The Adoor Co-operative Urban Bank gets RBI nod to be a non-banking institution

RBI allows The Adoor Co-operative Urban Bank to function as non-banking institution

The Reserve Bank of India (RBI) has allowed Kerala-based Adoor Co-operative Urban Bank to function as a non-banking institution.

Accordingly, the central bank cancelled the banking licence granted to the lender, the regulator said. The cancellation of licence is with effect from the close of business on April 24, 2023, the RBI said in a release.

“This makes it obligatory on the part of The Adoor Co-operative Urban Bank Ltd, Adoor to stop conducting the business of banking... including acceptance of deposits from non-members with immediate effect,” the RBI added.

The RBI told The Adoor Co-operative Urban Bank to ensure to repay unpaid and unclaimed deposits of non-members held by it, whenever demanded, even after being notified as non-banking institution.

India’s crisis-ridden cooperative banks continue to face the wrath of the regulator, which cancelled the licence of eight and imposed monetary penalties 114 times on wrongdoers in FY 2023, a Moneycontrol analysis showed.

Cooperative banks, which have played a critical role in extending banking services in villages and semi-rural areas, have been dealing with a range of issues from dual regulation and weak finances to interference by local politicians.

The RBI has been clamping down on errant cooperative banks. Reasons for cancellation varied from inadequate capital to failure to comply with legal regulations under the Banking Regulation Act and lack of earning prospects in the future.

The regulator has been keeping a watchful eye on the cooperative banking sector for many years. In 2022, the central bank cancelled the licence of 12 banks. A year before that, three banks were ripped off the licence. In 2020, two cooperative banks were told to shut shop.

RBI imposed monetary penalties citing violations in several cases with the amount ranging from Rs 50,000 to Rs 5 lakh. These banks have been charged with a range of offences from not paying interest on balance amounts lying in current accounts of deceased individual depositors to violation of Know Your Customer (KYC) norms, entering One Time Settlements without prior written permission of RBI and violation of other banking norms.

Generally, before a cooperative bank is told to shut shop, the central bank gives them warnings through multiple penalties. But in cases where the regulator sees the bank has been repetitive in violating a regulation, it is given a suspension.