RBI to formulate policies to curb money laundering

Mr Kamesam said since India has accepted the Basel Committee's Core Principles for effective banking supervision, there is a need for improving the accounting and disclosure standards to fall in line with the international best practises.

The RBI is evolving a framework of Prompt Corrective Action (PCA) with various trigger points with the approval of the Government. The framework is based on three parameters - capital adequacy, asset quality and profitability.

Referring to the crisis in the cooperative bank network, Mr Kamesam said the setting up of an Audit Committee of the Board, which is independent of the management in the co-operative banks look the best option at the present times.

Though regulators are external pressure points for good corporate governance, even the most comprehensive regulatory and effective supervisory system need not be a foolproof mechanism against a pliant management acting in collusion with unscrupulous clients, the Deputy Governor said.

He also saw a role for a separate regulator to monitor enforcement of banking regulations in the cooperative sector from district levels and co-ordinate activities of apex State cooperative banks. At present the cooperative banks are under the dual control of the RBI and State registrar of cooperative societies.

Mr Kamesam said introduction of corporate governance was a must in the cooperative banks thereby ensuring professional management and accountability, and thereby preventing the 'run on its deposits', as has been the recent experience.

Mr K. Madhava Rao, Chairman, High Power Committee on Urban Co-operative Banks and Chief Election Commissioner, Andhra Pradesh, in his address said the dual control of the sector was providing a happy hunting ground for both the RBI and States to indulge in a blame game for the problems like the run on Madhavpura or Krushi banks.

Finding fault with the apex bank's policy of giving licenses, inadequate monitoring and lack of transparency in the strengths and weaknesses of information, Mr Madhava Rao said in the interest of depositors, measures to make clear the health of the urban cooperative banks should be made public.

He said despite recommendations for amending the Urban Cooperative Banks Act, and the RBI accepting them, no State Government has affected changes. Mr Rao suggested that no new license should be given to a cooperative bank unless the State has amended the Act.