Co-operative banks must put in place an outsourcing policy : RBI

Co-operative banks must put in place an outsourcing policy : RBI

Subject : Economy

Context : RBI said that the board and CEO along with the Senior Management shall be ultimately responsible for outsourcing operations and for managing risks inherent in such outsourcing relationships.

Concept :

• The Reserve bank of India on Monday asked cooperative banks to ensure that the outsourcing policy does not diminish its ability to fulfill its obligations to customers and RBI.
• RBI said that the policy should also not impede effective supervision by RBI or National Bank for Agriculture and Development (NABARD).
• The policy also requires banks to put in place criteria for selection of such activities as well as service providers, parameters for defining material outsourcing based on the broad criteria, a delegation of authority depending on risks and materiality, and systems to monitor and review the operations of these activities.

Co-operative Banking

• A Co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. It is distinct from commercial banks.
• They are broadly classified into Urban and Rural co-operative banks based on their region of operation.
• They are registered under the Co-operative Societies Act of the State concerned or under the Multi-State Co-operative Societies Act, 2002.
• The Co-operative banks are also governed by the

Banking Regulations Act, 1949.

Banking Laws (Co-operative Societies) Act, 1955.

Features of Co-operative Banks:

• Customer Owned Entities: Co-operative bank members are both customer and owner of the bank.
• Democratic Member Control: These banks are owned and controlled by the members, who democratically elect a board of directors. Members usually have equal voting rights, according to the cooperative principle of “one person, one vote”.
• Profit Allocation: A significant part of the yearly profit, benefits or surplus is usually allocated to constitute reserves and a part of this profit can also be distributed to the co-operative members, with legal and statutory limitations.
• Financial Inclusion: They have played a significant role in the financial inclusion of unbanked rural masses. They provide cheap credit to masses in rural areas.