Co-operative 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.

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, Primary Agricultural Credit Societies.
Meanwhile, the long-term institutions are either State Cooperative Agriculture and 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 a single state.

In India, co-operative banks are registered under the States Cooperative Societies Act.
Cooperative banks are currently under the dual control of the Registrar of Cooperative Societies and RBI.
While the role of registrar of cooperative societies includes incorporation, registration, management, audit, supersession of board and liquidation, RBI is responsible for regulatory functions such maintaining cash reserve and capital adequacy, among others.

Recently, the Parliament passed a law to bring all urban and multi-State cooperative banks under the direct supervision of the RBI.
Previously, these banks came under dual regulation of the RBI and the Registrar of Co-operative Societies.
The move is aimed at strengthening lenders’ oversight, boosting depositors’ confidence, and preventing instances of fraud and financial irregularities.

In an affidavit filed in the Madras High Court, the Reserve Bank of India has said that there is no violation of any law of the nation in bringing the cooperative banks under its supervisory control.
It further said that the law is aimed at safeguarding the interests of the depositors and the public. It submitted that the RBI is empowered to regulate any banking activity including those by the cooperative bodies.
The RBI mentioned that 430 urban cooperative banks in the country have lost their banking licenses due to very poor financial positions.
Earlier, two cooperative banks in Tamil Nadu filed petitions against the Central Government ordinance bringing them under the RBI control. The ordinance has since been replaced by a law.

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