Co-operative Banks are well regulated by the Reserve Bank of India (RBI) and tarring all of them with the same brush just because one of them has deficiencies is not right, said Ajay Seth, Secretary (Economic Affairs), Union Finance Ministry.
Replying to a specific question whether the trust of people in co-operative banks is getting undermined by episodes such as the recent fraud in New India Co-operative Bank (NICB) and whether they should open accounts at all in these Banks, Seth underscored that RBI has now enhanced powers to regulate co-operative banks.
Further, those who want to open accounts in co-operative banks should remember that the regulations governing them are strong.
“It is the regulator’s job to take action against banks where weaknesses have been found. Painting all co-operative banks with the same brush just because one Bank has been found wanting is not right. These Banks are working well in various states,” Seth said at Finance Minister’s post-Budget press conference in Mumbai.
He emphasised that there shouldn’t be an iota of doubt about these banks. They are well regulated.
Fraud-hit NICB
The Secretary’s observations come in the backdrop of the RBI issuing certain directions to Mumbai-based NICB on February 13 due to supervisory concerns emanating from the recent material developments in the bank, and to protect the interest of depositors.
Under the directions, NICB cannot, without prior approval of RBI in writing, grant or renew any loans and advances, make any investment, or incur any liability.
Considering the bank’s present liquidity position, RBI said the bank has been directed not to allow withdrawal of any amount from savings bank or current accounts or any other account of a depositor but is allowed to set off loans against deposits, subject to the conditions stated in the above RBI Directions.
A General Manager was arrested by the Mumbai police on February 15 for misappropriation of ₹122 crore from the Bank, according to agency reports. The case has been transferred to the Economic Offences Wing.
The RBI on February 14 superseded NICB’s Board of Directors for a year. Consequently, it appointed Shreekant, former Chief General Manager of State Bank of India (SBI) as the ‘Administrator’ to manage the affairs of the bank during this period.
The central bank also appointed a ‘Committee of Advisors’ to assist the Administrator in discharging his duties. The members of the Committee of Advisors are Shri Ravindra Sapra (former General Manager, SBI) and Shri Abhijeet Deshmukh (Chartered Accountant).