The co-operative banks commanded trust of local communities and used to be the preferred banking institutions for people in rural areas to meet their financial requirements.
But, on account of widening trust-deficit and competition from stronger industry rivals, these entities are now struggling to survive and have seen a sharp erosion in business in recent years.
The RBI data says that, since 2003, 385 UCBs have had their licences cancelled or withdrawn, or have been merged with stronger ones.
These banks are now facing competition from other niche players like small finance banks and NBFCs.
The governance standards and inability to raise capital at market rates are weak points for co-operative banks. The collapse of UCBs like PMC Bank has added to the customers distrust.
Even for the Banks like Karad Janata Sahakari Bank, CKP Co-operative Bank in Maharashtra and the Mapusa Urban Co-operative Bank of Goa, licenses were cancelled and the RBI had imposed business restrictions.
Frequent failures of cooperative banks have created a trust deficit among borrowers. The RBI should tighten its grip on these banks.
