MUMBAI : Two years because the authorities vested extra powers with the Reserve Financial institution of India (RBI) to oversee cooperative banks, the regulator has tightened the leash on the lenders, routinely imposing penalties for deviating from regulatory norms.
After the disaster at erstwhile Mumbai-based Punjab and Maharashtra Cooperative (PMC) Financial institution, the federal government amended the Banking Regulation Act as relevant to cooperative societies. The modification, first issued as an ordinance in June 2020, gave RBI supervisory powers over such banks. To this point in 2022, RBI has fined 100 cooperative banks, as towards 124 in 2021 and 22 in 2020, confirmed knowledge compiled by Mint.
Penalties imposed on these banks embody ₹37.5 lakh for non-adherence to fraud reporting tips; ₹25 lakh for non-compliance of norms on housing finance; ₹15 lakh for deviation from RBI’s revenue recognition, asset classification and provisioning norms; and ₹10 lakh for violation of publicity norms, in addition to others.
“RBI is unquestionably tightening the leash on corrupt and mismanaged cooperative banks. Principal causes for corruption are state authorities interference, mismanagement and lack of correct company governance,” mentioned Anshul Gupta, managing accomplice at regulation agency ANG Companions Advocates & Solicitors. Gupta mentioned RBI checks whether or not cooperative banks have complied with prudential interbank counter celebration limits, and whether or not a sturdy software program for efficient identification and reporting of suspicious transactions is in place.
Earlier than the 2020 modification, RBI had restricted powers to manage cooperative banks, proscribing its potential to take well timed corrective motion. Whereas the modification got here into pressure for city cooperative banks with retrospective impact from 29 June 2020, for state cooperative banks and district central cooperative banks, it was efficient from 1 April 2021.
Cooperative banks have traditionally been weak to political affect, and expenses of mismanagement. Add lack of adherence to correct safeguards to the combo, and what you get is a lethal cocktail threatening depositor pursuits. For example, a borrower, Housing Growth and Infrastructure Ltd, reportedly accounted for 70% of PMC Financial institution’s combination loans, a evident deviation that went unreported for years.
“With the monetary sector turning into extra digitalized, there may be an pressing want for fraud detection techniques, and systematic association of information, of the debtors and the members,” mentioned Bharat Chugh, an advocate at Supreme Courtroom.
Chugh mentioned RBI ought to body tips to maintain a strict test on the inner administration of cooperative banks, because the members themselves being the debtors, there are possibilities of defaults or irregularities being cloaked.
As on 31 March 2021, there have been 98,042 cooperative banks, out of which 96,508 have been rural cooperative banks, whereas the remaining have been city cooperative banks, confirmed knowledge from RBI. City cooperative banks had deposits of ₹5.27 trillion and an combination loanbook of ₹3.13 trillion in FY21.
Liberalization of monetary providers within the Nineteen Nineties noticed a flurry of city cooperative banks, facilitated, to an extent, by deregulation of rates of interest and a liberal licensing coverage. The numbers rose from 1,307 in 1991 to 2,105 in 2004, when RBI stepped in to push consolidation, which led to a decline within the variety of such banks.
Whereas many could contemplate RBI’s crackdown on cooperative banks as a crippling coverage, penalties are on severe points like threat categorization and monitoring of suspicious transactions, specialists mentioned. “Given the 2 type sturdy pillars of anti-money laundering and combating the financing of terrorism in a corporation, such programmes and cracking down is required to right any lapse in these elementary areas which could sign a scarcity of correct efficient functioning of the banking sector,” mentioned Sonam Chandwani, managing accomplice at regulation agency KS Authorized & Associates.
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Supply: Live Mint