CORPORATE GOVERNANCE AND FINANCE

RESEARCH PAPER

TUTORIAL 3

TOPIC: A STUDY OF PUNJAB AND MAHARASHTRA CO-OPERATIVE

BANK SCAM.

SUBMITTED BY:

SIDDHARTH TRIPATHI

COURSE: BBA LLB

DIVISION D

PRN: 19010324095

UNDER THE GUIDANCE OF

Asst. Prof CHANDRASHEKAR ALLADI

1
TITLE- A STUDY OF PUNJAB AND MAHARASHTRA CO-OPERATIVE
BANK SCAM.

INTRODUCTION

Indian banking sector at the present time is undergoing through a hard turmoil because of the
huge non-performing assets(NPA). In this hard time, the famous bank fraud case that is punjab
and maharashtra cooperative bank (PMC) scam came in light. Punjab and maharashtra
cooperative bank was established on february 13, 1984 as a single unit branch co-operative bank,
with its area of operation in the states of delhi, gujarat, goa, maharashtra, karnataka, madhya
pradesh, and andhra pradesh. The bank has widely coverage network of 137 branches across six
states. The PMC bank which was established as the cooperative bank, got the recognition of the
commercial bank in the year 2000 by the reserve bank of india.. Punjab maharashtra commercial
bank is the latest bank to attain the position of “scheduled bank”. PMC bank has 1815
employees and stand as the top cooperatives bank of the country.1

The main contention behind the Punjab maharashtra cooperative bank fraud case was the lending
of the huge loan by the higher management of the bank, to the housing development and
infrastructure ltd(HDIL) and its group enterprises. This scam is related to opening up of 21,047
bogus accounts in the name of fictitious account holder names and transfer of 70% of the total
credit facilities of the bank to HDIL and its associated entities. The 21,409 bogus accounts that
were created fraudulently were in order to conceal the loan accounts. The PMC bank has
unconditionally favoured the promoters and board of directors of “housing development and
infrastructure Ltd.(HDIL)” and allowed them to access the password protected bogus accounts
.The total fraud amount of PMC bank is 4,335 cr.2 Due to this huge fraud, the total percent of the
NPA of the bank has rise to 73%. On revelationof the scam, enforcement directorate (ED) has
sealed the accounts of HDIL group for the total assets of RS. 3500cr.3

1
“Dr.venkata ramana, The PMC Bank fraud , international journal of research and development, vol.2 issue6. pp.
4(2017).”
2
What is PMC bank crisis, business standard,Nov 10,2019, 15:35 PM).
https://www.business-standard.com/about/what-is-pmc-bank-crisis
3
PMC Bank fraud case: all you want to know about PMC bank fraud case, Times of India, (DECEMBER 24, 2019,
10:03 AM). https://timesofindia.indiatimes.com/topic/pmc-bank-scam

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The bank fraud case was made in public by the employees of the credit department of the punjab
maharashtra cooperative bank. The employees disclose to reserve bank of India that they were
aware of the bogus accounts of the bank and favouritism of the bank towards the HDIL group.
Thousand of depositors of the bank were succumbed to dilemma by the fraud of the bank. The
bank which had Rs 11,617 crore in deposits as on march 31, 2019 had violated the norms and
guidelines of the RBI by lending heavily loan amount to one-client real estate developer firm that
is housing development and infrastructure limited(HDIL) , which in itself is facing bankruptacy
proceedings. “On account of the fraud, RBI has restricted the PMC bank working and imposed
lending restrictions at Rs, 10,000 per customer for six months, creating hardships on the existing
customers of the bank.”4

The research paper seeks to critically analyze the PMC bank fraud case and the circumstances
and facts that created direct surveillance and imposition of the restrictions on the PMC bank by
researve bank of india. The study discuss the restriction which were put on bank and customers
by the reserve bank of india. The paper will seek to analyse how the watchdogs- the bank’s
auditors, the RBI and the government-were caught napping. The paper will discuss how the
fraudsters managed to create their path and cover up the fraud, with opening up of the bogus
accounts in order to hide their non-performing assets and non-disclosure of the loan amount to
the HDIL enterprise. This research paper will critically evalute the legal rules and procedures
that deals with fraud and scam done by the banking institutions. It would cover arena of odds that
is being done in the banking sector and repercussions of such malice and willingful act.

