Cooperative Banks

IN NEWS:

• Cooperative banks, including 1,482 urban cooperative banks and 58 multi-state cooperative banks, will be brought under supervisory powers of Reserve Bank of India through an ordinance.

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.
• 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-op banks are classified into scheduled and non-scheduled banks.

• Rural co-operatives may be divided into State co-operative banks and district central co-operative banks and Primary Agricultural Credit (PAC) Societies.
• The 96,000-odd rural co-operatives that constitute about 65 per cent of the total assets of co-operatives will remain out of RBI purview for now.

URBAN COOPERATIVE BANKS AND SCHEDULED COMMERCIAL BANKS:

• Unlike commercial banks, UCBs were only partly regulated by the RBI. This will now Change with the ordinance.
• Commercial banks are structured as joint stock companies, UCBs are structured as co-operatives, with their members carrying unlimited liability.
• There is a clear distinction between a commercial bank’s shareholders and its borrowers, while in a UCB borrowers can double up as shareholders.
• Deposits with both UCBs and SCBs are covered by the Deposit Insurance and Credit Guarantee Corporation of India up to a sum of Rs. 1 lakh per depositor.

PRELIMS QUESTION:

Q. Consider the following statements regarding Urban cooperative banks:

1. They constitute more than 50% of total assets with cooperatives.
2. Deposits in Urban cooperative banks are not covered by the Deposit Insurance and Credit Guarantee Corporation of India.

Which of the statements given above is/are correct:

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer D

">Answer to Prelims question