oppn parties Cooperative Banks Must Be Fully Regulated By The RBI

News Snippets

  • Supreme Court stays Karnataka HC order blocking operations of Kannada news channel Power TV. Says right to free speech must be "zealously protected" by courts
  • Opposition slams Centre for Samvidhan Hatya Diwas, says the Constitution is being murdered on daily basis under the present BJP government
  • Centre notifies June 25 as 'Samvidhan Hatya Diwas'. This was the date on which Indira Gandhi imposed the Emergency in 1975
  • Bengal moves SC against state governor for keeping 8 bills pending
  • Mamata Banerjee meets Uddhav Thackeray in Mumbai, says 'khela on' and promises to campaign for his party in the Maharashtra assembly elections
  • Stars and eminent persons from across the globe attend the wedding of Anant Ambani with Radhika Merchant at the Jio World Convention Centre in Mumbai
  • Controversial IAS trainee Puja Khedkar faces dismissal from service if her quato and disability claims are found false
  • SC says stay on bail should be in rare cases like terrorism or where order is perverse otherwise personal liberty and Article 21 will go for a toss
  • Supreme Court says judicial review of arrests by ED is necessary to check improper exrecise of power to arrest
  • Supreme Court grants interim bail to Arvind Kejriwal in the money laundering case in Delhi liquor policy case but he will remain in jail as he is under CBI detention in the corruption case in the same scam
  • Retail inflation rises to 5.1% in June, the highest in 4 months
  • Government to avoid merger of BSNL-MTNL. Instead, MTNL's operations will be shifted to BSNL to give the latter an all-India presence
  • Women's U-19 Asia Cup: India to clash with Pakistan on July 19
  • Paris Olympics badminton draws: P V Sindhu in easy group but gets a tough draw later while H S Prannoy and Lakshya Sen might clash in pre-quarter finals
  • After two consecutive wins, India look to seal series when they meet Zimbabwe in the 4th T20 today
BJP and allies win all 9 seats they contested in the Maharashtra Legislative Council poll
oppn parties
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.