While addressing a two-day National Cooperative Conference on Saturday, organized by the Himachal Pradesh State Cooperative Bank as part of the United Nations International Year of Cooperatives (IYC-2025) celebrations in Shimla, Reserve Bank of India (RBI) Governor Sanjay Malhotra underscored the vital role of cooperative banks in connecting the lowest strata of society with the formal banking sector.
Malhotra emphasized that despite their relatively smaller size compared to commercial banks, cooperative banks remain indispensable to the RBI because they serve the “last mile” and play a central role in financial inclusion. “Where commercial banks often find it difficult to reach, regional rural cooperative banks and urban cooperative banks are present, serving the bottom of the pyramid,” he noted.
Highlighting the sector’s performance, the Governor pointed out that cooperative banks account for advances worth nearly Rs 12 lakh crore- around 6–6.5% of the total banking system.
Over the past five years, the sector has recorded a compound annual growth rate (CAGR) of 7.5% in lending and about 10% growth in rural agricultural financing. Profitability has also surged, with net profits crossing Rs 10,000 crore, while gross NPAs have declined from a peak of 10% in 2021 to 7% currently.
However, Malhotra also stressed the urgent need for reforms in governance, human resource development, technology adoption, capital raising mechanisms, and internal audit.
He reminded participants that governance is non-negotiable, saying, “You may be profitable, but without strong governance, institutions cannot sustain.” He urged cooperative banks to strictly comply with RBI, NABARD, and legislative regulations.
He underlined that improving human resources is critical for the sector’s future. “Without good people and effective managers, no institution can progress in the long run,” he said, calling for focused efforts to build skilled leadership within cooperative banks.
On technology, Malhotra emphasized the need for digital transformation, noting that modern banking demands comfort and accessibility for customers.
On the issue of capital, he acknowledged the inherent limitation of the “one member, one vote” principle in cooperative structures, which makes raising capital a persistent challenge. He assured that RBI is working on solutions, including pilot reforms for urban cooperative banks that could later be extended to rural cooperative banks.
He also flagged internal audit, compliance, and inspection as essential pillars of stability, urging cooperative banks to strengthen these systems for greater transparency.
Concluding his address, Malhotra affirmed that the RBI is steadily working to align cooperative banks with commercial banks, ensuring equal treatment while removing outdated restrictions. “For us, cooperative banks are as important as commercial banks. Their future growth lies in strong governance, innovation, and service to the people,” he said.
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