RESEARCH METHODOLOGY

“The research paper has been framed using Doctrinal Method. Descriptive and analytical study
has been used in writing this research paper. Reference has been made from secondary sources
like books, journals and articles and online websites. All the sources have been duly
acknowledged.”

RESEARCH OBJECTIVES

The objectives of the research study are as follows-

4
Dr.S gopi krishna,international journal of academic research and development,vol2 issue 6,pp.4(2017).

3
 To discuss the brief about the punjab and maharashtra cooperative(PMC) bank.
 To discuss the fraud of the PMC bank and investigation done so far.
 To understand what PMC bank’s annual report reveals.
 To discuss the aftermath of the scam, causes for the imposition of restriction by the RBI
and recent legislation in order to combat other PMC bank like fraud cases.
 To understand the main problems with cooperative banks which requires urgent attention.
 To study the banking regulation(amendment) Bill 2020,introduced in lok sabha to curb
PMC like bak crisis in the future.
 To provide the aftermath of the punjab and maharashtra cooperative bank scam.

CHAPTERIZATION
 BRIEF HISTORY OF THE PMC BANK.
In this chapter the author will critically analyse the brief history of the PMC bank.
 PMC BANK FRAUD
In this chapter there will be the crticial analysis as to how the management of HDIL
group allegedly come with in favour of the manangement of the bank to withdraw the
loans and advances from the PMC bank.
 Analysis of the financial report of the bank- The sub-chapter will give the detail
of the financial report of the bank for the year 2019-20.
 AFTERMATH OF THE SCAM AND THE RESTRICTIONS IMPOSED BY THE
RBI ON THE PMC BANK.
The chapter will discuss regulations imposed by the reserve bank in order to restrict the
lending powers of the banks and further guidelines that were issued.
 What are the causes for the imposition of such restriction by the RBI.
 Bill introduced in LokSabha to check and regulate PMC bank-like crisis- The sub-
chapter will discuss the recent legislation introduced by the parliament in order to
curb similar menace like that of PMC bank scam.
 DRAWBACKS UNDER COOPERATIVE BANKS SECTOR WHICH REQUIRES
URGENT ATTENTION.

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 The chapter will discuss the issues like political-banking nexus, poor corporate
governanace and slackness of the watchdogs, that need urgent attention and needed to be
curb down by effective implementation of the rules and policies.

 CONCLUSION
This chapter will deal with the post investigation scenario, and the need for the further
legislation in order to deal with such menace like PMCbank fraud case.

LITERATURE REVIEW

G Seetharaman, the biggest lessons for india from the PMC bank fiasco (2019)- The author
in the research study discuss the repugnancy as to why financial institutions that are called as
bank, are not entirely within the purview of mainstream banking regulations. This can be
attributed mainly due to the low financial literacy where the depositors are misinformed and
misguided by such fradulent activities by the financial institution such as PMC bank in the
present case. Majority of the investors are unaware about the mechanism on which financial
institution works. The author detailed out in the research work that in order to cub such menace,
legislature must assess if new guidelines,rules and amendments are needed for the
implementation of the effective regulation in the banking arena. Irrespective of the periodic
turmult, co-operative banking institutions are quint-essential under the banking institutions for
the effective advances of loans at the cheaper rates. They account for 8% of the deposits and
10% of the loan advances in india.

