Deccan Urban Co-operative Bank and Rupee Co-operative Bank have both had their licences revoked by the Reserve Bank of India (RBI) in August. RBI also issued fines to 15 urban co-operative banks (UCBs).
RBI released a statement cancelling Rupee Co-operative Bank’s licence on 10 August, on the grounds that it “does not have adequate capital and earning prospects”, meaning they would be unable to pay present depositors in full. RBI described the continuance of the bank as “prejudicial to the interests of its depositors”, and not in the public interest. Rupee Co-operative Bank will cease trading from 22 September.
Deccan Urban Co-operative Bank’s licence was revoked eight days later for the same reasons, and has now ceased trading.
On Monday, RBI issued fines of Rs 10.00 lakh (£10,832) each to: Bharat Heavy Electricals Employees’ Co-operative Bank for not adhering to directions regarding exposure norms or other restrictions; The Darussalam Co-operative Urban Bank for the violation of directions issued under income recognition, asset classification, provisioning and other UCB related matters, as well directions regarding its board of directors-UCBs”; The Nellore Co-operative Urban Bank Limited for issuing loans to directors or their relatives and firms and violating directions regarding exposure norms; and Kakinada Co-operative Town Bank for not adhering to directions regarding the establishment of a depositor education and awareness fund, as well as violating directions issued under income recognition, asset classification, provisioning and other UCB related matters.
National Urban Co-operative Bank was fined Rs 5.00 lakh (£5,416) for non-compliance with RBI’s directions on income recognition, asset classification, provisioning and other related matters for UCBs, as was The Ottapalam Co-operative Urban Bank for contravening the same directions as well as the Know Your Customer(KYC) guidelines for urban co-op banks. KYC guidelines are in place to prevent money laundering.
The Kendrapara Urban Cooperative Bank received a Rs 1.00 lakh (£1,083) fine for also contravening the KYC directions.
The Visakhapatnam Co-operative Bank was fined Rs 55.00 lakh (£59,552) for violation of directions relating to income recognition, asset classification, provisioning and other related matters, as well as finance for housing schemes.
These penalties come after seven other co-ops received monetary fines earlier in August for a range of direction violations.
Thodupuzha Urban Co-operative Bank has also had restrictions placed on its activity for a six month period from 23 August, due to its current liquidity position. Customers are no longer able to withdraw funds from the bank, and Thodupuzha is prohibited from accepting new deposits, granting or renewing loans or making any new investments without prior approval from RBI. A further four UCBs have had existing restriction periods extended.
This kind of action from RBI has become a regular occurrence for India’s co-operative banking sector in recent years. In 2020, the country’s UCBs were brought under the supervision of the RBI, giving it the power to audit co-op banks as well to approve mergers and the appointment of CEOs.