Memorandum to RBI Suggests Quick Sale of PMC Bank & Implementing Gandhi Committee Report to Prevent Frequent Collapse of Cooperative Banks
Moneylife Digital Team 14 October 2019
Seeking urgent action to safeguard depositors of cooperative banks that are witnessing frequent failures, Moneylife Foundation, a Mumbai-based non-profit consumer organisation (NGO), along with knowledgeable consumer activists, former bankers and trade unions, has sent a memorandum to Reserve Bank of India (RBI) governor Shaktikanta Das. 
 
"We are disturbed at the frequent failure of cooperative banks, largely on account of division of regulatory responsibility between RBI and the central registrar of cooperative societies. We thank you for your public statement and commitment not to allow any cooperative banks to collapse. This has raised expectations that PMC Bank and its deposits will also be salvaged through some tough action," the memorandum, sent to the RBI governor on 10 October 2019, says.
 
Last week, while speaking with reporters after the monetary policy, Mr Das had stated, “RBI would not allow a cooperative bank to collapse. Cooperative banks develop their own problem because of so many other factors. The discussion with government with regard to the regulatory provisions of cooperative banks, which, as you know are different from the other scheduled commercial banks. So that is an ongoing process. We are in discussion with the government.”
 
Copies of the memorandum are also sent to prime minister (PM) Narendra Modi, finance minister (FM) Nirmala Sitharaman, and finance secretary Rajiv Kumar. 
 
Highlighting the dual regulation in cooperative banking sector and failure of RBI, finance ministry and state governments to change the policies on (cooperative banks), the memorandum recommends  adoption of a single regulation by RBI for all cooperative banks, starting with all multi-state cooperative banks. 
 
In the light of huge fraud in Punjab and Maharashtra Cooperative (PMC) Bank, the memorandum asks RBI to urgently publish status update or a preliminary report within one week, the recoverability and security of loan given to Housing Development and Infrastructure Ltd (HDIL) by PMC Bank.
 
Here are the other recommendations from the Memorandum...
 
  • The RBI needs to study feasibility of selling PMC Bank along with its assets in order to save jobs and as a part of immediate course correction. The RBI needs to make urgent and sincere attempts to sell the bank branches and operations to other banks (which are looking to expand) in case there are no chances of being able to resurrect the currently crippled bank and putting the bank back on the rails.

 

  • If 70% depositors are covered by the current withdrawal restriction of Rs25,000, the RBI must release a list of other depositors and amounts stuck.

 

  • RBI must meet with all stakeholders at the earliest and take stock of the situation to ensure possible recoveries of the largest non-performing assets (NPAs) of PMC Bank on an urgent basis and look at other options if the recoveries are likely to be delayed.

 

  • The customers of PMC Bank need to get their stuck money—savings account, fixed deposits (FDs) refunded as early as possible as was done in Madhavpura Mercantile Cooperative Bank.

 

  • RBI needs to order an investigation in all other cooperative banks and assure people they are safe.

 

  • The RBI must look to immediately implement the key measures of the R Gandhi Committee report: amend Section 56 of the Banking Regulation Act to give the RBI more powers over cooperative banks, empower the RBI to implement resolution techniques including winding up and liquidating banks without involving other regulators under the cooperative societies’ laws.

 

  • Cooperative banks must be allowed to convert to small finance banks if they fulfil the RBI’s criteria.
 
 
Here is the copy of Memorandum sent to RBI Governor...
 
 
Comments
manojkamrarti
2 years ago
There were various reports for improving urban cooperative banks. The best report is Madhav Rao report (1999) which have given detailed legislative amendments .
manojkamrarti
2 years ago
All reports on RBI site on urban cooperative banks are more or less same as no report have been made independently exclusively from outsider. So content is same in all reports by showing fake helplessness in supervising cooperative banks due to dual nature etc. etc.
Much publicized 59 -page Gandhi report have copy-pasted same thing 3-times as following without giving any concrete suggestion to compel cooperative bank to comply banking norms as following------
(1) on page no. 5 of chapter-1--------At present, no powers are available with RBI for constituting boards of UCBs, removal of directors, supersession of BoDs, auditing of UCBs and
winding up and liquidation of UCBs. However, such powers for commercial
banks are vested with RBI. There are certain sections in the BR Act 1949
such as provisions of Section 10A (professional BoD), 10B (removal of a
whole time chairman), 30 (audit), 44 (winding-up of banks), 44A
(amalgamation of banking companies) and 45 (suspension of business)
which were not replicated while amending Section 56 of the BR Act, 1949.
These amendments can be incorporated in Section 56 of the Act ibid for
effective regulation and supervision of UCBs. In addition to these, the
committee identified and deliberated in detail on the problems and issues
afflicting the sector including restricted ability of UCBs to raise capital
resources and to handle risks, lack of RBI’s powers for supervision and
regulation of UCBs at par with commercial banks, lack of powers for
compulsory/voluntary merger etc. apart from the basic fault lines in the
structure of the urban co-operative banking sector. However, in view of the
limited terms of reference and the given time frame of the committee, the
long term solution to all the problems could not be covered under the
recommendations

