Changes in Banking Regulations Act sought to fix control of coop banks

Regulatory authority of RBI over UCBs remains limited

MUMBAI: The duality of control of cooperative banks in the country with the Reserve Bank of India (RBI) regulating the banking-related functions and the state/central government controlling the management-related areas, raises key regulatory questions.

In an effort to address this vexatious issue of duality of control, RBI is working with the Government to amend the Banking Regulations Act governing co-operative banks, according to Shaktikanta Das, the RBI Governor.

The RBI’s regulatory control over urban cooperative banks (UCBs) is affected due to this duality of control. Das said RBI has made concerted efforts in the past to mitigate the adverse impact of dual regulation in the form of MoUs with State/ Central Governments and setting up a State-level Task Force for Co-operative Urban Banks (TAFCUB).

“Since the challenges still persist, we have suggested several legislative changes to the Central Government for better regulation and supervision of UCBs. On our part, we are reviewing the existing architecture of regulation and supervision of UCBs and shall carry out necessary changes in sync with the evolving requirements,” the RBI governor said while addressing a seminar on Saturday at Amrut Mody School of Management, Ahmedabad.

Co-operative banks are regulated under Section 56 of the Banking Regulations Act, 1949 subject to certain modifications. Das said as co-operative banks are exempted from certain provisions of the Act, the regulatory authority of the Reserve Bank over UCBs is limited.

The Urban Co-operative Banks (UCBs) were brought under the ambit of the BR Act with effect from March 1, 1966. Certain provisions of the BR Act, however, were not made applicable to them, limiting the scope of regulation and supervision over them.

Sounding a warning to the UCBs, RBI governor said that going forward, they are likely to increasingly face competition from players such as Small Finance Banks (SFBs), Payments Banks, NBFCs and Micro-Finance Institutions (MFIs).

“It is, therefore, necessary for them to adopt robust technology to enable them to provide banking services at lower costs and with adequate safeguards. The Reserve Bank has been taking proactive steps to assist these institutions to adopt a robust IT infrastructure,” he added.

The proposed national level Umbrella Organisation (UO) is expected to provide liquidity and capital support to member co-operative banks, and will therefore contribute to the strength and vibrancy of the sector.



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