The issue of dynastic control in some of the Urban Co-operative Banks (UCBs) needs to be urgently addressed to ensure that depositors interests are protected, said Satish Kashinath Marathe, Director, Central Board of the Reserve Bank of India (RBI).
Referring to the recent collapse of the fraud-hit New India Cooperative Bank (NICB), Marathe alleged that the root cause for its collapse is dynastic control, debased work culture and complete absence of checks and balances.
He averred that the bank’s board, which was superseded by RBI on February 14, is solely responsible for its collapse.
“RBI is like a soldier on the front line. Internal lapses and wrongdoings are always first noticed by staff, management, auditors and the board.
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“The Bank’s Board of Management (BoM) seems to be dysfunctional. Shareholders need to be vigilant,” Marathe said.
He observed that such incidents adversely affect the urban cooperative banking sector as it spreads negativity.
NICB’s former board members could not be immediately reached for their comments for this story, with calls to the corporate office remaining unanswered.
Supervisory concerns
The RBI issued certain directions to Mumbai-based NICB on February 13, due to supervisory concerns emanating from the recent material developments in the bank, and to protect the interest of depositors.
Under the Directions, NICB cannot, without prior approval of RBI in writing, grant or renew any loans and advances, make any investment, or incur any liability.
Considering the bank’s present liquidity position, RBI said the bank has been directed not to allow withdrawal of any amount from savings bank or current accounts or any other account of a depositor but is allowed to set off loans against deposits subject to the conditions stated in the above RBI Directions.
A General Manager was arrested by the Mumbai police on February 15, for misappropriation of ₹122 crore from the bank, according to agency reports. The case has been transferred to the Economic Offences Wing.
The RBI on February 14, superseded NICB’s Board of Directors for a year. Consequently, it appointed Shreekant, former Chief General Manager of State Bank of India (SBI) as ‘Administrator’ to manage the affairs of the bank during this period.
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The central bank also appointed a ‘Committee of Advisors’ to assist the Administrator in discharging his duties. The members of the Committee of Advisors are Shri Ravindra Sapra (former General Manager, SBI) and Shri Abhijeet Deshmukh (Chartered Accountant).
