Strengthening Resilience of Urban Co-operative Banks in India : Lessons from German Co-operative Institutional Protection Scheme

Given the in-built risks relating to leverage, liquidity, and fiduciary liability in banking, apartfrom tightly regulating the banks, many the jurisdictions have also put in place depositguarantee schemes for bank customers. However, a deposit guarantee scheme provides a restricted coverage, and does little to protect a bank from delinquency and bankruptcy. This is far more critical for urban co-operative banks in India which face greater challenges due to their comparatively smaller size, governance issues, regional functioning, and limited access to the funding market. Though deposit insurance coverage for deposits up to ₹ 5 lakh is applicable for banks in India, there is neither any central organization nor any defined institutional scheme for resolution, restoration, or protection for the co-operative banks, especially the Urban Co-operative Banks (UCBs). This paper provides an overview of Cooperative Banking in Germany with its unique and successful institutional protection scheme through an umbrella organization