The Hindu : JPC for apex body to monitor coop banks

Online edition of India's National Newspaper
Monday, Dec 23, 2002

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JPC for apex body to monitor coop banks

By Our Special Correspondent

NEW DELHI DEC. 22. The Joint Parliamentary Committee (JPC) which probed the stock market scam has endorsed the Reserve Bank of India's (RBI) proposal for setting up a separate apex body to regulate the entire urban cooperative sector, especially in the wake of the collapse of the Madhavpura Mercantile Cooperative Bank (MMCB).

In its recommendations, the JPC said the Finance Ministry must give serious thought to the problem of duality of control in the case of cooperative banks, which resulted in cross directives and adversely affected their functioning.

Due to inadequate exercise of control and surveillance by State registrars, these banks "often flout rules with a sense of total impunity without the fear of any kind of accountability".

The JPC said bank-related activities of cooperative banks should be brought fully under the purview of the Banking Regulation Act, 1949 to bring a clear demarcation of areas of activities, which would fall in the RBI's domain vis-a-vis the Registrar of Cooperative Societies.

The Committee said in its report that to prevent irregularities, there should be a ban on granting of loans and advances to the companies with which the directors and their relatives were involved. Appropriate legal procedures might be initiated to ensure that there was no conflict of interest in the grant of loans and advances.

In the light of the MMCB's affairs, the report recommended stringent laws to ensure that the guilty were brought to book expeditiously and to "disgorge their ill-gotten gains through confiscation of property and other appropriate measures". It suggested raising penalties for false information to serve as a deterrent.

In the case of the Lucknow-based City Cooperative Bank, it suggested the setting up of a special court to expedite action on criminal complaints, now being adjudicated by a metropolitan magistrate, and asked for a probe to unearth the amount of Rs. 32.30 crores which had been siphoned off.

The JPC was informed by the RBI that 25 cooperative banks, including Mahesh Bank, Hyderabad, Abhyudaya Bank, Mumbai, and Janata Sehakari, Pune, had violated guidelines on lending against shares/debentures by granting advances to stock brokers.

The JPC noted that in 2000, the Global Trust Bank's (GTB) exposure to the capital market by way of advances against shares and guarantees issued on behalf of brokers was relatively higher and the bank had a "very high" exposure to a particular stockbroker. There was no violation of any prudential norm but the exposure exceeded the minimum limit prescribed by the GTB board.

Similarly, other banks such as HDFC, Bank of Punjab, Centurion Bank and Bank of Madura (since merged with ICICI Bank) had significant exposure to the capital market while Karnataka Bank, Bank of America and Development Credit Bank had exceeded the five per cent limit of investments in shares as of January 31, 2000.

The JPC said that in the wake of the stock market crash, the RBI focussed on one new private bank, although others also had a large exposure to the capital market, including some who exceeded the RBI limits.

As substantial information was now available about all the banks concerned, the JPC recommended that the RBI undertake a thorough review and process matters relating to all concerned in a uniform and consistent manner.

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