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Cooperative Banks Now Under RBI’s Watch

Cooperative bank is governed by both banking and cooperative legislation, as they are registered under the Cooperative Society Act, 1965

And regulated by National Bank for Agriculture and Rural Development (NABARD) & Reserve Bank of India (RBI).

Banking laws were made applicable to cooperative societies in 1966 through an amendment to the Banking Regulation Act, 1949.

Since then, banking related functions are regulated by the RBI

And management related functions are regulated by respective State Governments.

RBI had said in its recent report,

Urban co-operative banks reported nearly 1,000 fraudulent cases worth more than ₹220 crores in the last five fiscals.

UCBs-
86 million depositors
Total around ₹5 trillion.

BANKING REGULATION ACT, 1949

The Union Cabinet on Wednesday approved amendments to Banking Regulation Act, 1949

Permitting the Reserve Bank of India (RBI) to maintain greater control over co-operative banks.

The amendments made to the Act will apply to-

Urban co-operative banks
&

Multi-state co-operative banks

The roles of co-operative societies include-

incorporation, registration, management, recovery, audit, supersession of board of directors and liquidation.

The central bank ensures effective regulatory functions.

WHAT WILL BE THE AMENDMENT?

•The recruitment for the banks’ management will be based on certain qualifications.

•Appointment of the chief executive officer (CEO) will require prior permission from the banking regulator,
as in case of other commercial banks.

The audit of such banks will be as per the RBI guidelines.

Also central bank can supersede the board, in consultation with the state government, if any co- operative bank is under stress.

To strengthen the co-operative banks, amendments to the Banking Regulation Act are proposed for- Increasing professionalism,Enabling access to capital,Improving governance & oversight for sound banking through the RBI.

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