RBI closed six UCBs suspected of money laundering

RBI closed down six Urban Cooperative Banks which were suspected of being used to route illegal money. RBI didn’t disclose the names of these UCBs.

Created On: Sep 15, 2014 14:48 ISTModified On: Sep 15, 2014 14:52 IST

The Reserve Bank of India (RBI) on 14 September 2014 closed down six Urban Cooperative Banks (UCBs). These UCBs were suspected of being used to route illegal money, but RBI did not disclose the names of these six UCBs.

Besides, the RBI also asked the state governments to take stringent action against the erring UCBs.

RBI also directed its regional officers to seek compliance from UCBs and submit an update that would be reviewed and any necessary action can be initiated. This will help on the issue of risk categorization and compilation or updating profiles of all their existing customers.

The issue of money laundering came into light during a meet of Economic Intelligence Council (EIC) that was headed by Union Finance Minister Arun Jaitley. During the meet misuse of UCBs with dual control of Central and State government was discussed.

Observed irregularities in the UCBs during the meet
• It was observed that UCBs with 8100-plus branches and deposits worth 2 lakh 9 thousand crore rupees were being used as conduits of money laundering.
• UCBs were also found wanting on regulatory issues and has lax regulatory norms.
• UCBs based in Gujarat accounted for 161 crore rupees of irregularities. In these 9166 forged saving accounts were opened in the name of deceased persons to launder black money, which were deposited and withdrawn immediately.
• The Uttar Pradesh based UCBs accounted for irregularities worth 17 crore and 57 lakh rupees

During the meet, EIC also directed RBI to block accounts of non-complying customers while keeping the credit option open, so that customers would be able to credit money into their accounts but the facility of withdrawal would be barred. The facility of withdrawal would be activated after mandated information is furnished.

On the issue of dual control of UCBs, RBI informed the EIC that the problem is being resolved through the mechanism of Task Force on Cooperative Urban Banks (TAFCUB) and the banking related aspects of the UCBs are regulated by it.

Earlier, the Union Government had formed an inter-ministerial group headed by the Director General of Central Economic Intelligence Bureau (CEIB) comprising of members from CBI, Department of Revenue, Department of Financial Services, Financial Intelligence Unit, RBI and Central Board of Direct Taxes (CBDT).

Money Laundering Act 2002

The Prevention of Money-laundering Act, 2002 (PMLA) came into effect from 1 July 2005. The Act was brought with an aim to combat money laundering in India with three main objectives. The three objectives were
• To prevent and control money laundering
• To confiscate and seize the property obtained from laundered money
• To deal with any other issue connected with money laundering in India

Urban Cooperative Banks (UCBs)
The Urban Cooperative Banks (UCBs) are registered as cooperative societies under the provisions of, either the State Cooperative Societies Act of the State concerned or the Multi State Cooperative Societies Act, 2002. They are regulated and supervised by the Registrar of Cooperative Societies (RCS) of State concerned or by the Central Registrar of Cooperative Societies (CRCS), as the case may be.

The applicability of banking laws to cooperatives societies since 1 March 1966 ushered in ‘duality of control’ over UCBs between the Registrar of Cooperative Societies/Central Registrar of Cooperative Societies and the Reserve Bank of India. The Reserve Bank regulates and supervises the banking functions of UCBs under the provisions of Banking regulation Act, 1949(AACS). Within the Reserve Bank, a separate department, viz. Urban Banks Department, has been entrusted with these functions. Urban Banks Department functions in close coordination with other regulators viz., RCSs and CRCS. The functions of the department is broadly divided into
• Regulatory
• Supervisory
• Developmental


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