RBI proposes state-level body for co-op banks

The Reserve Bank of India (RBI), in consultation with the state governments, proposes to set up a state-level apex body to solve the problem of dual control in the co-operative sector.

These state-level committee would consists of representatives from the RBI, registrar of co-operative societies (RCS) of the respective states and urban co-operative bank's federation.

The primary function of the body would be to ensure stringent monitoring of urban co-operative banks on a day-to-day basis. Dual control is the biggest bane of the co-operative sector.

"With the state governments unwilling to give up their control on these entities, a middle path is being worked out," a cooperative banker said. Setting up of the apex body would ensure that there is a proper co-ordination among regulators during a crisis.

While the registration, administration and liquidation of urban co-operative banks are governed by the provisions of State Co-operatives Societies Act, the RBI regulates and supervises their banking related functions under the Banking Regulation Act, 1949.

This apex body would enable the regulators take up a co-ordinated view on the banks through facts fleshed out from their respective audit reports.

Both RBI and RCS audit the co-operative banks but the reports are seldom shared or examined to take any proactive action, said a banking source.

The tension between the regulator and the other authorities came in the fore in 2003 when some co-operative banks in Kerala started calling themselves banks even though the RBI had not given them bank licences. Things came to such a pass that the central bank had to fight a legal battle against the state registrar of co-operative societies to restrain these societies from functioning as banks.

The number of UCBs increased to 2,105, including 179 banks under liquidation, at the end of June 2004.