RBI’s note of caution

ADDRESSING directors of urban cooperative banks (UCBs), RBI Governor Shaktikanta Das has red-flagged ‘excessive dominance’ by one or two board members even in ‘big commercial banks’. Asking lenders to desist from such practices, he has stated that board discussions should be free, fair and democratic. Extending support to the depositors, Das has said that the protection of their money is not only the most important responsibility of a bank but also a duty even more sacred than visiting a place of worship.

The RBI chief’s words are aimed at reassuring people, especially from the middle and lower classes, who are worried about the safety of their deposits in the wake of mega scams that have hit the Indian banking sector in recent years. The collapse of the Punjab and Maharashtra Cooperative Bank in 2019 had put the entire urban cooperative banking system under sharp scrutiny. The RBI Governor has noted that though the gross non-performing assets ratio of UCBs has improved to 8.7 per cent, it still has not reached a ‘comfortable’ level.

It is a cause for concern that some directors of UCBs lack expertise in credit risk management and other aspects of banking. Their political clout helps them call the shots, to the detriment of customers who have deposited their hard-earned money in these banks. The mess in the Kerala cooperative sector is a case in point. The Enforcement Directorate is investigating the

Rs 150-crore Karuvannur bank scam; the case pertains to alleged fraud in the CPM-controlled cooperative bank in Thrissur. The probe has put the ruling Left Democratic Front on a sticky wicket. Amid a political slugfest, CPM-administered Kandala Service Cooperative Bank in rural Thiruvananthapuram has also lost the trust of depositors. The bank’s assets depreciated by Rs 101 crore between 2005 and 2021, allegedly due to mismanagement and financial irregularities. Considering that cooperative banks are a pillar of the banking system, a clean-up in Kerala and other parts of the country is the need of the hour. 

#Reserve Bank of India RBI