Cooperative banks understand the local needs better and help crack the psychological barriers in the ‘last mile’ of financial inclusion, says Narendra S Dabhi, Managing Director, Adarsh Cooperative Bank Ltd, in an interaction with Sneha Mejari of Elets News Network (ENN)
What is the role cooperative banks play in our society?
The simple looking banking activity of accepting money deposits from people and then lending the same to borrowers encourages flow of money for productive use and investments. This, in turn, helps the economy to grow. In the absence of banking business, savings would sit idle in our homes, the entrepreneurs would not be in a position to raise money and ordinary people dreaming for a new car or house would not be able to realise their dreams. The Government of India, which started the cooperative movement in 1904, decided to develop cooperative banks as the institutional agency to tackle the problem of usury and rural indebtedness.
In such a situation, cooperative banks operate as a balancing centre. At present, there are several cooperative banks performing various financial, administrative, supervisory and development functions, thus promoting expansion and development of cooperative credit system.
How important is financial inclusion for India and what role can cooperative banks play in the financial inclusion drive of the government?
Primary cooperative banks, popularly known as Urban Cooperative Banks (UCBs) in India, can play a vital role in financial inclusion. The distance – relational as much as physical – of commercial banks from their clientele has arguably been a key reason for low penetration of banking services among the financially excluded groups. This is where the cooperative banks have a clear advantage, being local in nature and being intricately interwoven with the local community. It is easier for the cooperative banks to crack the psychological barriers in the ‘last mile’ of financial inclusion, create trust for the bank among its target community and bring customers within its fold. These days when big commercial banks work hard to set up branches and make use of technology to reach out to the untapped regions of the country, the cooperative banks can step into the game.
What role does RBI play in the operation of cooperative banks?
The Reserve Bank of India has been vested with powers to issue licence to UCBs under Section 22 and 23 Banking Regulation Act, 1949 (AACS) to carry on banking business and to open new places o––f business (branches, extension counters, etc.), respectively. For this, guidelines on the eligibility criteria for issuance of banking licence/ branch licence are issued to UCBs from time to time. As a regulator, the Reserve Bank has prescribed prudential norms in various areas, e.g. capital adequacy, income recognition, asset classification and provisioning, exposure to single/group borrowers, exposures to sensitive sectors, loans and advances, investments, liquidity requirements, etc.
The Banking Regulation Act, 1949 (AACS) provides for submission of periodical returns by UCBs to the RBI. Further, under the powers vested in the central bank, it has prescribed various other periodical returns to be submitted by UCBs. It carries out on-site inspections and off-site surveillance of UCBs. It also issues directions and operational instructions to UCBs, wherever necessary to streamline the functioning and to protect the interests of the depositors. The RBI also imparts training to the officials of UCBs to upscale their knowledge, skill and expertise.
The Reserve Bank signed an MoU with the Central Government and various state governments for harmonisation of regulation and supervision. The circular instructions issued to UCBs from time to time are placed in the Reserve Bank’s website. Further, for discharge of its functions, the RBI has prepared operation manual, Job Cards, manual for on-site inspection of UCBs, manual of instructions for UCBs, etc., and issues internal circulars/instructions from time to time.
How is technology impacting the banking ecosystem?
Explosion of technology is changing the banking industry from paper and branch banks to digitised and networked banking services. It has already changed the internal accounting and management systems of banks. It is now fundamentally changing the delivery systems banks use to interact with their customers. It is clear that this new technology is changing the banking industry forever. Banks with the ability to invest in and integrate information technology will lead in the highly competitive global market.
Bankers are convinced that investing in IT is critical. Its potential and consequences on the banking industry future is enormous. The changes that new technologies have brought to banking are enormous in their impact on officers, employees and customers of banks. Advancements in technology are allowing delivery of banking products and services more conveniently and effectively than ever before. IT has increased the level of competition and forced them to integrate the new technologies in order to satisfy their customers.
How would you see technological advancements as a facilitator of financial inclusion? How important is Financial Literacy in this regard?
We believe that financial literacy is a powerful tool to empower people, one that will help accelerate the pace of financial inclusion. The Bank undertakes rural financial literacy initiatives off and on. Development in a large country such as ours brings with it various challenges; the foremost is to translate economic growth into sustainable development. To achieve this, it is critical that growth be inclusive. At the core of this strategy is our commitment to reach out to the marginalised communities through our Sustainable Livelihood Initiatives and to encourage each business to include social and environmental considerations as part of their business processes.
How can the cooperative banking sector be encouraged further by the government or RBI?
The Reserve Bank may have to provide assistance to the UCBs, particularly to the smaller ones, for improving their skill levels. Since the College of Agricultural Banking is already providing training facilities to the UCBs, this institution could be used as the forum for doing so. Keeping in view the financial implications of providing quality training for banks, the cost of training programmes could be largely subsidised by the Reserve Bank. The RBI has been encouraging the UCBs to invest in government securities by stipulating that a portion of the SLR investments are held in the form of these securities. At the same time, it would be necessary to ensure that the UCBs are not put to any difficulty in buying and selling the securities. To address this issue, Reserve Bank may, through its Regional Directors, liaise with the network of Primary Dealers to put in place an appropriate arrangement in this regard.
Explosion of technology is changing the banking industry from paper and branch banks to digitised and networked banking services
Tell us about the future plans you have for your bank.
To meet the challenges being faced by the banking industry, the Bank has geared itself by reorganising its structure and decentralising the power to speed up decision making in all spheres of activity. For this purpose, the Bank is working towards Total Automation and paperless banking where processes could expedite for better customer services. The bank is slowly and steadily increasing its service portfolio by tying up with payment delivery channels. Even in the era of new age banking and stiff competition, the bank has and will always retain its focus on small depositors and small borrowers. Improving the life of the common man has been the Bank’s vision for the past four decades and will continue well into this millennium. Adarsh Cooperative Bank Ltd has crossed last year’s business of `1,000 crore and has taken target to achieve `1,500 crore mark this financial year.