URBAN
COOPERATIVE BANKS - ECONOMY
News: RBI governor flags concerns around
UCBs, asks directors to strengthen governance
What's
in the news?
●
Reserve Bank of India (RBI) Governor
Shaktikanta Das said while the Urban Cooperative Bank (UCB) sector showed
improved financial performance at an aggregate level in recent times, concerns
and vulnerabilities were seen for certain individual entities.
Key
takeaways:
●
Without naming the entities, he
highlighted the need for the UCBs to strengthen financial and operational
resilience to contribute to the overall financial and banking sector stability.
Urban
Cooperative Banks:
●
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.
Regulation:
●
They are regulated and supervised by the Registrar of Cooperative Societies (RCS) of the
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.
●
Within the Reserve Bank, a separate
department, viz. The Urban Banks Department has been entrusted with these
functions.
Difference
between UCBs and Commercial Banks:
Regulation:
●
Unlike commercial banks, UCBs are only partly regulated by the RBI.
●
Their banking operations are regulated by
the RBI, which lays down their capital adequacy, risk control and lending
norms.
●
However, their management and resolution
in the case of distress is regulated by the Registrar of Co-operative Societies
either under the State or Central government.
Borrower
can be a Shareholder:
●
In general for a commercial bank, there is
a clear distinction between its shareholders and its borrowers whereas in a
UCB, borrowers can even double up as shareholders.
Committee
Recommendations:
●
The committee, headed by NS Vishwanathan, a former Deputy
Governor of the RBI, emphasised that all-inclusive directions (AID) should be
treated on a par with moratorium under Section 45 of the Banking Regulation
Act.