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Cooperative Banking

Co-op banks emerged unscathed from pandemic: RBI report


The co-operative banking segment—both urban and rural—remained robust throughout the Covid-19 stress. Although the balance sheet growth of urban co-operative banks (UCBs) in 2020-21 was driven by deposits on the liabilities side, subdued credit growth prompted an acceleration in investments on the assets side, according to the RBI’s annual report, ‘Trend and Progress of Banking in India 2020-21.’ 

“The co-operative banking sector, especially the rural co-operatives, emerged relatively unscathed from the first wave of the pandemic in 2020-21. Yet, structural impediments emanating from regulatory overlaps, high levels of loan delinquencies, and erosion of depositor confidence due to fraud continue to beset the sector,” the report stated.  

The Banking Regulation (Amendment) Act, 2020, gave the Reserve Bank additional powers to regulate this sector. The enhancement in deposit insurance from Rs 1 lakh to Rs 5 lakh augmented the share of co-operative depositors’ coverage from 42.7% at the end of March 2019 to 69.4% at the end of March 2021. The creation of the ministry of co-operation in July 2021 is intended to provide a separate administrative, legal, and policy framework for enabling the development of multi-state cooperatives. 

Over a period of time, the relative size and, consequently, the influence of co-operative banks has been shrinking. The aggregate balance sheet size of the co-operative banking sector at Rs 18.8 lakh crore at end-March 2020, was close to 10% of the scheduled commercial banks’ consolidated balance sheet, down from 19.4% in 2004-05. Rural co-operatives, especially short-term, overshadow their urban counterparts, both in terms of number and total asset size. 

Despite the large localised presence of UCBs, their clientele share is increasingly being taken away by SCBs, leveraging on banking correspondent networks and FinTech. As a result, the total balance sheet size of UCBs as a proportion of that of SCBs has fallen from 5.6% at end-March 2005 to 3.4% at end-March 2021. Their share of deposits and advances has also fallen proportionately, the RBI report noted.  

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