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New cop for co-op banks, finance firms

New Delhi, April 13: The government plans to set up a regulatory body armed with policing and penal powers that will oversee and control the functioning of non-banking financial companies (NBFCs) and co-operative institutions.

Anand Rao Adsul, minister of state for finance, said the regulatory body would be formed along the lines of stock market regulator Securities and Exchange Board of India (Sebi).

As per the new regulations, co-operative banks and institutions, non-banking financial firms and chit funds would have to register with the regulator.

“This is our effort to protect the small investors,” said Adsul. “Rural investors tend to rely and invest heavily in NBFCs, chit funds and co-operatives. The co-operative banks with their presence in remote areas contribute significantly to the country’s economy.”

The growing tribe of rural small investors, which had invested its hard-earned savings in co-operatives and NBFCs, had lost money due to a series of co-operative scams in the early 90s to the recent past.

Among them are the Gujarat-based Madhavpura Mercantile Bank, JVG Finance, Kuber Group’s finance schemes et al.

A recent RBI study on banking in India had warned that some co-operative banks are flouting regulatory norms and running business contrary to the spirit of co-operation.

Adsul said the RBI could increase the number of deputy governors from the present three. The bank’s constitution has provision for a fourth deputy governor. “We might have a fourth deputy governor in-charge of urban co-operative banking,” he said.

Bank officials said the co-operative sector faces the problems of non-adherence to government norms and regulations, inadequate internal control, higher level of loan defaults and lack of funds for fresh advances.

“An effective and co-ordinated regulation and supervision is a sine qua non for these institutions,” said a bank official. The multiplicity of control, regulatory overlap and lack of co-ordination between Nabard and RBI compounds the problem. A single regulator will lessen these problems, the official added.

Also, the co-operative institutions involved in manufacturing and production would be brought under the Companies Act, which would make it mandatory for the firms to be registered, Adsul said.

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