After PMC Bank scam, RBI to tighten norms for urban co-op banks

The proposed tightening of norms comes after the PMC Bank scam, which revealed that the bank had an exposure of over Rs 6,500 crore or 73% of its total assets to real estate firm Housing Development and Infrastructure (HDIL).

By Hariprasad Radhakrishnan

The Reserve Bank of India (RBI) on Thursday announced a slew of new policies for urban cooperative banks (UCBs) that would focus on defining exposure limits, creation of a credit repository and enhancing cyber-security. The proposed tightening of norms comes after the PMC Bank scam, which revealed that the bank had an exposure of over Rs 6,500 crore or 73% of its total assets to real estate firm Housing Development and Infrastructure (HDIL).

RBI then came down heavily on the bank for the fraud, and imposed curbs including capping withdrawals at Rs 1,000, which was later enhanced to Rs 50,000 allowing over 78% of the customers to withdraw their entire account balance.

As the first of several measures, RBI has proposed to amend regulatory guidelines for UCBs to change the exposure norms for single and group/interconnected borrowers, and for the promotion of financial inclusion and priority
sector lending.

“A draft circular proposing the above changes for eliciting stakeholder comments will be issued shortly,” the statement said. Further, the central bank said UCBs with assets of Rs 500 crore and above would be brought under the Central Repository of Information on Large Credits (CRILC) reporting framework. Detailed instructions will be issued by December 31, the central bank said.

RBI said a new cyber-security framework is to be created to “mandate implementation of progressively stronger security measures based on the nature, variety and scale of digital product offerings of banks.” Implementation of bank-specific email domain, periodic security assessment of public facing websites and applications, and strengthening the cyber-security incident reporting mechanism and governance framework, and setting up of a security operations, are among the steps proposed to enhance cyber-security.

Responding to queries on the Indian banking sector and concerns emanating after the PMC Bank crisis, RBI governor Shaktikanta Das said, “There is no reason for any unnecessary panic. Our banking system remains sound and stable. One incident cannot and should not be used to generalise about the health of the cooperative bank sector. We are looking into all aspects on the particular cooperative bank.” The governor added that RBI was in discussion with the government over regulatory provisions for cooperative banks.