Cooperative Banks Move to a Single Regulator – RBI, and Not a Day Too Soon!
Failure of the Punjab and Maharashtra Cooperative (PMC) Bank triggered the Union government into taking action, which resulted in amending the Banking Regulation Act 1949, bringing the cooperative banks within the direct regulatory ambit of the Reserve Bank of India (RBI), putting a full stop to dual regulation of the cooperative banking sector. The ordinance does not include primary cooperative societies, the principal constituents of the state cooperative banks (StCB) and district cooperative central banks (DCCBs). Only those urban cooperative banks (UCBs) and multi state cooperative banks (MS-UCBs) and the rest of the rural cooperative credit structures which fall within the ambit of the National Bank for Agriculture & Rural Development (NABARD) supervision will be subject to such amended regulation.
 
The preamble to the ordinance on the Banking Regulation Act 1949 Amendment makes it clear that the cooperative banks are not well managed; not properly regulated; and the affairs conducted are detrimental to the interests of the depositors. They also lack professionalism, good governance and sound banking practices. The objective of the amendment is to correct all of them. It is important to view this ordinance in the backdrop of the latest report on UCBs chaired by R Gandhi, when he was the deputy governor.
 
The R Gandhi (2015) report says: “As UCBs form an important vehicle for financial inclusion and facilitate payment and settlement, it may be appropriate to support their growth and proliferation further in the background of the differentiated bank model. However, the question remains whether unrestrained growth can be allowed, keeping in view the restricted ability of UCBs to raise capital, lack of level playing field in regulation and supervision and absence of a resolution mechanism at par with commercial banks.” 
 
UCBs now have high aspirations of competing with commercial banks and they expect RBI to provide relaxations in various regulatory restrictions. 
 
In countries like Canada, the cooperative banks pose a formidable challenge to commercial banks and the former follow the capital regulations of Basel, conduct elections regularly, associations of cooperatives conduct induction courses and retreats for board members on governance. Without harming the principles of cooperatives, cooperative banks pose a stiff competition to the commercial banks.
 
A study was conducted on behalf of Gandhi committee to ascertain the range of loans granted by scheduled and non-scheduled UCBs. The study shows diametrically opposite trends in the range of loans granted by the two types of cooperative banks. While the scheduled banks granted 59.6% of the total loans in the largest loan size ranging from the Rs1 crore to 5 crore range and the above Rs5 crore segment, the non-scheduled banks catered to the small loan segments up to Rs10 lakh in a substantial way as this segment constituted 59.5% of the loans granted by this component of UCBs. 
 
The study further supports the premise that large MS-UCBs have aligned their business models and goals with those of commercial banks while availing of the concessions granted to the sector. Even this study could not bring out the frauds and maleficence of banks like PMC because the fraud has been traced to an even earlier period. 
 
The report says; "Major considerations to be kept in mind are the aspirations of large UCBs, conflicts of interest, decline in cooperativeness, regulatory arbitrage, limitations on raising capital, limited resolution powers of RBI, the capital structure of UCBs and opportunities for growth that will accrue after such conversions.” 
 
The UCBs are subject to annual inspections by the RBI. Yet it could not hold them accountable for the large scale frauds in UCBs.
 
Insofar as StCBs and DCCBs are concerned, they are under the supervision of NABARD and the board appointments are supposed to be done as per the ‘fit and proper’ criteria fixed by RBI. Elections to the cooperative societies are conducted by the registrar of cooperative societies. Cooperative societies as per cooperative statute are member-driven, member-controlled and member-protected. If members who are large in numbers choose to abdicate their responsibilities or do not take enough interest in their activities, jeopardising the interests of other stakeholders and particularly the non-member depositors, the remedy rests only with the registrar.  
 
In so far as banking is concerned, it is only RBI that regulates all, and all UCBs are subject to inspections by the RBI annually or whenever any aberration comes to their notice even during a year. Depositors’ constituency for long has been asking for a representation on the board and this can be done only by an amendment to the Cooperative Act. 
 
The latest Report on Trend and Progress of Banking in India from RBI (December 2019) has stated that the importance of cooperative banks in India lies in their ‘grassroots’ integration into the life and ethos of the widest sections of society and their being effective instruments of financial inclusion. They account for about 10% of total assets of the scheduled commercial banks in 2017-18. The report also clarifies that the combined balance sheet of UCBs witnessed robust expansion underscoring the effectiveness of measures taken to strengthen their financials.
 
