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The Reserve Bank of India (RBI) supersed the board of Mumbai-based Abhyudaya Cooperative Bank Ltd. In response to alarming governance deficiencies, the RBI appointed Satya Prakash Pathak, a seasoned leader and former Chief General Manager of State Bank of India, as the administrator for a year-long tenure. This assertive action was deemed necessary due to the glaring governance lapses within the institution.
RBI's Statement:
Citing material concerns stemming from inadequate governance standards, the RBI issued a statement underscoring the imperative for intervention. Despite these critical issues, the RBI's directive didn't entail business limitations, allowing Abhyudaya Cooperative Bank to continue its routine banking operations under the careful guidance of the newly appointed Administrator.
Support Structure:
Recognizing the complexity of the task at hand, the RBI established a committee of advisors to assist the Administrator in effectively managing the bank's affairs. This committee, composed of seasoned professionals including Venkatesh Hegde, a former General Manager of SBI; Mahendra Chhajed, a distinguished Chartered Accountant; and Suhas Gokhale, a former MD of COSMOS Co-operative Bank Ltd, aims to provide crucial support and expertise during this transitional phase.
Financial Performance:
Abhyudaya Cooperative Bank experienced a significant setback in its financial performance, with profits plummeting by a staggering 78% to Rs 3.54 crore in the fiscal year ending March 2021. However, while the bank's profits faced a considerable downturn, data showed only marginal fluctuations in its loans, advances, and deposits during the same period.
RBI's Prior Warnings:
Months before this intervention, RBI Governor Shaktikanta Das had issued explicit warnings urging Urban Co-operative Banks (UCBs) to reinforce their financial and operational resilience. The emphasis was on bolstering governance practices, particularly in compliance, risk management, and internal audits. These warnings served as a clarion call for UCB boards to fortify their structures to prevent such interventions.
Financial Stability Report Findings:
The RBI's Financial Stability Report (FSR) released in June revealed unsettling findings regarding the vulnerability of UCBs under severe stress scenarios. The report showcased a worrying decline in capital adequacy ratios due to mounting credit default and concentration risks faced by these banks.