Co-Operative Banks Navigate Choppy Waters As RBI Turns Up Scrutiny

With 1,514 UCBs in India, there exists a conflict between the regulations and these lenders, according to Jyotindra M. Mehta, president, of the National Federation Of Urban Cooperative Banks And Credit Societies Limited.

"Most of the time these cooperative banks are not allowed to grow due to strict regulation. Yet, they are managing it and catering to needs in their own way," he said.

"The main issue is lack of modern technology," Mehta said.

However, according to Marathe, a combination of several factors impact the working of cooperative banks, leading to frequent actions by the regulator. These include:

Limited Capital: Having sufficient capital enables a lender to face unexpected risks. But in the event of this paucity, their risk-varying capacity gets limited, hindering the ability to lend and expand services. Sometimes, these banks also struggle to raise more capital.

Lack of Talent Pool: UCBs often fail at employing professionals with relevant experience as the talent pool tends to prefer other lucrative jobs. Even the management that exists, often grows with the banks, leading to limited exposure.

Risk Management: These lenders suffer lack inadequate risk assessment and management practices that often expose them to various problems. These include credit risk, operational risk and so on.

Management Problems: Often, it is understood that cooperative banks are run by directors, leading to concentration of power in the hands of few. But as banking gets more complex, it becomes important for these UCBs too, to delegate work and bring in people with a variety of experiences.

Technology and Cybersecurity: Many UCBs lag in adopting modern technology and infrastructure. With outdated systems, efficiency and ability to compete with larger financial institutions often gets tested.