It has called for a further strengthening of governance standards and risk management practices among other things in its assessment of the sector in the Report on Trend and Progress of Banking in India 2022-23. The RBI is asking the co-operative banks to adopt global best practices of supervision.
“A further strengthening of the quality of governance, based on the three pillars of compliance, risk management, and internal audit, warrants priority,” it said in the assessment of the developments in the cooperative banking sector. During FY23, efforts were made to bring the regulation of the co-operative banking sector on a par with other regulated entities (REs), including the prudential framework for stressed assets.
Regulated REs within the co-operative banking sector were allowed to enter into outsourcing arrangements with lending service providers (LSPs) and digital lending platforms to imbue more flexibility into their business operations.
The consolidated assets of the cooperative banking sector at end-March 2022 were ₹21.6 lakh crore, around 10% of that of scheduled commercial banks. Rural co-operatives comprise more than two-thirds of the sector.
For urban cooperative banks, key indicators of profitability – return on assets (RoA), return on equity (RoE) and net interest margin (NIM) – improved during FY23 despite an increase in provisions and contingencies. During April-June 2023-24, UCBs’ profitability improved further, RBI said in the report. The report acknowledged the sustained reduction in their gross NPA ratio, but warned that it remains elevated.