In countries having a large presence of co-operative banks (called credit unions), such as USA, Canada, Australia, France, Austria, Italy, Finland, Poland, Netherlands and quite a few others, co-operative banks are networked closely and thrive under an apex institution known as Umbrella Organization that provides cooperative banks a wide range of banking and other related financial services. In most countries, UO itself is a bank. India’s UCBs do not have such a UO although there are 1,502 UCBs in the country as on 31st March,2023
The UO, as in other countries, will signify the spirit of cooperation and solidarity – one for all and all for one- which is the basic philosophy of co-operatives. A unified & united sector served by a strong UO will through its wide-ranging services bring about greater professionalism, synergy and efficiency in the operations of UCBs, particularly the smaller ones. It provides protection to members in times of financial distress and crisis and fosters co-operative spirits. A stable and vibrant sector will boost public confidence in UCBs and contribute to financial stability in the country.
The UO will:
• Help UCBs raise their capital;
• Be a provider of liquidity to address mismatches in emergencies and in times of distress/liquidity crisis; provide refinance facilities
• Provide a robust and reliable IT infrastructure / platform that can significantly reduce costs for member banks while enabling them to provide modern banking products based on latest technology; and
• Provide wide range of non-fund-based services in operational spheres, training, consultancy, etc. and help them cope with competition effectively.
The formation of UO will set the ball rolling for the UCB sector to move away from the existing ‘stand-alone’ structure of many small banks into a well-knit system of grass roots level banks with strong network that can provide support in times of need, and also improve the general quality of governance.
A national level UO for UCBs is of great relevance to India and could effectively address many limitations afflicting the sector such as, limited avenues for raising capital, meeting short term liquidity requirements, handling inefficiencies in operations, lack of professionalism and weak corporate governance.
Fund-based services:
i. Accepting deposits from member banks.
ii. Raising loans from UCBs, banks and financial institutions.
iii. Raising funds through market borrowings (bonds and non-convertible debentures).
iv. Raising refinance from other financial institutions.
v. Granting loans and advances to member banks.
vi. Granting refinance facilities to member banks.
vii. Providing liquidity support to member banks against SLR securities through repo.
viii. Providing capital support to member banks.
Non-fund-based services
i. IT Infrastructure for use of member banks to facilitate sharing of resources leading to cost efficiency, Consultancy, Data Centers, dedicated IT network
ii. Fund Management Services, Treasury Management Services
iii. Consultancy services in various operational areas
iv. Capacity building services: training, seminars, and conferences
v. HR services: manpower planning and recruitment
vi. Research & Development
Additional Activities
• As advised by RBI, UO will be obtaining separate approval/No objection certificate for undertaking various activities wherever required. UO is expected to engage in providing a dedicated ATM network, Debit/Credit cards, PPIs, PSO, Payment Gateway etc. Providing a non-fund based wide range of activities such as selling of Mutual Funds, Insurance products, consultancy in ALM, IT, Product Management, restructuring of assets and liabilities, merger and amalgamation of UCBs will also be taken up by UO. Further, providing HR services in areas such as manpower planning, recruitment, training, and development of staff will be another area of activity apart from maintaining data base of qualified personnel who can serve on the Boards and Boards of Management of UCBs
• The UO shall also play the role of a Self-Regulatory Organization for its members.
A Self-Regulatory Organization (SRO) is a non-governmental organization which has the power to create and enforce stand-alone industry and professional regulations and standards. It is meant to protect the investor by establishing rules, regulations, and set Standard Operating Procedures which promote ethics, equality, professionalism, transparency, and code of governance.
The UO will be subject to RBI-imposed regulation to a degree. However, the RBI may delegate some aspects of the industry oversight and surveillance to the UO. Any applicable laws or Governmental/RBI regulations will apply and be foremost while those set by the SRO become complementary / supplementary in nature to ensure efficient and sound UCBs. Since the SRO has some regulatory influence over an industry or profession, it can serve as a watchdog to guard against fraud or unprofessional practices.
The RBI shall prescribe the SRO role and functions of the UO. As an SRO, the UO will provide comfort to the Government, RBI and public who place their savings in UCBs.
