A small entity like UCB too can be systemically important, says RBI
RBI deputy governor Swaminathan J countered the popular notion that a small entity like an Urban cooperative Bank (UCB) is not systemically important and underscored the importance of governance standards among others to strengthen them.
“Some may argue that UCBs are not systemically important in view of their size and turnover” RBI deputy governor Swaminathan J.” However, if we consider the inter-connectedness that binds the entire spectrum of financial entities, it becomes evident that any vulnerable link has the potential to erode public trust and confidence” Mr Swaminathan J said in his speech titled “ Urban Co-operative Banks: Upholding Governance and Professionalism with Capacity Buidling and Technology Upgradation” delivered to the South based UCBs at Hyderabad last week.
In an increasingly interwoven financial landscape, the ripples of even an apparently small disturbance can resonate far beyond its initial impact, said citing that the failure in 2001 of a Gujarat based UCB and more recently in 2019 to a Mumbai based UCB attest to the contagion risks posed by even relatively smaller banks.
UCBs form a critical layer of the financial system of the country. Despite the sector's consistent 3-4% presence in the overall banking business, its significance should not be underestimated, he said.
In terms of sheer numbers, with a count around 1,500, UCBs significantly outnumber commercial banks. Their outreach extends to a broad spectrum of society, serving common citizens, marginalized sections, small and medium-sized businesses, agriculture, and allied activities.
Transparent decision-making, accountability, and adherence to best practices are paramount.
