Co-operative banks hope for end to political interference

The signing of a memorandum of understanding (MoU)between the Reserve Bank of India (RBI) and the government of Gujarat (GoG) on Tuesday, has relieved the office bearers of the co operative banks as it reduces the political interference in their working to bare minimum.

"The move comes as a relief for most banks of the state but will also mean liquidation of those banks that are not performing well for a long time now. In fact, several weak banks could be liquidated in the coming months with the RBI getting much better control," said a top official of a multi state co-operative bank here.

Dollar Kotecha, chairman, Gujarat Urban Co-operative Banks Federation, while welcoming the MoU between the RBI and the government, said, "It is good news for those banks that are indeed being run professionally and are doing well. This is a step forward in the process of strengthening of the co-operative banking sector in the state."

However, the MoU also means that the Reserve Bank of India will wield a far greater control over co-operative banks. It can remove directors or chairmen of banks that do not adhere to regulations of the RBI.

Moreover, the Task Force for Co-operative Urban Banks (TAFCUB) created subsequent to the MoU will have six months to provide financial details of close to a 150 co-operative banks in the state that are classified in grade III and IV (those banks whose non performing assets are alarmingly high).

Nutan Nagarik Sahakari Bank Limited chairman Parthiv Adhyaru said, "I have always been stating that while management control of co-operative banks should be with the state government, monetary control should be with the RBI. The MoU is a welcome move."

Asked whether state government interference will now cease, Adhyaru said, "The motive of the government was laudable in the sense that it wanted the co-operative movement to survive. But a better way out should have been converting the banks into co-operative societies."

Another prominent banker of a Rajkot based co-operative bank said, "Just about every co-operative bank in the state is faced with problems of political interference. While there are instances that political leaders hold posts in co-operative banks, there are also cases of political parties interfering in functioning of banks."

The banker added that he is aware of at least half a dozen cases, where directives of the RBI regarding removal of members of board of directors of the bank were not implemented for six months.

"In fact, three months ago, top RBI officials had to come down to Gujarat to get one such directive implemented," said the banker.