Not all depositors in India are as lucky as Yes Bank depositors. In another few hours, Yes Bank’s depositors will have full access to their money and all other banking services. In Yes Bank’s case, the operations are set to return to normalcy just 12 days after the Reserve Bank of India superseded its board (on 5 March).
But that isn’t the case with depositors of many scam-hit cooperative banks. “I had Rs 107,000 deposited in Kharghar branch of Punjab and Maharashtra Cooperative (PMC) Bank. They allowed me to withdraw Rs 50,000 some time ago. But for the remaining amount, the branch is insisting that I need to show the purpose in writing,” said Shaukat Ali Basheer Ahmad Shaikh, an automobile mechanic who have been banking with PMC Bank for many years. After the RBI clamped down on PMC Bank last year, like many other depositors, Ali too found his money stuck in the bank.
“Only if there is a valid reason such as hospitalisation, they will give me that money. I don’t have much hopes now,” Ali said. The 37-year-old is only one among the many hundreds who have their money still stuck in the multistate cooperative bank in Mumbai. The RBI superseded the PMC Bank’s board in September last year after large scale fraud, financial irregularities including hiding and misreporting of loans given to HDIL. The PMC bank resolution is still an ongoing process even six months after the bank’s board was superseded by the RBI.
The story of Chandrashekhar Gujare, who is an autorickshaw driver, isn’t very different. Gujare’s mother has Rs 5,87,000 of deposits in the scam-hit Karnala Nagari Sahakari bank. The RBI had limited withdrawals to Rs 5,000 in the bank last year. “We had deposited this amount which was the advance amount received for the sale of a property. Till now, the bank is unable to give the money back to us,” he said. A fraud worth Rs 512 crore was detected in the bank and an investigation is on.
Logically, the PMC Bank depositors aren’t as lucky as Yes Bank’s depositors. Yes Bank’s new management under RBI-appointed administrator has assured depositors can access their entire money in the bank from today evening onwards. The fate of depositors in many crisis-ridden cooperative banks remains uncertain. Some of them are in urgent need of their money but can’t access due to deposit withdrawal restrictions. A few of them have approached the courts and the RBI seeking resolution. But, it is a guess at this stage when they will get their money back.
The perils of dual regulation
While the Yes Bank case was dealt with extreme urgency by the RBI (it was a commercial bank and there was political pressure on the government to act) and the government putting in place a bailout bank consortium to do the job, there are several cooperative banks that have been shut down over years, where depositors are still denied access to their money.
These cooperative banks have long suffered from the perils of dual regulation. Regulation of urban cooperative banks is split between the RBI and the Registrar of Co-operative Societies, while that of smaller co-operative banks is divided between National Bank for Agriculture and Rural Development (Nabard) and RCS. RCS reports to the central government.
This dual regulation created lack of accountability in the monitoring of these banks paving way for large scale mismanagement and involvement of local politicians. Even the RBI (who primarily looks at urban cooperative banks) and the Nabard (the agency that works with rural cooperative banks) typically do not have even updated numbers of these banks.
According to the available data on the RBI site, India has 1,551 urban co-operative banks (UCBs) which managed Rs 4.5 lakh crore deposits at end-March, 2018. In rural, there are three types of cooperative banks--primary credit co-operative banks, district-level cooperative banks and state-level cooperative banks. As on end-March, 2017, there were about 33 state co-operative banks with Rs 1.2 lakh crore deposits, 370 district central co-operative banks (Rs 3.3 lakh crore deposits) and 95,595 Primary Agricultural Credit Societies (Rs 1.15 lakh crore deposits).
In other words, if one looks at the quantum of deposits, the combined figure of rural co-operative banks is higher than that of UCBs. While rural co-operatives have a combined deposit base of Rs 5.65 lakh crore, UCBs have about Rs 4.45 lakh crore as per the latest available data on the RBI site.
Only early this year, after learning from the PMC episode, the government decided to act and give more powers to the RBI to regulate UCBs (the larger cooperative banks). With this amendment, the RBI will have more power to audit the books of urban co-operate banks, appoint chief executive officers and audit co-operative banks.
But even then, rural cooperative banks are still not included in this latest regulatory change. The question arises why rural co-operative banks have been left out of the regulatory overhaul. In fact, the problem of misgovernance and frauds is more in smaller co-operative banks since these entities are largely run by local politicians. Often, these banks don’t follow processes and engage in dubious transactions.
Double standard to cooperative bank depositors?
At a press conference on Monday, the RBI governor seemingly avoided a question on PMC Bank saying that the Yes Bank and PMC cases were different. That reply wasn’t something that could have inspired confidence among thousands of depositors in cooperative banks. “Going ahead, with the RBI and the government focusing more on the cooperative banking sector, regulations and monitoring will improve. Also, there is an opinion that some of these banks can be converted to small finance banks,” said Sanjay Agarwal, Head of BFSI and NBFC at Care rating.
But these expected regulatory improvements could take a while to reach the customers’ doorsteps. For now, the fate of PMC depositors and that of many other crisis-ridden cooperative banks remain uncertain. Yes Bank depositors are luckier in that sense.