Anand Adhikari,PMC bank scam, only 10% of deposits withdrawn as RBI clampdown
continues (2020)- The author in the article mentions that despite implementation of strengthen
guidelines by reserve bank of india on cooperative banks and priority sectors, such menace of
fraud against the depositors and money- laundering cases are still prevalent at the high rate in
this sector. The punjab maharsahtra bank scam is not the first and last case of mis-governance in

5
the cooperative banking sector. Still, there are close to dozens of the cooperatives banks that are
directly under the charge of RBI administrator. The author mentioned that by enhancing the
withdrwal limits for the small depositors of punjab and maharashtra bank by 50000, the
outstanding deposits of the bank is reduced only by 10%, which in fact is due to the increased
limits of the withdrwal limit by the RBI from Rs. 10,000 to Rs. 50,000. The author suggests that
further increasing limits of withdrawl higher than 50,000 would suffice, as depositors with
deposits of more than 50,000 covers 78% of the total depositors of the bank.

PMC Scam:All you want to know about PMC scam,Times of India(2019): This news article
talks about the investigation part of the scam and how Enforcement directorate approached the
matter. The ED has sealed Rs. 3500 cr. Assets of the HDIL group and its entities. Further, the
news article describes how this matter came into the light and later, talks about how the
management of the bank focused primarily on HDIL group and allegedly favoured the
promoters of HDIL and allowed them to operate bogus accounts created for the sole purpose of
scam, so as to transfer loan amount to HDIL group in the name of fake account holders name. So
far as the probe is concerned, the agency had found that more than four thousand crore rupees of
deposits were raised from four lakh innocent investors. HDIL chief rakesh wadhwan was
arrested by the enforcement directorate and is currently under judicial custody.

Issue plague with the punjab and maharashtra co-operative bank and other banking
institutions, India today (2020)- This article discuss the recent issue plague with the banking
institutions that needs urgent attention. Political-bank nexus slackness on the part of the
regulators and improper corporate governance were some of the major challenges that need to be
resolved, before any further big scam get happened. In order to please the corporate management
with easy implementation of the guidelines, politicians takes favour by transfering huge loan
amount to their own accounts. The article discusses that PMC chairman waryam singh had big
stake in the HDIL group which is a serious fault on the part of the corporate governance of the
private bank and regulators. On the same parlance, The RBI cannot absolve itself from the
responsibility of checking the accounts in order to curb the menace of such fraud.

Bill introduced in lok sabha to check and regulate PMC bank-like crisis, Economic times
(2020)- This news article briefly discuss the bill recently introduced in the parliament, that is
banking regulation(amendment) bill, 2020. The purpose behind introduction of the bill was to

6
protect innocent investors from bank fraud and scam. The bill seeks to tackle the fiasco of
fraudulent activities in the banking sector. Such activities exploit regulatory gaps in the country.
The bill seeks to regulate unaccounted deposits and provide for a comprehensive mechanism for
the regulation of lending schemes of the bank in order to protect the interest of the depositer. The
bill provides harsh punishment from one to ten years with a fine of two laks to fifty crores.

6- Khanna A., and Arora B., Banking frauds in india: A Case analysis,Journal of emerging
technologies and innovative research, Vol. 6 Issue 1, Jan.(2019)- The author in the research
study had determined the cause of indian banking fraud and the implementation of the various
regulations to curb such fraud. The author in the research study had guided out that it is need of
an hour to employ trained and skilled workforce to curb such menace as of PMC bank fraud
case. The author had mentioned the materiality of public interest litigation(PIL) in disclosure of
bank fraud case and how various amendments can be guided for the effective implementation of
the same.

7- P.K Gupta, bank scams in india:A critical analysis (2015)- The author in the research study
mentioned about the flaws and inadequacy of the watchdogs towards the in-effective continuance
of the Indian banking mechansim. The author mentioned mentioned the causes as to the lack of
coordination between the corporate governance of the banking sector and that of regulatory
institutions. Many bank gives relaxation in the KYC policy, coupled with the inefficient staff
which further prompts such fraud and scam.

