RBI (Reserve Bank of India) has proposed to set up an umbrella organisation for urban cooperative banks to make them more financially resilient and to enhance the depositors' confidence. This move is expected to help individuals with savings accounts and deposits in UCBs. UCBs are subject to slightly different RBI regulations as compared to scheduled commercial banks and therefore, the former are not as robust as the latter.
This was announced in the statement on developmental and regulatory policies issued along with the monetary policy by the RBI. As per the statement, the structure, size, lack of avenues for raising capital funds and limited area of operation of the Primary (Urban) Co-operative Banks (UCBs) add to their financial vulnerabilities. A long-term solution to make the UCB sector financially resilient and to enhance the depositors' confidence is to set up an Umbrella Organization (UO) as prevalent in many countries. The UO, apart from extending liquidity and capital support to its member UCBs, would also be expected to set up Information and Technology (IT) infrastructure for shared use of members to enable them to widen their range of services in the wake of advances in information and communication technology at a relatively lower cost. The UO can also offer fund management and other consultancy services.
The idea of setting up of UO for the UCB sector was first mooted in the year 2006 by the Working Group set up by the Reserve Bank on Augmentation of Capital of UCBs. It was examined in greater detail by the Working Group on Umbrella Organization and Constitution of Revival Fund for Urban Cooperative Banks in 2009 and the Expert Committee on Licensing of New Urban Co-operative Banks in the year 2011. The need for UO has also been stressed by the High Powered Committee on UCBs in the year 2015.
The Reserve Bank has received a proposal for setting up an UO from the National Federation of Urban Cooperative Banks and Credit Societies Ltd. (NAFCUB). A decision on the specifics of the UO proposal will be taken by the Reserve Bank shortly.