The IUP Journal of Bank Management
When and Why Cooperative Banks Fail? The Case of Urban Cooperative Banks in India

Article Details
Pub. Date : Feb, 2020
Product Name : The IUP Journal of Bank Management
Product Type : Article
Product Code : IJIT20220
Author Name :Ajit Kumar, Ashish Srivastava
Availability : YES
Subject/Domain : Finance
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No. of Pages : 14

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Abstract

The financial system in India has been by and large robust, and there has been no major commercial bank failures. However, notwithstanding a well-regulated structure, several Urban Cooperative Banks (UCBs) have indeed failed and caused losses to depositors and other stakeholders. Therefore, the question as to when and why the UCBs fail is a critical issue to examine and evaluate. This study identifies the key factors for their failures, which can be monitored effectively to prevent any further instances of failure of UCBs in India.


Description

Primary cooperative banks, popularly known as Urban Cooperative Banks (UCBs), in India are registered as cooperative societies under the provisions of either the respective State Cooperative Societies Act(s) of the state concerned or the Multi-State Cooperative Societies Act (2002) of the union of India. They are akin to Credit Unions in many other parts of the world. They are essentially cooperative societies, licensed by the Reserve Bank of India (RBI) (the Central Bank of the country), for conducting banking business. UCBs play an important role in providing banking services and meeting the credit needs of the retail, small and medium-scale borrowers through their local reach and community-centric approach. In terms of business, as on March 31, 2019, there were 1,544 UCBs with aggregate deposits and advances of 4,843 bn and 3,030 bn, which were about 3.8% and 3.1% of the aggregate deposits and advances of the scheduled commercial banks, respectively.1 Despite not boasting of very significant size, the UCBs have a reasonable socioeconomic significance due to their interface with a good number of clients coming from lower-medium socioeconomic strata in India. However, there have been concerns with regard to financial soundness and quality of corporate governance in UCBs. While the financial system in India has been by and large robust and there has been no major bank failures, several UCBs have indeed failed and have been liquidated after the cancellation of their banking licenses.


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