Urban co-op banks must be mindful of trust reposed by depositors: RBI Guv

RBI Governor Sanjay Malhotra advised the UCBs to ensure that they remain operationally resilient, including against IT and cyber-related risks

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday asked urban cooperative banks (UCBs) to be "mindful" of their responsibilities, particularly in view of the "trust reposed" in them by depositors.

 

The RBI Governor met with stakeholders of select UCBs, as well as representatives from the National Urban Cooperative Finance and Development Corporation Limited (NUCFDC) and the National Federation of Urban Cooperative Banks & Credit Societies Limited (NAFCUB), the central bank said in a statement. The meeting was a part of the Reserve Bank's series of engagements with its regulated entities.

 

During the meeting, Malhotra said while the RBI will continue to support the sector in its growth ambitions, the UCBs also need to maintain high standards of customer service to build and retain trust. He also advised the UCBs to ensure that they remain operationally resilient, including against IT and cyber-related risks.

 

Malhotra acknowledged the significant role played by UCBs in promoting financial inclusion at the grassroots level and invited suggestions on regulatory and operational challenges facing the sector.

 

RBI Deputy Governors M Rajeshwar Rao and Swaminathan J, along with executive directors overseeing regulation and supervision, were also present at the meeting.

 

The meeting comes at a time when the urban cooperative banking sector is under scrutiny following allegations of financial misappropriation at the New India Cooperative Bank.

 

Financial misconduct at New India Cooperative Bank

 

Financial irregularities at New India Cooperative Bank were first detected during an internal audit, which revealed significant cash shortages at the bank’s Prabhadevi and Goregaon branches in Mumbai. This led to the RBI imposing strict restrictions on the bank, including curbs on deposit withdrawals, citing supervisory concerns. Many depositors panicked, while lined up outside the closed bank branches.

 

Two days later on February 15, the Economic Offences Wing (EOW) of Mumbai Police arrested Hitesh Mehta, the bank's general manager and head of accounts, for allegedly siphoning off Rs 122 crore.

 

On February 16, the central bank went a step further by superseding the cooperative bank’s board and appointing an administrator to oversee its affairs for a year.