Reserve Bank of India Governor Shaktikanta Das on Friday said “the RBI will not allow any co-operative bank to collapse” and the central bank will “review all the regulations” of cooperative banks and discuss it with the government if required.
When asked how the RBI was caught napping as the Punjab and Maharashtra Co-operative Bank scam was going on for around eight years, Das said the RBI acted very swiftly and promptly after it was brought to its notice. “The matter is under investigation. A complaint has been filed with the EOW.” Maintaining that cooperative banks are also sound, he said, “one incident cannot be and should not be used to generalise about the health of all cooperative banks.”
“The RBI will review all the regulations of cooperative banks and will discuss with the government if required,” he said.
PMC fraud exposed gaps
The PMC Bank fraud has exposed the gaps in the regulations governing co-operative banks. The fact that the bank was able to hide its exposure — close to Rs 5,000 crore, or almost 70 per cent of its total loan book — to the HDIL reveals that the central bank may have to tighten its norms governing co-operative banks. The fraud has been going on for almost seven years, undetected by the RBI. The collapse of a co-operative bank can impact the stability and soundness of the financial system as money of common people is involved.
“So far as the RBI is concerned, the banking system is sound and stable.” he said when asked about the financial sector issues. “There’s no reason to panic.” He also advised the people to not to pay much attention to unnecessary roumours that can create a panic situation.
On September 23, the RBI had put restrictions on Punjab & Maharashtra Cooperative Bank after it had found out financial irregularities, and under-reporting of loans given to real estate developer HDIL. The curbs included barring the bank from lending and accepting fresh deposits for the next six months apart from capping withdrawals first at Rs 1,000 per account which was later revised upwards to Rs 10,000 and then again to Rs 25,000.
PMC Bank’s exposure to HDIL which was over 70 per cent of its total book had been NPAs for a long time.
The RBI’s order, restricting banking activity at Punjab and Maharashtra Cooperative (PMC) Bank, is not a case in isolation as 23 more co-operative banks faced similar action by the regulator so far in this calendar year. Sources in the banking industry say that this reflects upon the magnitude of the problem at co-operative banks and raise question marks in the way they are being run and regulated.
As per the data collated by Maharashtra State Bank Employees Federation (MSBEF), PMC Bank is the 24th bank this year to have seen RBI invoking Section 35(A). The section provides the RBI with the power to give directions to banks in a bid “to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company”. The RBI can also “secure the proper management of any banking company” under this section.
The co-operative banks that have seen an extension of orders issued by the RBI include Kapol Co-operative Bank, Rupee Co-operative Bank, Mercantile Co-operative Bank and The City Co-operative Bank.