Does RBI want co-operative banks to wither away?

RBIAfter the fiasco at Punjab and Maharashtra Co-operative Bank, It has caused a lot of panic among small depositors’ and is also confused by the RBI’s recent irregular decisions.

In this chaotic emergency pandemic situation like COVID-19, banking regulators are highly responsible for providing support and updates to the general public and small depositors and calm them, RBI has fined four cooperative banks. These decisions were communicated through different press releases. Also, banking licenses of two other co-operative banks were canceled during the lockdown.

Does one wonder what exactly the regulator has achieved by these slew of actions? Significantly, two of these fines were imposed in February. However, the press releases were not issued then, as is the normal regulatory practice in RBI. In February, the pandemic panic had not set in and banks were running smoothly. It would have been much easier for the banks concerned to communicate to their stakeholders and allay their apprehensions following the regulatory action.

The late and rather ill-timed announcements have sparked a lot of concern among small depositors. There were also many who could not get in touch with the Banks due to the nation-wide lockdown restrictions that were imposed by the Central government.

Ironically, these fines are related to inspections carried out for financial years 2016-17 and 2017-18. Also, the fines imposed are mostly the outcome of differences in the interpretation of some of the RBI circulars. While the majority of the banks which have been fined are financially sound, it is typical for depositors, still rattled by the PMC collapse, to be unnerved by regulatory actions against banks. All the more as most depositors are not in a position to appreciate the nature of violation relating to technical banking issues.


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