State IT and BT Secretary M N Vidyashankar has underlined the need for cooperative banks to go in for technological upgradation and acquiring the latest skills needed for operations in a changing environment.

"One of the major challenges before the cooperative banks is technology. In this era of private banking, with a host of foreign banks entering the country, banks which seize the opportunity of technological upgradation will be able to remain in the market", he said while speaking at a seminar on "Current Challenges in Co-operative banking" organised by Processware Systems and Microsoft on Friday.

He also stressed upon the need to ensure that the lending rates of cooperative banks are competitive. "Cooperative banks lend at a higher rate than commercial banks. Of the total loans advanced by the banking sector in the country, cooperative banks constitute only about 4 per cent. In order to have a niche for itself in the competitive market, cooperative banking sector must work towards reducing interest rates", he added.

RBI guidelines

Speaking on the occasion, Deputy Chief Minister B S Yediyurappa said that some of the RBI guidelines have not been conducive to the smooth functioning of the cooperative banks. Referring to the withdrawal of income tax exemption on the cooperative banking sector the minister said, "This has had adverse effects on the net profits of the banks and has become a hindrance in their growth".

R Gurumurthy, CEO, Processware Systems pointed out that extended reach has become difficult for the cooperative banking due to non-availability of license to open new banks and new branches.

According to G Jayasree, Assistant General Manager, Urban Banks Department, RBI, of the 292 urban cooperative banks in Karnataka today, 35 have been incurring heavy losses and 15 banks have run into capital risk. A number of unlicensed cooperative banks are also operating in the state. "This has become a matter of concern for the RBI which, therefore, is not allowing the expansion of the cooperative banking sector", she observed. At present, out of Rs 5000 crore deposits held collectively by the 292 urban cooperative banks, Rs 1600 crore amounts to Non Performing Assets (NPA), she informed.