UCBs played a vital role in spreading the reach of formal finance to the unbanked. But failures were routine, leaving many depositors at risk. Now, RBI oversees UCBs in the same way as other banks. Rightly, strengthening regulatory oversight will change the way these banks operate. At end-March 2021, there were 98,042 cooperative banks, comprising 1,534 UCBs and 96,508 RCBs. But their market share has been declining. The aggregate balance-sheet size stood at Rs 18.8 lakh crore at end-March 2020, close to 10% of the scheduled commercial bank balance sheet. And the gross non-performing assets (NPAs) ratio of all UCBs stood at 11.7% in 2020-21.
These banks must undertake proper credit appraisals to ensure they have recourse to recover loans. Having a sound risk management plan and strengthening the internal audit process is a must for them to stay in business.