Letter to BS: Keeping PMC Bank crisis in mind, don't let Kerala Bank fail

Since the beginning of the last century when the cooperative movement emerged in India, cooperative banks have played a proactive role in the economic development and social life of Kerala. Attempts by vested interests to capture and manage cooperative institutions and efforts to circumvent regulatory and supervisory requirements did affect the growth of this ideal institutional system, off and on. The problems faced by cooperative banks during demonetisation (2016) and the recent failure of the Punjab and Maharashtra Co-operative (PMC) Bank can be traced to such intervention by external forces.

The conditions relating to capital adequacy, management and institutional set-up subject to which the Reserve bank has given the go ahead to Kerala Bank appear very liberal. In the context of the recent PMC Bank failure, the stipulation that administration and management will be guided by the present guidelines for managing urban cooperative banks may need review even before the commencement of business by Kerala Bank. In all probability, it will be the biggest cooperative bank in India and soon get categorised under the "too big to fail” category. That adds to the central government's and the RBI’s responsibility to ensure that the dual control (state government having a major role in management matters and RBI’s regulatory and supervisory role) does not adversely affect the institution’s smooth functioning.

M G Warrier, Mumbai

Letters can be mailed, faxed or e-mailed to: 

The Editor, Business Standard

Nehru House, 4 Bahadur Shah Zafar Marg 

New Delhi 110 002 

Fax: (011) 23720201  •  

E-mail: letters@bsmail.in

All letters must have a postal address and telephone number