Cooperative banks will be under the supervision of the RBI


The Union Cabinet on Wednesday approved an ordinance to place 1,482 urban cooperative banks and 58 multi-state cooperative banks under the supervision of the Reserve Bank of India, a move that will strengthen oversight of lenders and prevent a Punjab and Maharashtra Cooperative (PMC) Bank-type fraud.

“Depositors will and will benefit from protection. This will give assurances to depositors of 8.6 crore in these banks that their money will stay safe, “Information and Broadcasting Minister Prakash Javadekar said on Wednesday.

The cooperative banks are currently under the dual control of the cooperative societies and the RBI. While the role of the cooperative society includes constitution, registration, management, audit, board change and liquidation, RBI is responsible for regulatory functions.

Government move follows the collapse of PMC Bank, which allegedly created fictitious accounts for hiding ??4,355 crore in loans to the bankrupt Housing Development and Infrastructure Ltd (HDIL). The fraud was discovered by the Reserve Bank of India in September of last year.

The new regulatory structure should prevent such abusive practices and strengthen cooperative banks, which play a crucial role in financial inclusion and cater to both rural and urban areas. The government has not disclosed details of the changes.

The cooperative banks will be placed under the supervision of the RBI as soon as President Ram Nath Kovind approves the ordinance.

In March, Finance Minister Nirmala Sitharaman tabled in Lok Sabha amendments to the Banking Regulation Act 1949, to give the central bank more power over cooperative banks. However, due to the outbreak of covid-19, Parliament could not approve the changes.

The firm also approved a 2% interest subsidy for a period of 12 months to borrowers with a good repayment history in the Shishu category of the Mudra program. The relief was announced under the Aatmanirbhar Bharat program last month and is expected to provide relief to borrowers with loans of up to ??50,000.

“The program will be extended to loans that meet the following criteria: outstanding at March 31, 2020; and not in the category of non-performing assets, in accordance with the guidelines of the Reserve Bank of India, on March 31, 2020 and during the period of operation of the program (until May 31, 2021)… The program will incentivize people who will repay regularly their loans, an official statement said.

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