oppn parties Cooperative Banks Must Be Fully Regulated By The RBI

News Snippets

  • Flipkart assures employees that there will be no job or salary cuts due to the COVID-19 pandemic
  • Although it was obvious, but the government still clarifies that there is no need to switch off appliances and only lights need to be switched off on April 5 at 9pm after confusion in the minds of some people
  • PM Modi and President Trump decide "to deploy full strength of (Indo-US) partnership" to fight against COVID-19
  • 17 states have reported 1023 cases of coronavirus linked to the Tablighi Jamaat, which translates to 30% of all positive cases in India
  • The government says people should not use alcohol-based hand sanitizers before lighting diyas or candles on April 5
  • The railways say there is no certainty yet when services will resume after the lockdown and a final decision will be taken in the next few days
  • As coronavirus cases multiply in Assam, six north-east states seal their borders with the state
  • Power System Operation Corporation Ltd. (POCOSO) putting all systems and protocols in place at war-footing to ensure there is no grid failure due to reduction in demand on April 5 at 9 pm
  • Power ministry scotches rumours that the power grid might fail due to the 9-minute blackout called by PM Modi on Sunday, April 5
  • Centre asks people to wear home-made masks if it is absolutely essential for them to step out of homes
  • Centre asks states to allow licensed street vendors to sell essential items
  • 8000 samples were tested across India on April 2, but the government said that testing will be need-based and will not be used as a confidence-boosting measure
  • Air India operating special flights to fly passengers stuck in India since the lockdown
  • For the first time in history, Darjeeling loses first flush tea due to suspension of garden work for Covid-19 outbreak
  • Supreme Court asks journalists to be responsible and publish only the official version of news after it was brought to its notice that migrant exodus started after the 'fake' news that the lockdown will be extended to three months
Total count stands ar 3082 as India records 16 Covid-19 deaths, the highest in a single day
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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.