India / Cooperative banks to come under RBI regulation after govt approves amendment

The Union Cabinet on Wednesday approved amendments to the Banking Regulation Act to empower the central bank to have greater control over cooperative banks, in order to prevent malpractices and ensure better regulation.

Information and Broadcasting minister Prakash Javadekar said the administrative role will continue to be managed by Registrar of Cooperative. Currently, cooperative banks are governed by dual control of cooperative societies as well as the Reserve Bank of India (RBI). While the role of cooperative society includes incorporation, registration, management, recovery, audit, supersession of board of directors and liquidation, central bank’s role is responsible for regulatory functions.

These amendments will apply to urban co-operative banks and multi-state cooperative banks.

Javadekar said that are 1,540 cooperative banks with 8.6 crore depositors’ money, with around ₹5 lakh crore deposits in the country and the proposed amendment will protect the depositors.

The government’s move towards amending the banking regulation law to strengthen the cooperative banks comes months after Punjab Maharashtra Bank (PMC) collapsed. In September, the Reserve Bank of India had superseded the lender’s board for six months after finding under-reporting of loans. Cash withdrawals were capped at ₹1,000 per account for six months, but subsequently relaxed to ₹50,000 as panic spread among depositors.

Such banks will also be audited as per RBI’s norms, the minister said after the Cabinet meeting. Following the amendments, the recruitment for the banks' management will be based on certain qualifications and appointment of the chief executive officer will also require prior permission from the banking regulator, as in case of commercial banks.

The minister also said that audit of such banks will be as per the RBI guidelines and the central bank can supersede the board, in consultation with the state government, if any cooperative bank is under stress.

All these steps will be implemented by the central bank in a phased manner.

“To strengthen the cooperative banks, amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI," finance minister Nirmala Sitharaman had said in the Budget speech on Saturday.

A PTI report, citing the RBI, said urban cooperative banks (UCBs) reported nearly 1,000 cases of fraud worth more than ₹220 crore in the last five fiscals.

The government did not release the details of the amendments. The minister said that the finance ministry will introduce the bill in the Parliament in the next few days.