Context: The Union Cabinet recently approved an ordinance to bring all urban and multi-State cooperative banks under the direct supervision of the Reserve Bank of India (RBI).
Rationale for the move
- To ensure that depositors are protected
- Currently the urban cooperatives and multi-State cooperative banks, which are 1,540 in number and have a depositor base of 8.6 crore, who have saved nearly ₹4.84 lakh crore.
- As these banks have been brought under the RBI supervision process, the depositors would certainly get more security.
- Dual regulation and several instances of fraud
- Currently, these cooperatives banks come under dual regulation of the RBI and the Registrar of Co-operative Societies.
- There have been several instances of fraud and serious financial irregularities including the major scam at the Punjab and Maharashtra Co-operative (PMC) Bank last year.
- Ultimately the RBI was forced to supersede the PMC Bank’s board and impose strict restrictions.
- A Co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank.
- Co-operative banks in India are registered under the States Cooperative Societies Act.
- They are also regulated by the Reserve Bank of India (RBI) and governed by the
- Banking Regulations Act 1949
- Banking Laws (Co-operative Societies) Act, 1955.
- These banks are owned and controlled by the members, who democratically elect a board of directors.
- Members usually have equal voting rights, according to the cooperative principle of “one person, one vote”.
- Dual Regulation
- Primary Cooperative Banks, popularly known as Urban Cooperative Banks (UCBs) are regulated and supervised by the Registrar of Cooperative Societies (RCS) of State concerned.
- The banking related functions are regulated and supervised by the Reserve Bank under the provisions of the Banking Regulation Act, 1949.