RBI’s major move: Reforms in cooperative banks and transparency in lending rates
Mumbai: The Reserve Bank of India (RBI) announced several measures on Wednesday to strengthen the cooperative banking sector. Additionally, it proposed a uniform regulatory framework for loan interest rates across all regulated entities to bring transparency to lending rates and enhance customer protection.
RBI Governor Sanjay Malhotra made these announcements following the conclusion of the August Monetary Policy Committee (MPC) meeting.
As part of the measures for the cooperative banking sector, the RBI will issue draft guidelines to resume the licensing process for Urban Cooperative Banks (UCBs). This move follows feedback received on a previously issued discussion paper regarding the licensing framework.
Furthermore, the central bank will issue draft directions for rural cooperative banks following a comprehensive review of the credit monitoring mechanism; this mechanism was last revised in 2008.
Malhotra stated that the review takes into account experiences from recent years and the changes that have occurred in the banking sector since the implementation of the existing framework.
The proposed directions aim to update the credit monitoring framework for rural cooperative banks, aligning it with the structural and regulatory changes the sector has undergone over the past 18 years.
Additionally, the RBI proposed a uniform and standardized regulatory framework governing loan interest rates across all regulated entities. Malhotra noted that the RBI would issue draft guidelines to restart UCB licensing based on feedback received from its earlier discussion paper on the subject.
The objective of this move is to bring transparency to lending rates, ensure greater consistency in lending practices, and strengthen customer protection. Earlier in the day, the RBI’s MPC kept the repo rate unchanged at 5.25 percent. Regarding GDP, Malhotra projected a growth rate of 6.7 percent and CPI inflation of 5 percent for FY27.
