42 Co-Operative Banks Invested In Nbfcs

The Reserve Bank of India (RBI) has said as many as 42 co-operative banks have invested in non-banking finance companies (NBFCs) "in violation of its guidelines.

In response to a JPC query whether cooperative banks have invested in NBFCs during the last five years, the RBI has produced a statement regarding the investments of cooperative banks in NBFCs.

Though the RBI has studiously refrained from attributing any motives to the cooperative banks' investments in NBFCs, it only said it had advised the banks to unwind these investments "when it was noticed at the time of inspection of the said banks." The RBI further says "the banks generally complied with the advice."

However, in cases where the NBFCs had failed, the RBI "instructed the banks to make necessary provision for erosion in value of assets on account of such investments."

Making a special mention of the CRB group of companies, the RBI said it had asked the cooperative banks which had invested there "to furnish an explanation for making such investments in violation of instructions of Reserve Bank of India and the provisions of the Cooperative Societies Acts of the states concerned."

The RBI said it had asked the registrar of cooperative societies of the states (where these banks are located) to "initiate necessary action against the management and the staff who were responsible for making these investments."