Co-Op Regulator May Track Nbfcs

The Reserve Bank of India (RBI) has mooted that the proposed apex supervisory body for co-operative banks can bring in non-banking finance companies (NBFCs) under its umbrella at a later stage.

Under the proposal, the scheduled co-operative banks will be treated by the RBI on par with other scheduled commercial banks, while the entire inspection and supervisory functions in relation to all other urban co-operative banks (UCBs) will come under the proposed new regulator. The RBI will continue to oversee the prudential aspects of these banks.

The new body could be under the control of a separate high-level supervisory board consisting of representatives of the Central government, state governments, the RBI as well as experts, and it may be given the responsibility of inspection/and supervision of UCBs and ensuring their conformity with prudential, capital adequacy and risk management norms laid down by the central bank.

 

Initially, the RBI will lend infrastructure support to the proposed body. If the experiment succeeds, the NBFCs will come under its umbrella at the second stage, sources said.

The trigger point for the idea is the crisis at the Madhavpura Mercantile Co-op Bank.

At present, three authorities (central and state governments, and the RBI) are involved in regulating, supervising and/or administering UCBs.

There are 2,084 UCBs of which 51 are scheduled ones, while the rest are unscheduled. In view of the large number as well as their dispersed and local character, their supervision and inspection pose problems.

While accounts of UCBs are required to be audited by state governments, there has been substantial delay in completing audit of a large number of UCBs.

The RBI conducts statutory inspections normally once in two years in respect of scheduled UCBs, once in two-three years in the case of non-scheduled UCBs, while the identified weak banks are inspected on an annual basis.