RBI will have more power on Co op Banks

The Union cabinet gave more power to Reserve Bank of India regulate cooperative lenders and prevent frauds such as the one seen at Punjab and Maharashtra Co-operative Bank Ltd by making changes in the Banking Regulation Act.

After getting clearance by the Parliament,  cooperative banks will get audited as per RBI’s norms and the central bank can supersede the board, in consultation with the state government, if any cooperative bank is under stress, information and broadcasting minister Prakash Javadekar said after the Cabinet meeting. Appointments of chief executives will also need to permission from the RBI, as is the case for commercial banks, the minister said.

Currently, Cooperative banks are under the dual control of the Registrar of Cooperative Societies and RBI. Although, the role of registrar of cooperative societies consists of incorporation, registration, management, audit, supersession of board and liquidation, RBI’s work is for regulatory functions such maintaining cash reserve and capital adequacy, among others.

However, the administrative role will be of Registrar of Cooperative Societies, Javadekar said. The amendments will apply to all urban co-operative banks and multi-state cooperative banks.

Javadekar said the proposed changes are to protect the depositors who have put money totalling around ₹5 trillion in 1,540 cooperative banks in the country. After collapse of the PMC bank, government decided to strengthen the cooperative banks.

The finance ministry will introduce the bill in the Parliament in the next few days, Javadekar said.