oppn parties Cooperative Banks Must Be Fully Regulated By The RBI

News Snippets

  • EMI's set to rise after the RBI hikes key policy rate
  • Calcutta HC says that the right to privacy does not end with the death of a person
  • Supreme Court says that a delayed order of preventive detention makes it invalid
  • Shashi Tharoor posts an erronous map of India in his manifesto, rectifies the error after criticism
  • Sonia Gandhi to take a call on who will be Rajasthan chief minister
  • Mallikarujun Kharge to be the new candidate to oppose Shashi Tharoor in the Congress presidential elections
  • RBI says that the September inflation rate may be higher than 7%
  • RBI hikes key rates by 50bps, downwardly revises FY23 growth rate to 7% from 7.2% earlier
  • Stocks recover well on Friday: Sensex gains 1016 points to0 57426 and Nifty 276 points to 17094
  • Mirabai Chanu wins gold easily at the National Games
  • In a first, the Supreme Court recognizes marital rape, although for the limited purpose of allowing married women the right of abortion up to 24 weeks if they conceived as a result of forced sex by their husbands
  • Air India cuts discounts on base fare to students and senior citizens from 50% to 25%
  • Mallikarjun Kharge and Digvijay Singh are being touted as frontrunners to take on Shashi Tharoor in the elections for the post of Congress president
  • Sonia Gandhi will decide who will be Rajasthan CM if she feels there is a need to change guard after the near-rebellion by MLAs in the state
  • Ashok Gehlot bowed out of the race for being Congress president after meeting Sonia Gandhi
RBI hikes key rates by 50bps, stocks jump and recover 50% of the losses incurred in the last few session
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Cooperative Banks Must Be Fully Regulated By The RBI

By Linus Garg

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

The Madhavpura Mercantile Cooperative Bank (MMCB) scandal in 2002 was a clear signal that cooperative banks should not remain outside the strict regulatory purview of the Reserve bank of India and should embrace core banking to integrate with the banking ecosystem. But apart from canceling the banking license of MMCB in 2012, the RBI did little else to include these banks under its regulatory fold. Hence, it is not surprising that the Punjab and Maharashtra Cooperative Bank (PMCB) is now in deep trouble.

In the case of MMCB, the bank had loaned substantial amounts to the rogue stockbroker Ketan Parekh who used the funds to rig stocks and initiate a bull run on the bourses. It had lent Rs 1500cr to Parekh when other banks were not allowed to lend more than Rs 15cr to a single stockbroker at that time. When the bubble burst, the bank found that its capital was wiped out. PMCB is suffering the same fate. It has under-reported bad loans and is now not in a position to recover the money.

Due to political compulsions (most cooperative banks are directly or indirectly controlled by influential state politicians), cooperative banks have always been regulated with a soft hand. On paper, both the state government and the RBI have regulatory powers over these entities. But since they are not following core banking, their reporting systems are outdated and cross-verification is very difficult. Hence, these banks indulge in all kinds of malpractices.

But since they accept public deposits, they should be regulated like all other banks. The RBI should apply all its normal banking norms to these banks and immediately bring them under core banking. It is wrong to think that they cannot bring any harm to the system since they are very small banks. The cooperative societies' laws must be synced with other laws such as the Banking Regulation Act to give the RBI the powers to regulate these banks like all other banks.