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...