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Road ahead for co-operative banks
January 17, 2021
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The RBI has powers now to regulate UCBs on par with commercial banks. Can depositors hope for a time-bound resolution?
Distressed depositors of several Urban Co-operative Banks (UCBs), including Punjab and Maharashtra Co-operative (PMC) Bank, Sri Guru Raghavendra Sahakara Bank, Rupee Co-operative Bank and Kapol Co-operative Bank, have been at their wits end.
With their hard-earned money stuck in these banks, which got into trouble for various reasons – deterioration in financial position, irregularities and deficiency in governance – the depositors have been desperately looking to the banking regulator for succour.
But the wait to get their money back is becoming excruciatingly long and arduous as the Reserve Bank of India (RBI) keeps extending its directions to these banks (ironically seeking to protect depositors’ interest) by three to six months. Depositors of Mumbai-based PMC Bank and Bengaluru-based Sri Guru Ragha
Sixty years ago, in August 1960, two large banks the Lakshmi Commercial Bank and the Palai Central Bank of Kerala failed in quick succession. The banking sector had no regulator then. The then finance minister Morarji Desai was having a gruelling time convincing the RBI to regulate the thousand-odd banks. The central bank refused to do so because it had limited staff and resources and did not have the legal mandate to regulate banks.
The finance ministry had already advised these banks to voluntarily consolidate two years ago, but there were hardly any mergers or acquisitions. Meanwhile, banks were falling like ninepins. Desai, who had been advocating self-regulation, was forced to make consolidation and amalgamation compulsory so that only strong banks that met the liquidity norms would be allowed to function.