Believe it or not, as many as 495 co-operative banks at national, State and district levels have been functioning without the RBI licence. In the backdrop of the multi-crore government securities scam, involving Home Trade, mainly in Maharashtra and Gujarat, the banking regulator has already written to State Registrars of Cooperative Societies, asking them not to register societies, having enabling provision in bye-laws to transact banking business, without its prior approval. There were 221 new proposals for setting up urban cooperative banks. “RBI has reported that at present there are 181 unlicensed urban cooperative banks, 17 State cooperative banks and 297 district central cooperative banks,” official sources told PTI. Cooperative banks were brought under the ambit of the Banking Regulation Act from March 1, 1966 and were permitted to carry out banking business till a decision was taken on their licence applications by RBI, they said. “The present situation in the cooperative banking sector is not conducive for large-scale rejection of licence applications,” they, however, said. This move for ensuring improved compliance comes in the wake of many UCBs exceeding their investment limits in equities. The banks, which were likely to comply with the licensing norms in the “near future”, were given time to improve their financial position, they said. The RBI was also advising the Registrar of Cooperative Societies in the States on the liquidation of such cooperative banks which were continuously failing to show improvement in their financial position, the sources said. On the 221 proposals for urban cooperative banks pending before the banking regulator, they said the reason was mainly due to submission of incomplete proposals by the promoters, delay in receipt of clarifications sought by RBI and receipt of information from promoters’ bankers, employers and other agencies. However, the sources said there were no proposals for setting up new State and Central cooperative banks as of now. It may be recalled that the government securities (G-Sec) scam in 2001 involving nearly half-a-dozen co-operative banks created a crisis of confidence among investors and depositors. Around Rs 300 crore was looted from the banking system by corrupt officials and politicians. “Politicians with vested interests are misusing co-operative banks by diverting funds to various purposes and violating prudential norms. Whenever we try to take action against erring co-ops, there is heavy political pressure against the move,” senior RBI officials said. Though there are nearly 650 urban co-operative banks and 31 District Central Co-operative Banks in Maharashtra, most of them are controlled by politicians and financially weak. Co-operative banks in Maharashtra have a high exposure to sugar co-operatives and cotton and onion procurement schemes. The Madhav Godbole Committee on co-operative sugar factories in Maharashtra flayed the state government for acting as a banker for the factories. While 30 per cent of the equity capital of these factories was provided by the state government, co-operative banks funded the rest, for which the state government issued a guarantee.
