- June 24, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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.
- 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.