Maharashtra govt may reject RBI guidelines

Maharashtra govt may reject RBI guidelines

Subject : Economics

Context : Maharashtra govt may reject RBI’s plan on merger of DCCBs with State co-operative banks

Concept :

• Cooperative banks were set up to supplant indigenous sources of rural credit, particularly money lenders, today they mostly serve the needs of agriculture and allied activities, rural-based industries and to a lesser extent, trade and industry in urban centers.

Co-operative banks have a three tier structure —

• Primary (agriculture or urban) credit societies,
• District central co-operative banks and at the apex level,
• State co-operative banks.

Functions and Regulations

• Primary (urban) credit societies that meet certain specified criteria can apply to RBI for a banking license to operate as urban co-operative banks.
• Primary (urban) co-operative banks are registered and governed by state governments under the respective co-operative societies acts of the concerned states.
• This is because as per our Constitution “Cooperation” is defined under the State list.
• Since they are also covered by the provisions of the Banking Regulation Act, 1949, they come under the control of the RBI as well.
• While the managerial aspects of these banks are controlled by the state governments, matters related to banking are governed by RBI directives.
• Traditionally, the area of operation of primary (urban) co-operative banks is confined to metropolitan, urban or semi-urban centres and caters to the needs of small borrowers.
• However, there is no formal restriction as such and today UCBs can conduct business in the entire district in which they are registered, including rural areas. Well managed primary UCBs with deposits of over Rs 50 crore are also allowed to operate in more than one state subject to certain norms. These banks are also included in the Second Schedule of the RBI Act 1934.
• They are registered under the Central Registrar of Cooperatives and become Multi State scheduled banks.

District central co-operative banks and State co-operative banks (SCBs)

• Primary Agriculture credit societies operate at village level and are affiliated to DCCB’s. DCCB operate at district level and are affiliated to SCB.
• Earlier these two tiers were also under the supervision of the RBI. However, following the establishment of the National Bank of Agriculture and Development (NABARD) in 1982, the supervisory function of these banks has been passed on to NABARD.