8- Richa Sharma, PMC Bank Crisis:Everything you should know as an account holder,
Nov 28 (2019)- The author in thw article mentions the detail which every account holder must
be made aware. The author mainly mentions about the “deposit insurance and credit guarantee
corporation” scheme under which amount upto Rs. 1 laks is secured even if the bank goes
bankrupt and other similar related aspects. The author mention that that the imposition of
restriction on the PMC bank by the RBI does not mean that the bank have become bankrupt,
instead imposition of restrictions is placed so as to curb continuation of any harmful fraudulent
activities and give time to such bank for once again coming back on good financial track.

HISTORY OF THE BANK

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Punjab and maharashtra bank(PMC) is a multi-state co-operative bank established in the year
1983. In the year 2000, PMC Bank got recognition of the schedule bank by the reserve bank of
india. Recently after it, It got youngest schedule bank status in india. The bank the 137 branches
spread across the country and around 100 branches of it are established in maharashtra. It is
registered under the co-operative society act and was regulated by the reserve bank of india. The
bank customers include institutions, housing socities and small business. Amongst the co-
operative bank in india, it is one of the profitable co-operative bank and had earned a total
revenue of 1296 crore(us$183 million) and profits of 95.68 crore(US$18 million) in the financial
year 2019. PMC bank loan advances stood at Rs 8396 crores as of March 2019, an advance of
about 14% over the previous financial year. In order to meet the RBI’s regulatory requirement,
the bank had prioritise the loan advances to the MSME sector. The bank has bounded up with the
national housing bank to provide credit facility linked with subsidy for “pradhan mantri awas
yojana(PMAY).” However, in its annual financial report, the bank highlighted that during the
fiscal year 2018, its stressed assets had gone up and prompt the bank to sold bad loans for 105
crore to CFM assets reconstruction.5

Co-operative bank a are prominent in the indian banking and financial sector mainly because
they serve the demand of small or first time borrowers. This is because these small borrowers
finds it hard to borrow from the public sector banks and private banks and are usually made to
burdern with the rampant high rate of interest coupled with problem of availing bank laon
facility. Co-operative banking sector dominates the indian financial market with 9% of
advances/loans and 7%deposits in india. Not considering the periodic tumult, they remain
Quint-essential to the indian banking sector especially for the middle strata income section of the
economy.6

1- ANALYSIS OF PMC BANK FRAUD CASE

According to the facts of FIR registered in the case, promoters of the “Housing development and
infrastructure development(HDIL)” group allegedly come with in favour of the manangement of
the bank to withdraw the loans and advances from the PMC bank. The management of the bank
inconspicuously made the 21,049 bogus accounts in order to conceal 44 loan accounts and did
5
PMC bank scam:only 10% deposits withdrwan as RBI clampdown continues:Business today (January 3
2020,02,14 AM).
6
Supra note 3.

8
not classify the advances as non-performing , despite their non-payment on date of maturity. The
accused mis-appropriated the advances of the bank for the acquisition of the property within
india and abroad with the mere benefit of personal gain and thereby cause wrongful loss to the
bank. The managing director of the HDIL group explicitly confirmed that the group was
violating the norms of the RBI from last 5-6 years. 7

Reports make it clear that out of the total advances of the bank of Rs. 8300 crores, 6226 crore of
advances was granted to the HDIL group, which is 74% of all the bank’s advances from the
country. The bank allegedly breached the RBI norms of single borrower exposure. The quantum
of the advance granted by the bank was four times the mark allowed as per RBI’s guidelines on
regulation of loans and advances by the co-operative banks. RBI master circular 2015 provides
the guidelines for the limit of single borrower exposure in case of co-operative banks which is 15
percent of the bank’s total capital funds. In the report of financial year 2018-19 the bank has
reported the net profit of Rs. 99.69 crores.8 The report accounted 315 crores of the advances and
8385 crores as gross non-performing assets. Above scrutiny of the financial report of the bank
made it evident that the bank is financially more competent as compared to other public sector
bank. However, allegedly collusion of the management of the bank with HDIL group and
presenting of bogus accounts and financial reports to hide the bad loan mess, makes it clear that
the bank is crumbling on the distress financial records.9

