Q. With reference to Urban Cooperative Banks in India, consider the following statements:

1. They are supervised and regulated by local boards set up by the State Governments.
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1996
Which of the statements given above is/are correct?

  • 1 only
  • 2 and 3 only
  • 1 and 3 only
  • 1, 2 and 3

Answer: b) 2 and 3 only

Urban Cooperative Banks (UCBs)
  • Co-operative Banks, which are distinct from commercial banks, were born out of the concept of co-operative credit societies where members from a community group together to extend loans to each other, at favorable terms.
  • Co-operative banks in India are registered under the Cooperative Societies Act. They are also regulated by the RBI and governed by Banking Regulations Act, 1949 and Banking Laws (Co-operative Societies) Act, 1955.
  • Cooperative banks lend as well as accept deposits. They are established with the aim of funding agriculture and allied activities and financing village and cottage industries. National Bank for Agriculture and Rural Development (NABARD) is the apex body of cooperative banks in India.
  • Co-operative Banks are broadly classified into Urban and Rural co-operative banks based on their region of operation.
  • UCBs are regulated and supervised by State Registrars of Co-operative Societies (RCS) in case of single-state co-operative banks and Central Registrar of Co-operative Societies (CRCS) in case of multi-state co-operative banks and by the RBI.
    • But in 2020, all UCBs and multi-state cooperatives were brought under the supervision of RBI.
  • The banking related functions such as issue of license to start new banks/branches, matters relating to interest rates, loan policies, investments and prudential exposure norms are regulated and supervised by the Reserve Bank under the provisions of the Banking Regulation Act, 1949 after an amendment in 1966.
  • The Reserve Bank of India came out with draft guidelines allowing primary UCBs to augment capital through issuance of equity shares, preference shares and debt instruments.
    • The UCBs could raise share capital by issue of equity to persons within their area of operation enrolled as members and also through additional equity shares to the existing members.
  • In 2021 RBI appointed a committee that suggested a 4-tier structure for the UCBs.
    • Tier 1 with all unit UCBs and salary earner’s UCBs (irrespective of deposit size) and all other UCBs having deposits up to Rs 100 crore.
    • Tier 2 with UCBs of deposits between Rs 100 crore and Rs 1,000 crore,
    • Tier 3 with UCBs of deposits between Rs 1,000 crore and Rs 10,000 crore, and
    • Tier 4 with UCBs of deposits more than Rs 10,000 crore.