oppn parties Cooperative Banks Must Be Fully Regulated By The RBI
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January 29, 2023

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  • RBI governor Shaktikanta Das says that inflation is easing and the current account deficit is manageable
  • Adani Enterprises FPO sees just 1% subscription on the first day as the stock goes down to Rs 2762, much below the price band of Rs 3112-3276
  • Stocks bleed on Friday post the Hindenburg report as Adani stocks are hammered: Sensex loses 874 points to 59330 and Nifty 287 points to 17604
  • Rs 263cr TDS scam detected by the I-T department. A mid-level officer was the kingpin and had amassed huge wealth
  • Women's U-19 World Cup -India reaches the final by beating New Zealand by 8 wickets
  • New Zealand beat India by 21 runs in the first T20 as spinners choke Indian batters
  • Sania Mirza and Rohan Bopanna lose in the Australian Open finals
  • Sania Mirza and Rohan Bopanna lose in the final of the Australian Open
  • India to play New Zealand in the first T20 of the three-match series in Ranchi today
  • RBI has proposed special purpose vehicles (SPEs) mechanism to sell bad loans to interested investors via securitization
  • JD(U) decides not to attend the Bharat Jodo Yatra finale in Srinagar
  • Hindenburg defends its report on the Adani group, dares Gautam Adani to sue it in the US
  • BJP's talks with Tipra Motha in Tripura make no headway but the party is confident of winning in the ensuing elections
  • Pathan is a super hit at the box office: Rs 57cr in India (worldwide Rs 106cr) on Day 1 and then Rs 70cr on Day 2 which was Republic Day holiday
  • Centre tells Delhi HC that Covid vaccines can't be mixed when taking the second dose
A Mirage2000 and A Sukhoi 30 of the Indian Air Force on a training mission crashed separately, in Bharatpur in Rajasthan and Morena in Madhya Pradesh, killing one pilot
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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.