Co-op banks welcome RBI directions

Apex bank bans issuing unsecured loans to bank directors

Co-operative banks in Surat have welcomed the recent guidelines issued by the Reserve Bank of India (RBI), which are aimed at an efficient supervision of banking operations.

The co-operative banking sector has been at the receiving end of late. In the last couple of months, the RBI has terminated licences of three co-operative banks in Surat. In a bid to ensure that other co-operative banks do not go the same way, the apex bank has issued various directives to co-operative banks.

"Most of the co-operative banks suffered because bank's directors misused their authority. The Reserve Bank has barred the co-operative banks from giving unsecured loans to its directors, their families and relatives. This will not only curb misuse of authority on part of the directors, but also help instill financial discipline amongst the co-operative banks," an official of Gujarat Industrial Co-operative Bank Ltd., told Business Standard, on condition of anonymity.

"Those co-operative banks that operate honestly, will be benefited from these measures, while the banks who indulge in wrong practices, will affected action from the apex bank," the official added.

Vijay Parekh, CEO of the Prime Co-operative Bank Ltd, said, "Along with the inspections, the RBI has now started the on-line checks. The co-operative banks have been directed to submit quarterly statements to the RBI, which will enable the Reserve Bank to keep a close eye on the banks' financial condition.

"RBI has also directed the co-operative banks to submit a weekly liquidity statement, so that it can regularly monitor it's deposits, advances and surplus funds," Parekh added.

Dismissing talks that these restrictions would hurt the co-operative banks, Parekh said, "I do not think that these restrictions will affect the business of co-operative banks in any manner. On the contrary, I believe these measures will help re-establish people's faith in co-operative banks and thus help the co-operative banking sector."

Vasant Desai, manager of the Surat District Co-operative Bank Ltd, said, "Things are not looking too good for the co-operative banking sector at the moment. The RBI does not want to take any risk, which is the reason it has tightened the measures to bring financial discipline amongst co-operative banks. We are hopeful these measures will help the co-operative banking sector come out of the current mess."

Setu Madhavan, the chairman of the Udhna Citizens Co-operative Bank Ltd, said, "The Reserve Bank of India is the regulatory authority. It has announced various stringent measures to improve the position of the co-operative banking sector. The move is aimed at ensuring that co-operative banks follow all rules & regulations, which will automatically improve their business."