The Governor of the Reserve Bank of India (RBI) has discussed the problems and weaknesses involving Urban Cooperative Banks (UCBs), emphasising the significance of resolving these issues.
![](https://www.psuconnect.in/sdsdsd/RBI_issues_initiatives_to_strengthen_Urban_Cooperative_Banks.jpg)
Urban Cooperative Banks (UCBs) are what exactly?
- UCBs are main cooperative banks that serve small borrowers and businesses. They are typically found in urban and semi-urban areas.
- They are governed by the Cooperative Societies Act of the relevant State and registered under the Banking Laws (Cooperative Societies) Act of 1955.
- UCBs were once only allowed to lend for non-agricultural uses, but since 1996, they have expanded their size and operations.
- Five states, Andhra Pradesh, Gujarat, Karnataka, Maharashtra, and Tamil Nadu, account for 79% of all UCBs.
Types of UCBs
UCBs are categorized into different tiers by the RBI based on their deposit size:
- Tier 1: Deposits up to Rs 100 crore.
- Tier 2: Deposits ranging from Rs 100 to 1,000 crore.
- Tier 3: Deposits between Rs 1,000 to Rs 10,000 crore.
- Tier 4: Deposits exceeding Rs 10,000 crore.
Key concerns/addresses raised by RBI
(1) Operational Stability
- To contribute to the overall stability of the financial and banking industry, UCBs must strengthen their operational and financial resilience.
- The effectiveness of the governance inside UCBs is crucial in ensuring the stability of these particular banks.
(2) Setting up right priorities
- The integrity and openness of financial reporting must be a top priority for boards and directors of UCBs, who should abstain from cutting-edge accounting techniques that hide the true financial situation.
- To systematically control liquidity risk, asset liability management must be proactive.
- It is essential to set up a strong IT and cybersecurity infrastructure and to have the required capabilities available at the bank level.
- Governance procedures need to be improved, particularly those that deal with Compliance, Risk Management, and Internal Audit.
(3) Functioning of Boards
- Ensuring that directors have the necessary knowledge and experience.
- Assembling a qualified management board.
- Taking into account the board members’ tenure and diversity.
- Encouraging open and active participation at board meetings.
- Ensuring that committees at the board level operate effectively.
(4) Credit Risk Management
- Maintaining risk control by using strict underwriting guidelines.
- Putting in place efficient post-sanction surveillance.
- Early detection and stress reduction for emerging stress.
- To aid in recovery and keep adequate provisioning, follow-ups with significant non-performing asset (NPA) borrowers are pursued.
@the end
- For the general stability and resilience of the banking industry, it is critical to address the worries and vulnerabilities in urban cooperative banks.
- In order to maintain the health of UCBs, the RBI’s suggestions emphasise the significance of governance, risk management, and transparency.
Source: https://www.thehindubusinessline.com/money-and-banking/urban-co-operative-banks-face-dual-challenges/article30390395.ece