Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research on the Co-operative Banks- RBI Supervision
"The government had already taken the decision in February 2020 to bring all the co-operative banks under the regulatory supervision of RBI. Although an amendment to the Banking Regulation Act had been moved in the budget session of the Parliament, the bill could not be passed due to the Covid lockdown and hence, the need for an ordinance at this juncture. In the opinion of Acuité, this is a significant step towards strengthening the financial architecture in India. There are over 1,500 co-operative banks in the country with over 8 Cr depositors and estimated deposits of Rs4.84 Lakh Cr, making them systemically significant. Since this sector had been under dual regulation involving the Registrar of Co-operatives, RBI didn't have adequate jurisdiction over these banks. Given the increased instances of corporate governance lapses and the heightened concerns on the safety of the retail deposits in co-operative banks, we believe that bringing the sector under complete RBI regulation at par with other scheduled commercial banks will go a long way in improving its health and operating practices. It will also provide comfort to the depositors who have partly or fully lost their deposits in the past and stablise the deposit flows in these banks. Some of them may need to raise capital from their members to mitigate their asset quality risks and further, a consolidation in this space may get a momentum involving the merger of weaker banks into stronger ones."