Recently the Governor of Reserve Bank of India (RBI) has indicated reforms in the troubled Urban Cooperative Banks (UCBs).
The governor has indicated that the RBI will introduce regulatory changes to reform urban cooperative banks that suffer from frequent failures.
This statement is being considered in the light of where several depositors of the three closed UCBs were paid deposit insurance up to Rs 5 lakh under the scheme of Deposit Insurance and Credit Guarantee Corporation (DICGC).
- UCB refers to primary co-operative banks located in urban and semi-urban areas.
- They are registered as co-operative societies under the provisions of the State Co-operative Societies Act or the Multi-State Co-operative Societies Act, 2002 of the respective state.
- UCBs can be both scheduled and non-scheduled.
Importance of UCBs:
Promoting thrift and self-help, financial inclusion, attractive interest rates, local nature, advantages over its commercial competitors, etc.
Issues related to UCBs:
- Management issues exist in UCBs, as their functioning is sometimes affected by vested political interests.
- These are mostly single-branch banks and continue to have the problem of correlated asset risk (if there is a widespread local problem, the entire bank may be closed).
- Lack of professionalism such as hiring local people to keep costs down.
- Non-Performing Asset (NPA) and Profitability Issue (Punjab and Maharashtra Co-operative Bank Crisis).
Source – The Hindu