While administrative matters would continue to be under the Registrar, Cooperative, the 1,540 cooperative banks will now be regulated under the RBI’s banking guidelines.

Cabinet approves amendment to bring cooperative banks under Reserve Bank regulation
Money Banking Thursday, February 06, 2020 - 18:29
Written by  S. Mahadevan

The central government has moved in to make amendments to the Banking Regulation Act. The amendments are aimed at giving more powers to the Reserve Bank of India in controlling the co-operative banks in the country. The 1,540 co-operative banks will now be covered by the Reserve Bank of India (RBI) guidelines.

Ever since the Punjab & Maharashtra Cooperative Bank (PMC Bank) crisis broke out bringing thousands of depositors to the streets, there have been demands that the government should take suitable action to avoid such incidents which puts the hard-earned money of poor and middle-class citizens in jeopardy. There are 8.6 lakh account holders in these 1,540 cooperative banks and their total deposits are worth more than Rs 5 lakh crore. Cooperative banks have been hitherto under the control of the Registrar, Cooperative but the Registrar’s powers are quite limited.

With the new amendment as passed by the Union Cabinet, the cooperative banks will continue to be under the administrative control of the Registrar, Cooperative, but their functioning will fall under the prevailing RBI guidelines. This means their auditing will also be done as per the norms laid down in the guidelines.

Key appointments like to the post of CEOs in the cooperative banks will have to be made only with the prior approval of the RBI. If the banks want to waive off any loans already disbursed also, the RBI will have to be consulted before such waivers.

Like it did in the case of the PMC Bank, though maybe a bit late, the RBI will have to powers to supersede the board of any cooperative bank if the bank is found to be in financial distress.

The Finance Minister had already declared on the floor of the Parliament in her speech that the government has decided to increase the insurance cover on deposits from the present Rs 1 lakh to Rs 5 lakh. This was a major demand by the depositors in the PMC Bank case though the RBI had said more than 80% of the depositors were covered under the Rs 1 lakh limit itself.

The Enforcement Directorate is investigating the case of the PMC Bank to ascertain if there were instances of money laundering indulged in by some of the directors of the bank.

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