This move was long overdue. Nevertheless, better late than never. On Wednesday, the cabinet approved a proposal to bring all 1,540 cooperative banks under the direct supervision of the Reserve Bank of India (RBI). That this wasn’t the case so far may surprise customers of these banks. For historical reasons, they were under a dual regulatory structure, with RBI and the Registrar of Cooperative Societies sharing authority. This overlap made for confusion, lax overall supervision, and frequently scandalous outcomes.
Administrative matters may still lie with the registrar. But under RBI’s watch, cooperative banks will now be subject to the same prudential rules that apply to commercial banks. This is expected to improve their governance, enhance transparency and strengthen public confidence in the safety of deposits. The hope is that this will rid the banking sector of a weak link. Some 86 million depositors have their savings in these, and the failure of even one such bank hurts the image of all banks. The recent Punjab and Maharashtra Cooperative Bank crisis, for example, sent jitters all around. That RBI is taking full charge is a relief