Allaying fears of any threat to the banking system, Reserve Bank governor Shaktikanta Das on Friday asked the public not to panic as the entire banking system, including cooperative ones, continue to remain sound and stable.
In the wake of the crisis at Punjab & Maharashtra Cooperative (PMC) Bank, the RBI is reviewing the existing regulatory framework for cooperative banks and will discuss the matter with the government, Das said.
The statement assumes importance as PMC is the 24th cooperative bank to be placed under RBI administrators in 2019 and there are many regulatory and administrative gaps in the system as the states have a big say in their matters. Also, there is political interference in their functioning.
Urban cooperative banks are registered as cooperative societies either with the State Cooperative Societies Act or the Multi-State Cooperative Societies Act, 2002 and are regulated and supervised by the Registrar of Cooperative Societies of the respective states or by the Central Registrar of Cooperative Societies.
The RBI regulates and supervises only the banking functions of the urban cooperatives and carries out on-site inspections and off-site surveillance on them and also issues directions and operational instructions to protect the interest of the depositors.
"So far as the RBI is concerned, I would like to make it very clear that our banking sector remains sound and stable and there is no reason for any unnecessary panic," Das told reporters at the customary post-policy presser.
He said sometimes unnecessary rumours can create panic and urged the public to not to pay attention to them.
On September 23, RBI had put a slew of restrictions on PMC after finding financial irregularities and under-reporting of loans given to the bankrupt real estate developer HDIL.
Das claimed that RBI acted very swiftly and promptly, when the issue was brought to its notice. The RBI superseded the previous management and appointed administrator at the urban cooperative bank. It also revised the withdrawal limit from an initial amount of Rs 1,000 per depositors to Rs 10,000 and very recently to Rs 25,000 per account.
However, it can be noted that the scam and underreporting at PMC was on for the past several years and RBI's own annual inspections did not find anything amiss all these years and the action came only after a board member blew the lid over on September 17.
The governor also assured that RBI would not allow any cooperative bank to collapse. "One incident cannot be and should not be used to generalise the health of the cooperative banking sector," he emphasised.
Das said the RBI is also reviewing the regulatory framework of cooperative banks.
"Based on our review, we will take a fresh look at the regulatory framework of the cooperative banks. If any changes are required, we will take up with the matter with the government," he said.
As per the confession made by the suspended managing director of PMC Bank Joy Thomas, the bank kept maintained its loans to HDIL-as much as over 73 percent of its book or Rs 6,500 crore of the Rs 8,880 crore assets, as standard even when the bankrupt real estate company was defaulting on repayments from the past two-three years.
Asked why was RBI, which carries out annual inspection of all cooperative banks, was not able to identify the problems all these years, all Das said was that all aspects of PMC is being looked into.
"Since the matter is under the investigation of the EOW, I would not like to go into any further now," he said.
On whether the deposit insurance cover should be enhanced from the present Rs 1 lakh, deputy governor NS Vishwanathan said there has been a demand for the same but no decision has been taken yet.
"There has been a demand in the past as well but to the extent of deposit insurance cover, there are many elements that get into it as to how much percentage of deposits should get covered and how many percentage of depositors should be covered. Though there have been studies on the topic no final decision has been taken," he said.
Stating that RBI is monitoring the top 50 NBFCs and HFCs, he said, "RBI will endeavour to ensure that we do not encounter failure of another large systematically important NBFC. With that objective we are monitoring them."