2.1 ANALYSIS OF THE FINANCIAL REPORT OF THE BANK

 The total net profit of the bank for the financial year 2018-19 is Rs. 99.23 crores.
 As on March 2019, the non-performing assets of the bank was 3.74%.
 As on March 2019, the total deposits of the bank stood at 11,619 crores, whereas total
advances at Rs.8,384 crores.
 The total employees of the bank as on 31st March was 1814.10

2- AFTERMATH OF THE SCAM

7
Supra note 2.
8
Id.
9
Supra note3.
10
What PMC Bank annual report reveals,The Hindu:business line,(September 24,2019,10:30 AM).
https://www.thehindubusinessline.com/money-and-banking/what-pmc-banks-annual-report-
reveals/article29501131.ece#

9
On 23 september 2019, the RBI under “section 35A” of the RBI act 11 restricted the functions and
operation of PMC bank for the period of six months. Due to the restrictions on the bank by the
RBI the accounts holders are not allowed to withdraw more than Rs. 1000 from their accounts
during the imposition of restriction period. On 26 september, the RBI has relaxed the withdrawl
limit and increaed it to Rs. 10000. Since then the withdrwal limit has been increased to 25000
and then again to 50000 by the RBI. The RBI further restricted the bank to not accpet the
deposits and grant loans and advances, without the prior approval of RBI. Further it was directed,
that the term deposits of the customers can only be renewed at the date of maturity. The RBI has
also directed the union cooperative as well as multi-state cooperative banks to report the details
of the borrowers above the limit of RS. 5 crore rupees. RBI has further directed the cooperative
banks to maintain the integrity and accuracy while submitting the details of higher credit amount
and annual financial report to the reserve bank of india, and any repugnancy to such direction
would amount to penal action.12

The enforcement directorate had sealed the assest of the HDIL group worth Rs.3600 crores and
the director of the company Rakesh wadhawan and his son Sarang wadhawan was arrested by
the mumbai police and was prosecuted for the offence of cheating, forgery and criminal
conspiracy.13 The assets of the HDIL group worth Rs.3600 crore was also sealed by the
enforcement directorate.

3.1- WHAT ARE THE CAUSES OF REGULATION ON THE BANK BY THE RBI.

 There were uneven or irregularities in lending by the bank

 The non-performing assets of the bank were not reported in the annual financial report
2018-19 of the bank to RBI.
 Extended the permitted exposure of granting of loans by two-third times above the limit,
to one single entity that is HDIL group.The extended limit was four times the mandatory
cap alloted by the RBI.

11
Supra note 10.
12
“Lessons from the punjab and maharashtra co-operative bank scam:India today insight,(Oct 4,2019, 09.31 am).”
13
P KBhardwaj and Imran abdulla, PMC BANK FRAUD CASE: The unraveling of an indian cooperative banking
scam, THE ECONOMIC TIMES, (OCT 13, 2019, 11:54 PM).
https://economictimes.indiatimes.com/industry/banking/finance/banking/the-biggest-lessons-for-india-from-the-
pmc-bank-fiasco/articleshow/71557920.cms

10
  Advancing of loans through the opening up of fake account and un-reporting of the same
in the annual financial report of the bank.14

3.2- BILL INTRODUCED IN LOKSABHA TO CHECK AND REGULATE PMC BANK-

LIKE CRISIS

On september 16th the banking regulation (amendment) bill,2020 was introduced in the
parliament. The intention with which the bill was introduced in the LokSabha was to
protect innocent investors from bank frauds and scam. The bill seeks to tackle the fiasco
of fraudulent activities in the banking sector. Such activities exploit regulatory gaps in the
country. This bill aims to provide a comprehensive mechanism to ban the unregulated
deposits and lending schemes of the private banks, except the deposits taken as per the
regulated guidelines of the RBI, or depository took to protect the interest of depositors. It
further allow the RBI to initiate the scheme for amalgamation and reconstruction of the
bank, without the condition of placing it under the moratorium and other related aspects to
it. The bill provides harsh punishments of imprisonment ranging from one to ten years or a
fine from two lakh to fifty crores.15

3- DRAWBACKS UNDER COOPERATIVE BANKS SECTOR WHICH REQUIRES

URGENT ATTENTION.

