There are several issue related to regulatory, structural and operational aspects of Urban Cooperative Banks (UCBs) in India, which are in dire need of corrective reforms. Discuss.

Urban Cooperative banks in India operate in urban and semi-urban areas deepening the financial inclusion and improving the formalization of Indian economy through facilitation of credit.

Regulatory issues in UCBs:

• Regulation is very weak in comparison to commercial banks.
• Many norms are not followed by UCBs and disobeyed frequently due to lack of oversight.
• Multiple regulators lead to lack of targeted intervention.

Reforms needed in regulation of UCBs:

• Designate regulator and clearly identify responsibility.
• Oversight over these needs to be improved and brought in sync with commercial banks.
• Improve their governance through model legislation and advisories.

Structural issues in UCBs:

• Governance is politicized due to political interference in appointments.
• Lack of sources of credit due to cooperative culture.
• Problems in expansion due to lack of professionalism.

Reforms needed in structure of UCBs:

• Appointments through transparent process.
• Involvement of regulators in overseeing the governance and monitoring regularly the potential issues.
• Warnings and framework designed must be notified.

Operational issues in UCBs:

• Single branch or limited branches leading to lower scope of formalization.
• Credit given to members based on approach and links leading to huge NPAs.
• Vulnerable to fail due to local issues because of localised presence.

Reforms suggested in operation of UCBs:

• Focus on professionalism.
• Asset classification and proper monitoring.
• Credit history and borrower’s returning capacity needs to be evaluated.
• Offers of higher returns must be stopped to ensure viability in operation.

Central Government needs to frame legislation in consultation with states and RBI to promote professionalism in UCBs and protect the customer from issues plaguing the UCBs.