The Reserve Bank of India (RBI) made it clear today that the weak urban cooperative banks (UCBs) will be liquidated if the banks’ financial condition worsens and managements start siphoning off funds from the banks. ‘‘It’s a sin for a regulator to allow an insolvent bank to continue and raise deposits from the small depositors. We are going to sign a memorandum of agreement with the State governments so that we can liquidate weak banks in so that depositors should not lose money,’’ the RBI governor, Y V Reddy said here today.‘‘The moment a weak UCB reaches tipping points and the management starts siphoning off funds, the RBI will step in and take strict action,’’ he said.’Reddy said it would closely monitor operations of these financial entities, which are effective instruments for credit delivery to the poorer section of the economy.It is now drafting a medium-term framework for UCBs up to 2010 in order to facilitate the development of this sector. It may be noted that RBI had earlier prepared a draft vision document for urban cooperative banks, based on which the medium-term framework is being prepared. The framework would be placed in the public domain for wider dissemination, RBI said.
