After the Punjab and Maharashtra Cooperative (PMC) became the latest bank indulging in fraudulent activities, the Reserve Bank of India (RBI) and finance ministry have started to work out an improved framework for regulating co-operative banks in the country. Financial daily, the Economic Times reported that Grant Thornton is conducting a forensic audit for RBI. The audit firm is assessing the authenticity of the accounts.
After PMC bank became the 24th bank to have faced restrictions on withdrawals from the central bank, the government finally has decided to urgently plug in gaps in the oversight of cooperative banks and societies as they pose wider risks to the country's financial sector.
Since the start of 2019, RBI has invoked section 35(A) of the Banking Regulation Act, putting a cap on withdrawals on 24 banks. The co-operative banks that have been served a restriction on withdrawal include Kapol Co-operative Bank, Rupee Co-operative Bank, Mercantile Co-operative Bank and The City Co-operative Bank among others.
Other banks apart from PMC bank that has seen section 35 (A) invoked against them are Mapusa Urban Co-operative Bank of Goa, Kerala Mercantile Co-operative Bank, The Maratha Sahakari Bank, The CKP Co-operative Bank and Bidar Mahila Urban Co-operative Bank among others. Amid a large number of banks coming under restriction, the finance ministry has started to strengthen the framework.
RBI passed an order on September 23, limiting all the withdrawals from PMC bank at Rs. 1,000. The limit was later raised to Rs 10,000 and further enhanced to Rs 25,000 on October 3. Generally, the withdrawal is capped in order to stop the management from siphoning the bank's cash holdings.
Notably, two cooperative societies of current and former RBI employees still have deposits of around Rs. 200 crores with PMC bank and has not been withdrawn yet. Moreover, the RBI has put a restriction on withdrawal at 5% to check any multiplier effect.
One of the RBI officials confirmed that apart from strengthening the framework for oversight of cooperatives, the central bank is also reviewing the cap of Rs 25,000 on withdrawals which could be removed soon. "The interests of depositors and revival are the foremost priorities. RBI and the finance ministry have started work on a tighter framework for oversight of such entities," he added.