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RBI’s new curbs on urban cooperative banks

by Raju Vernekar
0 comment 3 minutes read

IT News
Mumbai, Jan 5

As a sequel to Rs 6300 crore fraud in the Punjab and Maharashtra Cooperative (PMC) Bank, having branches in 6 states, RBI has decided to make it compulsory for Primary (Urban) Co-operative Banks (UCBs) having total assets of Rs.500 crore (as of end March 2019), to report credit information, including classification of an account as Special Mention Account (SMA), on all borrowers having aggregate exposures of Rs.5 crore.
The coop banks will be required to submit information to Central Repository of Information on Large Credits (CRILC) maintained by the RBI. Aggregate exposure shall include all fund-based and non-fund based exposure, including investment exposure on the borrower. RBI notification dated 27 December 2019 stated.
The new curbs include: the creation of a board of management (in addition to a board of directors), is aimed at addressing the issues arising out of dual control. Urban cooperative banks with deposits above Rs.100 crore must constitute a board of management (BOM).This requirement will be a mandatory for opening new branches. Since UCBs are accepting public deposits, it is imperative that a separate mechanism be put in place to protect the interests of depositors,” said the RBI in its notification.
The BOM will comprise expert banking professionals. It will also exercise oversight on banking-related functions of the UCBs, assist the Board of Directors (BOD) on formulation of policies and any other related matter, specifically delegated to it by the board for proper functioning of the bank.
The BOM will be constituted by the BOD within a period of one year from the date of the circular, and have a minimum of five members and may have as many as 12 members. The chairman of the BOM may be elected by the members from among themselves, or appointed by the BOD, it added. UCBs will have to make suitable amendments to their by-laws, with the approval of the general body and registrar of cooperative societies to provide for the constitution of BOM, in addition to the BOD.
The CEO of a UCB may be appointed by the board, and he should be a person meeting the ‘fit and proper’ criteria. UCBs having deposits of Rs.100 crore and more will obtain prior approval of the RBI for the appointment of a CEO. The CEO will be a non-voting member, the RBI said.
The RBI has also issued a comprehensive cyber security framework for UCBs, based on a graded approach and the banks have been categorised into four levels based on their digital depth and interconnectedness to the payment systems landscape.
The decision assumes significance against the backdrop of a scam at Punjab and Maharashtra Cooperative Bank, which has affected 915,000 depositors. 21,049 bank accounts were opened by bogus names to conceal 44 loan accounts and the bank’s software was also tampered to conceal these loan accounts.
Besides, the PMC bank allegedly favoured “ Housing Development and Infrastructure Ltd” (HDIL) and allowed it to operate password protected ‘masked accounts’. Statutory inspection of PMC by the RBI revealed large group exposure of about Rs.6,226.01 crore to HDIL and its group companies. Of the total exposure to the HDIL group, only Rs.439.58 crore was disclosed to the RBI while Rs.5,786.43 crore remained undisclosed.  
In the meanwhile the Economic Offences Wing (EOW) of Mumbai Police has arrested 12 people, including 5 top bank officials, in connection with the PMC Bank fraud.

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