RBI to keep a tab on Urban Co-operative Banks

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The Union government on Wednesday said that all urban cooperative banks and multi-state cooperative banks will come under the supervision of the Reserve Bank of India, which is clearly aimed at signalling depositors that their money will be safe in these banks, which are often riddled in scams.

Government banks, including 1,482 urban cooperative banks and 58 multi-state cooperative banks, are now being brought under the supervisory powers of the RBI. RBI’s powers will also apply to the cooperative banks as they apply to scheduled banks.

This step taken by the cabinet to grant greater powers to the country’s central bank in dealing with cooperative banks will give RBI additional leverage in dealing with the cooperative banks that are not exactly registered as banks but as cooperative societies. Currently, urban and multi-state cooperative banks are registered and run by the state governments under the respective Co-operative Societies Act of the concerned states. They also come under RBI jurisdiction under the Banking Regulation Act, 1949.

However, there has been a spate of cases regarding corruption, administrative failures and a huge amount of non-performing assets (bad debts) that have weakened the structural mechanism of cooperative banks. This led to the demand for stronger supervision and control completely under the RBI.

The Punjab and Maharashtra Cooperative (PMC) Bank scam last year was the trigger point for the centre to amend Banking Regulation Act this year to bring in more efficiency in the functioning of cooperative banks in the country.

According to reports, Urban Cooperative Banks have reported nearly 1,000 cases of fraud worth more than Rs 220 crore in the last five fiscals, the RBI stated in its response to an RTI query. A total of 1,544 UCBs across the country have deposits of Rs 4.84 lakh crore as on March 31, 2019.

To ensure that UCBs adhere to norms and depositors’ money is safe, RBI has put in place “on-site and off-site” monitoring mechanism which requires the UCBs to submit periodic returns, statements, etc. to the central bank.

Now with RBI getting greater leverage over these banks, it is expected that the deep rooted malice that prevails in the operations of UCBs would be streamlined and the interests of depositors would be protected. The time has come that there is tight control over the functioning of UCBs and the central government has taken the step in this direction.
Going ahead there is a need to have clarity on a few seemingly grey areas. Since RBI is now given more powers to monitor the UCBs, what would be the role of the cooperation department of respective states? What would be the fate of district cooperative banks controlled by NABARD?
Also, it would be prudent to assure depositors that these UCBs won’t be privatised in the near future.

Shashwat Gupta Ray
The author is a senior journalist and the Resident Editor of Gomantak Times Goa

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