Urban co-operative banks in India will be brought under the supervision of the Reserve Bank of India (RBI) under a government ordinance announced on 24 June by the Union Cabinet.
The ordinance will bring 1,482 urban co-operative banks and 58 multi-state co-operative banks under the direct supervision of RBI.
Co-operative banks in India are currently under the dual control of the Registrar of Cooperative Societies and RBI. A bill introduced in February, which would have given more power to the Reserve Bank of India (RBI) to regulate multi-state co-operative banks, failed to pass in the budget session of the Parliament, which was adjourned due to the Covid-19 outbreak.
The bill would have seen the registrar continue to deal with administrative issues while RBI would have had an enforcer role, ensuring the co-operative banks comply with regulatory requirements.
Related: Reserve Bank of India cancels the licence of CKP Co-operative Bank
The government said its decision aimed to protect deposit holders. Minister Prakash Javdekar told the press conference: “The cabinet decision to issue an ordinance for bringing 1,540 co-operative banks under RBI’s supervision will give an assurance to more than 86 million depositors in these banks that their money amounting to Rs484bn (£5.17bn) will stay safe.”
The ordinance will also give the RBI powers to audit urban co-operative banks, give its consent for the appointment of their chief executives and approve mergers when co-operative banks are deemed to be too weak to survive on their own. For banks registered at state level, RBI will still have to consult the government of the specific state before it removes bank managers or board directors.
UCBs are governed by Basel I regulatory norms, which means they are not subject to stricter capital requirements and liquidity coverage ratios introduced under the Basel III agreement.
In April RBI cancelled the license of CKP Co-operative Bank of Mumbai, which subsequently ceased operating. The regulator said the bank’s license had been cancelled on the ground that its financial position was “highly adverse and unsustainable”.
Last year the Maharashtra Co-operative Bank was taken over by RBI after concerns about the accuracy of its financial statements. More than 20 co-op banks are now under the RBI’s administration.