(2) Chapter-3 page-24-25--3.3 At present, no powers are available with RBI for constituting boards of UCBs,
removal of directors, supersession of BoDs, auditing of UCBs and winding up and
liquidation of UCBs. However, such powers for commercial banks are vested with it.
There are certain sections of the BR Act 1949 such as provisions of Section 10A
(professional BoD), 10B (removal of whole time chairman), 30 (Audit), 44 (windingup of banks), 44A (amalgamation of banking companies) and 45(suspension of
business) which are not replicated in Section 56 of the BR Act, 1949, which sets out
the BR Act as applicable to co-operative societies.

(3)Chapter-5 page-47-------At present, no powers are available with RBI for constituting boards of
UCBs, removal of directors, supersession of BoD, auditing of UCBs and
winding up and liquidation of UCBs. However, such powers for commercial
banks are vested with RBI. There are certain sections in the BR, Act 1949
such as provisions of Section 10A (professional BoD), 10B (removal of a
whole time chairman), 30 (Audit), 44 (winding-up of banks), 44A
(amalgamation of banking companies) and 45(suspension of business)
which were not replicated while amending Section 56 of the BR Act, 1949.
These amendments can be incorporated in Section 56 of the Act ibid for
effective regulation and supervision of UCBs. In addition to these, the
Committee identified and deliberated in detail on the problems and issues
afflicting the sector including restricted ability of UCBs to raise capital
resources and to handle risks, lack of RBI’s powers for supervision and
regulation of UCBs at par with commercial banks, lack of powers for
compulsory/voluntary mergers etc. apart from the basic fault lines in the
structure of the urban co-operative banking sector. However, in view of the
limited terms of reference and the given time frame of the Committee, the
long term solution to all the problems could not be covered under the
recommendations.

Not even a single report on RBI website is worthwhile to compel cooperative banks to comply banking norms.
P M Ravindran
2 years ago
May I know where one can access the Gandhi Committee Report?

That besides, the question of dual accountability can be sorted out in two ways- one, depending on the issue banking issues to be dealt with by RBI and society issues to be dealt with by the Registrar Co Ops. There can also be a concurrent list, as in our Constitution, where the authority could be a judge with the representatives of RBI and Registrar Co Op as members. Or, the better option is to task the Registrar Co Op to ensure that in the case of banks under his jurisdiction he ensures that the RBI mandates are complied with. It is always better to have one authority to control any body with that authority being made responsible for ensuring that all mandates are complied with. For example if an industry is being set up in a village the Gram Panchayat should be tasked with ensuring that all permissions like, project clearance by the Industries dept, safety clearance by the concerned departments, pollution clearance by the PCB etc are obtained before the foundations stone is laid. And when I say tasking one authority it is not that they will issue directions to the one starting the industry to get it from these authorities but would actually accept a comprehensive application and process it with all concerned authorities themselves without the involvement of the applicant. It is generally known as single window scheme and is a much bandied term.
manojkamrarti
Replied to P M Ravindran comment 2 years ago
Rakesh Modi
2 years ago
Kapol Bank?? I have invested just bcos it was mentioned in RBI's website for atleast Rs.1 lakh insurance. 2.5 years have passed, no respite...., even the bank officials/managers/MD are very rude, when asked about the situation.
Girish Jaiswal
2 years ago
I am reading Money Life and it's research is really apt in PMC case.Can Monelife also help research and escalate the Pen Urban Cooperative Bank Fraud.

Too many small investors lost their hard earned money and still are fighting for getting their money back even after 10 years
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