Cooperative Banks

Why in news?

• The Reserve Bank of India (RBI) recently warned against use of the word 'bank' in some cooperative societies.
• RBI said, "Co-operative societies cannot use the words “bank", "banker" or "banking" as part of their names, except as permitted under the provisions of Banking Regulation Act, 1949 or by RBI”

More about the news:

• Also RBI noted that some cooperative societies were accepting deposits from non-members/nominal members/associate members, in violation of the Banking Regulation Act, 1949.

About Cooperative Society:

• A co-operative society is a voluntary association of individuals having common needs who join hands for the achievement of common economic interest.
• Its aim is to serve the interest of the members, usually from poorer sections of society, through the principle of self-help and mutual help.
• In India, a cooperative society can be formed under provisions of the Co-operative Societies Act, 1912.

About Cooperative Banks:

• 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 band together to extend loans to each other, at favourable terms.
• This means that the customers of a cooperative bank are also its owners.

Features:

• Co-operative banks in India are registered under the States Cooperative Societies Act or under the Multi-State Co-operative Societies Act, 2002.
• The Co-operative banks are also regulated by the Reserve Bank of India (RBI) and governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1955.
• Deposits made in cooperative societies are not covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC)

Classification:

• Credit co-operatives (or co-operative banks) are broadly classified into urban or rural co-operative banks based on their region of operation.
  • Urban co-operative banks are classified into scheduled and non-scheduled banks.
  • Rural co-operatives banks may be divided into State co-operative banks, district central co-operative banks and Primary Agricultural Credit (PAC) Societies.

Constitutional Provision regarding cooperatives:

• 97th Constitutional Amendment Act of 2011 added the following provisions:
  • It made the right to form co-operative societies a fundamental right (Article 19(1)).
  • It included a new Directive Principle of State Policy on promotion of cooperative societies (Article 43-B).
  • It added a new Part IX-B in the Constitution which is entitled “The Cooperative Societies” (Articles 243-ZH to 243-ZT).

PRELIMS QUESTION

Consider the following statements regarding Cooperative Banks:

1. Cooperative banks cannot accept deposits from non-members

2. Deposits made in cooperative societies are not covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC)

Select the correct answer using the codes given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer