To ensure that depositors are protected, the Centre has decided to bring all urban and multi-State cooperative banks under the direct supervision of the Reserve Bank of India (RBI).

Practice question for mains:

Q. What are Cooperative Banks? How are they regulated? Discuss their role in extending credit facilities in rural India.

What are Cooperative Banks?

• A Co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank.
• They are registered under the States Cooperative Societies Act.
• They 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.

What is the present decision?

• The urban cooperatives and multi-State cooperative banks have been brought under RBI supervision process, which is applicable to scheduled banks.
• Currently, these banks come under dual regulation of the RBI and the Registrar of Co-operative Societies.

Why such a move?

• The move to bring these urban and multi-State coop banks under the supervision of the RBI comes after several instances of fraud and serious financial irregularities.
• The most recent was the major scam at the Punjab and Maharashtra Co-operative (PMC) Bank last year.
• The RBI was forced to supersede the PMC Bank’s board and impose strict restrictions.

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