RBI and NABARD Strengthen Governance of Cooperative Banks
ECONOMY & POLICY

RBI and NABARD Strengthen Governance of Cooperative Banks

The Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD) have set out a strengthened regulatory and supervisory framework to improve the governance of cooperative banks. The reforms aim to enhance transparency, accountability and depositor protection through legislative amendments and safeguards. Key changes encompass amendments to the Banking Regulation Act and the Multi-State Cooperative Societies (MSCS) Act, the establishment of a Cooperative Ombudsman and a Cooperative Election Authority.

The Banking Regulation Act has been amended to limit the term of the board of directors of cooperative banks, excluding the chairperson and whole-time directors, to a maximum of 10 consecutive years to promote board renewal and oversight. The MSCS Act now provides for the appointment of a Cooperative Ombudsman to address complaints and appeals from members of multi-state cooperative societies concerning deposits and equitable benefits. The Cooperative Election Authority will be tasked with conducting free and fair elections in all multi-state cooperative societies to strengthen governance and accountability.

RBI issued a Master Direction on Fraud Management in 2024 containing comprehensive guidelines on fraud reporting, principles of natural justice, governance mechanisms, early warning systems, staff accountability and auditor roles. The regulator’s Prompt Corrective Action (PCA) framework requires identified cooperative banks to initiate remedial measures promptly to restore financial health and protect depositor interests. Guidelines for a risk based internal audit system have also been issued for urban cooperative banks to bolster internal controls.

NABARD has implemented a Turn Around Plan (TAP) to reduce losses and improve the performance of State Cooperative Banks (StCBs) and District Central Cooperative Banks (DCCBs) through financial monitoring, business diversification, governance improvements and technology adoption. A financial safety net is provided through the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures various types of deposits, inclusive of principal and interest, up to Rs 0.5 mn per depositor in cooperative banks. The minister of state in the Ministry of Finance informed the Lok Sabha of these measures, emphasising their role in protecting depositors and restoring confidence in the cooperative banking sector.

The Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD) have set out a strengthened regulatory and supervisory framework to improve the governance of cooperative banks. The reforms aim to enhance transparency, accountability and depositor protection through legislative amendments and safeguards. Key changes encompass amendments to the Banking Regulation Act and the Multi-State Cooperative Societies (MSCS) Act, the establishment of a Cooperative Ombudsman and a Cooperative Election Authority. The Banking Regulation Act has been amended to limit the term of the board of directors of cooperative banks, excluding the chairperson and whole-time directors, to a maximum of 10 consecutive years to promote board renewal and oversight. The MSCS Act now provides for the appointment of a Cooperative Ombudsman to address complaints and appeals from members of multi-state cooperative societies concerning deposits and equitable benefits. The Cooperative Election Authority will be tasked with conducting free and fair elections in all multi-state cooperative societies to strengthen governance and accountability. RBI issued a Master Direction on Fraud Management in 2024 containing comprehensive guidelines on fraud reporting, principles of natural justice, governance mechanisms, early warning systems, staff accountability and auditor roles. The regulator’s Prompt Corrective Action (PCA) framework requires identified cooperative banks to initiate remedial measures promptly to restore financial health and protect depositor interests. Guidelines for a risk based internal audit system have also been issued for urban cooperative banks to bolster internal controls. NABARD has implemented a Turn Around Plan (TAP) to reduce losses and improve the performance of State Cooperative Banks (StCBs) and District Central Cooperative Banks (DCCBs) through financial monitoring, business diversification, governance improvements and technology adoption. A financial safety net is provided through the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures various types of deposits, inclusive of principal and interest, up to Rs 0.5 mn per depositor in cooperative banks. The minister of state in the Ministry of Finance informed the Lok Sabha of these measures, emphasising their role in protecting depositors and restoring confidence in the cooperative banking sector.

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