Rising Concerns in the Cooperative Banking Sector
The cooperative banking sector in India has recently been marred by financial irregularities, governance failures, and regulatory lapses. Instances of mismanagement, inadequate capital buffers, and non-compliance with banking norms have raised alarms. In response, the Reserve Bank of India (RBI) has taken stringent measures, cancelling the licenses of multiple Urban Cooperative Banks (UCBs) and imposing penalties to enforce stricter compliance. The regulatory tightening aims to restore financial discipline and protect depositors from the risks posed by weak banking practices.
RBI Cancels Licenses of 58 Cooperative Banks
Since 2020, the RBI has revoked the licenses of 58 UCBs due to non-compliance with essential banking regulations. Union Minister of State for Finance Pankaj Chaudhary, in a recent Lok Sabha session, emphasized that these actions were taken under the strengthened regulatory framework introduced by the Banking Regulation (Amendment) Act, 2020.
The amendments, effective from June 26, 2020, have expanded the RBI’s oversight on cooperative banks, particularly in areas such as management, audits, capital adequacy, and bank restructuring. These reforms aim to fortify the sector against financial instability and prevent bank failures that jeopardize depositors’ funds.
Enhanced Governance and Regulatory Oversight
The amendments to the Banking Regulation Act have reinforced governance measures under Sections 10, 10A, 10B, 35B, and 36AB. These provisions mandate stricter regulatory scrutiny, ensuring improved financial discipline and accountability in cooperative banks.
To safeguard depositors, the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act guarantees an insurance cover of Rs 5 lakh per depositor for savings, fixed, current, and recurring accounts. This limit was raised from Rs 1 lakh to Rs 5 lakh in February 2020 and may be revised in the future based on financial conditions and the broader interests of the banking system.
RBI Imposes Penalties on Five Cooperative Banks
In a separate enforcement action, the RBI imposed monetary penalties on five cooperative banks for failing to comply with regulatory norms. The violations and penalties include:
- Gurdaspur Central Cooperative Bank (Punjab) – Fined Rs 1 lakh for breaching provisions under Section 20 read with Section 56 of the Banking Regulation Act, 1949.
- Baramulla Central Cooperative Bank (Jammu & Kashmir) – Penalized Rs 5 lakh for disregarding RBI directives prohibiting fresh deposit acceptance.
- Anantnag Central Cooperative Bank (Jammu & Kashmir) – Slapped with a Rs 1 lakh penalty for similar violations.
- Jogindra Central Cooperative Bank (Himachal Pradesh) – Fined Rs 1 lakh for contravening banking regulations.
- Janata Sahakari Bank (Gondia, Maharashtra) – Penalized Rs 1.5 lakh for violating Section 26A read with Section 56 of the Act.
These penalties, issued under Section 47A(1)(c), read with Sections 46(4)(i) and 56 of the Banking Regulation Act, underscore the RBI’s zero-tolerance approach toward non-compliance in the cooperative banking sector.
Measures to Strengthen the Cooperative Banking Sector
The RBI’s decisive actions reflect its commitment to maintaining financial stability and protecting depositors’ interests. However, further measures are essential to ensure the cooperative banking sector operates with transparency and accountability:
- Strengthening Internal Governance – Cooperative banks must implement robust internal controls, including independent audits and risk management frameworks.
- Enhanced Supervision – The RBI should continue stringent inspections and take pre-emptive actions against non-compliant banks before financial instability escalates.
- Increased Capital Requirements – Cooperative banks should be required to maintain adequate capital reserves to cushion against financial shocks.
- Public Awareness and Digitalization – Educating depositors about banking risks and encouraging digital banking adoption can enhance security and operational efficiency.
By implementing these measures alongside stringent regulations, the cooperative banking sector can regain trust and contribute to a more resilient financial system.
(With inputs from agencies)
