Will not let any cooperative bank collapse, says RBI guv

Reserve Bank will try to prevent failure of another big NBFC: Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday tried to assuage fears about the banking sector, reeling from one crisis after another, by claiming that it was sound and stable. Referring to the crisis at the Punjab and Maharashtra Cooperative (PMC) Bank, he said: “The RBI will not allow any cooperative bank to collapse.”

Since the Punjab National Bank scam came to light in February 2018, the banking sector has been hit by two other major crises — the defaults of the Infrastructure Leasing & Financial Services and the Dewan Housing Finance Corporation. Now, the crisis at the Punjab and Maharashtra Cooperative (PMC) Bank has come to the fore.

“This case (PMC Bank) is already with the economic offences wing of the Mumbai police,” Das said. “The matter is under investigation. As soon as the RBI learnt about the irregularities, we responded.” He added the RBI was in talks with the government to tighten regulations governing cooperative banks since some of them were facing crises. “A department has been formed and we are building a team to supervise these banks,” said Das.

Last month, a whistleblower raised an alarm over alleged irregularities at the Mumbai-based PMC Bank. The RBI appointed an administrator and sacked the management. It also limited withdrawal amounts and banned credit disbursal. The withdrawal limit was extended to ~25,000 on Thursday.

Former PMC Managing Director Joy Thomas has confessed to the RBI that 70 per cent PMC Bank’s loan book is exposed to one Mumbai-based realty group — Housing Development and Infrastructure (HDIL). The police on Thursday arrested HDIL promoted Rakesh Wadhwan and his son Sarang Wadhwan. Thomas was arrested on Friday. Asked why the RBI, which carries out annual inspection of all cooperative banks, was not able to identify the problems, Das said all aspects of PMC Bank was being looked into.

“As far as fixing responsibility for the PMC scam is concerned, we are looking into it,” said Das adding that he would not be able to provide details as the matter was being investigated.

He added, “Cooperative banks develop problems because of various factors. The discussion with the government on the amendment of regulations of cooperative banks is an ongoing process.”

The RBI governor said after the experience with PMC Bank, the regulator would take a relook at the existing regulatory framework. “If any changes are required, we shall take them up with the government

PMC Bank is the 24th cooperative bank to be placed under RBI administrators in 2019. Urban cooperative banks are registered as cooperative societies either with the State Cooperative Societies Act or the Multi-state Cooperative Societies Act, 2002, and are regulated and supervised by the Registrar of Cooperative Societies of the respective states or by the Central Registrar of Cooperative Societies.

On the overall crisis in the non-banking financial company (NBFC) sector, Das said, “The RBI’S endeavour is to ensure that we do not encounter failure of another large systematically i mportant NBFC. We are monitoring it. Wherever required, we are calling the management of those NBFCS, having a dialogue with them, and finding out how to resolve issues.”

He said in some cases the banks were also signing inter-creditor agreements according to the 7 June circular and trying to restructure loans.