Hyderabad: In India, a bank is synonymous with trust. But it is a bitter truth that the decades-long efforts to strengthen the banking system have met with failure.
In February 2018, state-owned Punjab National Bank had disclosed that fraudulent transactions worth Rs.14,000 crores happened in one of its branches. Subsequently, Infrastructure Leasing &
Financial Services (ILFS) and Dewan Housing Finance Corporation (DHFL) were accused of similar scams.
A recent scam has been unearthed in Punjab & Maharashtra Cooperative Bank (PMC) which runs its operations in Maharashtra, Karnataka, Goa, Gujarat, Andhra Pradesh and Delhi.
Although Shaktikanta Das, Governor of the Reserve Bank of India (RBI) clarified that no nationalized bank would be left to collapse, RBI sprang to action only after PMC bank’s Managing Director Joy Thomas wrote a letter detailing the current scenario.
PMC has been hiding loan defaults by Housing Development and Infrastructure Ltd (HDIL) which accounted for nearly 70 per cent of the bank’s total assets that is, Rs.6,500 crores.
According to Thomas’ letter, 21,049 dummy accounts were opened to hide accumulated non-performing assets HDIL. PMC, which had Rs.11,617 crore in deposits has been violating RBI norms from the past 8 years. PMC will be the 24th bank to be put under RBI directions.
This is the state of urban cooperative banks which deceive investors by giving more interest rate than commercial banks.
In the Telugu states, several fraudulent banks like Vasavi, Bhagyanagar, Krushi, Charminar and Megacity have come to light two decades ago. Though the reasons for the failure of cooperative banks are known and several committees have been appointed, lack of proper vigilance systems is causing great distress to depositors.
Madhepura Mercantile Co-operative Bank in Gujarat was the major institution found guilty for Ketan Parekh stock market scam. A small loophole would destroy more than 130 small scale banks.
PMC, which gave loans worth Rs.8,400 crore is one of the largest cooperative banks in India. It is going to be a herculean task for RBI to take speedy action against the scam and provide resolution to the investors.
According to RBI census, there were 1,926 urban cooperative banks in 2005 which came down to 1,550 in 2018. RBI has classified those with less than Rs.1 crore deposit limited to a single district as Tier-I and those with huge deposits with presence in multiple areas as Tier-II.
The total assets of urban cooperative banks combined are Rs.5.6 lakh crores and total deposits are Rs.4.6 lakh crores while total loans are Rs.2.8 lakh crores. Even though cooperative banks account for 4 per cent of total banks, their importance is undeniable.
Narasimha Murthy committee, which was appointed in the aftermath of several cooperative bank scams in erstwhile Andhra Pradesh, formulated several useful guidelines. It suggested that the system must be strengthened with experts from banking, finance and audit fields and that the percentage of loans to directors and their family members must not exceed 2 per cent.
RBI made several reforms per se, but the recent PMC scam illustrates lacklustre implementation and vigilance. In the wake of such incidents, several prudent mechanisms must be introduced without affecting the spirit of cooperative banking.
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