Credibility in cooperative banks has eroded, says Subbarao

Mumbai: Stating that credibility of the cooperative banks has "eroded", Reserve Bank Governor D Subbarao today said there was an urgent need to professionalise their governance which would help the financial inclusion agenda.

"Governance in cooperative banks lacks professionalism. There is need to professionalise both their governance structure and their functioning," Subbarao told an international seminar on cooperatives in Pune.

Subbarao said the credibility of cooperatives has got eroded over time. Reuters

Subbarao said the boards of the cooperative banks need to restrict their role to governance and let the senior management led by a chief executive manage the day-to-day operations.

"Governance has to be segregated from management," he said, adding the board should exercise oversight only through established channels like reviews and progress reports.

Pointing out that the share of rural cooperatives has decreased to 3.7 percent in 2010 from the 7.2 percent in 2001, Subbarao said the credibility of cooperatives has eroded over time.

"For a variety of reasons, both financial and governance related, the credibility of cooperatives has got eroded, especially since cooperatives have come under the spell of several infirmities, some of them chronic," he said.

He also said they should adopt the latest technologies in order to be at par with commercial banks. Coming down on cooperatives for being "leader centric", Subbarao said they crumble once a particular leader leaves and asked for institutionalising of leadership at grass-root level.

PTI