Reserve Bank’s big action on 3 co-operative banks, fine imposed on directors for hiding loans and NPAs. RBI Action On Co-operative Banks

The Reserve Bank of India (RBI) has intensified its surveillance and action against co-operative banks that ignore banking rules and regulatory guidelines. The central bank has imposed a total monetary penalty of ₹5.50 lakh on three co-operative banks after serious financial lapses were found during statutory inspection. Serious allegations against the board directors of these banks like disbursing loans against the rules, exceeding the single borrower exposure limit and not classifying non-performing assets (NPAs) at the right time have been proven.

RBI went hunter on which 3 co-operative banks?

As per the official orders issued by the Reserve Bank, the details of banks on which penalty has been imposed for laxity in statutory compliance are as follows:

• Shri Vijay Mahantesh Co-operative Bank Limited (Hangund, Karnataka): RBI has imposed the maximum fine of ₹ 2.50 lakh on this bank. The investigation found that the bank did not declare the loan accounts as NPA on time and violated the rules of sanctioning loans in cases related to the directors of the bank.

• The Pragati Co-operative Bank Limited (Karnataka): A monetary penalty of ₹2.00 lakh has been imposed on this bank. The bank was found guilty of lending to its directors, violating single-borrower exposure limits and exceeding prudential inter-bank exposure limits.

• Vikas Souharda Co-operative Bank Limited (Hosapete, Karnataka): A fine of ₹1.00 lakh has been imposed on this bank. According to RBI, the bank completely failed to classify many of its loan accounts as NPA under prudential norms.

Banking Regulation Act is strict on directors hiding loans and NPAs

Under Section 20 and related sub-sections of the Banking Regulation Act, 1949, giving loans in a concessional or non-transparent manner to the board members, directors or firms associated with any bank is strictly prohibited. Its objective is to prevent conflict of interest and misuse of funds in bank management.

Additionally, as per the ‘Income Recognition and Asset Classification’ (IRAC) rules of the Reserve Bank, when a borrower defaults in paying principal or interest for 90 consecutive days, the bank has to mandatorily declare that account as NPA. Hiding NPA hides the actual condition of the bank’s balance sheet from the public and investors, which is classified as a financial crime.

Will there be any impact on the deposits of customers and account holders?

After such action, general account holders of co-operative banks often worry that their money will be lost.

In this context, the Reserve Bank has clearly assured that this punitive action has been taken only on the basis of deficiencies observed in statutory and regulatory compliance. This order is not intended to affect the validity of any transactions, agreements or accounts entered into by the Bank with its customers. This simply means that the deposits, savings accounts and everyday banking operations of the account holders will remain completely safe and will continue as normal.

RBI continues to keep a close watch on such institutions to strengthen transparency, financial discipline and corporate governance in the co-operative banking sector. Show cause notices are first issued to the banks violating the rules and the penalty is decided only after their reply and personal hearing.