Cooperative banks in India are passing through critical transitional times. The announcement of the government on May 24, 2003, that cooperative banks would come under the control of the RBI would become an important milestone in this transition. The announcement stated that all regulatory exemptions that are now enjoyed by cooperative banks would be phased out gradually. The set of corrective measures announced by the Finance Ministry would not have come at an appropriate point of time, for the reason that never before the need to restore confidence among the customers of cooperative banks was felt this much. If not for the grave problems being experienced by both the urban and rural cooperative banks in the recent past, which have threatened the very existence of the cooperative banking system, these corrective measures would have attracted much attention and would have been considered as just another government policy decision.

The move is a part of the government plan to bring all cooperative banks under a uniform regulatory environment. One of the major proposed regulations is to either scrap or tighten the provisions of Chapter V of the Banking Regulation Act, 1949 which gives exclusive autonomy to cooperative banks. This implies that all the regulations, which are applicable to scheduled banks, henceforth would be applicable to cooperative banks also. This would also mean that the regulatory control would now be shifted from NABARD to the RBI and also cooperative banks might be brought out of the control of their respective state governments. The Finance Ministry officials, while announcing the regulatory change stated that the proposed changes in the Act are aimed solely at giving RBI complete control over the regulation of the cooperative banking sector. It would also give RBI the necessary leeway to wind up non-performing cooperative banks.

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