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Cooperative banks under RBI

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Cooperative banks under RBI

What to study?

For Prelims: Cooperative banks- composition, functions and regulations.

For Mains: The issue of dual regulation and ways to address it.

 Context: Union Cabinet has approved to bring regulation of cooperative banks under Reserve Bank of India. In order to achieve this, the Cabinet approved amendments to Banking regulation act.

The amendments will apply to all urban co-operative banks and multi-state cooperative banks.

As per the changes:

  1. Cooperative banks will be audited according to RBI’s norms.
  2. RBI can supersede the board, in consultation with the state government, if any cooperative bank is under stress.
  3. Appointments of chief executives will also require permission from the banking regulator, as is the case for commercial banks.

Why this was necessary?

This was felt necessary in the wake of the recent Punjab & Maharashtra Cooperative (PMC) Bank crisis.

Cooperative banks have 8.6 lakh account holders, with a total deposit of about ₹5 lakh crore.

Besides, Urban cooperative banks reported nearly 1,000 cases of fraud worth more than ₹220 crore in past five fiscal years.

How cooperative banks are regulated?

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.

What are 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.

Sources: the Hindu.