Strengthening of the Supervisory System Related to Co-Operative Banks

The supervisory system for cooperative banks in India is complex and involves both the central and state governments. The Reserve Bank of India (RBI) is the apex supervisory authority for cooperative banks. However, the state governments also play a role in the supervision of cooperative banks through their respective state cooperative societies acts.

The duality of control in the supervision of cooperative banks has led to a number of challenges, including lack of coordination between the central and state governments, complex regulatory environment, and high cost of compliance.

In recent years, the government and the RBI have taken a number of steps to strengthen the supervisory system for cooperative banks. These measures include:

  • Amendment to the Banking Regulation Act (BRA), 1949: The BRA was amended in 2020 to bring all urban and multi-state cooperative banks under the direct supervision of the RBI. This was a major reform that is expected to improve the regulation and supervision of cooperative banks.
  • Introduction of new regulations: The RBI has introduced a number of new regulations for cooperative banks in recent years. These regulations are designed to improve the financial health and governance of cooperative banks. For example, the RBI has introduced new capital adequacy requirements, liquidity requirements, and risk management guidelines for cooperative banks.
  • Increased focus on risk-based supervision: The RBI is increasingly focusing on risk-based supervision of cooperative banks. This means that the RBI is focusing its supervisory resources on cooperative banks that are at a higher risk of failure.
  • Use of technology: The RBI is using technology to improve the efficiency and effectiveness of its supervision of cooperative banks. For example, the RBI has developed a number of IT tools to help it monitor the financial health of cooperative banks.

MCQs

  1. Which of the following is NOT a step that the government and the RBI have taken to strengthen the supervisory system for cooperative banks?
    • (a) Amendment to the Banking Regulation Act (BRA), 1949
    • (b) Introduction of new regulations
    • (c) Increased focus on risk-based supervision
    • (d) Reduction of interest rates
  2. Which of the following is a challenge of the duality of control in the supervision of cooperative banks?
    • (a) Lack of coordination between the central and state governments
    • (b) Complex regulatory environment
    • (c) High cost of compliance
    • (d) All of the above
  3. Which of the following is a benefit of strengthening the supervisory system for cooperative banks?
    • (a) It will reduce the risk of bank failures
    • (b) It will protect depositors’ savings
    • (c) It will promote financial inclusion
    • (d) All of the above

Answers

  1. (d)
  2. (d)
  3. (d)

Conclusion

Strengthening the supervisory system for cooperative banks is important for the safety and soundness of the Indian financial system and to protect depositors’ savings. The government and the RBI have taken a number of steps to strengthen the supervisory system for cooperative banks, and more needs to be done to make it more effective.