Co-operative Banks

Subject :Economy

Section: Moneya dn Banking

A Co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank.
Co-operative banks in India are registered under the States Cooperative Societies Act.
The Co-operative banks are also regulated by the Reserve Bank of India (RBI) and governed by:
- Banking Regulations Act 1949
- Banking Laws (Co-operative Societies) Act, 1955.

Features of Cooperative Banks:

Customer Owned Entities: Co-operative bank members are both customer and owner of the bank.
Democratic Member Control: Co-operative banks are owned and controlled by the members, who democratically elect a board of directors. Members usually have equal voting rights, according to the cooperative principle of “one person, one vote”.
Profit Allocation: A significant part of the yearly profit, benefits or surplus is usually allocated to constitute reserves and a part of this profit can also be distributed to the co-operative members, with legal and statutory limitations.
Financial Inclusion: They have played a significant role in the financial inclusion of unbanked rural masses.

Urban Co-operative Banks

The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas.
These banks, till 1996, were allowed to lend money only for non-agricultural purposes. This distinction does not hold today.
These banks were traditionally centered around communities, localities and workplace groups.
They essentially lent to small borrowers and businesses. Today, their scope of operations has widened considerably.

New Developments

In January 2020, the RBI revised the Supervisory action Framework (SAF) for UCBs.
In June 2020, the Central government approved an Ordinance to bring all urban and multi-state cooperative banks under the direct supervision of RBI.
Most recently RBI appointed a committee that suggested a 4 tier structure for the UCBs.
Tier 1 with all unit UCBs and salary earner’s UCBs (irrespective of deposit size) and all other UCBs having deposits up to Rs 100 crore,
Tier 2 with UCBs of deposits between Rs 100 crore and Rs 1,000 crore,
Tier 3 with UCBs of deposits between Rs 1,000 crore and Rs 10,000 crore and
Tier 4 with UCBs of deposits more than Rs 10,000 crore.
The Centre had recently amended the Banking Regulation Act to bring the cooperative banking sector into the mainstream.
With the amendment, UCBs are expected to get more freedom in their operations and will be brought under stricter regulatory regime.
A new umbrella organisation for UCBs, the National Cooperative Finance Development Corporation (NCFDC) has been set up and will function as a self-regulatory organisation.