Although 89.5% of the UCBs’ resource base happens to be deposits, their growth is muted and remains well-below the average of 13.9% achieved during 2007-08 to 2016-17. A capital adequacy; asset quality; management; earnings; liquidity; and systems and control (CAMELS) rating model is used to classify UCBs for regulatory and supervisory purposes. UCBs in the top-ranking categories— with ratings A and B—accounted for 78% of the sector. Only 4% to 5% are in D category for the past five years. And yet, the well-rated UCBs have defalcated with impunity for years. Will this ordinance rectify this malady? 
 
UCBs are under the regulation of RBI and the registrar of cooperatives of the state government where they were situated. The regulatory conflicts were being resolved through the Task Force on Co-operative Urban Banks (TAFCUB) during the past 10 years to the satisfaction of both banks and the regulators at the altar of RBI.
 
During the last two decades, the Marathe Committee, the Madhava Rao Committee, the Malegam Committee, the Gandhi Committee and RBI’ Vision of UCBs have gone on record on the measures to be taken for strengthening them in the face of a series of frauds and maleficence and even closure of several UCBs in Gujarat, Maharashtra, and Andhra Pradesh. 
 
The government of India even brought out a comprehensive 97th Amendment to the Constitution of India in 2011 as a Model Cooperative Act to be enacted by the state governments. None except the government of Orissa showed interest. Had this Act been passed and implemented in letter and spirit there would have been no need for the ordinance now. 
 
No state is keen on legal reforms to cooperatives. Cooperatives are the seedbed of politics and every prominent politician of the country, barring some Rajya Sabha or Legislative Council Members, everyone started his/her political career with a cooperative society as the base. One may well say that cooperatives without politics are lame and politics without cooperatives is blind. Viewed from this perspective, this ordinance makes a great difference. It sets at naught all political interferences beyond the primary cooperative societies.
Several commercial banks, fully under the regulation of the RBI since 1949, have also been victims of frauds and maleficence. Several banks, both in the public and private sectors, like SBI, ICICI, PNB etc continue to hit the headlines on such a count. 
 
The difference is that in all such cases, the interests of depositors have been protected. There were mergers or amalgamations but there were very few occasions wherein the affected banks were closed or deposits barred from withdrawal. It should be worthy to recall that even in case of commercial banks the deposits are secured to the same extent as UCBs/MSCBs, viz., Rs1 lakh earlier, recently enhanced to Rs5 lakh per depositor.  
 
Several UCBs are already part of the national payments system. Financial inclusion demands customer centricity and smart technology applications, apart from financial learning at the institutional and client level. 
 
Rural credit cooperatives have been in the throes of change: accounting practices,  (from single entry book keeping to double entry book keeping), technology change; regulatory changes and structural changes. They have come into the mainstream of financial inclusion agenda of the country. 
 
When NABARD has a new guard, it would have allowed scope for the new management to carry out the required improvements to the short term cooperative credit structure instead of clubbing them with the UCBs. All the DCCBs have already been brought under the regulation of RBI notwithstanding the ordinance. Further, RBI invested in computerization of both the UCBs and rural cooperative societies and banks with the allocation of Rs4 lakh per UCB and a maintenance cost of Rs15,000 per month for a period of three years post-implementation. The government of India in their 2017-18 budget allocated Rs1900 crore towards computerization of the Primary Agricultural Credit Societies (PACS). This initiative should have been properly monitored to ensure transparency, better accounting practices and better customer service on par with commercial banks. To search for a solution of lost opportunity in the ordinance does not reflect a good governance practice.
 
Though the organisation may introduce appropriate strategies, it is the culture of the organisation and governance that would require to be looked at in cooperatives. They can improve the bottom-lines through reduced costs; enhance customer experience; and strengthen security and compliance through state-of-the art encryption practices, audit trails and security certifications. Customers always need their data to be safe and secure. 
 
When the problem rests with the regulator – lax inspections, lack of transparency in dealing with the banks and improving governance, the remedy is sought through a legislative amendment! This may perhaps provide a better lever to RBI to merge weak UCBs with strong ones and disable closures as a solution to protect the interests of depositors. Will the PMC depositors now get fully all their deposits and interest?  We should wait and see. 
 
Development of cooperatives is no longer an option, but a compelling necessity to achieve financial inclusion. Implementation of the ordinance should only strengthen the cooperative system and not eliminate them under the guise of regulation. 
 
