Reserve Bank of India (RBI) Issued Instructions to ‘Co-operative Banks’

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Reserve Bank of India (RBI) Issued Instructions to ‘Co-operative Banks’

Reserve Bank of India (RBI) issued instructions to ‘co-operative banks’

Recently ‘RBI’ has issued guidelines for risk management in outsourcing of financial services by co-operative banks.

In present times, co-operative banks are increasingly using outsourcing to reduce costs as well as to gain expertise (where it is not available internally).

‘Outsourcing’ has been defined as the use of third parties to conduct certain activities (which will often be conducted by a co-operative bank itself, usually at present or in the future) for a limited period of time.

Challenges

This makes banks vulnerable to various risks including financial risk, compliance risk and reputation risk.

Salient features of these guidelines:

  • A co-operative bank intending to outsource any of its financial activities will have to formulate a comprehensive outsourcing policy.
  • The policy requires banks to establish criteria for such activities as well as for selection of service providers
  • The grievance redressal mechanism of co-operative banks should not be hampered due to outsourcing.
  • In other related headlines, RBI has barred MPs, MLAs and members of Municipal Corporations or other local bodies from holding the post of Managing Director (MD) or Whole Time Director (WTD) in all Primary (Urban) Co-operative Banks (UCBS) However, some exemptions have also been made

What is Co-operative Bank?

  • It is a financial entity, which is related to its members. These members are both the owner and the customer of their bank at the same time. These differ from commercial banks.
  • These are classified into urban and rural co-operative banks on the basis of their area of ​​
  • These are registered under the Co-operative Societies Act of the respective state or under the Multi-State Co-operative Societies Act,
  • These come under the effective supervision of RBI (Urban Co-operative Banks) and National Bank for Agriculture and Development (Rural Co-operative Banks).

Source: The Hindu

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