RBI imposes controls on Adoor Coop Urban Bank

Curbs on withdrawal, loans, deposits, property sales, etc

MUMBAI: The Reserve Bank of India (RBI) has imposed wide-ranging controls on the running of Adoor Cooperative Urban Bank Ltd for a period of six months with regard to withdrawal of deposits, issue of loans, making investments, selling assets, etc.

The RBI note said it had placed the ‘cooperative bank under directions’, adding that “the depositors will be allowed to withdraw a sum not exceeding Rs2000 of the total balance held in every savings bank or current account or any other deposit account by whatever name called, subject to conditions stipulated in the RBI directions.”

There were reports doing rounds for the past two years, especially during the demonetization period, that a big number of cooperative banks in the country might not be having adequate capital and many of them do not have a proper sense of the extent of their bad loans.

The RBI note went on to state that the Adoor Co-operative Urban Bank Ltd, without prior approval in writing from RBI, will also not be able to grant or renew any loans and advances, make any investment, incur any liability including borrowing funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except as notified in the RBI directions.

RBI said the directions on the Adoor bank would remain in force for a period of six months from the close of business of the bank on November 9, 2018.

“The issue of the directions by RBI should not, per se, be construed as cancellation of banking licence by the Reserve Bank. The bank will continue to undertake banking business with restrictions till its financial position improves. The Reserve Bank may consider modifications of these directions depending on circumstances,” the note added.

The cooperative banking system though is also a financial system to the core, has strong political undercurrents when it comes to the management control, especially in Kerala.

Though debates on transparency in the running of cooperative banking system had gained momentum at times, the political patronage the system enjoyed historically from the alternative governments in Kerala made sure that the cooperative banking went on without any hitches or corrections.

But the demonetization brought the cooperative banking regime under RBI scanner and there were unconfirmed reports that many such ‘banks’ have been used by politicians to stash their ill-earned money, and a thorough investigation into these financial institutions may open a ‘can of worms’.

An RBI circular in September said the primary (urban) cooperative banks can voluntarily transition into small finance banks (SFBs). “In keeping with the fast paced changes in the banking space and in order to facilitate growth, a scheme for voluntary transition of UCBs into SFB will be a step forward to provide full suite of products and services, sustain competition, raise capital, etc,” the RBI circular noted.


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