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ROLE OF COOPERATIVE BANKS

ROLE OF COOPERATIVE BANKS

Discuss ROLE OF COOPERATIVE BANKS within the Management Of Co-operatives ( MOC ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; Three authorities, Central and State Governments and RBI, are presently involved in regulating, supervising and/or administering UCBs. There are as ...

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ROLE OF COOPERATIVE BANKS
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Abhijeet S
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ROLE OF COOPERATIVE BANKS - September 16th, 2010

Three authorities, Central and State Governments and RBI, are presently involved in regulating, supervising and/or administering UCBs. There are as many as 2,084 UCBs of which 51 are scheduled and the rest are non-scheduled UCBs. In view of their large number as well as their dispersed and local character, their supervision and inspection pose special problems.


At present, while accounts of UCBs are required to be audited by State Governments, there has been substantial delay in completing audit of a large number of UCBs. RBI conducts statutory inspections normally once in two years in respect of scheduled UCBs, once in two to three years in respect of non-scheduled UCBs, while the identified weak banks are inspected on annual basis.


Several committees, including a high power committee set up by RBI in May 1999 under the Chairmanship of Shri K. Madhava Rao, have made wide-ranging recommendations for eliminating dual control and for improving the functioning of the co-operative banks.


Most of these recommendations have been accepted by RBI, but recommendations requiring legislative action at the level of State Governments have yet to be implemented.



Initially many a State Government expressed its reservation in sharing the control over cooperative societies carrying on banking business with Reserve Bank of India. A conference convened by RBI in November 1963 to deliberate on the issue, "witnessed intense debate over the virtues of vesting in the Bank powers to liquidate a cooperative bank or supersede its management, with the Madras Government, in particular, marshalling ideological, constitutional and practical arguments against the idea.


Mysore joined Madras in suggesting that the regulation by Reserve Bank was too high a price to pay for extending insurance cover to depositors of cooperative banks"



Cooperative banks not only received substantial funds by way of created money from RBI but also accepted deposits from public and financed agriculture, industry, commerce and trade.


With the State Governments committed to a policy of positive support to cooperative banks, it was felt that the impact of cooperative credit institutions on the monetary and credit policy was going to become more and more significant. In late fifties and early sixties, a number of banks had failed, thus, adversely affecting the interests of the depositors. This had led to certain amendments in the Banking Regulation Act.

It was considered desirable to extend some of these provisions also to banks in the cooperative sector so as to safeguard the interest of depositors. Hence, the RBI felt that it was a regulatory necessity to bring the banking institutions operating in the cooperative sector within the statutory control of RBI. Thus, the application of banking laws to cooperative banks basically emanated because of the following reasons;


i) Interests of depositors required extension of Banking Regulation Act to banks in the cooperative sector,

ii) RBI's supervision was considered necessary for extending deposit insurance,

iii) Substantial funds were granted to cooperative credit structure by way of created money from RBI and, hence, it had a monetary policy connotation,

iv) Public interest required that institutions having substantial public deposits and functioning as banks should operate under the supervision of Reserve Bank of India.


After prolonged deliberations on the need for RBI to have control over cooperative societies carrying on banking business, the Banking Laws (Application to Cooperative Societies) Bill was passed by the Parliament. It received the assent of the President in September 1965 and the Act came in to force from 1 March, 1966.

With this amendment in the Banking Regulation Act, certain provisions of the Banking Regulation Act became applicable to cooperative banks carrying on banking business. This brought in an era of dual control over cooperative banks.

In terms of the Cooperative Societies Act of the State, the Registrar of Cooperative Societies was to have jurisdiction over the incorporation, registration, management, amalgamation, merger, liquidation etc. and the Reserve Bank was to have jurisdiction over the banking activities of the cooperative society.



After having heard the views of the cooperators, federations and cooperative banks as also the State Governments officials, and after examining the existing statutory framework under the State Cooperative Societies Acts, the High Power Committee felt that the dual control regime, per se, need not cause any hindrance to the growth of the urban banking movement.


It is the absence of a clear cut demarcation between functions of RBI and that of the State Governments that adversely affects the smooth functioning of Urban Cooperative Banks
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