RBI is likely to approve new licenses for co‑operative banks, said sources familiar with the matter. If made, it would mark a seismic change in India’s banking landscape, and could see new players enter the co‑operative space after a long period of licensing silence.
Co‑operative banks, the backbone of rural and semi–urban communities, have always faced challenges with governance, capital adequacy and regulation. However, recent reforms and tighter supervision have increased the resilience of the sector and the RBI is now planning for a bigger network of licenses.
The central bank will consider the applications from a number of entities which will be focused on financial health, transparent governance structures and compliance with prudential parameters, sources said. An approval process is sure to be rigorous to avoid all the problems that caused stress in some co-operative firms.
Industry experts believe that fresh licenses will create more financial inclusion in the country, especially in underserved areas. Co‑operative banks are often at the grassroots for small and local businesses, farmers and communities with credit and deposit services that cater for their grassroots requirements. They could also improve the financial architecture in India, complementing commercial banks and regional rural banks.
Analysts have also warned that regulatory vigilance will be crucial at the same time. In the last few years the RBI has put out a tighter checklist for co‑operative banks and has introduced stricter audit requirements and capital requirements. Any new entrants are to follow those standards to ensure stability and to protect depositors’ interests.
So the RBI could be looking at issuing new co‑operative bank licenses to generate new investment in the sector and to help develop financial inclusion in India and the local economy. How successful can this move be if it is run professionally and with the integrity and enforcement of the law and regulation in place?
