RBI to get more powers over co-operative banks

RBI, Reserve bank of India, Co-operative Bank, Corporate news

Reserve Bank of India, RBI to get more powers over co-operative banks

 The Union Cabinet on Wednesday approved changes to the Banking Regulation Act to offer the Reserve Bank of India, RBI to get more powers over co-operative banks and stop frauds like the one seen at Maharashtra and Punjab Co-operative Bank Ltd.

“Once the amendment is cleared by Parliament, cooperative banks are going to be audited according to RBI’s norms and therefore the central bank can supersede the board, in consultation with the state govt, if any of the co-operative banks are under stress” – information and broadcasting minister Prakash Javadekar mentioned after the Cabinet meeting. Appointments of chief executives also will require permission from the banking regulator, as is the case for commercial banks, the minister added.

Cooperative banks are under the dual control of the Registrar of Cooperative Societies and RBI as of now. While the role of the registrar of cooperative societies includes audit, incorporation, registration, supersession, management of board and liquidation, RBI is liable for regulatory functions such as maintaining cash reserve and capital adequacy, among others.

The administrative role will still be done by the Registrar of Cooperative Societies, Javadekar added. The amendments will apply to all or any urban co-operative banks and multi-state co-operative banks.

Javadekar said the proposed amendment is aimed towards protecting the interests of 86 million depositors who have put money totaling around Rs. 5 trillion in 1,540 cooperative banks within the country. The govt’s move to strengthen oversight of cooperative banks comes after the collapse of PMC Bank.

The finance ministry will introduce the bill in the Parliament within the next few days, Javadekar mentioned.

In September, the RBI superseded PMC Bank’s board after uncovering several irregularities. Cash withdrawals were capped at Rs. 1,000 per account for 6 months but subsequently relaxed to Rs. 50,000 as panic spread among depositors. The minister also said the audit of such banks is going to be as per RBI guidelines and recruitment for banks’ management will be based on certain qualifications. All these steps are going to be implemented by RBI in a phased manner.

Urban cooperative banks reported nearly 1,000 cases of fraud worth more than Rs. 220 crore in the past 5 fiscal years, a Press Trust of India report mentioned, citing the RBI.

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