RBI’s attempt to expand control over cooperative banks faces denial

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Behind the arduous and decades-long journey to gain greater control over cooperative banks lies the conviction that these lenders still have an important role to play in the economy, but that they can only do so if regulation and regulation. governance are strengthened.

Urban cooperative banks currently hold around Rs 5 lakh crore in deposits, representing only 3.24% of banking system deposits. These lenders have more than 11,000 branches across the country.

On the other hand, these lenders were also the most common to go bankrupt. According to data from the Deposit Insurance and Credit Guarantee Corporation, claims paid for 365 failed cooperative banks since their inception have amounted to Rs 5,466.9 crore. In contrast, claims worth Rs 296 crore were paid for 27 commercial banks.

This record means that the regulator has been reluctant to let the sector develop so far.

“Due to the lack of the desired level of regulatory comfort due to structural issues including ‘capital’ and deficiencies in the statutory framework, regulatory policies for cooperative banks have been restrictive,” said the committee led by the former RBI Deputy Governor Vishwanathan. in his report. “With the enactment of the Banking Regulation (Amendment) Act 2020, the statutory gaps have been addressed to a very large extent. “

He then recommended an umbrella entity to help small urban cooperative banks grow. He also suggested a four-tier regulatory structure based on the size of the deposit base and steered clear of any forced conversion of large lenders to commercial banks. He said these organizations should be allowed to expand in terms of branches, if they meet regulatory requirements.

“Although there have been challenges to the RBI circular, there is no suspension of the amendment to the BR law,” Vishwanathan said, adding that the case was before the court. “As such, the committee has assumed that the amendments will be sustained.”

In general, good governance should be the backbone, even more so in the case of the banking sector, he said. “In view of this, the principles imposed on commercial banks and now extended to urban cooperative banks are reasonable.”

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