based banker.

"If there were a systemic problem, we would have seen an impact immediately in the call money and government securities markets, but this has not happened," the banker added.

Finance Minister Yashwant Sinha said last month that banks had less than 2 per cent of their credit in stock markets, much lower than the permitted 5 per cent.

ALSO READ:
The Capital Markets Crisis

Tell us what you think of this report