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Cooperative banks

  • June 25, 2020
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Subject: Economy

Context:

The Cabinet has decided to bring urban cooperatives and multi-State cooperative banks under RBI regulation.

Concept:

  • Government banks, including 1,482 urban cooperative banks and 58 multi-state cooperative banks, are now being brought under supervisory powers of Reserve Bank of India (RBI)

Background:

  • The move to bring these urban and multi-State coop banks under the supervision of the RBI comes after several instances of fraud and serious financial irregularities, including the major scam at the Punjab and Maharashtra Co-operative (PMC) Bank last year.
  • In September, the RBI was forced to supercede the PMC Bank’s board and impose strict restrictions.
  • The Union Cabinet in February amended Banking Regulation Act to strengthen the cooperative banks in the country.
  • During Budget 2020, Finance Minister also announced that cooperative banks will be brought under the ambit of RBI.

Cooperative banks

Co-operative banks are financial entities established on a co-operative basis and belonging to their members. This means that the customers of a co-operative bank are also its owners. These banks provide a wide range of regular banking and financial services.

Structure:

  • Broadly, co-operative banks in India are divided into two categories – urban and rural.
  • Rural cooperative credit institutions could either be short-term or long-term in nature.
  • Further, short-term cooperative credit institutions are further sub-divided into State Co-operative Banks, District Central Co-operative Banks, and Primary Agricultural Credit Societies.
  • Meanwhile, the long-term institutions are either State Cooperative Agriculture or Rural Development Banks (SCARDBs) or Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).
  • On the other hand, Urban Co-operative Banks (UBBs) are either scheduled or non-scheduled. Scheduled and non-scheduled UCBs are again of two kinds- multi-state and those operating in single state.

Current Regulation:

  • In India, co-operative banks are registered under the States Cooperative Societies Act. They also come under the regulatory ambit of the Reserve Bank of India (RBI) under two laws, namely, the Banking Regulations Act, 1949, and the Banking Laws (Co-operative Societies) Act, 1955.
  • They were brought under the RBI’s watch in 1966, a move which brought the problem of dual regulation along with it.
Cooperative banks economy
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