Banking Central | Insulating co-operative banks from politicians

India’s reserve bank trip to the politician bar from the top position at a cooperative bank is a dose of regulatory action that is very much needed in the sector hit by fraud and serious concerns about how the depositors obtained with difficulty.

Local politicians and countries have controlled Indian cooperative banks for years. Political disorders in loan decisions create non-holy Nexus between banks and such companies, which lead to rampant corruption, mislaping public money and finally the collapse of many cooperative banks.

The golden rule of the caution is forgotten. Local politicians often protect errors in these banks by emphasizing bank management to give birth to their lines. Most of the cooperative bank crises, including at Bank Co-Operative Punjab and Maharashtra (PMC Bank), can be traced back to the involvement of local politics at some point. When cookies were destroyed finally, the mistake was easily forwarded to bank officials which were actually only the tools of real perpetrators.

Reserve Bank of India (RBI) has now woken up finally to act on this problem. In the notification issued on June 25, RBI said MPs, MLA and members of the city or other local agencies could not hold the Managing Director (MD) office or Director (WTD) at the Urban Cooperative Bank. The central bank said the direction instructions apply to all Primary Cooperative Banks (UCB). They also may not be the director of any company other than companies listed under Section 8 of the Act Company, 2013 or become partners from any company who trade, business or industry, RBI said.

This is a step welcome and will help accelerate the process of cleaning cooperative banks and isolate them from damaging political involvement in daily operations. “At least, that’s his hope,” said an RBI official writer with anonymity requirements. “Political involvement makes this informal bank operation informally and it is difficult for the RBI to understand what really happened in the bank,” the official said.

These institutions are an important part of the banking system from the perspective of financial inclusion. Therefore, these companies need close attention to regulations. The health of the cooperative banking industry is falling apart at this time. RBI has clamped several cooperative banks that erred in the past two years.

In May this year, RBI canceled the United Co-Operative Bank Ltd. license, Bagnan in West Bengal due to poor financial conditions. On April 22, he canceled the license of Bhagyodaya’s friends based in Maharashtra, Urban Cooperative Bank Limited because capital was inadequate. In 2020, it was clamped at Vasandada Nagari Sahakari Bank, Karad Janata Sahakari Bank, CKP Co-Operative Bank and Bank Co-Operative Mapusa Urban Goa.

Simply written about the fate of cooperative banks. Poor governance, light touch regulation, local political intervention and change in the composition of the banking industry which leads to strict competition is all factors that have an impact on the cooperative banking industry.

Rural cooperative bank, a larger number, facing Brunt more, while after PMC-episode, urban cooperative bank, which is greater, has received some regulatory attention (RBI has more power to regulate these banks now). But the problem of double regulation in connection with smaller cooperative banks still continues.

The collapse of corporate governance and the next rbi at the Cooperative Bank has shaken depositors’ trust in these institutions. If someone sees a recent past, a big example is PMC Bank where thousands of depositors are still waiting for the resolution to occur and get the money obtained with difficulty from the bank. Regulatory work is to restore the confidence in these banks. Freed the cooperative bank from political influence is a big step in this direction.