Govt brings Co-operative banks under RBI supervisionApprox Read Time: 6 minutes
In News: Govt brings Co-operative banks under RBI supervision
- In order to protect depositors’ interests, the union government has approved plans to bring all urban and multi-state cooperative banks under the direct supervision of the Reserve Bank of India (RBI).
- In India, including scheduled and non-scheduled, there are 1482 urban cooperatives banks and 58 multi-State cooperative banks.
- These banks have a depositor base of 8.6 crore, who have saved a huge amount of Rs 4.84 lakh crore with these banks.
- Recently, there have been instances of trouble in the cooperative banks, with many of them failing. For example, the RBI imposed restrictions on deposit withdrawal at the Punjab and Maharashtra (PMC) Cooperative Banks.
News Summary: Govt brings Co-operative banks under RBI supervision
- In order to protect depositors’ interests, the government approved plans to bring all urban and multi-state cooperative banks under direct RBI supervision process, which is applicable to scheduled banks.
- This empowers the central bank to regulate these on the lines of commercial banks.
- Till now, unlike in the case of commercial banks, the RBI till now had no powers to draw up an enforceable scheme of reconstruction of a co-operative bank.
- The Union Cabinet has approved promulgation of an Ordinance to this effect.
- The government said that this decision will provide safety for depositors on their deposits in these banks.
About: Co-operative banks
- Cooperative bank is an institution established on the cooperative basis and dealing in ordinary banking business. It belongs to its members, who are both owners and customers of their bank.
- The co-operative structure is designed on the principles of mutual help, democratic decision making and open membership.
- All Cooperatives works with the principle of “one member, one vote” and “no profit, no loss”.
- The cooperative banking system came into being with the aim to promote saving and investment habits among people, especially in rural parts of the country.
- These banks provide a wide range of regular banking and financial services. Like other banks, the cooperative banks are founded by collecting funds through shares, they accept deposits and grant loans. However, there are some points where they differ from other banks.
- These banks have mostly been centred around communities and localities lending to small borrowers and businesses.
- With a wide network and extensive coverage, these institutions have played an important developmental role in enlarging the ambit of institutional credit by way of inculcating banking habits among the poor and those in remote areas.
Structure of Co-operative banks in India:
- The co-operative credit structure in the country can be divided into two broad segments: the Primary Co-operative Banks (commonly known as urban co-operative banks – UCBs), and the rural co-operative credit institutions.
- Primary Agricultural Credit Societies (PACSs) are not banks but only societies.
Regulation of Co-operative Banks
- Cooperative Banks are registered under the Cooperative Societies Act.
- Banking laws were made applicable to cooperative societies in 1966.
- Since then, banking related functions are regulated by the RBI and management related functions are regulated by the Governments.
- Governments: The co-operatives are under the control of State Governments in all matters relating to registration, membership, election, financial assistance, loaning powers, business operations, loan recovery and audit.
- Reserve Bank of India (RBI) regulates and supervises the banking functions of Urban Cooperative Banks (UCBs) and Rural cooperatives like State Cooperative Banks (StCBs), District Central Cooperative Banks (DCCBs) and under various provisions of the Banking Regulations Act, 1949, and the Banking Laws (Co-operative Societies) Act, 1955.
- However, Primary Agricultural Credit Societies fall outside the purview of the Banking Regulation Act, 1949 and hence are not regulated by the RBI.
- Regulation of rural co-operatives has been delegated to National Bank for Agricultural and Rural Development (NABARD).
- Section 35(6) of the Banking Regulation Act, 1949 empowers NABARD to conduct inspection of State Cooperative Banks (StCBs), District Central Cooperative Banks (DCCBs) and Regional Rural Banks (RRBs).
- In addition, NABARD has also been conducting periodic inspections of state level cooperative institutions such as State Cooperative Agriculture and Rural Development Banks (SCARDBs).
- Note: In its Institutional Development (ID) initiatives, NABARD supports StCBs, DCCBs, PACs, SCARDBs, PCARDBs and RRBs.
Urban Co-operative Banks:
- Urban Co-operative Banks (UCBs) play an important role as financial intermediaries in urban and semi-urban areas catering to the needs of the non-agricultural sector, particularly small borrowers.
- Primary Cooperative Banks, popularly known as Urban Cooperative Banks (UCBs) are registered as cooperative societies under the provisions of, either the State Cooperative Societies Act of the State concerned or the Multi State Cooperative Societies Act, 2002.
- The applicability of banking laws to cooperatives societies since 1966 ushered in ‘duality of control’ over UCBs.
- The banking related activities of UCBs are governed by the Reserve Bank.
- The registration and management related activities are governed by the Registrar of Cooperative Societies (RCS) in case of UCBs operating in single State and Central RCS (CRCS) in case of multi-State UCBs.
- The Reserve Bank regulates and supervises the banking functions of UCBs under the provisions of Banking regulation Act, 1949.
- As a regulator, the Reserve Bank has prescribed prudential norms in various areas, e.g. capital adequacy, income recognition, asset classification and provisioning, exposure to single/group borrowers, exposures to sensitive sectors, loans and advances, investments, liquidity requirements, etc.