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Monday, January 26, 2015

RBI raises concerns over State Bank of Sikkim's functioning

The Reserve Bank of India has raised concerns over the State Bank of Sikkim, which does not come under any regulation or jurisdiction since the Banking Regulation Act 1949 and the Companies Act do not extend to it.

In a letter to the central government, RBI has expressed serious reservations about the regulatory vacuum that the State Bank of Sikkim is allowed to function in, said a government official, who did not wish to be named.

"RBI has pointed out that since the bank does not come under any jurisdiction, financial and operational issues have arisen," the official said, adding that the banking regulator is concerned about protecting the interest of depositors. The State Bank of Sikkim's balance sheet has not been audited for the past five years and the RBI has pointed out in the letter that the bank's name could mislead depositors since it sounds as if it is an affiliate of forming loans (NPAs) or bad loans are high," said another official aware of the issue.

State Bank of Sikkim's managing director and chief executive HK Chhetri refused to comment on the bank's financial status although he confirmed that talks are on between the state and the central government to resolve the issue.

"It is because of the legacy issues. State government is the majority shareholder and they are in talks with all parties concerned," he said. Set up in 1968, State Bank of Sikkim has 35 branches. A bank official explained that since Sikkim joined the Indian Union in 1975, it has been granted special status under Article 371 F of the constitution. the State Bank of India (SBI), the country's largest bank. "If tomorrow there is a bank run, we will not be able to do anything. Since no rules apply, there is no DIGC (Deposit insurance and Credit Guarantee Corporation) cover," added the official.

Source : Economic Times


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