RBI's rules are hurting urban cooperative banks, say experts

On the face of it, it looks like the urban cooperative banks (UCBs) are in the pink of health. According to the Reserve Bank of India (RBI) data, for 2017-18, Punjab and Maharashtra Co-operative (PMC) Bank — which now faces restrictions from the central bank — posted a net profit of about ~101 crore, while its capital adequacy ratio was sound at 12.23 per cent. The bank’s deposit base stood at whopping ~9,938 crore at the end of FY18. 

According to experts, beyond the balance sheets, it is governance which is plaguing UCBs in India. According to experts, a dual regulation by the state and RBI is what's hurting the sector, as it leads to undue political intervention. 

The top bosses in the institutions are selected by elections, often marred by political intervention, unlike banks, where professionals are handpicked for the job. Experts favour singular supervision by the RBI. 

Notably, the RBI has been trying to streamline UCBs for quite some time after it pursued an active licensing policy for UCBs during 1993-2004, which led to a sharp increase in their numbers. 

Subsequently, due to their weak financial position, the RBI’s action led to merger/amalgamation of weak UCBs with viable ones and closure of unviable ones.   At the end of March 2018, there were about 1551 UCBs, of which about 54 where scheduled UCBs.