Welcome Supervisory Move on Co-

Context:The government’s recourse to an ordinance to empower the RBI to supervise urban cooperative in the same way as other banks will reduce problems of Urban Cooperative Banks (UCB).

Problems in UCB

• Regulatory neglect: Since they were considered too small to cause any systemic harm, regulatory oversight  was relaxed.
• State Interference: Joint regulatory oversight with the state government restricted RBI’s timely action.
• Poor corporate governance and inability to detect frauds.
• Falling market share of UCBs: to 3.3% in FY17 from 6.4% in FY02 (due to Madhavpura Mercantile Bank scam in 2001-02).

Way Forward

• Smart technology enabled robust supervision framework: to strengthen oversight of supervisors.
• Artificial intelligence enabled monitoring of transactions: to analyse patterns in interconnected transactions among multiple banks and shadow banks.
• Adopt core banking solutions and enhance professionalism and governance of UCBs.
• Recommendations by Malegam Committee and an RBI panel under R Gandhi: 

• Board of management in cooperative banks must be delegated powers similar to what commercial banks have given to their boards of directors