Blog » Covid-19 Threats to Cooperative Financial Institutions (CFIs): India’s Policy and Regulatory and Response
The spread of COVID -19 in India has impacted the normal functioning of all financial institutions, their customers, borrowers, and the continuation of agricultural/farming activities. Because of the mandatory shutdown of non-essential businesses and the confinement of people to their homes, the effects of COVID-19 are unevenly distributed among households, workers, businesses, and communities.
In this environment, the role and active participation of CFIs at all levels, and particularly the Rural Cooperative Credit and Banking structure (RCCBs), assumed special significance in facilitating changes and reversing the adverse impact of the pandemic. CFIs have strived to keep open their banking channels during the entire lockdown period, while ensuring social distance, and their compliance with all regulatory, supervisory and statutory provisions.
Policy measures to contain and mitigate the pandemic effects, including general economic recovery actions, regulatory adjustments, and specific liquidity support are outlined below.
Economic recovery measures
Supporting the CFIs
Structural changes in India’s CFI sector are anticipated, more importantly among Rural CFIs. The RCCBs structure in India is well conceived with a three-tier structure in major states and two-tier structure in smaller states. Proposals to delayer the structure have been opposed by member-driven cooperatives.
The CFIs in the urban cooperative banking sector, on the other hand, may be brought under direct control of the regulatory authority and may lose their cooperative character. This measure would not be in response to adverse implications of COVID-19, but rather the RBI exercising its power under the The Banking Regulation (Amendment) Ordinance 2020.
CFIs will work towards ensuring adoption of technology, digitization, formulation and compliance of risk management guidelines, information security guidelines, cyber security, and fraud monitoring guidelines. The sector will also be in a position to concentrate on the important pillars of corporate governance namely accountability, transparency, responsibility and fairness. The agriculture loan portfolio will continue to be unaffected due to its large rural network and well-established structure. The leadership in financial cooperatives structure will make all efforts towards building their capabilities to be healthy, viable and democratic. The Urban Coop Banking (UCB) sector appears to be well equipped especially the Scheduled UCBs / Multi state UCBs with the support of RBI. Nationalized banks will continue to be supported by Government with infusion of capital on a regular basis. Well deserving CFIs, however, will continue to be deprived of needed capital infusion to comply with prudential norms, and wipe out the accumulated losses resulting from external factors.