Will amend co-op bank Act: FM Nirmala Sitharaman

The Centre on Thursday promised to bring in a legislation in the upcoming winter session of Parliament to amend the Act governing cooperative banks in the wake of Punjab and Maharashtra Cooperative (PMC) bank fraud, which triggered a massive outrage.

The fraud involving financial irregularities of over Rs 4,000 crore has hit a large section of middle class in Maharashtra, most of which supports the BJP, and has taken place right in the middle of a election campaign for the Assembly polls.

The promise to give the Cooperative Societies Act that governs co-operative banks more teeth was made by Finance Minister Nirmala Sitharaman after she faced irate depositors outside the BJP office in Mumbai. The depositors demanded their money back.

“I will once again talk to the Governor of Reserve Bank this evening to convey the distress of PMC clients,” Sitharaman said, as she sought to assuage the concerns of depositors.

“The Ministry of Finance may have nothing to do with it directly because the RBI is the regulator. But from my side, I have asked two secretaries to work together with the Rural and Urban Development Ministries and look at the way in which the Act can be amended.”

PMC is one of the top five co-operative banks in the country with over nine lakh depositors. The bank has a deposit base of Rs 11,620 crore as on March 31.

The proposed amendment in the Act is expected to give the RBI more powers to regulate cooperative banks. At present, RBI’s supervision of cooperative banks is not as stringent as that of commercial banks.

The state government audits cooperative banks while the RBI inspects their books once a year. The central bank also does not have powers to supersede the board or remove directors. However, the RBI did have the powers to do so in the case of PMC, which is a multi-state bank.

The RBI had capped withdrawals from the bank at Rs 1,000 after the scam came to light last month. But subsequently increased it to Rs 25,000 per person over the next six months. The bank had allegedly lent over 70% of its total loans to the Housing Development and Infrastructure Limited (HDIL).