An RBI panel has suggested setting up of an emergency fund to help urban cooperative banks (UCBs) combat liquidity problems. Besides this, it has suggested to set up an umbrella organisation to provide ATM, investment banking and cash management services to these banks.

A working group headed by RBI executive director VS Das has proposed to set up an Emergency Fund Facility scheme that help banks in case they are not able to achieve their capital adequacy ratios (CAR).

According to the proposal, these loans would be available at low interest rates, around 200 basis points higher than the rate offered on the contribution. The facility would be available to the cooperative banks for a period of six months up to a year.

While the working group turned down the proposal to set up a revival fund, it favoured the setting up of an umbrella organisation to help the UCBs. It said that he organisation could be set up as a non-deposit taking, non-banking finance company.

The company would start with a paid up capital of Rs. 100 crores and authorised capital of Rs. 200 crore. The organisation could be converted to a bank later. The purpose of setting up the organisation would be to provide a wide range of services to the UCBs like credit facilities, short term liquidity and fund management services.

According to a report on trends and progress of banking in India, big UCBs have overpowered the smaller ones. Only big UCBs are growing and the smaller ones are facing threat of extinction.