Mumbai: Cooperative banks, which have been essential in providing banking services in rural and semi-rural regions, have had to contend with a variety of problems, including double regulation, poor financial standing, and local politics. Cooperative banks that have gone astray have been under pressure from the Reserve Bank of India (RBI). The RBI has cancelled the licenses of eight cooperative banks in the Fiscal Year 2023.
These banks are Seva Vikas Cooperative Bank, Deccan Urban Cooperative, Millath Cooperative Bank, Mudhol Cooperative Bank, Shri Anand Cooperative Bank, Rupee Cooperative Bank, Babaji Date Mahila Urban Bank and Laxmi Cooperative Bank.
The reasons for cancellation ranged from non-compliance or failing to meet regulatory requirements to insufficient capital as per the Banking Regulation Act. They also found lacking future earning potential. The regulatory body has been closely monitoring the cooperative banking industry for many years. On a regular basis, it has fined or revoked licences for noncompliance.
What are cooperative banks?
It is a company founded on a cooperative basis to handle standard banking operations. In order to start a cooperative bank, money is raised through the sale of shares, along with deposits and loans. They are cooperative credit unions in which individuals from the same community come together to provide one another with loans on advantageous conditions.
They are registered under the Multi-State Cooperative Societies Act of 2002 or the Cooperative Societies Act of the relevant State. The Banking Laws (Co-operative Societies) Act, of 1955, and the Banking Regulations Act, of 1949, both control cooperative banks.
They can be generally split into cooperative urban and rural banks. There are the following reasons for which licenses have been revoked.
Inadequate capital
The Millath Co-operative Bank Ltd., Davangere, Karnataka, had its licence terminated due to a capital deficiency, the Reserve Bank of India (RBI) declared on June 18, 2022. As a result, on June 18, 2022, at the conclusion of business, it stopped operating as a bank. This is just an instance.
The bank lacks sufficient capital and earning potential. Therefore, it does not adhere to the rules of Sections 11(1) and 22(3)(d) read in conjunction with Section 56 of the Banking Regulation Act, 1949. According to a press statement from the RBI, the bank “has failed to comply with the requirements of Sections 22(3)(a), 22(3)(b), 22(3)(c), 22(3)(d), and 22(3)(e) read with Section 56 of the Banking Regulation Act, 1949.”
Another case is Laxmi Cooperative Bank in Solapur. This bank met with the same fate.
Monetary penalties
The RBI has on occasion levied monetary fines between Rs 50,000 and Rs 5 lakh for infractions. These banks have been charged with a range of breaches, including failing to pay interest on balances in the current accounts of deceased individual depositors and breaking Know Your Customer (KYC) rules by entering ‘One Time Settlements’ without the RBI’s prior written authorisation.
While one must check whether they have their bank accounts in the aforementioned banks, it is not imperative that the cooperative banks fail. There are several cooperative banks and societies that run successfully.
