The All-India Reserve Bank Employees’ Association (AIRBEA) has welcomed the decision of the Union Cabinet to promulgate an ordinance to bring the 1,482 urban and 58 multi-state co-operative banks under the supervision of the Reserve Bank of India, which would protect the interests of an estimated 13.5 crore depositors.

“We are particularly happy since we have been demanding this from the late 1990s when the scam at the Madhavpura Mercantile Co-operative Bank in Gujarat pushed co-operative banks across the country into a critical situation, several had folded up, and depositors lost precious money,” Samir Ghosh, General Secretary of AIRBEA, wrote in a letter to the RBI Governor.

Working at cross-purposes

The RBI was then arguing to shift the onus of controlling these banks to respective State governments because under dual control, political angularities could work at cross purposes with its own supervision. The AIRBEA had represented to the Parliamentary Committee set up to probe the scam and voiced through public statements its demand for RBI’s primary and decisive role through constitution of proper legal framework. The Centre, however, had allowed the prevalent system to continue.

In recent times, the PMC Bank episode has flared up country-wide resentment over the affairs and modus operandi of such banks where depositors’ money is at risk, forcing the RBI to take punitive and preventive steps. The Centre has now decided to change the dual control regimen of urban co-operative banks in favour of RBI monitoring. This will definitely put depositors of such banks at ease, Ghosh said in the letter.

Initiate on-site surveillance

“This job having come to us and the country reposing faith in the RBI for protection of depositors, mainly nominal ones of urban co-operative banks as also their mall-ticket borrowers, the RBI must take the job very seriously. It must initiate on-site supervision and inspection, instead of depending on data furnished by them as in off-site surveillance, which is prone to be fudged as our experiences in PMC Bank and some others bear out,” said Ghosh.

“In this respect, we extend our sincere cooperation so that the RBI can prove equal to the task. We reiterate in this connection that post-2012, highly qualified, computer savvy, and energetic class III staff of the RBI can be gainfully deployed for the purpose after proper training, which will secure good results and will be cost-effective, too.”

Ghosh also drew the Governor’s attention to another sensitive area – micro finance institutions. In the past, this sector was proposed to be brought under RBI supervision, but the central bank had declined on operational grounds. “For instance, the Mudra loans are feared to be a source of huge NPAs and a vulnerable area. As the apex regulatory body of banks and non-banks, the RBI may consider extending its jurisdiction over this area also for the benefit of the country’s financial sector.”

Published on June 25, 2020

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