With reference to Urban Cooperative banks in India consider the following statements:They are superv

Question

With reference to Urban Cooperative banks in India consider the following statements:They are supervised and regulated by local boards set up by the State Governments.They can issue equity shares and preference shares.They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.Which of the statements given above is/are correct?

Accepted Answer

Large cooperative banks with paid-up share capital and reserves of Rs.1 lakh were brought under the purview of the Banking Regulation Act 1949 with effect from 1st March, 1966 and within the ambit of the Reserve Bank’s supervision. This marked the beginning of an era of duality of control over these banks. Banking related functions (viz. licensing, area of operations, interest rates etc.) were to be governed by RBI and registration, management, audit and liquidation, etc. governed by State Governments as per the provisions of respective State Acts. So the control of the RBI was partial and it shared the control with the registrar of cooperative societies of States, giving rise to the much-discussed dual control and the difficulties it posed to the central bank. Hence statement 3 is correct.The recent Banking Regulation (Amendment) Act 2020 enables the RBI to get all the powers, including those hitherto exclusively with the registrar of cooperative societies. However, powers of registrar continue to be with him but the powers of RBI override those of registrar. Hence statement 1 is not correct.While the amendment gives the required powers to the RBI to take timely action and steps to prevent UCBs from failing so that depositors’ monies are protected, which was the main purpose of the amendment, it also enjoins upon the central bank to make regulations under BR Act without compromising on the cooperative nature and cooperative principles of the banks.The Reserve Bank has given new guidelines allowing primary urban cooperative banks (UCBs) to augment capital through issuance of equity shares, preference shares and debt instruments. The UCBs, it said, could raise share capital by issue of equity to persons within their area of operation enrolled as members and also through additional equity shares to the existing members. Hence statement 2 is correct.Source Citation: RBI History: Brief Functioning of Urban Cooperative Banks