Co-operative Banking in India

The Co-operative Banks in India are primarily registered as cooperative societies under the provisions of either the State Cooperative Societies Act of the State concerned or the Multi State Cooperative Societies Act, 2002 if the area of operation of the bank extends beyond the boundaries of one state. The banking related functions of Urban Co-operative Banks are regulated by RBI and Management related functions are regulated by respective State Governments and Central Government. The National Bank for Agricultural and Rural Development (NABARD) has been empowered  to conduct inspection of State and Central Cooperative Banks, under Sec 35 A of the Banking Regulation Act (As Applicable to Cooperative Societies) to conduct inspection of State and Central Cooperative Banks. The structure of cooperative banks has a three tier set up according to their areas of operation. They are state co-operative banks that operate at the apex level in states, District co-operative banks at the district levels, and primary co-operative societies at rural level.

A primary co-operative society means any co-operative society other than a primary agricultural credit society.The primary co-operative societies will have members from general public of a particular villages/ rural community. These societies raise funds through share capital and deposits from members and also borrow from District Central Co-operative banks to which they are affiliated. Loans are provided to members for the purpose of purchasing cattle, fodder, fertilizers, pesticides etc. to a certain fixed limits. The Primary co-operative activities are regulated by a shared arrangement between RBI and NABARD. The primary co-operative societies are managed by the democratically elected to the board. The elections are conducted at fixed intervals as per co-operative acts of the State.

 The State Cooperative Banks operate at the apex level in states and DCC operate at the district levels. The co-operative banks of both these categories are classified as scheduled banks and non-scheduled banks, but majority of these banks is non-scheduled banks. Similarly, some of these urban banks operate in more than one state, they are known as multi-state co-operative banks, although, majority of these banks fall in single state category.

The primary co-operative banks are generally known as urban co-operative banks (UCBs). They are regulated and supervised by the Registrar of Co-operative societies (RCS) of the state concerned or by the Central Registrar of Cooperative Societies (CRCS) as the case may be. The urban co-operative banks are partially regulated by RBI governed by Banking regulation act 1949 and banking laws (co-operative Societies) act 1965. The basic functions of urban Co-operative banks are similar to banking services provided by commercial banks. Deposits are mainly from individuals and co-operative societies. They also borrow from DCC banks and State co-operative bank.  UCBs finance small borrowers in industrial and trade sectors for business purposes. Loans are also provided by them for purchase of Consumer durables, furniture, fixture, computers, Repairs, renovation of flat, house, Marriage & other religious ceremonies to professional and salary classes.

The  Reserve  Bank  has  entered  into  memorandum  of  understanding  (MOU)  with  Central  Government and various State Governments for coordination of regulation and supervision of UCBs. It carries out onsite and off-site inspections of UCBs to protect interest of the depositors. It issues directions and operational instructions to UCBs wherever necessary to rationalize the functioning. Further, State-level Task Force for Co-operative Urban Banks (TAFCUB) is constituted by RBI to look into the issues of UCBs which operate only in one State. A Central TAFCUB is also constituted for the Multi-State UCBs for the same purpose. These TAFCUBs constantly appraise the health of all the co-operative banks under their jurisdiction and identify potentially viable and non-viable UCBs. In the cases of non-viable co-operative banks identified by TAFCUB, where revival of the bank is not possible it recommends for non-disruptive exit route to them such as merger/amalgamation with stronger banks, or conversion into societies, or else liquidation as the last option.