Cooperative Banks are financial institutions established under cooperative principles to provide banking services to their members. They mainly support farmers, small businesses and rural communities. Understanding their structure and functions is important for UPSC, SSC, Banking and State PCS examinations.
With reference to 'Urban Cooperative Banks' in India, consider the following statements :
They are supervised and regulated by local boards set up by the State Governments.
They can issue equity shares and preference shares.
They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.
Which of the statements given above is/are correct?
Correct Answer:
(B) 2 and 3 only
Urban Cooperative Banks (UCBs) refer to primary cooperative banks located in Urban and semi-urban areas. UCBs are regulated and supervised by State Registrars of Cooperative Societies (RCS) in case of single-state cooperative banks and Central Registrar of Cooperative Societies (CRCS) in case of multi-state cooperative banks and by the RBI. Large cooperative banks with paid-up share capital and reserves of Rs. 1 lakh were brought under the purview of the Banking Regulation Act, 1949 with effect from 1st March 1966, (through an amendment in the Act), and within the ambit of the Reserve Bank's supervision. This marked the beginning of an era of duality of control over these banks. Banking related functions (viz. licensing, area of operations, interest rates, etc.) were to be governed by RBI while registration, management, audit and liquidation, etc. were governed by State Governments through Registrars of Cooperative Societies as per the provisions of respective State Acts. Recently, the Banking Regulation (Amendment) Act, 2020, came into force with effect from June 29, 2020 for Primary (Urban) Cooperative Banks. The BR (Amendment) Act expanded the RBI's regulatory control over cooperative banks in terms of management, capital, audit and liquidation, etc. Hence, statement 1 is incorrect while statement 3 is correct. As per BR (Amendment) Act, 2020, a cooperative bank may issue equity shares, preference shares or special shares on face value or at a premium to its members or to any other person residing within its area of operation. However, such issuance will be subject to the prior approval of the RBI, and any other conditions as may be specified by the RBI. Hence, statement 2 is correct.
Ques: 2
Which of the following best describes the structure of cooperative banks in India?
Correct Answer:
(B) A multi-tier system, with local, district, and state banks.
Cooperative banks in India operate under a three-tier structure: Primary Agricultural Credit Societies (PACS) at the village level, District Central Cooperative Banks (DCCBs) at the district level, and State Cooperative Banks (SCBs) at the state level. This system aims to provide financial services and credit to rural areas and farmers.
Ques: 3
Which of the following is NOT a key characteristic of Urban Cooperative Banks (UCBs)?
Correct Answer:
(C) Operate at the village level within a district.
The term "Urban Co-operative Banks" refers to primary cooperative banks in urban and semi-urban areas. These banks primarily lent to small borrowers and businesses centred on communities, neighbourhoods, and workplace groups.
Ques: 4
Which Act regulates the functioning of cooperative banks in India?
Correct Answer:
(B) The Banking Regulation Act, 1949
The Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) regulates the functioning of cooperative banks in India. This Act was extended to cooperative banks in 1966 as Banking Regulation Act, 1949 (AACS). The Reserve Bank of India (RBI) has regulatory powers over these banks under this Act, ensuring the interests of depositors and protecting the banking system.
Ques: 5
What is the role of the State Cooperative Bank in the cooperative banking structure?
Correct Answer:
(C) Acts as the apex body at the state level for cooperative banks.
In the three-tier cooperative banking structure in India, the State Cooperative Bank (SCB) acts as the apex body at the state level for all cooperative banks within that state. It serves as the highest level cooperative bank, coordinating with other cooperative banks and societies within the state.