RBI gets better control over multi-state co-op banks

CO-OPERATIVE DEBACLE

While multi state co-operative banks have reason to cheer as their deposits are now insured with the Deposit Insurance Credit Guarantee Corporation (DICGC), the Reserve Bank of India (RBI) will now have greater control over these banks.

Apart from being permitted to issue licences to the banks, the RBI will also be able to remove the board of directors of these banks.

There are 35 multi state co-operative banks in the country including eight in Gujarat.

The Central government has effected certain changes in the Banking Regulations Act, 1949, and the DICGC Act, 1961, by bringing in an ordinance that will allow multi state co-operative banks to get an insurance cover of up to Rs one lakh of deposits.

R S Patel, chairman of the Gujarat Urban Co-operative Banks Federation (GUCBF), said that while it is true that the RBI will now be able to remove the board of directors of multi state co-operative banks, the fact remains that multi state co-operative banks are being professionally run in the state.

"Barring a few, most of the 35 multi state co-operative banks in the country are being professionally run and are in sound health," Patel said.

He felt that despite RBI having control over urban co-operative banks (UCBs) registered with the state registrar of co-operatives, UCBs have been falling like nine pins.

"The RBI had and still has powers to ensure proper functioning of UCBs, but these have been closing down regularly.

So, it really does not make much difference to multi state co-operative banks when the RBI gets greater control over these banks," said Patel.

A spokesperson of the RBI in Mumbai said that with the Supreme Court judgment in the Maharashtra State Apex Co-operative Bank, there was a phase when the RBI was not authorised to issue licences to multi state co-operative banks.

"It was a phase of discrepancy, which meant that the multi state co-operative banks could be given licences, but had no insurance cover. In fact, they were not treated as banks at all," said the spokesperson, who added with the notification, RBI will now again be able to issue licences to multi state co-operative banks.

The spokesperson added that the dual control will, however, remain with RBI issuing the licence and hence having control over the banks, but these banks will still be run under guidelines of the Multi State Co-operative Societies Act, with powers being vested in the Union ministry for co-operation and agriculture.

Earlier in July this year, Deposit Insurance Credit Guarantee Corporation shot off a letter to multi state co-operative banks (banks that are based in Gujarat but have branches in other states), stating that their deposits are not eligible for insurance cover under provisions of the DICGC Act 1961 and that they should display copies of the letter at all branches of the banks.