Reforming governance and regulation of urban cooperative banks in India
| Pages | 20-29 |
| Published date | 27 February 2007 |
| DOI | https://doi.org/10.1108/13581980710726769 |
| Date | 27 February 2007 |
| Author | Mukul G. Asher |
| Subject Matter | Accounting & finance |
Reforming governance and
regulation of urban cooperative
banks in India
Mukul G. Asher
LKY School of Public Policy, National University of Singapore, Singapore
Abstract
Purpose – To argue a case for a paradigm shift in the way urban cooperative banks (UCBs) are
managed, governed, and regulated in India to enable them to enhance their contributions to achieving
greater degree of financial inclusion, and more broad-based growth.
Design/methodology/approach – The paper first surveys the quantitative importance of the UCBs
in India, and their key performance indicators. Various official reports by the country’s Central Bank,
the Reserve Bank of India (RBI), and other relevant organizations are used extensively. The paper then
identifies key areas of reforms, centering primarily on the current business model, governance and
regulation practices, and capital adequacy. It then argues for a change in a paradigm shift by the
UCBs, and how better governance and regulatory structure can assist this shift.
Findings – The paper finds that if the UCBs are to remain relevant and play a significant
developmental role in India, they will require same quality of governance and regulation as well as
professionalism and modernization as the mainstream commercial banks. The governance and
regulatory structures need to be brought in conformity with India’s current and prospective economic
structure; and relevant laws modernized. This requires a paradigm shift in the role of UCBs.
Research limitations/implications – The research has been based primarily on secondary
sources, particularly various reports by the RBI, the country’s Central Bank. Better understanding of
the reasons for differences between well-governed and financially sound UCBs on one hand, and those
that are not, requires focused interviews and more searching examination of the operating
environment and financial statements of a sample of the UCBs. This could be the next stage of
research.
Originality/value – This paper represents a part of public debate on ways of integrating the UCBs
into the mainstream banking sector. This is an important public policy issue as even though the
UCBs represent relatively small proportion of the total banking assets, they still represent a systemic
risk to India’s financial system, and without reforming them, broad-based economic growth would be
difficult to achieve.
Keywords India, Banks, Co-operative organizations,Governance, Regulation
Paper type Case study
1. Introduction
India initiatedfar reaching reforms in 1991 involvingintegration with the worldeconomy
in a market-consistent manner, and rebalancing of the state-market mix in favor of the
latter. The emphasis has been on enhancing competition,while strengthening prudential
regulation. This has prov ided much greater scope for ent repreneurship, and for
harnessingexternal sector for growth. India’sremarkable economic performanceover the
last two decades has been primarily private sector led. The essential complimentarity
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
Thanks are due to Amarendu Nandy and Sangeetha Thimaiah for excellent research assistance.
The usual caveat applies.
JFRC
15,1
20
Journal of Financial Regulation and
Compliance
Vol. 15 No. 1, 2007
pp. 20-29
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980710726769
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