an in in ndia 12.13
rural areas. Well managed primary UCBs with
coPeratIve Banks deposits of over Rs. 50 crore are also allowed to
Banks in India can be broadly classified under operate in more than one state subject to certain
two heads—commercial banks and co-operative norms.
banks. While commercial banks (nationalised As they are covered by the RBI Act, 1934
banks, State Bank group, private sector banks, (2nd Schedule) they have certain rights and
foreign banks and regional rural banks) account obligations—rights of obtaining refinance and
for an overwhelming share of the banking business, loans from the RBI and obligations such as
co-operative banks also play an important role. maintenance of cash reserves, submission of
Initially set up to supplant indigenous sources of returns to the RBI etc. Presently, there are 29
rural credit, particularly money lenders, today UCBs.
they mostly serve the needs of agriculture and DCCBs & SCBs: As their names suggest, they
allied activities, rural-based industries and to a operate at the district and state levels. One district
lesser extent, trade and industry in urban centres. can have no more than one DCCB with a number
Co-operative banks have a three tier structure— of DCCBs reporting to the SCB. They were under
(i) Primary Credit Societies-PCSs supervision of the RBI—later on this function was
(agriculture or urban), delegated to the NABARD.
(ii) District Central Co-Operative Banks-
DCCBs, and Problems of these bAnks
(iii) State Co-Operative Banks-SCBc (at the Co-operative banks play a very vital role in India’s
apex level). financial system they have been faced with certain
UCBs: Primary credit societies (PCSs) in urban long-drawn problems also—we may have brief
areas that meet certain specified criteria can apply look them:
to RBI for a banking license to operate as urban Regulation remains the biggest issue as
co-operative banks (UCBs). They are registered they are under dual regulatory control—
and governed under the co-operative societies the UCBs come under the RBI and the
acts of the respective states and are covered by Registrar of Co-operative Societies (RCS)
the Banking Regulation Act, 1949—thus are of the respective states while the DCCBs
under dual regulatory control. The managerial and SCBs come under the NABARD, the
aspects of these banks—registration, management, RBI and the RCSs. Given the close links
administration, recruitment, amalgamation, between politicians and co-operatives and
liquidation, etc. are controlled by the state the fact that the RCS functions under the
governments, while the matters related to banking state government, in practice this dual (or
are regulated by RBI. triple) custody of the co-operative banks
Traditionally, the area of operation of the has, in practice, led to poor supervision
UCBs is confined to metropolitan, urban or semi- and control. Besides, most co-operative
urban centres and caters to the needs of small banks are lacking in skill and expertise.
borrowers including MSMEs, retail traders, small Recruitments are politicised as are
entrepreneurs, professionals and the salaried class. appointments at most levels.
However, there is no formal restriction as such and Income recognition and prudential norms
today UCBs can conduct business in the entire that were introduced for commercial
district in which they are registered, including banks in the early 1990s (under the