The cooperative banking sector shall finally be subject to greater supervision, it seems. The Reserve Bank of India, in its Statement on Development and Regulatory Policies issued on Thursday, has announced steps to tighten the vigil on this neglected part of our banking sector. Among the steps, the central bank plans to change its guidelines on the exposure that Urban Cooperative Banks (UCBs) can take to single and group/interconnected borrowers. This should help strengthen the resilience of these banks and protect the interest of depositors.
In addition, UCBs will now be covered by RBI’s large-credit framework of reporting, under which banks with assets of ₹500 crore or more will have to report large loans extended by them. So far, it applied only to commercial banks, financial institutions and certain non-banking financial companies. Also, RBI will prescribe a cyber security framework for UCBs.
Extra supervisory was only to be expected after the fiasco at Punjab and Maharashtra Co-operative Bank (PMC), which had a ₹6,500 crore exposure to just one entity—Housing Development and Infrastructure Ltd—that amounted to 73% of its entire assets. A single default took its finances apart, leaving depositors in the lurch. In India, millions of depositors see a deposit as a deposit and a bank as a bank—a place where their money is safe. It’s for regulation to ensure that all banks remain trustworthy.