There are urgent issue that plague with the banking institutions that needs urgent attention.
Political-bank nexus, slackness on the part of the regulators and improper corporate governance
were some of the major challenges that need to be resolved, before any further big scam gets
happened. In order to please corporate management with easy implementation of guidelines,
politician takes favour with transferring of huge loan amount in their own accounts. It is to be
noted that PMC chairman waryam singh had itself a big stake in the HDIL group which is a
serious fault on the part of the corporate governance of private banks. The detail of important
underlying issue which leads to the failure of corporative banks are-

14
Id.
15
Bill introduced in LokSabha to check and curb pmc bank like fraud case, The Economic times, (1 Oct. 2020,
10:23 AM) .

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 1- Corporate-bank-politician nexus- This link of malice connection has been harming the
indian banking sector since a long period of time. Politicians are more concentrated to take
the benefit of every banking sector. They are more willing to please corporate leaders- in
PMCB’S case a large co-operative bank- and take favour in return. Much of the menace of
public sector bank being defaulted and run into bad loans can be attributed to this nexus.
While the depositors have become more cautious with greater public scrutiny of these
banks, co-operative banks remain out of the realm of public scrutiny because mostly of
them are un-listed. As per the RBI data, 2018 india had 1556 urban co-operative banks ,
down from 1954 in 2004, indicating high risk of failure of these bank. Such bank often
start witht the small capital structure, making them more vulnerable to the risk of failure.
This can be mainly attributed to the vicious cycle of corporate-politician nexus, as both
interfere in the management of the banking to satisfy their financial crunches with the use
of ultra-vires tactics. In PMCB’S case, the management of the bank advance loan of over
6500 crore to HDIL group, five times the required limit fixed by the RBI, which clearly
indicates the financial favour of bank management towards the corporate firm.16
2- Lack of coordination in management and corporate governance - One of the noticeable
reason for the failure of cooperative banks is the failure of coordination between the
management and bankers. In most of the cases of failure, malice linkage of honest and
politically influenced people can be easily visualised which tampered the management of
the bank with their evil and corrupt practices in order to take the undue advantage of the
co-operative baking sector.
While the private banks mostly adhere to the compliance of corporate governance, co-
operative banking sector often goes neglected in adherence to corporate governance. At
the time when the PMC bank was sanctioning loans to the HDIL group, PMCB former
chairman waryan singh was the non-executive director of the company from 2005-15 and
hold a stake of 1.8 per cent in HDIL till september 2017. This can be seen as the major
flaw in the corporate governance of the firm which implicitly went on against the
provision incorporated in the companies act.17
3- Slackness of the watchdogs-bank’s auditors, the RBI and the government - The PMCB
bank crisis shows the fraud and misrepresentation of the financial report by the watchdogs
16
Id.
17
Supra note 12.

12
 - bank auditors and slackness on scrutiny of the report on the part of the RBI and the
governemnt. The mangement of the bank alongwith auditors managed well to hide non-
performing assets allegedly making up of bogus accounts to conceal the accumulated non-
performing assets. RBI cannot absolve from the responsibility of checking and
maintaining the financial records of the banks. Although it put forward some of the
irregularties in its annual report of 2018, yet a more stringent mandate will be required to
keep check on the performances of the bank. Compulsory mandate of annaul inspection
seems to be less transparent, otherwise how such large funds escape the scrutiny of the
RBI. Similar case where inadequacy in the inspection scheme of the RBI can be traced
was the fraud committed by the diamantaries nirav modi and mehul choksi with the
punjab national bank(PNB) where advances and bank guarantee were raised without
collateral to misrepresent the annual financial reports.
4- Problem of dual regulation- Prior to the PMC bank fraud case, the management of the
cooperative banks was governed according to the regulations of the “Registrar of
cooperative socities” under which administrative functions like election of the director,
auditing is managed under the purview of the state government. During the period there
always exists the conflict between the state government and central government as to the
management of banking administration. The conditions deprived further when the state
politicians get their representatives elected as the director of the bank. This leads to
serious financial irregularities and fraud. Post the PMC bank fraud case, the RBI brought
urban as well as multi-state co-operative bank under the domain of banking regulation
act,1949. The reform enabled the RBI to regulate such banks in parlance to commercial
banks, with only the administrative functions of urban as well as multi-state cooperative
under the domain of registrar of cooperative society.18
5- Huge amounts of overdue loans- Indian cooperative banks have been imploading due to
the huge amount of overdue loans which further spike in the percentage of NPA,pushing
these banks on the verge of collapse. Due to the presence of dual regulation policy and
political clutches at the state level, there was no proper scrutiny of the bank accounts
which further leads to failure of the cooperative banks in india. 19

