Finmin Averse To Regulator For Urban Co-Op Banks Alone

The finance ministry does not favour Reserve Bank of India's (RBI) proposal to set up a new regulator exclusively for urban co-operative banks.

Senior ministry officials said that the proposal, which envisages a monitor with representation from RBI, urban co-operative banks and state governments, does not address the problem of dual control.

They said the proposal would mean that there would be a separate regulator for rural co-operatives in National Bank for Rural and Agricultural Development (Nabard), and the new body would regulate urban co-operative banks.

"We are not opposed to the proposal as such. What we are saying is that this still leaves scope for manipulation and we want to plug all the loopholes," said an official.

The ministry has also sought a more comprehensive view and inclusion of all co-operative banks and not just urban co-operative banks under a regulator.

The apex bank made a detailed presentation to the ministry today. The RBI team was led by deputy governor G Muniappan and executive directors Mathur and Deshpande.

The finance minister Yashwant Sinha was accompanied by two joint secretaries, Purakayastha and Shekhar Agarwal.

The finance minister also asked the RBI delegation why does the apex bank want to get out of supervising urban co-operative banks when people had faith in it.

Meanwhile, sources said the financial sector division in the finance ministry would discuss the issue further with RBI. A committee of ministers from state governments is also looking into the issue.

The apex bank is expected to submit a fresh proposal incorporating the finance ministry's suggestions on the issue.

The issue of regulatory practices for urban co-operative banks came into sharp focus following the stock market crash following this year's Union budget.

A number of entities, including the Ahmedabad-based Madhavpura Mercantile Co-operative Bank and City Co-operative Bank have come under the scrutiny of the joint parliamentary committee probing the stock market crash early this year.

Last year, a committee headed by former RBI deputy governor Jagdish Capoor had recommended that the banking functions of co-operatives, which are governed under their respective state co-operative societies Acts, be brought under the Banking Regulations Act.