The Reserve Bank of India’s Deputy Governor Swaminathan J has cautioned co-operative banks that their risk environment extends far beyond local operations, urging enhanced oversight as the sector reopens for new licences.
Reserve Bank of India Deputy Governor Swaminathan J has warned urban co-operative banks that their risk profile now reaches far beyond their local footprint, even when their balance sheets remain modest.
Speaking at the Mission SAKSHAM programme for directors, managing directors and chief executives of co-operative banks in Hyderabad on August 7, Swaminathan said banks were once judged mainly by size, branch presence and geography. That framework still matters, he said, but technology and interconnection have weakened the link between a bank’s scale and the dangers it faces.
He said a small institution can now be exposed to cyberattacks launched from well outside its area of operation, failures at outsourced technology vendors and digital fraud that can move quickly across accounts. In his view, that means a UCB may remain local in name and structure, but its risk environment is no longer local at all.
The Deputy Governor also pointed to the growing dependence of many co-operative banks on external providers for core banking systems, payment tools and data centres. That arrangement can be efficient and necessary, particularly for smaller lenders, but it also means critical functions may sit outside the bank’s walls. Swaminathan said boards and chief executives must understand how much of their institution effectively depends on outsiders, and must still take responsibility for continuity, safeguards and risk oversight.
His warning comes as the RBI moves to reopen licensing for urban co-operative banks after a two-decade pause. According to draft guidelines reported by Mint, the central bank is proposing on-tap licensing with a minimum net worth threshold of ₹300 crore and a public consultation window running until September 5, 2026. DD India said the policy shift is part of a wider effort to support co-operative banking while tightening prudential controls, including a review of concentration risk norms and work on lending-rate rules.
Swaminathan’s remarks also fit a broader line of recent RBI speeches in which he has pressed lenders to strengthen operational resilience, data governance and third-party risk management. Business Standard reported earlier this year that he had warned banks against treating compliance as a quarter-end exercise, and had said resilience now depends on adapting to cyber threats, artificial intelligence, geopolitical shocks and other fast-moving disruptions.
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