RBI measures to strengthen governance in Co-operative banks

The Banking Regulation Act, 1949 has been amended to provide additional powers to RBI for more effective regulation of Co-operative banks vide Banking Regulation (Amendment) Act, 2020. The major amendments pertain to areas such as management, audit, capital, reconstruction/ amalgamation, etc. The provisions of the Act have been brought into force for Urban Co-operative Banks (UCBs) with effect from 26.06.2020.

Further, the following measures are in place to prevent corruption and irregularities in cooperative banks:

1. RBI has issued Master Direction on Fraud Management for the Regulated Entities viz.  Cooperative Banks in 2024 which contain comprehensive guidelines related to reporting of fraud, following of principles of natural justice, governance mechanism, implementation of early warning mechanism, staff accountability, fixation of responsibility of third parties and role of external and internal auditors, among others.
2. The Prompt Corrective Action (PCA) Framework requires the identified UCBs to initiate and implement remedial measures in a timely manner, to restore their financial health and protect the interests of the depositors.
3. RBI has implemented a financial safety net for the account holders of banks (including cooperative banks) in the form of Deposit Insurance through DICGC.
4. RBI through “RBI Kehta Hai” has issued awareness material / useful information on aspects such as different types of frauds and their modus-operandi.
5. Amendment has been brought in the Multi-State Co-operative Societies (MSCS) Act, 2002 to strengthen governance, enhance transparency, increase accountability, reform electoral process and incorporate provisions of 97th Constitutional Amendment in the Multi State Cooperative Societies.
6. The Cooperative Election Authority has been set up to strengthen governance and accountability, with a mandate to conduct free and fair election in all Multi-State Cooperative Societies.
7. NABARD has framed guidelines for banks to report frauds to law enforcement agencies, viz State Police, State CID/Economic Offense Wing of the State, etc. for further investigation and appropriate action.