Page 8 - Banking Finance December 2021

RBI CORNER

crore or more," the RBI said in a cir- It has also come to the notice of RBI The central bank clarified that it does
cular. that some cooperative societies are not deal in such matters and never
The norms limiting current accounts to accepting deposits from non-mem- seeks charges or commissions of any
lenders who have a credit relationship bers, nominal members and associate sort.
was introduced to prevent diversion of members, which amounts to conduct- Further, RBI has also not authorised
funds by borrowers. However, it also ing banking business, in violation of the any institution, firm or person to col-
caused problems for some borrowers provisions of the BR Act, 1949. lect charges and commission on its
who had opened accounts with banks The RBI warned the public that such behalf in such transactions.
that could provide internet banking
societies neither possess any licence RBI, in a statement, advised members
support that their lending banks could
under Banking Regulation Act, nor of public to remain cautious and not to
not.
have they authorised by the RBI for fall prey to elements using its name to
carrying out banking business. extract money through such fictitious
RBI warns against some and fraudulent offers.
"The insurance cover from Deposit In-
cooperative societies us- surance and Credit Guarantee Corpo-
ing 'bank' in their names ration (DICGC) is also not available for RBI cautions against re-
deposits placed with these societies. lated-party deals
The Reserve Bank of India has noted
that some cooperative societies are Members of public are advised to ex- Reserve Bank of India governor
using the word 'bank' in their names, ercise caution and carry out due dili- Shaktikanta Das cautioned auditors
in contravention of Banking Regulation gence of such cooperative societies if about the rise in related party trans-
Act. Some cooperative societies are they claim to be a bank, and look for action and innovative accounting prac-
even accepting deposits from non- banking license issued by RBI before tices, barely a fortnight after banning
members without any licensing or ap- dealing with them," RBI noted. Haribhakti & Co. from auditing RBI-
proval from the central bank. regulated entities for two years.
DICGC, a wholly-owned subsidiary of
In light of these developments, the RBI RBI, assures depositors a deposit insur- Speaking at the National Academy of
clarified that cooperative societies are ance of Rs. 5 lakh in case the lender Audit and Accounts, Das said that au-
not allowed to use "bank", "banker" or goes bust. Without its cover, ditors need to keep a close vigil on
"banking" in their names. accountholders have little chance of manipulation of financial statements.
"The Banking Regulation Act, 1949 (BR getting their money back if the lender "Such undesirable practices and struc-
Act, 1949) was amended by the Bank- goes out of business. tures should draw the attention of the
ing Regulation (Amendment) Act, auditors. Since RBI, as the supervisor
2020 (Act 39 of 2020) which came into RBI cautions against dubi- of the financial system, relies and le-
force on September 29, 2020. Accord- ous deals on old notes verages on the work done by auditors,
ingly, co-operative societies cannot use the audit professionals are being sen-
The Reserve Bank of India cautioned
the words "bank", "banker" or "bank- sitized through various fora to improve
ing" as part of their names, except as the public to not fall prey to fictitious the quality of their reporting. We are
permitted under the provisions of BR offers of buying and selling of old constantly engaged with individual
Act, 1949 or by the Reserve Bank of banknotes and coins. auditors, audit firms and the Institute
India," the apex lender said in a state- This advisory comes in the wake of RBI of Chartered Accountants of India
ment on Monday. coming across certain elements fraudu- (ICAI) to improve the quality and depth
It has come to the notice of RBI that lently using its name and logo while of audit. A lot of work has been done
some cooperative Societies are using seeking charges, commission or tax in this area, but a lot more needs to
the word "bank" in their names in vio- from public, in transactions related to be done," he said.
lation of Section 7 of the Banking Regu- buying and selling of old banknotes and Das also said that statutory auditors
lation Act, 1949 (As Applicable to Co- coins through various online and offline have a responsibility to report directly
operative Societies), RBI stated. platforms. if they see any concern.

8 | 2021 | DECEMBER | BANKING FINANCE