Urban Co-operative Banks (UBBs) 

Urban Co-operative Banks (UBBs) 

Subject: Economy

Context: The Reserve Bank of India (RBI) has cancelled the licence of The Madgaum Urban Co-operative Bank Limited, Margao, Goa.

Concept:

Cooperative 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.

Important sections of Banking Regulation Act regulating Urban Co-operative Banks (UBBs) 

• Under the provisions of Section 11 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), no primary (urban) cooperative bank can commence or carry on banking businessif the real or exchangeable value of its paid-up capital and reserves is less than Rs. one lakh.
• Section 22 in BANKING REGULATION ACT,1949. (1) Save as hereinafter provided, no company shall carry on banking business in India unless it holds a licence issued in that behalf by the Reserve Bank and any such licence may be issued subject to such conditions as the Reserve Bank may think fit to impose
• In 1965, the Act was amended to include cooperative banks under its purview by adding the Section 56. Cooperative banks, which operate only in one state, are formed and run by the state government. But, RBI controls the licensing and regulates the business operations. The Banking Act was a supplement to the previous acts related to banking.

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.