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Dual control hits effective UCB supervision

BS Banking Bureau in Mumbai

The Reserve Bank of India said it would be difficult to make the supervisory system effective, if the issue of dual control of urban co-operative banks (was not resolved soon.

Drawing attention to the present system of dual/triple regulatory and supervisory control (involving the Centre, states and RBI), the central bank in its mid-term review of the Monetary and Credit Policy, said it is neither conducive to the efficient functioning of the co-operative banks, nor in the interest of their depositors.

"While the RBI will do its best to implement the final decision of the government in this regard, it may be kept in view that in case immediate measures are not taken to remove duality of control, it would be difficult to make the supervisory system effective," the RBI said.

This stand of the RBI assumes significance in view of the fact that Union minister of state for finance, Anandrao Adsul, had recently said a supervisory body would shortly be set up to oversee the inspection and supervision of the 2,000 odd co-operative banks in the country. The proposed body is to be headed by the fourth deputy governor of the RBI.

The RBI had in its April 2001 credit policy announced a proposal to set up a new apex supervisory body to take over the entire inspection/supervisory functions relating to scheduled and non-scheduled UCBs in consultation with the central government.

The RBI had also subsequently submitted a draft Bill, which is under consideration of the government.

The RBI said in view of the involvement of local interest in the functioning of co-operative banks there is no consensus at present in favour of removing supervisory and regulatory responsibilities at central/state government levels, and for entrusting it exclusively to RBI.

This has resulted in the managements and boards of several co-operative institutions continuing to reflect political interests, which are not always amenable to normal banking discipline in their operations.

Meanwhile, in order to strengthen the supervisory regime for UCBs, the central bank has finalised a CAMELS-based supervisory rating system for them. This would be implemented by March 2003.

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