ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Urban Cooperative Banks in Crisis?

Financial Inclusion in the Aftermath of the PMC Bank Collapse

The collapse of the Punjab and Maharashtra Cooperative Bank in 2019 raised questions about the dependability of the urban cooperative banking system in India. Started as a movement to address issues of rural credit, cooperative banks have witnessed a substantial increase in their scope of operations and have played a significant role in increasing liquidity in the hands of lower- and middle-class people. However, the misconduct of a few banks has maligned the entire urban cooperative banking system, leading to decreasing depositor trust. These instances cannot be allowed to demean the efforts put in by these banks in attaining the aims of financial inclusion, specifically with respect to the role played by them in the priority sector advances. This paper examines the problems faced by urban cooperative banks and analyses their future potential against the backdrop of their historical performance in financial inclusion. Also, it examines the various reform measures taken by the Reserve Bank of India in tandem with government efforts to keep the dependability and viability of the sector intact.

Cooperative banking in India was initially started as a movement to handle issues of rural credit and the Cooperative Societies Act, 1904 gave a defined shape to the cooperative movement. However, its scope remained restricted to the establishment of cooperative credit societies, encouraging the habit of thrift, saving, self-help and cooperation majorly among persons of limited resources like agriculturists and artisans.

The Cooperative Societies Act, 1912 gave due recognition to the requirement of establishing new organisations, which could cater to the requirements of supervision, audit and supply of cooperative credit, under the name of credit unions, consisting of provincial banks, central banks, and primary societies.

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Updated On : 19th Dec, 2022
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