Primary
Cooperative Banks, popularly known as Urban Cooperative Banks (UCBs) are 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. They are regulated and supervised by the Registrar of Cooperative Societies
(RCS) of State concerned or by the Central Registrar of Cooperative Societies
(CRCS), as the case may be. The applicability of banking laws to cooperatives
societies since March 1, 1966 ushered in ‘duality of control’ over UCBs between
the Registrar of Cooperative Societies/Central Registrar of Cooperative Societies
and the Reserve Bank of India. The Reserve Bank regulates and supervises the banking
functions of UCBs under the provisions of Banking regulation Act, 1949(AACS).
Within the Reserve Bank, a separate department, viz. Urban Banks Department, has
been entrusted with these functions. Urban Banks Department functions in close
coordination with other regulators viz., RCSs and CRCS. The functions of the department
can be broadly divided into (i) regulatory (ii) supervisory and (iii) developmental.
The Reserve Bank has been vested powers to issues licence
to UCBs under Section 22 and 23 Banking Regulation Act, 1949 (AACS) to carry on
banking business and to open new places of business(branches, extension counters,
etc.) respectively. For this purpose, guidelines on the eligibility crieteria
for issue of banking licence / branch licence are issued to UCBs from time to
time. As a regulator, the Reserve Bank has prescribed prudential norms in various
areas, e.g. capital adequacy, income recognition, asset classification and provisioning,
exposure to single/group borrowers, exposures to sensitive sectors, loans and
advances, investments, liquidity requirements, etc. Considering the heterogeneity
in the sector, a differentiated regulatory regime is being adopted by Reserve
Bank in certain aspects by grouping the UCBs under two Tiers (Tier I and II) based
on their branch network, area of operation and the level of deposits.
The
Banking Regulation Act, 1949(AACS) provides for submission of periodical returns
by UCBs to the Reserve Bank of India. Further, under the powers vested in the
Reserve Bank, it has prescribed various other periodical returns to be submitted
by UCBs.
The Reserve Bank carries out on-site inspections
and off-site surveillance of UCBs. It also issues directions and operational instructions
to UCBs, wherever necessary to streamline the functioning and to protect the interests
of the depositors.
As a part of developmental functions,
the Reserve Bank imparts training to the officials of UCBs to upscale their knowledge,
skill and expertise.
The Reserve Bank has entered into
memorandum of understanding (MOU) with Central Government and various State Governments
for harmonization of regulation and supervision.
The circular
instructions issued to UCBs from time to time are placed in the Reserve Bank’s
website. Further, for discharge of its functions, the Bank has prepared operation
manual, Job Cards, manual for on-site inspection of UCBs, manual of instructions
for UCBs, etc. and issues internal circulars/instructions from time to time.