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RBI slaps Rs 15-lakh penalty on Akola Urban Co-operative Bank for rule violation

Moneycontrol logo Moneycontrol 17-08-2022 Moneycontrol News
RBI slaps Rs 15-lakh penalty on Akola Urban Co-operative Bank for rule violation © Moneycontrol RBI slaps Rs 15-lakh penalty on Akola Urban Co-operative Bank for rule violation

The Reserve Bank of India (RBI) on August 17 imposed a penalty of Rs 15 lakh on Akola Urban Co-operative Bank for violating norms.

An RBI inspection found that the lender failed to comply with Income Recognition, Asset Classification, Provisioning and Other Related Matters (IRAC) norms for urban cooperative banks, the central bank said in a release.

A notice was issued to the bank, asking why a penalty should not be imposed for non-compliance with the RBI directions, the regulator said. After considering the bank’s reply, the RBI concluded that the charge of non-compliance of directions was substantiated and warranted the imposition of a monetary penalty.

Also read: RBI panel proposes 4-tier regulatory framework for urban cooperative banks

The RBI’s action was based on the deficiency in regulatory compliance and was not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers, it said.

The central bank has increased scrutiny of regulated entities, specifically cooperative banks, to ensure that appropriate corporate governance practices and regulations are followed.

India’s cooperative banks have long struggled with a clutch of problems, including dual regulation, local political intervention, bad governance and fraud.

Also read: India’s Cooperative Mess Part - 4 | Rupee Co-operative Bank’s collapse leaves many depositors in distress

In the past few years, the RBI has clamped down on several erring cooperative banks. A total of 27 small cooperative banks were liquidated in the past five years, while 42 cooperative banks were closed on account of mergers during this period, according to a Parliament paper.

The laws have evolved gradually. In February 2021, the RBI constituted an expert panel led by former deputy governor NS Vishwanathan to examine issues facing urban cooperative banks.

The committee recommended a four-tier regulatory framework for urban cooperative banks based on the size of deposits and their area of operations, the RBI said on July 20.

However, despite the regulator’s strict actions, cooperative banks continue to be susceptible to fraud and bad governance as is illustrated by Moneycontrol's  India's Co-Operative Mess series.

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