Crisis-ridden cooperative banks continue to face RBI’s strictures

India’s crisis-ridden cooperative banks continue to face the wrath of the regulator, which cancelled the license of eight and imposed monetary penalties 114 times on wrongdoers in FY 2023, a Moneycontrol analysis showed.

Cooperative banks, which have played a critical role in extending banking services in villages and semi-rural areas, have been dealing with a range of issues from dual regulation and weak finances to interference by local politicians. The Reserve Bank of India (RBI) has been clamping down on errant cooperative banks.

The banks whose permits were cancelled by the RBI in FY 2023 were Mudhol Cooperative Bank, Millath Cooperative Bank, Shri Anand Cooperative Bank, Rupee Cooperative Bank, Deccan Urban Cooperative Bank, Laxmi Cooperative Bank, Seva Vikas Cooperative Bank and Babaji Date Mahila Urban Bank.

Reasons for cancellation varied from inadequate capital to failure to comply with legal regulations under the Banking Regulation Act and lack of earning prospects in the future.

The regulator has been keeping a watchful eye on the cooperative banking sector for many years. In 2022, the central bank cancelled the license of 12 banks. A year before that, in 2021, RBI cancelled the license of three banks. In 2020, two cooperative banks were told to shut shop.