Cooperative banks to come under Reserve Bank regulation

Regulator gets powers to supersede board of any such bank in financial distress

February 05, 2020 11:10 pm | Updated February 06, 2020 10:59 am IST - NEW DELHI

In the PMC Bank case, RBI had to step in 2019 after massive irregularities in its loan accounts were detected.

In the PMC Bank case, RBI had to step in 2019 after massive irregularities in its loan accounts were detected.

In the wake of the recent Punjab & Maharashtra Cooperative (PMC) Bank crisis, the Union Cabinet on Wednesday approved amendments to the Banking Regulation Act to bring 1,540 cooperative banks under the Reserve Bank of India (RBI) regulation.

Cooperative banks have 8.6 lakh account holders, with a total deposit of about ₹5 lakh crore.

Union Minister Prakash Javadekar told reporters that administrative matters would continue to be under the Registrar, Cooperative. However, cooperative banks would be regulated under the RBI’s banking guidelines. Their auditing would also be done as per its norms.

Qualifications would be laid down for appointments, including that of Chief Executive Officers. Prior permission from the RBI would be required for the appointment of key positions. The regulator would deal with issues such as loan waivers.

The RBI would also have powers to supersede the board of any cooperative bank in financial distress.

These measures would be implemented in a phased manner, said Mr. Javadekar.

The proposed amendments, along with the government’s decision to increase the insurance cover on bank deposits from ₹1 lakh to ₹5 lakh, have been brought to strengthen the financial stability of cooperative banks and boost public confidence in the banking system.

In the PMC Bank case, the RBI had to step in last year after massive irregularities in its loan accounts were detected. The regulator had to place a withdrawal limit for account holders, which led to a major public strife and protests by them.

The bank had allegedly loaned about ₹6,500 crore to the Housing Development & Infrastructure Limited, amounting to more than 73% of its overall exposure, which was not repaid. It is alleged that over 21,000 fake accounts were created to conceal the bad loans.

The Enforcement Directorate is conducting a money laundering probe into the allegations.

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