Banking on Co-operatives
Distilled Policy Brief
- Urban Co-operative Banks (UCBs) play a key role in financial inclusion and last-mile credit delivery, primarily lending to wage earners, small entrepreneurs, and businesses in urban and semi-urban areas.
- As of March 31, 2020, there were 1,539 UCBs in India holding deposits worth Rs 5,01,180 crore and advances worth Rs 3,05,370 crore, while accounting for around 3% of the banking sector's market share.
- UCBs recorded the highest net non-performing asset (NNPA) ratio of 5.26% and gross non-performing asset (GNPA) ratio of 10.96% across the banking sector as of March 2020.
🎯 Prelims High-Yield Examination Points
Urban Co-operative Banks (UCBs) were brought under the scope of the Banking Regulation Act, 1949 with effect from March 1, 1966, bringing them under RBI supervision. As of March 2020, UCBs had the highest GNPA ratio (10.96%) and NNPA ratio (5.26%) across the banking sector.
⚖️ Mains Analytical & Syllabus Linkages
Analyze the structural challenges facing Urban Co-operative Banks in India, including governance issues, capital constraints due to co-operative principles, and high non-performing assets, and suggest reforms recommended by expert committees.
🎯 UPSC Prelims Practice Drill
Consider the following statements regarding Urban Co-operative Banks (UCBs) in India: 1. UCBs are primarily co-operative societies that undertake banking business by accepting deposits from the public and lending predominantly to their members. 2. All UCBs have been under the regulatory ambit of the Reserve Bank of India (RBI) and the scope of the Banking Regulation Act, 1949, since their inception in the 19th century. 3. As of March 2020, UCBs recorded higher gross non-performing asset (GNPA) and net non-performing asset (NNPA) ratios compared to other segments of the banking sector. Which of the statements given above is/are correct?
- [A] 1 only
- [B] 1 and 3 only
- [C] 3 only
- [D] 1, 2 and 3
▶ Reveal Official Answer & Analytical Explanation
Statement 1 is correct because UCBs are co-operative banks that accept deposits from the public and lend to their members, playing a key role in last-mile credit delivery. Statement 2 is incorrect because large cooperative banks were brought under the scope of the Banking Regulation Act, 1949 (and thereby RBI's supervision) with effect from March 1, 1966; prior to that, they were regulated under state-specific cooperative laws. Statement 3 is correct as UCBs recorded the highest net non-performing asset (NNPA) ratio of 5.26% and gross non-performing asset (GNPA) ratio of 10.96% across the banking sector as of March 2020.
🏛️ Historical Twin PYQ Anchor (2021)
Consider the following statements regarding the "National Clean Air Programme (NCAP)": 1. It is implemented by the Ministry of Environment, Forest and Climate Change. 2. Central Pollution Control Board acts as the sole regulatory executive body.