Cooperative banks continue to be a sore for India's banking sector

RBI cancelled 6 licences, issued 123 directives & imposed penalty on UCBs so far in 2021

- SESA SEN

FRIDAY, the 13th (August 2021) lived up to its infamy of being an unlucky day, at least for Karnala Nagari Sahakari Bank of Maharashtra. The Reserve Bank of India (RBI) cancelled its licence on that day for not having adequate capital and hence being unable to pay its depositors in full. Consequently, the cooperative bank ceased to carry on banking business.

While Karanala Sahakari Bank can blame its misfortune to the mythical Friday the 13th, cooperative banks at large, however, face uncertain future for many other reasons.

In 2021 so far, the central bank has issued at least 48 directives to UCBs either imposing fresh regulatory measures or extending the existing ones and cancelled six licences. Besides, there have been 75 cases when UCBs have been penalised over non-compliance as compared to just 23 in 2020 and just seven in 2019, shows an Express analysis.

Most co-operative banks sit uncomfortably in the heterogeneous banking structure. While big banks continue to gain all the attention, the cooperative banks which play a significant role in credit delivery to the rural population and contribute to financial inclusion remain confined in an unglamourous state.

As on May 31, 2021, there are 1,531 urban cooperative banks (UCBs) and 97,006 rural cooperative banks, with the latter making up 65% of the total asset size of all cooperatives taken together.

Despite the crucial role played by the cooperative sector, its asset size was only around 10% compared to that of scheduled commercial banks(SCBs) at end March-2020.