Dual Control Over Ucbs Unavoidable

The Reserve Bank of India has suggested that beyond what has already been recommended by the high power committee on urban cooperative banks (Madhav Rao committee), state authorities should be prevented from taking action or exercising powers in conflict with the rules/regulations issued by the Reserve Bank.

Responding to a query posed by the Joint Parliamentary Committee probing the recent stock market scam, as to whether the RBI should be given more powers to regulate activities of cooperative banks to end the dual control by the central bank and the registrar of cooperative societies, the RBI has said "Co-operation being a state subject, dual control over urban cooperative banks (UCBs) by the Registrar of Cooperative Societies and by the RBI is unavoidable."

"However", the RBI has argued, "if there are clear cut demarcations of control over cooperative banks, then the supervision by the RBI will be more effective."

RBI said it is already empowered to inspect UCBs. While one part of the inspection is for the limited purpose of granting licence to existing unlicenced UCBs, the RBI has said, inspection under section 35 of the Banking Regulation Act is a comprehensive one and covers all aspects of the bank.

The Reserve Bank can follow up with the bank for rectification of irregularities observed in the functioning of the bank. "However, in matters relating to management aspects," the RBI goes on to add, "the follow up action involves intervention of the state authorities under the cooperative law of the state."

"It has been our experience that this intervention delays/dilutes the effective follow up action by the Reserve Bank," the RBI has said in its deposition.

It is in this context that the RBI says, beyond what has been recommended by the Madhav Rao committee, "certain other provisions (are) considered necessary for effective follow-up by the Reserve Bank."

Included herein are powers to prevent the state authorities from taking any action or exercising powers in conflict with the rules and regulations of the Reserve Bank, and enabling the RBI to take direct action in the event of omission by the state authorities to take timely action.

Further, the RBI wants powers to recover bank funds siphoned of, from the personal assets of guilty persons and the attachment of such assets. It also wants powers to apply to a court directly for winding up of a cooperative bank, as in the case of commercial banks.