Amit Shah Inaugurates National Urban Cooperative Finance and Development Corporation Limited

Amit Shah Inaugurates National Urban Cooperative Finance and Development Corporation Limited

Subject: Economy

Section: Monetary Policy

• Event: Union Cooperation Minister Amit Shah inaugurated the National Urban Cooperative Finance and Development Corporation Limited (NUCFDC).
• Purpose: The umbrella organization aims to enhance self-regulation and boost the development of Urban Cooperative Banks (UCBs) in India.
• Importance: Mr. Shah emphasized the need for UCBs to upgrade and adhere to RBI regulations for sustained competitiveness.
• Compliance: The organization will help prepare small banks for compliance with the Banking Regulation Act. The goal is to establish urban cooperative banks in every city, promoting financial inclusion and accessibility.
• Collective Strength:
  • Branches: 11,000 branches collectively.
  • Banks: 1,500 member banks.
  • Deposits: ₹5 lakh crore.
  • Loans: ₹3.50 lakh crore.
• Performance:
  • Net NPAs: Reduced to 2.10%, reflecting improved asset quality.

Conclusion: The inauguration of the National Urban Cooperative Finance and Development Corporation Limited underlines the government’s commitment to the growth and stability of Urban Cooperative Banks. This umbrella organization aims to facilitate self-regulation, compliance with banking regulations, and expansion of UCBs across India.

With a strong collective presence and improved asset quality, UCBs are poised for enhanced development and greater financial inclusion under this initiative.

Cooperative Banks: Overview

• Institutions established on a cooperative basis for banking operations.
• Funded through shares, deposits, and loans extended to members at favorable terms.
• Registered under Cooperative Societies Acts, operating under Banking Regulations Act and Banking Laws (Cooperative Societies) Act.

Features:

• Customer Ownership: Members are customers and owners, with democratic control.
• Profit Allocation: Yearly profits are allocated to reserves and distributed to members.
• Financial Inclusion: Vital for providing cheap credit to unbanked rural masses.

Urban Cooperative Banks (UCBs)

Definition:

• Primary cooperative banks in urban and semi-urban areas.
• Traditionally community-centric, now expanded scope of operations.

Challenges Faced:

1. Financial Sector Trends: Competition from microfinance, FinTech, NBFCs challenges UCB presence.
2. Regulatory Challenges:
   • Dual regulation eliminated, but issues of money laundering persist.
   • Regulatory arbitrage and financial mismanagement concerns.
3. Decline in Agricultural Lending:
   • Share in agricultural lending decreased significantly.
4. Audit and Government Interference:
   • Limited audits and delays.
   • Historical patronage by the government.
5. Limited Coverage:
   • Small size restricts resources and operational scope.

Recent Developments

1. RBI Actions:
   • Revised Supervisory Action Framework (SAF) for UCBs in January 2020.
   • Direct supervision of UCBs by RBI via Ordinance in June 2020.
2. Committee Recommendations:
   • Proposed 4-tier structure for UCBs based on deposit size in 2021.
3. Ministry of Cooperation:
   • Establishment of dedicated ministry crucial for cooperative movement.
4. Future Steps:
   • RBI Interpretation:
     • Ensuring Act provisions do not disrupt UCBs.
   • Institutional Reforms:
     • Transparency in recruitment and robust accounting systems.
   • Professional Management:
     • Encouraging new, young professionals in managerial roles.
   • NAFCUB’s Role:
     • Focus on UCB accounting software, common bylaws.
     • Strive for symmetrical development of UCBs across towns.

National Urban Cooperative Finance and Development Corporation Limited (NUCFDC)

About:

• Umbrella Body: Established as an umbrella organization for Urban Cooperative Banks (UCBs) in India.
• Mission: Aligned with the goal of ‘Sahakar se Samriddhi’ (prosperity through cooperatives) to promote self-reliance and economic growth.
• Objective: To modernize and strengthen the Urban Cooperative Banking Sector.
• Function as SRO: NUCFDC will serve as a Self-Regulatory Organization for the UCB sector, ensuring compliance and efficient operations.
• Specialized Functions: The corporation will provide specialized functions and services tailored to the needs of cooperative banks.
• Facilitate Communication: It aims to facilitate communication between UCBs and regulatory bodies, addressing challenges faced by the sector.
• Certification: Registered by the Reserve Bank of India (RBI) as a Non-Banking Finance Company (NBFC) under a Certificate of Registration (CoR).

Significance:

• Promoting Economic Growth: NUCFDC supports the urban cooperative banking sector, indirectly aiding small farmers and weaker sections in expanding their economic activities.
• Policy Formulation: Acts as a bridge between banks and regulators, assisting state and central governments in making informed policy decisions based on sectoral realities.
• Financial Assistance: Aims to raise capital and utilize it to provide financial support to UCBs, fostering their growth and development.

Benefits:

• Technological Advancements: Introducing new technologies in the urban Cooperative Banking Sector to enhance efficiency and coverage.
• Technology Platform: Providing a centralized technology platform to UCBs, improving service offerings, reducing operational costs, and addressing technological constraints.

Conclusion:

The establishment of the National Urban Cooperative Finance and Development Corporation Limited marks a significant step towards modernizing and strengthening the Urban Cooperative Banking Sector in India.

Acting as an umbrella body and SRO, NUCFDC aims to facilitate growth, promote financial inclusion, and enhance efficiency through technological advancements. By providing specialized services and fostering collaboration between banks and regulators, it aims to contribute to the prosperity and self-reliance of the cooperative banking sector and the economy as a whole.