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Urban, multi-State cooperative banks to come under RBI supervision

Topics Covered: Inclusive growth and issues arising from it.

Urban, multi-State cooperative banks to come under RBI supervision

Context:

To ensure that depositors are protected, the Centre has decided to bring all urban and multi-State cooperative banks under the direct supervision of the Reserve Bank of India (RBI). The Union Cabinet has approved an ordinance to this effect.

How were these banks regulated so far?

Currently, these banks come under dual regulation of the RBI and the Registrar of Co-operative Societies. 

  • 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.

Co-operative banks are registered under the States Cooperative Societies Act. They come under the regulatory ambit of the Reserve Bank of India (RBI) under two laws, namely, the Banking Regulations Act, 1949, and the Banking Laws (Co-operative Societies) Act, 1955.

What necessitated this?

This comes after several instances of fraud and serious financial irregularities, including the major scam at the Punjab and Maharashtra Co-operative (PMC) Bank last year.

In September, the RBI was forced to supercede the PMC Bank’s board and impose strict restrictions.

Implications of the latest move:

Empower the RBI to regulate all urban and multi-state co-operative banks on the lines of commercial banks. 

It will also provide more security to depositors.

  • There are 1482 urban co-operatives banks and 58 multi-state co-operative banks.
  • These banks have a depositor base of 8.6 crores, who have saved a huge amount of Rs. 4.84 lakh crore with these banks.

InstaLinks:

Prelims Link:

  1. What are cooperative banks?
  2. How they are regulated?
  3. What is dual regulation?
  4. Provisions under which these banks are constituted and regulated?

Sources: the Hindu.