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Co-operative banks in India form the backbone for delivery of credit to rural areas. However, for cooperative banks to be regulated and supervised better, RBI needs to ramp up its supervisory capacity. Elucidate.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

4. Co-operative banks in India form the backbone for delivery of credit to rural areas. However, for cooperative banks to be regulated and supervised better, RBI needs to ramp up its supervisory capacity. Elucidate. (250 words)

Difficulty level: Moderate

Reference: The Hindu

Why the question:

Reserve Bank of India (RBI) Governor Shaktikanta Das on Sunday indicated that the banking regulator will ring in sweeping regulatory changes to reform urban co-operative banks that have been plagued by a spate of failures, and warned people against parking their savings in banks offering high returns.

Directive word: 

Elucidate – Give a detailed account as to how and why it occurred, or what is the context. You must be defining key terms wherever appropriate and substantiate with relevant associated facts.

Structure of the answer:

Introduction: 

Begin by giving the aims and objectives of setting up Co-operative banks.

Body:

In the first part, mention the various advantages of Co-operative banks in India, especially with respect to disbursal of rural credit.

Next, bring out the various issues with Co-operative banks – cite examples of PMC bank and similar other failures.

Next, write about need for RBI to ramp up its supervisory capacity – strict monitoring to ensure that only persons with impeccable credentials promote banks, higher capital adequacy and liquidity norms, mandatory annual credit rating, making public the annual RBI inspection reports and

Conclusion:

Conclude by giving a way for strict and unambiguous regulatory supervision of RBI over banking.