Union Minister of State for Finance Pankaj Chaudhary on Monday informed the Lok Sabha that India’s cooperative banks are functioning under a robust regulatory and supervisory framework aimed at insulating them from political interference and ensuring financial transparency.
Chaudhary highlighted a series of structural and regulatory reforms undertaken by the government in coordination with the Reserve Bank of India and National Bank for Agriculture and Rural Development.
He noted that amendments to the Banking Regulation Act have capped the tenure of Board of Directors (excluding Chairperson and whole-time directors) in cooperative banks at a maximum of 10 consecutive years. The reform is aimed at strengthening governance and preventing concentration of power.
Further, the Multi-State Cooperative Societies Act, 2002 has been amended to introduce a Cooperative Ombudsman mechanism, enabling members to lodge complaints regarding deposits, equitable benefits, and other issues affecting their rights.
To ensure democratic functioning, a Cooperative Election Authority has been set up to conduct free and fair elections in multi-state cooperative societies, thereby enhancing accountability and transparency.
On the regulatory front, the Reserve Bank of India issued Master Directions on Fraud Management in 2024. These guidelines provide a comprehensive framework for timely fraud reporting, early warning systems, and clear accountability for staff, third parties, and auditors.
Additionally, the RBI’s Prompt Corrective Action (PCA) framework mandates timely corrective measures by financially stressed cooperative banks to restore stability and protect depositors’ interests.
The National Bank for Agriculture and Rural Development has also implemented a Turnaround Plan (TAP) for State Cooperative Banks and District Central Cooperative Banks, focusing on improving financial health through governance reforms, cost rationalisation, technology adoption, and business diversification.
Importantly, depositors are protected through insurance provided by the Deposit Insurance and Credit Guarantee Corporation, which covers deposits up to ?5 lakh, including both principal and interest.
The government has also mandated Risk-Based Internal Audit (RBIA) systems in Urban Cooperative Banks to strengthen internal controls and risk management.
The minister emphasized that these measures collectively aim to enhance transparency, accountability, and resilience in the cooperative banking sector, reinforcing public trust and financial stability.