The Union Cooperation Minister recently launched the National Urban Cooperative Finance and Development Corporation Limited (NUCFDC) as an umbrella organisation for India’s urban cooperative banks (UCBs).
About NUCFDC
- Registered by RBI as an NBFC to serve as an umbrella entity for UCBs
- To also function as a Self-Regulatory Organisation (SRO) for the UCB sector
- Plans to build an equity capital base of Rs 300 crores
- Will offer liquidity, IT services, training and consultancy to UCBs
Objectives
- Modernise urban cooperative banks through technology & infrastructure
- Facilitate communication between banks & regulators
- Provide specialized services for capacity building
- Address challenges faced by urban cooperative banks
Overview of Urban Cooperative Banks
- Community-led banks to serve credit & banking needs
- Governed cooperatively by members through voting rights
- Regulated by RBI and state/central registrars
- 1500+ UCBs in India with 11,000+ branches
Statistics on Urban Cooperative Banks
| Parameter | Value |
| No. of UCBs | Over 1,500 |
| Total Deposits | Over Rs 5.3 lakh crores |
| Total Lending | Over Rs 3.33 lakh crores |
| Net NPA Rate | 2.10% |
Significance of NUCFDC
- Will lead innovation to help UCBs overcome limitations
- Improve governance, modernization and efficiency
- Enable UCBs to effectively support economic growth with wider reach
- Strengthen financial inclusion through last-mile service delivery
Supporting Financial Inclusion
- NUCFDC can help UCBs improve credit delivery to low income households and small businesses
- Many UCBs operate in remote regions enabling financial access to the unbanked
- Can enable adoption of fintech innovations like digital lending and payment systems
- Will strengthen credit flow to MSMEs by utilizing credit guarantee schemes
Regulatory Reforms
- RBI has already initiated reforms recently to improve governance of UCBs
- Stricter fit and proper criteria introduced for management appointment
- Licensing guidelines have been refined to ensure only serious players enter
- Automation of compliance reporting and stringent audits can help reduce frauds
Adoption of Technology
- NUCFDC aims to develop shared digital infrastructure for UCBs
- Will enable cost effective delivery of modern banking services
- UCBs lag in tech adoption – only 20% have fully migrated to Finacle platform
- Core banking, loan management and KYC automation solutions can be provided
Collaboration Opportunities
- The shared services model can help UCBs collaborate with partners
- Fintech tie-ups can help improve product offering to compete with other banks
- Cross-selling synergies can be explored with other cooperative societies
- Partnerships between UCBs and offline storefronts can drive credit at point-of-sale
Budget 2023 Proposals
- Budget proposed setting up of Urban Cooperative Bank Development Fund
- Aimed at strengthening UCBs and improving capital base
- Allocation of Rs 900 crore made for contribution to the fund
- This complements the role envisaged for NUCFDC
Mitigating Frauds
- Cooperative societies hit badly by frauds recently – MPL, MSC bank scams
- A robust compliance framework must be implemented for UCBs
- Forensic audits, better internal controls needed to win back depositors’ trust
- RBI tightening digital lending norms to prevent illegal loan apps related frauds
Learnings from Banking Crisis
- Can adopt prompt corrective framework used for commercial banks by RBI
- Mechanism of chief risk officers and depositor protection laws would help
- The DICGC covers only deposit insurance of Rs 5 lakhs for UCBs
- Need to relook at exposure limits, lending norms for large UCBs
Umbrella Organisations in Other Sectors
- NABKISAN Finance Limited approved recently for farmers producer organisations
- analogous to NUCFDC’s role for financial inclusion in rural areas
- Scope for more such enabler organisations catering to cooperative credit societies
- These umbrella bodies can also double up as SROs for policy advocacy with regulators
The NUCFDC has the potential to transform UCBs into modern dynamic institutions that can compete with other banks by adopting the latest technology while retaining their cooperative identity.