Context:
RBI Governor highlighted the need for the UCBs to strengthen financial and operational resilience to contribute to the overall financial and banking sector stability.
About Cooperative Banks:
- Cooperative banks are financial institutions formed on a cooperative principle, with their customers also being their owners.
- Registration: UCBs are 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.
- RBI regulates and supervises the banking functions.
- UCBs regulatory framework recommended by – N S Vishwanathan panel (Expert Committee on Urban Co-operative Banks)
- Regulation of UCBs:
- It is split between RBI and Centre/State Governments, while that of smaller cooperative banks is divided between NABARD and State governments.
- Regulated by RBI under 2 laws –
- Banking Regulations Act, 1949
- Banking Laws (Co-operative Societies) Act, 1955.
- Urban and Multi State Cooperative Banks are under the direct supervision of RBI.
| Regulatory Frameworks for UCBs, Universal Banks (UNBs), Small Finance Banks (SFBs) and Regional Rural Banks (RRBs) | ||||
| Regulatory Approval | UCBs | UNBS | SFBS | RRBs |
| Capital Adequacy | Under Basel I norms, capital to be maintained only on credit risk. | Under Basel III norms, Capital to be maintained on credit, market risk and operational. | Under Basel II norms, but capital to be maintained only on credit risk. | Under Basel I norms |
| Opening of Branches, Extension Counter | UCBs which meet the Financially Sound and Well Managed (FSWM) criteria are allowed under automatic route. | Under automatic approval route, subject to conditions. | ||
| Extension of area of operation | Under prior approval route | Not applicable. Area of operation extends to the entire country. | Area of operation of RRBs is fixed. | |
| Priority Sector Lending targets | 75 per cent of Adjusted Net Bank Credit (ANBC). | 40 per cent of ANBC | 75 per cent of ANBC | |
| Inclusion under Second Schedule to RBI Act, 1934 | Prior approval route: UCBs fulfilling prescribed criteria are eligible to apply. | Prior approval route: All new SCBS after commencement of operations are eligible to apply. | Prior approval route: All new SFBs after commencement of operations are eligible to apply. | Prior approval route: Newly amalgamated RRBs are Scheduled by RBI on the basis of certificate issued by NABARD. |
Source: The Hindu
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)
