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CMs to discuss RBI control on co-op banks

Sidhartha

The Union finance ministry is planning to convene a meeting of chief ministers shortly to discuss the issue of strengthening the Reserve Bank of India's control over co-operative banks, in the wake of the recent stock market crash in which two such banks were allegedly involved.

The government has taken note of the role of some cooperative banks, notably the Ahmedabad-based Madhavpura Mercantile Cooperative Bank and the Lucknow-based City Cooperative Bank, top officials told Business Standard.

A committee chaired by RBI deputy governor Jagdish Capoor had recommended last year that banking activities of co-operative banks be brought under the purview of the central bank.

"RBI would, however, only be the regulator for the banking activities of the co-operative banks while the other powers will remain with the state governments," a senior finance ministry official said.

The move would require an amendment to the Cooperative Act since co-operative societies are registered with the Registrar of Cooperatives of the state governments.

"Though RBI has powers like suspension of licence of the co-operative banks, the Centre wants its role as a regulator to be strengthened," the official added.

Bankers said the issue, though not on the agenda, was expected to come up at a meeting of nationalised bank chiefs with Finance Minister Yashwant Sinha on Saturday.

Officials said while the RBI would open the repo window for providing liquidity to the cooperative banks, it was unlikely to bail out PSU banks hit by the crisis. "These losses were suffered in the course of business and we cannot be bailing them out all the time," a senior finance ministry official said.

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