Should depositors put money in co-operative banks?

The co-operative banking sector is well regulated, and a few cases of restrictions being imposed by the Reserve Bank of India (RBI) should not paint a negative picture of the entire sector, said Department of Economic Affairs (DEA) secretary Ajay Seth on Monday.

“Co-operative banks in the country are generally quite robust, and the RBI takes regulatory action whenever issues arise.

"However, it’s not fair to generalise the entire sector based on regulatory action taken against one bank.

"Across different states, many co-operative banks are operating effectively. It is a well-regulated sector now,” Seth said.

The secretary’s comments come amid a storm brewing at Mumbai-based New India Co-operative Bank, whose board has been superseded by the RBI for a period of 12 months.

The RBI has appointed Shreekant, former chief general manager of State Bank of India (SBI), to oversee the bank’s affairs during this period.

Last week, the RBI prohibited the bank from issuing new loans and suspended deposit withdrawals for six months, starting February 13.

The RBI’s intervention was triggered by allegations of fund misappropriation by some bank staffers.

A complaint was also filed by the bank’s chief compliance officer with the Economic Offences Wing (EOW) of Mumbai Police, alleging misappropriation of funds, following a spot inspection by the RBI.

The EOW has arrested Hitesh Mehta, former general manager and head of accounts at the bank, for allegedly siphoning off Rs 122 crore from the bank’s safe.

A developer, Dharmesh Paun, has also been arrested by the authorities for allegedly assisting Mehta in routing the embezzled money.

Responding to a question on whether depositors should put money in co-operative banks, Seth said: “Earlier, the RBI did not have regulatory power over co-operative banks. Now, they have the power to regulate these banks.”

According to the RBI, the co-operative banking structure, comprising urban co-operative banks (UCBs) and rural credit co-operatives (RCCs), supplements the commercial banking institutions by focusing on serving marginalised borrowers and promoting financial inclusion in villages and small towns. As of the latest count, there were 1,472 UCBs and 107,961 RCCs in the country.