In 2020, the central government amended the Banking Regulation Act to give Reserve Bank of India added supervisory powers over cooperative banks
The Reserve Bank of India (RBI) penalised over 180 banks in 2022 for breaching various regulatory norms. This is the largest number of penalties issued by the central bank in a year since it got supervisory powers over erring cooperative banks two years ago.
In 2020, the RBI had penalised 22 cooperative banks and it jumped to 124 banks in 2021, as per a Mint report. It was in 2020 that the central government amended the Banking Regulation Act (as applicable to cooperative societies) to give the central bank added supervisory powers.
The penalties issued in 2022 were for violations such as not maintaining mandatory cash reserve ratio (CRR) buffer, not having robust IT infrastructure to detect suspicious transactions, not complying with regulations on bill discounting, etc.
The 2020 amendment, made via an ordinance, came about after several alleged irregularities emerged in loan accounts at Punjab and Maharashtra Cooperative Bank. Before the change in law, RBI had limited means to supervise cooperative banks.
The RBI also cancelled the licenses of 12 cooperative banks in 2022, according to Moneycontrol. This included Independence Cooperative Bank Limited, People’s Cooperative Bank Limited, Mudhol Cooperative Bank Limited, Mantha Urban Cooperative Bank Ltd and Millath Cooperative Bank Limited, among others.
In the RBI’s Report on Trend and Progress of Banking in India published on 27 December, the central bank had flagged the deficient corporate governance in cooperative banks as a matter of concern.
It said, “In recent period…this sector has faced challenges emanating from ownership structure, deficient corporate governance practices, and rising incidence of fraud, and issues arising from the dual regulations by the Reserve Bank and the government.”