(The author is an economist and risk management specialist.
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    COMMENTS

    kalemohan

    1 day ago

    Who and how is RBI going to pay the blocked money of investors generally sr.citizens who are the preys in the scam made by politicians and board members in UCBs?

    kalemohan

    1 day ago

    But what about the corrupt inspectors of reserve bank who are deputed for co-op bank inspection.Please study the case of Pen Co-op.bank.

    REPLY

    vinoda

    In Reply to kalemohan 1 day ago

    Kindly share more details please. Thanks

    manojkamrarti

    4 days ago

    Former Dy Governor Mr R. Gandhi nowhere deserve credit for this ordinance. He was silent spectator in the mess and his socalled report nowhere cites previous all time best report by K.Madhav Rao (1999) which laid emphasis on legislative changes in Banking regulation act 1949 to remove legal loopholes to stop every day scams of urban cooperative banks.

    R.Gandhi report (2015) nowhere explained deep rooted evil created due to Banking laws and amendment act 1984 (during our former PM Dr Manmohan singh as governor 1982-1985). The major amendments laid the foundation of all future scams in urban cooperative banks due to silence of then Governor Dr Manmohan Singh WHO IS LIABLE FOR ALL SCAMS SINCE 1984 .

    Even learned Raghuram Rajan have also failed to address this issue since his active involvement with RBI since 2008 to 2016 in different capacities. He also remained silent over the corrupt amendments of 1984 during Dr Manmohan singh as Governor.

    Now Govt of India have taken really effective step by making legislative changes which were recommended by K.Madhav Rao committee report (1999) not by R.Gandhi (2015).

    vinoda

    5 days ago

    Compliments Sir for comprehending this so very nicely and factually. I doubt if @RBI will be finally able to digest the forbidden fruit of UCB. I have been following up @RBI officers since last 2 years and they have perfected the art of passing the buck, if nobody then to the Courts. RBI is only an antidote for UCB and I doubt that it can cure the malaise of cooperative banking. I seek help and intervention to resolve my issue positively so much to avoid approaching the Hon' BOMBAY High Court. No offence meant to anybody.

    spicesich

    5 days ago

    IT IS A WELCOME MOVE. WHETHER RBI IS EQUIPPED WITH SUFFICIENT STAFF TO MANAGE THE SUPERVISION?. CONSIDERING THE UNEVEN GROWTH OF UCBs SOME STANDARDISATION IS REQUIRED IN GAUGING THE FINANCIAL PARAMETERS.
    IN MAHARASHTRA WE HAVE MORE THAN 600 UCBs.

    REPLY

    vinoda

    In Reply to spicesich 5 days ago

    I second your concerns:

    vydhya31

    6 days ago

    These president and Directors of UCBs are all the parking places for political party henchmen to take care of finacial needs of the ruling parties.

    Many of them get doctorates to show off and cheat people to lure depositors. .

    Even keeping Board of directors is a risky thing with this revolutionery change.

    bala.mathur

    6 days ago

    Keep the crooked Politicians and their greedy, crony capitalist friends at bay, and the risk quotient to any bank will come down exponentially.

    SEBI allows more option in pricing of preferential issue
    The Securities and Exchange Board of India (SEBI) on Thursday announced provision of an additional option to the pricing methodology for preferential issuance.
     
    The SEBI Board took the decision to provide temporary relief to companies amid the pandemic. 
     
    The said option in pricing should be available for the preferential issues made between July 1, 2020 or the date of notification of amendment to the regulations, whichever is later and December 31, 2020, the regulator said in a statement.
     
    "In case of frequently traded shares, the price of the equity shares to be allotted pursuant to the preferential issue shall be not less than higher the average of weekly high and low of the volume weighted average price of the related equity shares quoted on the recognised stock exchange during the 12 weeks preceding the relevant date," it said.
     
    Further, the specified securities allotted on a preferential basis using the new pricing formula shall be locked in for three years, it said.
     
    The existing pricing guideline for preferential issue, for frequently-traded shares, as prescribed under Regulation 164(1) of the ICDR Regulations shall also continue to remain in force. The issuer may choose any of the formula.
     
    The SEBI board also approved amendments to its takeover regulations under which acquisition through stock exchange settlement process through bulk or block deals should be permitted during the open offer, subject to conditions.
     
    In case of indirect acquisitions where public announcement of an open offer has been made, an amount equivalent to 100 per cent of the consideration payable under the open offer must be deposited two working days before the date of detailed public statement. The escrow account shall be in the form of cash or bank guarantee.
     
