Lok Sabha Question No. 2250 (UNSTARRED), answered on 2019-12-02
Subject: Cooperative Bank Scams
Ministry: FINANCE
Asked by: Manish Tewari, Sanjay Kumar Bandi, Sajda Ahmed, Jai Prakash

## Government of India Ministry of Finance

## LOK SABHA UNSTARRED QUESTION NO- 2250

ANSWERED ON 02.12.2019 /Agrahayana 11, 1941(Saka)

Cooperative Bank Scams

2250. SHRI MANISH TEWARI:

SHRI BANDI SANJAY KUMAR:

SHRIMATI SAJDA AHMED:

SHRI JAI PRAKASH:

Will the Minister of FINANCE be pleased to state:

- (a) whether the Government has any role or control over the functioning of Cooperative Banks in the country, if so, the details thereof;
- (b) the number of account holders/ depositors who were affected by RBI placing curbs on the withdrawal  limits  on  23rd  September,  2019  in  light  of  the  recent  crisis  at  the  Punjab  and Maharashtra Cooperative Banks,;
- (c) whether approximately 73 per cent of PMC's loan was lent to one borrower (HDIL) due to lack of regulatory oversight by the RBI and the Finance Ministry, if so, the details thereof and the reasons therefor;
- (d) the number of account holders/ depositors who have still not been able to withdraw their savings from their accounts so far; and
- (e)  the  steps  taken/being  taken  by  the  Government  to  prevent  the  losses/recover  NonPerforming Assets and protect the investors of Cooperative Banks?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI ANURAG SINGH THAKUR)

(a) to (e): The banking functions of Cooperative Banks are regulated by Reserve Bank of India (RBI)  under  Banking  Regulation  Act,  1949.  RBI  conducts  statutory  inspection  of  Urban Cooperative Banks (UCBs) under section 35 of BR Act, 1949.

With a view to prevent the possibility of preferential payment of deposits and prevent reckless lending, with effect from close of business on September 23, 2019, RBI has, for a period of six months, imposed restriction on Punjab and Maharashtra Cooperative (PMC) bank in terms of which bank is prohibited from making fresh advances and withdrawals by depositors have been restricted to the notified amount to avoid a run on the bank.

RBI, after reviewing the bank's liquidity position and its ability to pay its depositors and with a view  to  mitigating  the  hardship  of  the  bank's  depositors,  has  been  progressively  enhancing from time to time the limit for such withdrawals, which is presently at Rs.50,000 effective from November 5, 2019. With the latest relaxation, about 78% of the depositors of the bank (number of depositors of PMC bank as on 23 September 2019, as reported by RBI, is 9,15,957) will be able to withdraw their entire account balance. The withdrawal ceiling is being monitored vis-àvis the bank's evolving depositor and liquidity profile and further action as deemed fit may be taken in the best interest of depositors of the bank.

Further,  the  depositors  can  also  withdraw  on  hardship  grounds  (medical  expenses  and  nonmedical expenses like educational expenses of self or children, marriage expenses of self, other relatives  and  for  livelihood)  an  amount  upto  Rs.1  lakh  (with  a  sub-ceiling  of  Rs.50,000  for withdrawal on all non-medical grounds). The power to sanction such hardship withdrawals has been delegated to the Administrator of the bank for speedier resolution of such cases.

The  statutory  inspection  of  the  Punjab  and  Maharashtra  Cooperative  (PMC)  Bank  under Section 35 of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies) with reference  to  its  position  as  on  31st  March  2019  conducted  by  RBI  revealed  large  group exposure toward Housing Development and Infrastructure Limited (HDIL) Group companies, which  stood  at  74.26%.  While  reporting  the  exposures  to  RBI,  the  bank  had  falsified  the regulatory  returns  deliberately  withholding  information  pertaining  to  the  particular  firm  i.e. HDIL so as to show compliance with the regulatory provisions of exposure norms.

RBI has further stated that as this was a case of failure of management at the Board level, it was considered necessary to supersede the Board of Directors of the bank. Accordingly, Reserve Bank of India, in exercise of the powers conferred under sub-Section (1) and (2) of Section 36AAA read with Section 56 of the Banking Regulation Act, 1949, superseded the Board of Directors of the bank on September 23, 2019 and appointed an Administrator in its place for a period of six months.

Meanwhile,  based  on  a  complaint  filed  by  the  bank  against  its  officials  and  borrowers associated with the fraud/financial irregularities in the bank and manipulation of its books of accounts, the Economic Offences Wing, Maharashtra Police has started its investigations into the matter. Forensic Auditors have been appointed to look into the related transactions.

RBI has reported that the following guidelines/instructions have been issued to UCBs to keep their NPA at a low level.

- Regulatory  approvals  for  purposes  such  as  extension  of  area  of  operation,  branch authorization, internet banking facility, etc. have been linked with, among other things, a given threshold of NPA (Gross NPA 7% and Net NPA 3%).
- Under the extant Supervisory Action Framework (SAF) for UCBs, certain regulatory restrictions  are  imposed  on  the  UCBs  breaching  the  NPA  threshold  stipulated  in  the framework (Gross NPA more than 10%) and such UCBs are placed under closer monitoring.
- In  order  to  ensure  healthy  credit  administration  and  prevent  malpractices  in  UCBs, various instructions have been issued to UCBs. These include instructions related to internal control, Audit Committee, Special Committee for high value frauds, wilful default, prohibition on lending to Directors, their relatives and the firms, concerns in which they have interest, etc.
- Detailed prudential guidelines have been issued on income recognition, asset classification  and  provisioning  for  loans  and  advances  of  UCBs  with  a  view  to  timely identification of NPAs and creation of adequate provision therefor.

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