Rs 135 Crore Fraud Ignored? RBI under Fire over New India Cooperative Bank
Why is RBI under fire over New India Cooperative Bank?
The Reserve Bank of India (RBI) has been put under intense scrutiny after allegations of financial irregularities and corruption surfaced at the New India Cooperative Bank, leading to a Rs 135 crore fraud ignored and a crisis of trust. The question on everyone’s mind is: did the RBI ignore the red flags waving in front of it in 2020, and why did it take so long to address the issues?
RBI Ignored Warnings?
As early as January 2020, former employees of the New India Cooperative Bank had alerted the RBI about rampant financial irregularities and corruption within the Bank. In a scathing letter to the executive director of RBI’s department of regulations, these whistleblowers recounted instances of financial mismanagement, unethical practices, and preferential treatment given to certain borrowers. They had even detailed the story of how over 80 senior staff members were forced to resign in 2019, with family members of senior executives securing privileged promotions despite lacking banking experience.
What did the Whistleblowers Alleged?
The letter alleged that the Bank was plagued by systemic corruption, with employees facing harassment and intimidation while trying to speak up against the alleged irregularities. They pointed out that the Bank’s board of directors had allowed the Bank to compromise its statutory compliances, compromising the financial health of the institution. The whistleblowers appealed to the RBI to conduct a forensic audit, dissolve the board of directors, and recover losses from the personal assets of directors and management.
A series of Questions
- Why did the RBI ignore the warnings? Was it a case of sheer incompetence, or did something more sinister play a role? The answer to this question has been left unanswered, leaving depositors and shareholders in the dark.
- How did the Bank’s board of directors allow the financial irregularities to persist? Were they complicit in the alleged malfeasance, or were they simply asleep at the helm?
- Why did it take the RBI so long to address the issues? Was it a matter of lack of resources, or was it a case of complacency?
Regulatory Action
In a surprising move, the RBI finally stepped in last week, imposing severe operational restrictions on the Bank, preventing it from granting or renewing loans, making investments, or disbursing any payments without prior written approval from the RBI. The central bank also superseded the board of directors for the next 12 months and appointed Shreekant, a former chief general manager of the State Bank of India (SBI), as the administrator to oversee the Bank’s operations. A committee of advisors, including Ravindra Sapra (former GM of SBI) and Abhijeet Deshmukh (chartered accountant), has also been appointed to assist in managing the Bank.
The Human Cost of Irresponsibility
The crisis has left many depositors in distress, with long queues forming outside the Bank’s branches as customers attempted to withdraw funds. Under the new restrictions, customers are unable to withdraw money from their savings or current accounts, although the RBI has assured that depositors will receive insurance claims of up to Rs 5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, subject to verification.
Conclusion
The Rs 135 crore fraud ignored? RBI under fire over New India Cooperative Bank is a story of gross regulatory failure and corporate negligence. The crisis has left a trail of destruction and despair, and the question remains: can the RBI restore the public’s trust in its oversight mechanisms and promptly address the issues hindering the smooth functioning of the banking sector?
References:
- "RBI imposes restrictions on New India Cooperative Bank" – Indian Express
- "RBI takes over New India Cooperative Bank" – Business Standard
- "RBI’s Compliance – Issues and Challenges" – Economic Times
- "RBI’s Regulatory Mechanisms – A Review" – Seminar on Banking Regulation
