The Union government on Wednesday announced approval to a decision to bring 1,540 co-operative banks that hold close to Rs 5 lakh crore worth of deposits from more than 8 crore account holders, under the purview of Reserve Bank of India (RBI). These banks will be supervised by the RBI in the same fashion as the scheduled banks, offering protection to depositors and reducing the space for mismanagement.
“All urban co-operatives and multistate cooperative banks are being brought under the supervision of the RBI. There are 1,540 such banks that hold close to Rs 5 lakh crore worth of deposits from over 8.6 crore account holders. The move to bring them under the RBI will give depositors the assurance that their savings are safe in these banks,” Javadekar said.
Earlier this year in February, finance minister Nirmala Sitharaman had announced the government’s intention to bring the cooperative banks under RBI’s supervision and said that it will be done through an amendment to the Banking regulation act. Javadekar said the government had issued an ordinance in this respect on Wednesday.
The new dispensation, the appointment of CEOs in such cooperative banks will now require prior approval from the regulatory authority- the RBI.
There are about 1,482 crore urban cooperative banks and 58 multi-state co-operative banks with a depositors base of about 8.6 crore. The decision assumes significance amid lakhs of depositors facing problems after a scam in the multi-state Punjab and Maharashtra Co-operative Banks.
Earlier, the Cabinet had approved amendment to Banking Regulation Act to strengthen co-operative banks and avoid PMC Bank like crisis.
The government had earlier said that there was a need to enhance accountability of these banks which hold public money and are often riddled in controversies around mismanagement and corruption.
The government moves follows several instances of fraud and cheating in banks through cooking of books, mismanagement of loans etc, resulting in a threat to deposits and stability of the country’s financial system.