The Reserve Bank of India (RBI) on September 5 fined Uttar Pradesh-based Rani Laxmibai Urban Cooperative Bank Rs 5 lakh for breaching norms related to the Supervisory Action Framework (SAF).

In a press release, the central bank said that an inspection report of the bank based on its financial position as of March 31, 2020, revealed, among other things, that the bank had not complied with specific instructions given by the RBI to banks under the SAF. The RBI added that, based on the same circumstances, a circular was issued to the bank advising it to explain why it should not be penalised for violating the above instructions.

The regulator said that after considering the bank’s replies to the notice, the RBI concluded that the alleged breach was true and that a fine should be imposed.

The central bank said the action is based on deficiencies in regulatory compliance and was not intended to declare the validity of any transactions or agreements the bank entered into with its customers.

The RBI has been strengthening its control over regulated entities, especially cooperative banks, to ensure that proper corporate governance practices and regulations are followed.

The collapse of the erstwhile Punjab and Maharashtra Cooperative Bank (PMC) has prompted regulators to announce stricter regulations and increased scrutiny of these lenders. On August 29, the Reserve Bank of India sanctioned as many as eight partner banks in India for violating certain norms.

Cooperative banks in India have been fraught with crises for some time now. These entities have long struggled with a range of issues, including double regulation, local political interference, poor governance and fraud. While the larger cooperative banks are managed by the RBI, the smaller cooperative banks – the junior rural cooperative banks – continue to be controlled by the state governments.

In February 2021, the RBI set up a panel of experts headed by former Deputy Governor NS Vishwanathan to study urban cooperative banks’ issues. The RBI said on July 20 that the committee recommends a four-tier regulatory framework for urban cooperative banks based on the size of deposits and the scope of their operations.