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Co-operative banks were to be the financial backbone for small depositors — shopkeepers, pensioners, and salaried workers who trusted these institutions with their life savings
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Dual regulation is making cooperative banks a cesspool of corruption
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The RBI has been cracking down on erring co-operative banks but the underlying problems, especially governance, persist
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Latest available industry data on coop bank financials show mixed trends in asset quality and profitability but an overall improvement in financials.
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In terms of financial health, most of these banks have been walking on a thin rope. These banks needed more effective monitoring of financials and early recognition of stress, which is what the new PCA framework will do.
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Smaller banks are struggling to stay afloat for different reasons. Many have shut shop, others remain as zombie banks.
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These banks are The Gujarat Rajya Karmachari Co-operative Bank, The Rohika Central Co-operative Bank, The National Co-operative Bank, and The Bank Employees’ Co-operative Bank, the RBI said in a release.
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In recent years, the RBI has strengthened the scrutiny of cooperative banks with more penal actions lined up and cancelled the licence of several co-operative banks.
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The RBI imposed a penalty of Rs 50000 on the Kancheepuram bank for non-compliance with the directions issued by the National Bank for Agriculture and Rural Development (NABARD) on Frauds - Guidelines for Classification, Reporting and Monitoring.
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Smaller ones continue to be under the rule of state governments through registrar of cooperative societies. This is where the local politicians are involved in a big way and laundering the money collected from society members for personal benefits with or without the knowing of the political parties. This needs to be stopped.
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The central bank said penalties were due to deficiencies in regulatory compliance
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The move assumes significance in the backdrop of various cases involving directors of different cooperative banks engaging in related party lending inviting the regulator's actions
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These cooperative banks are Mumbai-based Janakalyan Sahakari Bank, Pune Merchants Co-operative Bank, Pune Municipal Corporation Servant’s Co-operative Urban Bank, Indapur Urban Co-operative Bank and Patan Urban Co-operative Bank
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As per the data submitted by the bank, 98.32 percent of the depositors are entitled to receive full amount of their deposits from DICGC, the RBI said.
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These banks have faced major governance lapses over years ranging from loose audit practices, vested interests and unprofessional boards. There are signs of change from this status-quo
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More than 50 percent of urban cooperative lenders are very small in nature and hence can't buy the requisite technology, said Mehta.
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Shah added that to strengthen and modernise Urban Cooperative Banks and protect the spirit Cooperation, an Umbrella Organisation is required.
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The central bank said that the penalties were due to deficiencies in regulatory compliance by the banks.
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The banking regulator has also worked on the amalgamation of four cooperative banks this year till October 3
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Not all cooperative banks are equipped to reach compromise deals with defaulters.
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The central bank announced two measures for cooperative banks on June 8 – setting guidelines on compromise settlements and technical write-offs for them and extending deadlines to meet priority sector lending targets.
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These banks are Kokan Mercantile Co-operative Bank, Bajirao Appa Sahakari Bank, Sawantwadi Urban Co-operative Bank and Shri Laxmi Sahakari Bank
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The penalties are based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers, the RBI said.
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Reasons for license 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. In fiscal 2023, the Reserve Bank of India (RBI) cancelled licenses of eight cooperative banks and imposed monetary penalties for 114 times
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There is a misconception that irregularities largely take place in cooperative banks, the former Union agriculture minister said at a function here on Thursday.
