Union Minister of State for Finance Anandrao Adsul has dubbed the ban on loans to directors of urban co-operative banks as 'unconstitutional' and is seeking to reverse the decision.
Adding a twist in the tale, the fourth deputy governor will be appointed shortly despite the Reserve Bank of India rejecting the proposal.
Adsul emphatically stated that a fourth deputy governor was necessary to look into the interests of co-operative banking sector.
"I have signed the proposal for the appointment of a fourth governor and this will be done within two months," he added.
The minister felt that the RBI ban that prevents directors from taking loans from UCBs on whose board they have a seat is retrograde.
The central bank took this step on the recommendation of the Joint Parliamentary Committee.
"Co-operative banks have been set up due to initiative of individuals. They mobilise the required share capital and undergo lot of trials and tribulations to get the institution up and running.
"Hence, the promoters should have some incentive by way of having access to secured advances. Just because a few incidents of misappropriation of UCB funds in Gujarat and Maharashtra, took place, doesn't mean that a blanket ban should be imposed," the minister said.
Representations received from various co-operative bank associations and federations in this regard are being seriously considered by the finance ministry.
The minister said the ban on loans to directors was a reaction to the string of UCB collapses in the last couple of years.
On the issue of appointment of fourth RBI deputy governor, Adsul averred: "The Reserve Bank of India Act provides for the appointment of a fourth deputy governor. Co-operative banks are clamouring that only the RBI should be their sole supervisor/regulator. The appointment will be made shortly."
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