Tamil Nadu's 128 urban cooperative banks (UCBs) are to be brought under the ambit of Reserve Bank of India (RBI).

This is the implication of the Central government’s latest decision to promulgate an ordinance bringing UCBs and multi-State co-operative banks within the fold of the RBI. Barring nine, all UCBs in the State are profit-making.

Serving people in urban and semi-urban areas of the State, the UCBs have mobilised deposits to the tune of around ₹ 7,800 crore.

During 2019-20, they disbursed loans such as jewel non-farm sector and housing loans, of the order of about ₹5,300 crore. Long-time observers of the cooperative sector say the proposed ordinance looks similar to an amendment bill to the Banking Regulation Act tabled in Parliament in March. At that time, Chief Minister Edappadi K. Palaniswami was said to have expressed reservations over the amendment bill.

Even now, the RBI, which is the licensing and inspecting authority, has been getting reports on adherence to banking regulations such as Statutory Liquidity Ratio, Cash Reserve Ratio and classification of assets. However, the administrative control over the urban cooperative banks has been with Registrars of Cooperative Societies of States.

Once the ordinance gets promulgated, the RBI will have complete powers over the appointment of managing directors and constitution of board of directors of the UCBs, an area that has been hitherto under the domain of State governments. Also, the RCS will no longer have any role with regard to elections, stipulation of qualification or disqualification of members of the board, conduct of inquiry and prosecution. All these functions will get transferred to the RBI.

Sound banking

Though the Central action is said to be aimed at “increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the RBI,” there is a view among officials in the government that given the constraints in which the RBI is placed, benchmark can even now be fixed for the urban cooperative banks to be brought under the purview of the central bank. Instead of bringing all the urban cooperative banks, only those institutions, having certain level of turnover, can come under the RBI’s control. The officials also clarify that urban credit cooperative societies, which are distinct from UCBs, will remain under the RCS.

As far as multi-State cooperative banks are concerned, there is only one institution (Tamil Nadu Circle Postal Co-operative Bank) with its base in Tamil Nadu and this was as on July 31, 2019, according to the website — Multi State Cooperative Societies (https://mscs.dac.gov.in/Default.aspx) of the Department of Agriculture, Cooperation and Farmers' Welfare in the Union government.

A Central law of 2002 governs this category of cooperative banks, over which the Central Registrar holds the administrative control. Apart from providing its nod at the time of registration of the multi-state cooperative societies or banks and lending its staff for the conduct of elections, there is no role for the RCS over this category of the institutions, which are under the jurisidiction of Central Registrar.