18
Supra note 12
19
Supra note 12.

13
4.1 - RAMA SUBRAMANIAM GANDHI COMMITEE ON REFORMS IN COOPERATIVE
BANKING SECTOR.

In the year 2015, the RBI pane was constituted under the chairmainship of former deputy
governor of the central bank R.gandhi which suggested creating of umbrella organisation for the
control and management of the cooperative banks. Under this organisation, the board of directors
formed from the recommendation of the board of maangement will bring the banks directly
under the ambit of the reserve bank of india. Other recommendation of the panel included to
make amendments in the banking regulation act, 1949 to give more powers to the RBI over the
cooperative banks so it can directly take the cognizaance of any mishap or fraudulent activities
being undertaken in the course of time. The amendment should give more power to the RBI to
liquidate and wind up these banks without any hindrance from the cooperative societie’s act.20

5-CONCLUSION

The menace of scam and fraudulent activities under the indian banking financial system needs
urgent regard and attention in order to curb such practices if the banking system wants continuity
of trust and faith of the general public. Although co-operative banks offer loans on easy term
with less rate of interest and earn less profit, there is still a need for more regulation, effectively
being to bring the bank under the direct supervision of the RBI. Some of the recommendations
are-

 The financial literacy of the depositors should be graded up, who are frequently misguided
and deceived by such frauds on the part of the financial institutions due to the lack of basic
understanding regarding the mechanism on which financial institutions works.
 Irrespective of the periodic turmult, co-operative banking institutions are quint-essential
under the banking institutions for the effective advances of loans at the cheaper rates and
therefore legislature must assess new guidelines,rules and amendments that are needed for
the implementation of the effective regulation in the banking arena.
 The malice and unwelcomed link of corporate-political nexus should be abrogated which had
cause many deteriment to the indian banking sector. The un-listed cooperative bank should
20
Manojit Saha, Cooperative banks must be professionaly managed,The Hindu (Oct,05 2019,23:11 PM).
https://www.thehindu.com/business/cooperative-banks-must-be-professionally-
managed/article29606199.ece#:~:text=Gandhi%2C%20who%20headed%20a%20committee,of%20management
%20in%20these%20entities.

14
 come under the ambit of listed bank and compulsory legislation must be drated to that
effect.The ultra-vires tactics with which politicians satisy their financial crunches should be
brought under the scrutiny of the RBI and must be struck down.
 The maximum cap of granting loans by the cooperative banks should be fixed by the RBI and
such limit must direct to Urban cooperative bank under which small cooperative bank
functions, to overview grant of loans by such small cooperative bank. This is to ensure that
these bank don’t lend beyond the maximum cap as decided by the RBI. As in the case of
PMC bank fraud case, it is evident that the bank has granted loan of Rs. 6500 crore to HDIL,
which is far higher than permitted limit.
 It is necesaary to give more powers to the RBI over the cooperative banks so it can directly
take the cognizaance of any mishap or fraudulent activities being undertaken in the course of
time. The amendment should give more power to the RBI to liquidate and wind up these
banks without any hindrance from the cooperative societie’s act.

15
16