UCB Irregularities: Why RBI Curbs Have Not Stopped Them
Why in the news
Urban cooperative banks keep surfacing in fraud and governance cases even after repeated RBI action, raising the question of whether the problem is a few banks or the whole sector.
Key facts
- Latest case: New India Co-operative Bank (Mumbai) was stopped from issuing fresh loans and withdrawals were limited to ₹25,000, after alleged embezzlement of ₹122 crore.
- Earlier cases: see the table below.
- The RBI Trend and Progress Report 2023-24 notes improving capital buffers and asset quality in the UCB sector.
| Year | Bank | Issue |
|---|---|---|
| 2019 | PMC Bank | Over 73% of advances were fraudulent loans to HDIL |
| 2023 | Abhyudaya Cooperative Bank | Board superseded for poor governance |
| 2024 | Sarvodaya and National Cooperative Banks | Restrictions due to financial deterioration |
Concerns
- Weak checks: many UCBs are family-run with poor internal oversight, and creative accounting hides stress.
- Supervision limits: 1,472 UCBs prevent on-site audits, and weak technology hinders remote monitoring.
- Mergers losing appeal: with liberal branch licensing, banks open new branches instead of absorbing sick UCBs.
- Politics and resistance: political backing slows reform; some UCBs resist converting into Small Finance Banks.
Reforms
- After the PMC crisis, RBI’s oversight powers were enlarged and capital raising made easier for cooperative banks.
- Deposit insurance rose from ₹1 lakh to ₹5 lakh, the first revision in 27 years; the government is reviewing a further rise.
- RBI may add surprise inspections to annual audits and build trackable cash-flow patterns.
About a bad bank
- An Asset Reconstruction Company or Asset Management Company that takes over banks’ bad loans and recovers the money over time.
Way forward
- Some officials say most UCBs function well; others cite systemic governance flaws.
- RBI should tighten governance, improve audits and encourage technology use.
Exam angle
- Deposit insurance limit: ₹5 lakh (earlier ₹1 lakh).
- PMC Bank crisis year: 2019.
- Number of UCBs cited: 1,472.