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Signs of Weakness in UCBs

Discuss Signs of Weakness in UCBs within the Management Of Co-operatives ( MOC ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; The systems to identify, at an early stage, incipient signs of weakness require:- (i) Reliability and adequacy of the financial ...

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Signs of Weakness in UCBs
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Abhijeet S
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abhishreshthaa
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Signs of Weakness in UCBs - September 16th, 2010

The systems to identify, at an early stage, incipient signs of weakness require:-

(i) Reliability and adequacy of the financial information periodically produced by the bank;

(ii) An independent and efficient audit;

(iii) Periodic and adequate inspection by the regulatory authority; and

(iv) A set of tools by which the financial strength of the bank can be measured.

The tools by which the financial soundness of commercial banks is measured must also be made applicable to UCBs.

These would include

(i) capital adequacy norms,

(ii) permissible limits of non-performing assets,

(iii) exposure limits,

(iv) avoidance of interest rate and maturity mis-matches and the like.

The HPC on UCBs (Chairman: Shri. K. Madhava Rao) observed that the present system for identification of weak UCBs does not capture the incipient sickness of UCBs.

The Committee felt that under the present criterion, by the time sickness of a bank is identified, the concerned UCB has already reached the point of “no return”.

The Committee suggested that the sick UCBs should be liquidated in a time bound manner because functioning of a large number of financially weak banks is detrimental to both the growth of UCBs and the interests of the depositors.


It recommended that once an UCB is declared sick it should be put under moratorium. During the period of moratorium, the UCB should either be reconstituted or amalgamated with another UCB failing which its license should be cancelled.


Although the recommendation of the HPC on placing the sick banks under moratorium/liquidation have been accepted in principle, the decision to wind up the operations would be based on the merits of each case.
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Re: Signs of Weakness in UCBs
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Jitendra Mazee
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Re: Signs of Weakness in UCBs - January 19th, 2018

Quote:
Originally Posted by abhishreshthaa View Post
The systems to identify, at an early stage, incipient signs of weakness require:-

(i) Reliability and adequacy of the financial information periodically produced by the bank;

(ii) An independent and efficient audit;

(iii) Periodic and adequate inspection by the regulatory authority; and

(iv) A set of tools by which the financial strength of the bank can be measured.

The tools by which the financial soundness of commercial banks is measured must also be made applicable to UCBs.

These would include

(i) capital adequacy norms,

(ii) permissible limits of non-performing assets,

(iii) exposure limits,

(iv) avoidance of interest rate and maturity mis-matches and the like.

The HPC on UCBs (Chairman: Shri. K. Madhava Rao) observed that the present system for identification of weak UCBs does not capture the incipient sickness of UCBs.

The Committee felt that under the present criterion, by the time sickness of a bank is identified, the concerned UCB has already reached the point of “no return”.

The Committee suggested that the sick UCBs should be liquidated in a time bound manner because functioning of a large number of financially weak banks is detrimental to both the growth of UCBs and the interests of the depositors.


It recommended that once an UCB is declared sick it should be put under moratorium. During the period of moratorium, the UCB should either be reconstituted or amalgamated with another UCB failing which its license should be cancelled.


Although the recommendation of the HPC on placing the sick banks under moratorium/liquidation have been accepted in principle, the decision to wind up the operations would be based on the merits of each case.
Hi, i really thanks to you for sharing the report on Signs of Weakness in UCBs and it will also help those who are planning for assignments. Well, i am also sharing a presentation which would help others, so download and check it.
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