    In case of delays in making open offer attributable to the acts of omission or commission of the acquirer, a simple interest of 10 per cent should be paid to all the shareholders who had tendered the shares in the open offer, the board said.
     
    It has also approved amendments to the regulations for prohibition of insider-trading. The amendments included maintaining a structured digital database containing the nature of unpublished price sensitive information and the names of persons who have shared the information. It also talks about automation of the process of filing disclosures to stock exchanges, restriction on trading window not to be made applicable for transactions as prescribed by the SEBI.
     
    "Entities to file the non-compliances of the code of conduct with the stock exchanges and amounts, if any, collected for such non-compliances shall be credited to Investor Protection Education Fund, administered by the board under the SEBI Act," it said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Finally, TRAI Shares Names of Telemarketers and Their Codes!
    After remaining in a denial and refusing to share any information about telemarketers over the years, finally, the Telecom Regulatory Authority of India (TRAI) has put out a list that contains names of registered entities and SMS headers used for sending commercial communication or unsolicited commercial communication (UCC) or unwanted spam SMSs. 
     
    This, according to TRAI, will help the subscribers to raise grievances against the telemarketers who have used the short message service (SMS) to send messages. Till April this year, TRAI had been successful in concealing the list of telemarketers, some of them repeated offenders and spammers, which have been harassing subscribers over the years. (Read: Fraudsters, Spammers Are Having a Free Ride as TRAI Says it Has No Information about Them)
     
    On 19 June 2020, TRAI issued a direction regarding the implementation of the telecom commercial communications customer preference regulations (TCCCPR), 2018, which makes it mandatory for all telemarketers or principal agency (that provides a commercial communication service through short message service- SMS) to register with a telecom service provider (TSP) and obtain a specific code or header.
     
    Currently these headers are prefixed by two alpha characters separated by a hyphen from the header, which is used to identify originating access providers (OAP). 
     
    At present, fixed length of six alphanumeric characters are being used to assign headers and total nine characters including prefixes and separator are being used. For example, VM-DOTMUM, where V denotes the TSP as Vodafone, M is for its service area Mumbai, and DoT is department of telecommunications from Mumbai. 
     
    Typical format and structure of the header with prefixes is as below:
    XY - ABCDEF
    Where,
    X denotes TSP (OAP);
    Y denotes license service area (LSA of OAP)
    ABCDEF is a header assigned to the principal entity
     
    Even today, all mobile subscribers continue to receive SMS with these short codes and headers, but TRAI is unwilling to share this list for reasons best known to it only. In April 2020, I wrote about how finally TRAI had told me under the Right to Information (RTI) that it does not have a record of any telemarketer in India. (Read: Fraudsters, Spammers Are Having a Free Ride as TRAI Says it Has No Information about Them)
     
    I had also pointed out how there are many entities that continue actively in the telemarketing business even after they cease to exist as TSPs. 
     
    This issue seems to have been resolved by TRAI through its new directions. As per the new list there are only 11 service providers. And no surprises, Reliance Communication Ltd (RCom) that closed its mobile telephony business is listed as a service provider in this list. 
     
    This list has the names of Aircel Ltd and Dishnet Wireless Ltd (code D), Bharti Airtel Ltd and Bharti Hexacom Ltd (code A), Bharat Sanchar Nigam Ltd (code B), Quadrant Televentures Ltd (code Q), Mahanagar Telephone Nigam Ltd (code M), Reliance Communications Ltd (code R), Reliance Jio Infocomm Ltd (code J), Reliance Telecom Ltd (code E), Tata Teleservices Ltd and Tata Teleservices (Maharashtra) Ltd (code T), Vodafone Idea Ltd (code V) and V-CON Mobile & Infra Private Ltd (code C). 
     
    Here are the names of the service providers and the codes assigned to them as well as the list of area codes...
     
     
    According to TRAI its new regulations permit the length of the header to go up to 11. Headers are also known as sender ID. So instead of XY - ABCDEF, as per the new directions, telemarketers can use XY - ABCDEFGH as well. 
     
    TRAI has shared the list of telemarketers or the principal agency registered with TSPs and the codes assigned to them. Since the code is revealed, it would be easier for subscribers to file a complaint against unsolicited commercial communication (UCC). However, the onus of following all guidelines and regulations is on the principal entity and TSP. 
     
