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

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Urban Cooperative Banks in Crisis?

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.

Bank-like Regulations for Non-banking Financial Companies

The purpose of this article is to address some of the lacunae in the scale-based framework proposed by the Reserve Bank of India in a discussion paper on non-banking financial companies that have turned a blind eye to the growth aspect and recognising only the stability by minimising the possibility of systemic risk. In this context, the introduction of pyramid-based structure of NBFCs is found to be lacking a common parameter for classification of companies in different layers. Further, the revision of threshold asset size limit for identifying systemically important non-deposit taking NBFCs from `500 crore to `1,000 crore is found be undervalued, which will result into making the smaller asset sized NBFCs subject to stricter prudential norms.


The Changing Face of Indian Banking

Indian banking is passing through its most severe period of stress in over a decade. It is important, however, not to draw conclusions for banking policy from a snapshot of the most recent period--the totality of the post-reform experience must be taken into account. That larger experience shows that India's public sector-dominated banking system has served the economy well by improving its performance in respect of both efficiency and stability. Looking ahead, changes in governance and management are required, but it is possible to effect these within the framework of public ownership.

Fatal Flaw in Private Banking Systems

It is in the interest of banks to expand the supply of credit, and most banking regulations are designed to limit this tendency. It is in the interest of private bank managers to give in to this tendency (in self-interest) and provide credit indiscriminately, irrespective of macroeconomic considerations, as the 2007 crisis has shown. Perhaps we could all learn from India’s risk-averse public sector banks, which are stressed from time to time, but have never seen multiple bank failures. 


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