Urban cooperative banks urgently need to get their act together
(Source – The Hindu, International Edition – Page No. – 13)
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Topic: GS3 – Indian Economy |
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Context |
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Problems with Urban Cooperative Banks (UCBs)
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Fraud and Mismanagement: UCBs have frequently faced financial irregularities, including frauds such as the ₹122-crore scam at New India Cooperative Bank (NICB) and the ₹6,250-crore Punjab and Maharashtra Cooperative (PMC) Bank scam.
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Weak Governance: Many UCBs suffer from poor internal controls, ineffective boards, and conflicts of interest, leading to financial instability.
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Dynastic Control: Some UCBs are controlled by family-dominated groups, affecting decision-making and increasing the risk of corruption.
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Inadequate Oversight: Internal audits, risk management mechanisms, and statutory audits often fail to detect irregularities in time.
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Liquidity Issues: Many UCBs lack the financial strength to withstand economic shocks, affecting depositors’ confidence.
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Delayed Action: Authorities often act only after large-scale frauds are exposed, leading to depositor panic and financial instability.
Way Forward
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Stronger Regulatory Oversight: The RBI should enhance supervision, conduct more frequent inspections, and enforce strict compliance measures.
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Governance Reforms: Improve board accountability, implement independent audits, and eliminate dynastic control.
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Timely Intervention: Early detection of financial stress can help prevent large-scale frauds and protect depositors’ money.
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Revival Strategies: Encourage mergers with financially sound entities, including small finance banks and NBFCs, to ensure stability.
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Deposit Protection: Ensure prompt disbursal of insured deposits and consider innovative rescue models like Unity Small Finance Bank.
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Practice Question: Discuss the challenges faced by Urban Cooperative Banks (UCBs) in India, highlighting governance issues and regulatory gaps. Suggest measures to enhance their financial stability and depositor confidence. (250 Words /15 marks) |
