RBI panel suggests umbrella body for helping smaller UCBs scale up

 Says large UCBs that cannot function fully as a bank be treated like SFBs

An expert committee constituted by the Reserve Bank of India (RBI) has suggested an umbrella organization for small urban cooperative banks (UCBs), which will allow them access to scale forming a network. The larger UCBs are allowed to operate on a standalone basis with regulations similar to those of banks.

The RBI must help with grants to set up the umbrella organization, and once it stabilizes, “it may explore the possibilities of converting into a universal bank and offer value-added services on behalf of its member banks,” the committee report said.

“With suitable structural flexibility to operate as a bank, the umbrella organization can be owned by the co-operative institutions even if it is a joint-stock company, which may encourage the smaller UCBs to become an extended arm of such a bank,” the panel, headed by former RBI deputy governor NS Vishwanathan said.

With the amendment to the Banking Regulation Act, the RBI has adequate power in regulating the UCBs, it said, and that should bring about a tiered regulatory structure for the UCBs, commensurate with their sizes. Before the amendment, the central bank was regulating only the ‘banking’ aspect of the cooperative banks, while the governance, audit, and winding-up related functions were driven by the state (for single state cooperative) and the central government (multi-state cooperative).

The dual control has still not been eliminated by the amendment, but “a well-coordinated regulatory approach will, however, go a long way in ensuring a financially sound and well-managed UCB sector,” the committee noted.