Cooperative banks face RBI ire; 8 lose licence, 120 penalties slapped this year

Monetary penalties

The reasons for the penalties include not paying interest on balance amounts lying in current accounts of deceased individual depositors, violation of Know Your Customer (KYC) norms, entering one-time settlements without prior written permission of RBI and violation of other banking norms.

The monetary penalty in several cases ranges from Rs 25,000 to Rs 5 lakh.

Licence cancellations

The banks whose permits were cancelled by the RBI include Malkapur Urban Co-operative Bank Ltd, Shushruti Souharda Sahakara Bank Niyamita, Sri Sharada Mahila Co-operative Bank Ltd, Harihareshwar Sahakari Bank Ltd, United India Co-operative Bank Limited, Sri Mallikarjuna Pattana Sahakari Bank Niyamita, National Urban Co-operative Bank Ltd and Nashik Zilla Girna Sahakari Bank Ltd.

The central bank said that the reasons for cancellation varied from inadequate capital to failure to comply with legal regulations under the Banking Regulation Act to a lack of earning prospects.

The regulator has been keeping an eye on the cooperative banking sector for many years. It cancelled licences of eight banks in FY23 and 12 banks in FY22. A year before that, in 2021, RBI cancelled licences of three banks and in 2020, two cooperative banks were told to shut shop.

Also read: RBI may tighten grip on cooperative banks, say experts

Mergers and acquisitions

Some big cooperative banks have acquired some of the smaller co-operative banks. The reasons for the acquisition include business expansion, growing network across geographies, etc.

In 2023 till now, the central bank approved the amalgamation of four cooperative banks with other banks. The list includes the amalgamation of Maratha Sahakari Bank and Sahebrao Deshmukh Co-operative Bank Ltd with Cosmos Co-operative Bank Ltd, Twin Cities Co-operative Urban Bank Ltd with Kranti Co-operative Urban Bank Ltd and Navanirman Co-operative Urban Bank Ltd with Rajadhani Co-op Urban Bank Ltd.

The industry picture

The latest data available showed that India had 351 district cooperative banks with a cumulative Rs 3.3 lakh crore loans and Rs 4.12 lakh crore deposits. As of March 2022, the gross non-performing assets (GNPAs) of these banks stood at 11 percent while total accumulated losses amounted to Rs 7,753 crore. There were about 39 banks with a capital adequacy of less than 9 percent.

Also read: Crisis-ridden cooperative banks continue to face RBI’s ire, 8 lose license in FY23

Similarly, state cooperative banks have total loans of Rs 2.4 lakh crore and deposits of Rs 2.4 lakh crore as of March 2022 and NPAs of around 6 percent of their total loans.

Experts said the cooperative banking sector faces dual regulation from the central bank and the state or the local government, which affects the operational functionality of banks.

“The reason for the regulator to penalise banks is to highlight issues in the operations of cooperative banks,” said Mudit Verma, director of the National Federation of Urban Cooperative Banks and Credit Societies.
Alternatively, there are some big cooperative banks which have performed well. Some of these include Saraswat Cooperative Bank and Cosmos Cooperative Bank. Also, Shivalik Cooperative Bank was the first urban cooperative bank to obtain a small finance bank licence from the regulator in 2021.