Fall of Rajkot Co-op Bank a proof for lax RBI norms

The Rajkot Mercantile Co-operative Bank (RMCB), which was barred from banking operations on last Saturday, is a classic example of what ails Gujarat's co-operative banking sector.

Here is a bank that was accepting deposits from the public and even providing loans to them without a licence.

People kept depositing their money in the bank which was not in a position to insure even a single rupee of deposits. The State Registrar of Co-operatives was allowing the bank to function without appointing an administrator despite the fact that the Reserve Bank of India (RBI) had asked it to appoint an administrator way back in 2001.

And while the bank management and even the association of urban co-operative banks of Saurashtra blame the RBI stance on co-operative banks and the government policies for the sector, the worst hit will be the 10,000-odd account holders.

RMCB is not in the list of licensed urban co-operative banks, and hence no deposits are insured with the Deposit Insurance Credit Guarantee Corporation of India (DICGC).

In fact, the DICGC had returned the premium cheques paid by the bank to it, as the bank did not have a licence.

On his part, Hemang Vasavada, managing director of RMCB, said that it appeared as if the Central government was intent on wiping out co-operative banks.

"There is no policy on how to deal with co-operative banks. We believe that the government, through the RBI, wants to wipe out co-operative banks. Our bank was on a path of recovery," he said.

But asked why RMCB was collecting deposits even when it knew that it did not have a licence and hence its deposits were not insured, Vasavada said people were still willing to deposit money with the bank.

Asked what the bank will now do to repay back deposits, he said - "The government has appointed a liquidator for the bank. He will now decide what must be done."

The Saurashtra and Kutch Urban Co-operative Banks Federation (SKUCBF) lays the blame solely on the state government machinery and the RBI for the mess that RMCB has landed in.

"The RBI should have stepped in earlier and stopped the bank from activities. It has debarred it at a time when it has just begun to recover. The RBI action is not illegal, but it has been timed wrongly," said a SKUCBF office bearer.

A prominent banker in Rajkot said that directors of the bank, the registrar of co-operatives and the Rajkot District Co-operative Bank (RDCB) are to be blamed for the mess that RMCB has landed in.

"The directors should have told the people that the deposits are not insured and the registrar of co-operatives should have checked malpractice's much earlier. Even the RDCB allowed the bank to use its clearing facility. The way out now is that criminal complaints should be lodged against the directors and the money should be recovered from them," the banker said.

Meanwhile, the Rajkot District Registrar of Co-operatives J M Katara on Tuesday took over charge as liquidator of the beleaguered RMCB, which has a branch in Rajkot city.

RMCB has around 10,000 accounts with deposits of around Rs 4.50 crore. Though less than 50 of them will have deposits in excess of Rs one lakh, the DICGC will not pay any insurance cover to the bank. On taking charge as a liquidator of the bank, Katara said that the payment to the depositors and investors of the bank would be made after recovery of outstanding dues from those whom the bank has lent money.

"My first step as a liquidator will be to ensure recovery of Rs 4 crore from the former directors of the bank who have taken loans and have not paid back," he said.