The Urban Banks Department of the Reserve Bank of India is vested with the responsibility
of regulating and supervising primary (urban) cooperative banks, which are popularly
known as Urban Cooperative Banks (UCBs).
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While overseeing the activities of 1926 primary (urban) cooperative banks, the Urban
Banks Department performs three main functions : regulatory, supervisory and developmental.
The Department performs these functions through its 17 regional offices.
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I. Regulatory Functions
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(i) Licensing of New Primary (Urban) Cooperative Banks
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For commencing banking business, a primary (urban) cooperative bank, as in the case
of commercial bank, is required to obtain a licence from the Reserve Bank of India,
under the provisions of Section 22 of the Banking Regulation Act, 1949 (As Applicable
to Cooperative Societies).
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(ii) Licensing of Existing Primary (Urban) Co-operative Banks
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In terms of sub-section (2) of Section 22 of the Banking Regulation Act, 1949 (As
Applicable to Cooperative Societies), 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. They were given three months
to obtain a licence 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. one lakh (Rs.1,00,000) and above was to apply to the Reserve
Bank of India for a licence within three months from the date on which its share
capital and reserves reach Rs. one lakh. The existing unlicensed primary (urban)
cooperative banks can carry on banking business till they are refused a licence
by the Reserve Bank of India.
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(iii) Branch Licensing
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Under the provisions of Section 23 of the Banking Regulation Act, 1949 (As Applicable
to Cooperative Societies), primary (urban) cooperative banks are required to obtain
permission from the Reserve Bank of India for opening branches.
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(iv) Statutory Provisions
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The regulatory functions of Urban Banks Department relate to monitoring compliance
with the provisions of the Banking Regulation Act, 1949 (As Applicable to Cooperative
Societies) by urban cooperative banks. These provisions include :
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a. Minimum Share Capital
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Under the provisions of Section 11 of the Banking Regulation Act, 1949 (As Applicable
to Cooperative Societies), no primary (urban) cooperative bank can commence or carry
on banking business if the real or exchangeable value of its paid-up capital and
reserves is less than Rs.one lakh.
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b. Maintenance of CRR and SLR
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As in the case of commercial banks, primary (urban) cooperative banks are also required
to maintain certain amount of cash reserve and liquid assets. The scheduled primary
(urban) cooperative banks are required to maintain with the Reserve Bank of India
an average daily balance, the amount of which should not be less than 5 per cent
of their net demand and time liabilities in India in terms of Section 42 of the
Reserve Bank of India Act, 1934. Non-scheduled (urban) cooperative banks, under
the provision of Section 18 of Banking Regulation Act, 1949 (As Applicable to Cooperative
Societies) should maintain a sum equivalent to at least 3 per cent of their total
demand and time liabilities in India on day-to-day basis. For scheduled cooperative
banks, CRR is required to be maintained in accounts with Reserve Bank of India,
whereas for non-scheduled cooperative banks, it can be maintained by way of either
cash with themselves or in the form of balances in a current account with the Reserve
Bank of India or the state co-operative bank of the state concerned or the central
cooperative bank of the district concerned or by way of net balances in current
accounts with public sector banks. In addition to the cash reserve, every primary
(urban) cooperative bank (scheduled/non-scheduled) is required to maintain liquid
assets in the form of cash, gold or unencumbered approved securities which should
not be less than 25 per cent of the total of its demand and time liabilities in
accordance with the provisions of Section 24 of the Banking Regulation Act, 1949
(As Applicable to Cooperative Societies). Out of the prescribed SLR, the UCBs have
been advised to maintain a certain amount in the form of SLR Securities as under
:
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Sr.No.
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Category of bank
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Minimum SLR holding in Government and other approved securities as percentage of
Net Demand and Time Liabilities (NDTL)
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1.
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Scheduled banks
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25%
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2.
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Non-Scheduled banks
a) with NDTL of Rs.25 crore & above
b) with NDTL of less than Rs.25 crore
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15%
10%
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II. Supervisory Functions
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To ensure that the UCBs conduct their affairs in the interests of the depositors
and also comply with the regulatory framework prescribed by the Reserve Bank of
India, the department undertakes on site inspection of these banks with frequency
ranging from one to two years depending upon the financial condition / status of
banks. The thrust of supervision is to ensure that banks' 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 banks' compliance with
the existing regulatory framework. The department also undertakes off-site surveillance
of scheduled banks and non-scheduled banks with a deposit base of Rs 100 crore and
above based on a set of quarterly and annual returns.
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III. Developmental Functions
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With a view to extending institutional credit support to tiny and cottage units,
the Reserve Bank of India grants refinance facilities to urban cooperative banks
under the provisions of Section 17 of the Reserve Bank of India Act, 1934. The refinance
is given at the Bank Rate.
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Training is imparted to the middle and top management of urban cooperative banks
through College of Agricultural Banking, Pune.
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IV. Sections / Divisions of Urban Banks Department
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1. Administration
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This Section handles staff matters of the department.
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2. New Bank Licensing and Branch Licensing
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This section frames policies for issue of bank licence /allots centres for opening
of branches and authorizes regional offices to take action accordingly. It also
deals with conversion of cooperative credit societies into urban banks.
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3. Returns
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Returns section at each of the regional offices is responsible for monitoring receipt
of various statutory returns under the provisions of Banking Regulation Act, 1949,
(AACS) and Sec 42 of Reserve Bank of India Act 1934 in case of scheduled UCBs. They
also verify compliance with the provisions of the Acts, ibid, and take suitable
action against non-compliant UCBs.
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4. Banks Supervision
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This division arranges inspection of urban cooperative banks through regional offices
and closely monitors the action taken by the UCBs to rectify the irregularities
/ deficiencies pointed out in inspection reports. The division also associates itself
with the RCS of respective states in rehabilitation of financially weak UCBs.
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5. Banking Policy
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This section frames policies on prudential norms, investment policies, monitoring
priority sector targets, refinancing, issue of directives on interest rates, CRR/SLR,
etc. Policies relating to para banking activities such as merchant banking, hire
purchase, leasing, insurance business, etc. are also formulated by this division.
Besides, the section also attends to compliance with the directions of Local Board
/ Central Board / BFS, furnishes requisite material for Bank's publications such
as Annual Report, Report on Trend and Progress of Banking in India, Currency and
Finance, etc.
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Further, the section interprets the provisions of Banking Regulation Act 1949 (AACS),
initiates amendments, coordinates with the Government, corresponds with various
State Governments on matters pertaining to amendments of State Cooperative Societies
Acts, coordinates with DICGC on matters pertaining to banks under liquidation, maintains
and updates the list of urban cooperative banks, monitors cooperative credit societies
having paid up capital above Rs one lakh, watches compliance to Sec 9, 29 & 31 of
Banking Regulation Act, attends to cooperative banks going out of the purview of
Banking Regulation Act etc.
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