    For example, many of us have received SMS for completing know-your-customer (KYC) for Paytm. Irrespective whether you have Paytm account or not we do get such SMS, which mostly lead to fraud or cheating with anyone who tries to complete the “formalities” for KYC. For example, many received such SMS from a header ‘BZ-ALERTZ’. However, this does not say anything about the sender. So, when you have the list of telemarketers, you would know exactly who is the sender behind such fraud SMS and take necessary action. (BTW: when I tweeted about this SMS, Paytm plainly told me that it does not send such messages! Nothing on taking any action against the spammers that may be spoiling Paytm’s brand image.)
     
     
    As per TRAI directions, every entity that wishes to use SMS for sending commercial communication is required to register on distributed ledger technology (DLT) platforms, maintained and supported by telecom operators, and obtain the necessary header. 
     
    Unless the telemarketer obtains a header, all SMSs would be blocked by telecom service providers (TSPs). Some telemarketers may try to use and allow transactional traffic under common headers but this is against TRAI regulations and is thus not allowed. 
     
    There are two types of headers available for telemarketers, promotional and others like transaction related or updates. The header selected must match the entity name. If the header name is different, the registrant entity needs to justify it. Also, as per TRAI directions, headers or sender names are case-sensitive. For example, ABCDEF and abcdef are two different sender names and need to be registered separately. The registrant entity can choose any telemarketing agency for sending its SMS. 
     
    While TRAI sharing the list of registered entities that want to send commercial communication to mobile subscribers is a welcome step, what is most important is the grievance redress mechanism for speedy solution. 
     
    As is known, there is no grievance redressal mechanism available for telecom subscribers in TRAI. The telecom regulator does not pay any heed to grievances of individual subscribers and, at the most, just forwards the complaint to the respective telecom service provider to resolve. 
     
    So even if you have a complaint on receiving a UCC or spam SMS on your zero do not call (DNC) number, your complaint will go to the telecom operator. Since telcos earn money from telemarketers, your complaint against UCC would remain unresolved or your complaint would be closed citing flimsy reasons like ‘opted preference’ or ‘service-related message’ on your zero DNC number. 
     
    Though a bit late in the day, TRAI has finally shared the list and header codes used by telemarketers. Who knows, one day, the telecom regulator may even wake up and actively start helping resolve the grievances of subscribers! 
     
    Here is the 474-page list of registered entities and codes provide to them by the telecom services provides.
     
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    COMMENTS

    knowledge2uday

    1 week ago

    Good Information.. But unable to understand how to identify the actual entity behind the SMS.. In your Case, the message has come from BZ-ALERTZ.
    B = BSNL
    Z = Maharashtra (Both from your list)

    But don't find ALERTZ in the 474 page document ?

    Would be helpful if you could help trace one number back to the original source as an example to make complete use of this data. Thank You.

    REPLY

    yogesh

    In Reply to knowledge2uday 1 week ago

    Thanks for your comment. TRAI has released the list recently, while the example I had shared is from March 2020. This is the new list and hence all old names and headers (codes) may not be there. For e.g. HFCL was one of the telcos, however, its name is missing from the new list.
    Also TRAI had given an excel file on its website, which can be used to search names.

    DeepakSB

    In Reply to yogesh 1 week ago

    Is this link on TRAI site you are referring to ? http://www.nccptrai.gov.in/nccpregistry/listoftmstateanddistrict.misc?method=loadStates

    No details displayed and when clicked it gives connection timeout error.

    knowledge2uday

    In Reply to yogesh 1 week ago

    Thank you for the response. Possible to share the link to the file that you are referring to ? Tried to search for the list, unable to locate the exact link that you are referring to. Thanks !

    yogesh

    In Reply to knowledge2uday 7 days ago

    Here are the links...

    Details & explanation of Headers & Prefixes
    https://www.trai.gov.in/sites/default/files/Detail_Header_Prefixes_16062020_0.pdf

    SMS Headers list (In pdf)
    https://www.trai.gov.in/sites/default/files/List_SMS_Headers_16062020_0.pdf

    SMS Headers list (In xlsx)
    https://www.trai.gov.in/sites/default/files/List_SMS_Headers_16062020_0.xlsx

    peeyagarwal

    2 weeks ago

    It is really good to know. Few suggestions to use it effectively: a. There shall be identifier for classifying CC, UCC or USS. b. TRAI shall update the list almost daily and instead of deleting shall mark status as inactive/terminated etc. c. TSP & OSP shall be made liable for any fraudulent messages like PayTM one. I also received three such messages but do not find any single ID in the list of 474 pages.

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