Umbrella organisations to strengthen Urban Cooperative Banks: RBI

By Matthew Fuchs

Microfinance Focus, Nov. 18, 2009: Umbrella organsiations at the state-level would help make Urban Cooperative Banks (UCB) sector “strong and vibrant”, said a report published by the Reserve Bank of India (RBI) on Tuesday.

The report presents the findings of a Working Group formed by the RBI in July 2008 to determine whether there is a need for State-level umbrella organisations for UCBs, which are also commonly known as Credit Unions.

It found a high level of diversity among UCBs in terms of type, range and viability, finding both a large number of financially strong and non-viable UCBs. This lack of cohesion together with a inadequate infrastructure and limited options for raising capital, hampered the viability of the sector and its ability to compete against larger players such as banks.

Drawing upon the experience of Credit Union networks in the US, Australia and Europe, the Working Group stated it is “convinced” that Umbrella organisations could strengthen the sector by providing it with a shared infrastructure, such as a common ATM network, enabling UCBs to expand their range of services while boosting efficiencies and stability. They would also provide greater “comfort” to regulators, the report said.

Umbrella Orgnaisations should also provide an Emergency Liquidity Facility and a “Revival Fund” for struggling UCBs, said the Working Group.

The Working Group consulted UCBs, existing UCB organisations, members of the Task Force for Urban Cooperative Banks and regulators before making its recommendations.

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