Context:
Reserve Bank of India (RBI) intervened in New India Cooperative Bank over fund misappropriation concern.
Cooperative Banks:
- Cooperative banks are financial institutions formed on a cooperative principle, with their customers also being their owners.
- Broadly classified into Urban and Rural co-operative banks based on their region of operation.
- Registration – Primarily registered as cooperative societies under the following provisions –
- State Cooperative Societies Act of the State concerned or
- Multi State Cooperative Societies Act, 2002 if the area of operation extends beyond one state boundary.
- Governed by –
- Banking Regulations Act, 1949.
- Banking Laws (Co-operative Societies) Act, 1955.
- Regulation –
- Urban and Multi State Cooperative Banks are under the direct supervision of RBI. Earlier, all the co-operative banks came under dual regulation of the RBI and the Registrar of Co-operative Societies
- Rural co-operative banks continue to remain under the dual regulation of RBI and Registrar of Co-operative Societies.
Comparison between Cooperative Banks and Commercial Banks:
| Basis of Difference | Cooperative Banks | Commercial Banks |
| Formed as | Cooperative organizations | Joint-stock banks |
| Governing Act | Cooperative Societies Act | Banking Regulation Act, 1949 |
| Regulation | Subject to the rules of the Registrar of Cooperative Societies and RBI | Directly regulated by the RBI |
| SLR and CRR Requirements | Relatively lower | Relatively higher |
| Services Offered | Limited scope in offering a variety of banking services | Larger scope in offering a variety of banking services |
| Area of Operation | Small-scale operation, usually limited to a region | Large-scale operation, usually countrywide |
| Main Functions | Cater to the credit needs of agriculturists and small businesses | Provide finance to industry, trade, commerce, and priority sectors |
| Rate of Interest on Deposits | Offer a slightly higher rate of interest | Offer lower rates of interest |
| Borrowers | Borrowers are member shareholders with voting power | Borrowers are account holders without voting power |
| Flexibility in Lending | Less flexibility due to cooperative bylaws | More flexibility in lending options |
Source: BS
Previous Year Question
With reference to ‘Urban Cooperative Banks’ in India, consider the following statements:
1. They are supervised and regulated by local boards set up by the State Governments.
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.
Which of the statements given above is/are correct?
[UPSC Civil Services Exam – 2021 Prelims]
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (b)