RBI control will make coop banks more professional
The ordinance amending the Banking Regulations Act 1949 giving RBI control over cooperative banks is timely and opportune, feel cooperative banking veterans:
The central government has issued an ordinance amending the Banking Regulations Act, 1949, bringing all urban cooperative banks and multi-state cooperative banks under the supervision of the RBI in order to protect the interest of depositors. The government said the Ordinance seeks to protect the interests of depositors and strengthen cooperative banks by i mproving governance and oversight by extending powers already available with RBI in respect of other banks to cooperative banks as well for sound banking regulation, and by ensuring professionalism and enabling their access to capital. The amendments do not affect existing powers of the state registrars of cooperative societies under state cooperative laws, it added.
The amendments do not apply to PACS or cooperative societies whose primary objective is to offer long-term finance for agricultural development.
GOOD FOR RETAIL DEPOSITORS
“Since cooperative banking sector had been under dual regulation involving the Registrar of Cooperatives, RBI did not have adequate jurisdiction over these banks,” says Jyotindra Mehta, President NAFCUB and Chairman, Gujarat Urban Cooperative Banks Federation. “Now,” says he, “RBI will ensure corporate governance in UCBs and it will have enough powers to safeguard the interests of the retail depositors in cooperative banks. We believe that bringing the sector under complete RBI regulation at par with other scheduled commercial banks will go a long way in improving the health and operating practices in the sector. It will also provide comfort to depositors.
Some of the UCBs may need to raise capital from their members to mitigate their asset quality risks and further, a consolidation in this space may get a momentum involving the merger of weaker banks into stronger ones.”
Mehta pointed out that there are over 1500 cooperative banks in the country with over 80 million depositors and estimated deposits of `4840 billion, making them systemically significant. He also felt postordinance some of the cooperative banks would be required to raise capital from their members to mitigate their asset quality risks. A consolidation in this space may get a momentum involving the merger of weaker banks into stronger ones, he added.
BETTER GOVERNANCE
Umesh Chand Asawa, MD and CEO, AP Mahesh Cooperative Urban Bank, and a member of the managing committee of Indian Banks Association (IBA) as cooperative banks’ representative, says when there are irregularities noticed, RBI can now remove the board of directors and appoint its own administrator without the intervention of the registrar of cooperatives. Besides, prior approval of the RBI will be a must for the appointments of MD and CEO of these banks.
Asava further explained that as per the Banking Regulations Amendment Act 2020, all cooperative banks have already been brought under RBI control, while powers of the cooperative department will remain the same. However RBI need not have to write to the cooperative department for suppression of boards of these banks.
REVIVAL OF PMC BANK
Ratnakar Deole, former senior officer of RBI and a cooperative banking expert, feels that the ordinance will help expediting the revival of PMC Bank by exercise of new powers RBI has acquired. “I hope the position will be clear now. The whole Banking Regulations Act is made applicable to cooperative banks. The RBI will have all powers of merger, amalgamations, reconstruction etc wherever considered necessary. The Registrar of Cooperatives will have powers relating to the management, ie conducting elections to the boards of directors as per the criterion prescribed by the RBI,” he adds.
BETTER SCOPE FOR COOPS
Vinod Dadlani, CEO, Kalupur Commercial Cooperative Bank, pointed out that in the past, whenever NAFCUB or other representative organizations requested RBI to take swift steps to protect the interests of depositors when a cooperative bank went into difficulties in the same manner as it acted in respect of commercial banks, the RBI would point out that it could not do so because it did not have adequate powers. “With the proposed amendments, the RBI will have almost all the powers to regulate all UCBs. UCBs may now face more stringent regulatory regime, which may be for their good in the long run. The RBI will also be able to address delinquency in UCBs in incipient stage so that these banks either recover or get merged/taken over in good time. The public trust in UCBs should also improve by these amendments,” he said.
Dadlani also pointed out that boards of UCBs can now be superseded by the RBI without RCS/CRCS approval. Appointments of CEOs will be with prior approval of the RBI and governance and professionalism will improve. It is possible, he said, that these banks may now issue shares at premium, as also issue preference shares and may even go for listing. Also, there could be restrictions on refund of share money, he added.