RBI Takes Control Of Abhyudaya Bank
On Friday, the Reserve Bank of India (RBI) took the unprecedented step of superseding the board of Mumbai-based Abhyudaya Cooperative Bank for a duration of one year, citing substantial concerns related to inadequate governance standards. In the wake of this action, former State Bank of India (SBI) executive Satya Prakash Pathak was appointed as the administrator to oversee the operations of the multi-state cooperative bank during this interim period.
Notably, the RBI clarified that no business restrictions have been imposed on the bank, emphasising that it will continue its regular banking activities under the guidance of the appointed administrator. These measures were implemented under Section 36 AAA in conjunction with Section 56 of the Banking Regulation Act, 1949.
Section 36AAA empowers the RBI to supersede a board if it deems such action in the public interest or necessary to prevent the multi-state cooperative bank from being managed in a manner detrimental to depositors' interests, among other considerations. The regulatory authority has the prerogative to supersede the board of directors of such a bank for a maximum period of five years.
Additionally, the RBI announced the formation of a committee of advisors to support the administrator. This committee includes former SBI executive Venkatesh Hegde, chartered accountant Mahendra Chhajed and former managing director of Cosmos Cooperative Bank Suhas Gokhale.
This regulatory intervention follows recent misinformation circulating about the cancellation of the bank's license, which the RBI clarified as false. Abhyudaya Cooperative Bank, headquartered in Mumbai, boasts 109 branches and 113 ATMs. As of 31 March 2021, the bank reported deposits of Rs 10,952 crore and loans and advances amounting to Rs 6,711 crore in the fiscal year 2020-21.
The RBI's decisive actions against cooperative banks align with a broader trend of regulatory vigilance in recent years, particularly after the legislative amendment to the Banking Regulation Act (as applicable to cooperative societies) in response to issues at the Punjab and Maharashtra Cooperative (PMC) Bank. The amendment, initially issued as an ordinance in June 2020, granted the RBI enhanced supervisory powers over cooperative banks.
According to data from the RBI's Report on Trend and Progress of Banking in India, enforcement actions totaling Rs 12.1 crore were taken against cooperative banks on 145 instances in FY22, a significant increase from Rs 3.89 crore in 43 instances in the previous fiscal year. This regulatory scrutiny aims to fortify the stability and integrity of the cooperative banking sector.
