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April 3, 2001
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Money > Business Headlines > Report April 3, 2001 |
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RBI promises liquidity support to co-op banksTamal Bandyopadhyay in BombayThe Reserve Bank of India has opened its repo window to provide liquidity support to cooperative banks in distress. "We have told the registrar of cooperative societies that in case any bank needs liquidity support, RBI is willing to offer it, provided they have securities to put on the repo window," said a source close to the central bank. The RBI at one stroke is likely to defuse the crisis arising out of the Rs 1,200 crore Madhavpura Mercantile Coop Bank scam that has threatened to engulf the entire cooperative banking sector. "It will substantially ease the pressure on the banks by depositors, who have been withdrawing money fearing the banks may go bust,' said the managing director of a Ahmedabad-based cooperative bank. RBI governor Bimal Jalan and finance minister Yashwant Sinha met Prime Minister Atal Bihari Vajpayee today to appraise him of the developments. Jalan reportedly told the PM that there is no threat to the system and that only a few banks had become victims of the fraud. "Bank of India might have suffered because of the misuse of pay orders but the financial system is absolutely safe. The movements of money, gilts and forex markets are normal. There is no cause for worry," said a North Block source. RBI also emphasised on the need to bring in the cooperative banking system under the central bank, bringing an end to the regime of dual regulators -- RBI and the registrar of cooperative societies. "There will be a drastic changes in the cooperative banks regulatory system. The central bank will have greater powers to control them," sources said. RBI has decided to extend liquidity support through its repo window as most avenues for the cooperative banks have dried up over the last three weeks. The public sector banks, have been shying away from lending to the cooperative banks in the call money market. Facing a tight liquidity situation, cooperative banks have resorted to large-scale withdrawal of deposits kept with public sector banks to meet their liabilities.
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