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Cooperative banks in India | Company Vakil

The Cooperative Movement in the world today goes back to days of misery and distress in Europe faced by common people who had little or no access to credit to fund their basic needs, in uncertain times. The idea spread when the continent was faced with economic uncertainty which led large populations to live at subsistence level without economic security. It was the idea of Hermann Schulze (1808-83) and Friedrich Wilhelm Raiffeisen (1818-88) of cooperative banks. They promoted the idea of easy access of credit to small businesses and for the poor segment of society. Indian Cooperative Banks were also born out of distress in Indian society.

  • The Cooperative Credit Societies Act, 1904 led to the formation of Cooperative Credit Societies in both rural as well as urban areas. The act was recommended by Sir Frederick Nicholson (1899) and Sir Edward Law (1901). Their ideas were based on the pattern of Raiffeisen and Schulze respectively.
  • The Cooperative Societies Act of 1912, gave recognition to the formation of non-credit societies and the central cooperative organizations.
  • Machlagan Committee in 1915, highlighted the deficits in cooperative societies which seeped-in due to lack of proper education to the masses.
  • The Royal Commission on Agriculture 1928, mentioned the importance of education of members/staff for effective implementation of cooperative movement.
  • Saraiya Committee, in 1945, suggested the setting up of a Cooperative Training College in every state and a Cooperative Training Institute for Advanced Study and Research at the Central level.

The cooperative movement and banking structures soon spread with the unexpressed needs of the rural Indian and small scale businesses. Since, 1950s, they have supported and provided assistance in activities like credit, banking, production, processing, distribution/marketing, housing, warehousing, irrigation, transport, textiles, dairy, sugar etc. to households.

Co-Operative Bank License

What is Co-Operative Bank License?

Co-operative banks are small-sized entities structured in the co-operative sector which function together in urban and non-urban centers. In India, co-operative banks help in financing small debtors in industrial & trade sectors, also professional & salary programmes. The co-operative banking organization in India is isolated into 4 components i.e.(i)chiefly co-operative credit society,(ii) central co-operative bank,(iii) state co-operative banks &(iv) land development banks. Urban co-operative banks are further divided into weak & urban banks, grounded on certain limits of their performances. Co-operative banks are structured by the Reserve Bank of India(RBI) and governed by the Banking Regulations Act, 1949, & Banking Laws (Co-operative Societies) Act, 1965. Rural co-operative banks are controlled by state registrar of co-operatives.

Regulatory Functions

Licensing of New Primary (Urban) Cooperative Banks

An (urban) cooperative bank, as in the condition of the commercial bank, is important to get a license from the Reserve Bank of India (RBI), under the provisions of Section 22 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies).

Licensing of Existing Primary (Urban) Co-operative Banks

In terms of sub-section (2) of Section 22 of the Banking Regulation Act, 1949 , the primary (urban) cooperative banks existing in the country as on March 1, 1966, (when some banking laws were applied to UCBs), were required to apply to the Reserve Bank of India(RBI). They were given 3 months to obtain a license to carry on banking business. Similarly, a primary credit society which becomes a primary (urban) cooperative bank by virtue of its share capital and reserves reaching Rs.1,00,000 & above was to apply to the Reserve Bank of India(RBI) for a licence within 3months from the date on which its share capital & reserves reach Rs.1,00,000/-. The existing unlicensed primary (urban) cooperative banks can carry on banking business till they are refused a license by the RBI.

Branch Licensing

According to Section 23 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), main (urban) cooperative banks are required to obtain permission from the RBI for opening branches.

Statutory Provisions

The regulatory functions of Urban Banks Department associate to monitoring compliance with the provisions of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) by urban cooperative banks. These provisions will include:

Minimum Share Capital

According to Section 11 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), no primary (urban) cooperative bank can commence banking business if the real or exchangeable value of its paid-up capital & reserves is less than Rs.1,00,000/-

Maintenance of CRR & SLR

As in the circumstance of commercial banks, primary (urban) cooperative banks are required to maintain certain amount of cash reserve. The scheduled primary cooperative banks are required to maintain with the RBI an average daily balance, the amount should not be less than 5 % of their net demand& time liabilities in India under Section 42 of the Reserve Bank of India Act, 1934. Non-scheduled cooperative banks, under Section 18 of Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) should maintain a sum of at least 3 % of their total demand& time liabilities in India on a day-to-day basis. Moreover to the cash reserve, every chief (urban) cooperative bank (scheduled/non-scheduled) is compulsory to reserve liquid assets in the form of cash, gold or unencumbered approved securities which must not be less than 25% of the total of its demand& time liabilities in accordance withSection 24 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies). The agreed SLR, the UCBs are recommended to preserve a certain amount in the form of SLR Securities as under:

For Scheduled banks, Min SLR holding in Government & other permitted securities as % of Net Demand& Time Liabilities (NDTL) is 25%

For non-scheduled banks:-

1. with NDTL of Rs.25 crore & above, Min SLR holding in Government & other permitted securities as % of Net Demand& Time Liabilities (NDTL) is 15%.

2. with NDTL of less than Rs. 25 crores, Min SLR holding in Government & other permitted securities as % of Net Demand& Time Liabilities (NDTL) is 10%.

Supervisory Functions

To confirm that the UCBs behavior their businesses in the welfares of the depositors and also comply with the regulatory framework prescribed by the RBI, the department undertakes onsite inspection of these banks with frequency ranging from 1-2 years depending upon the financial condition/status of banks. The shove of management is to safeguard that bank’s affairs are not conducted in a manner detrimental to the depositors’ interest and also to assess the solvency of the bank vis-à-vis its liabilities, besides examining the bank’s compliance with the existing regulatory framework. The department also assumes off-site investigation of scheduled banks and non-scheduled banks with a deposit base of Rs.100 crores & above created on a set of quarterly & annual returns.

Developmental Functions

With a view to extending institutional credit support to tiny & cottage units, the RBI grants refinances facilities to urban cooperative banks under Section 17 of the Reserve Bank of India Act, 1934. The refinance is given at Bank Rate.

 

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