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?
Detailed Explanation:
Answer: Option 2 — 2 and 3 only
This question tests knowledge about the regulatory framework and powers of Urban Cooperative Banks in India. Statement 1 is incorrect as UCBs are jointly regulated by RBI and State Governments, not solely by local boards set up by State Governments. Statements 2 and 3 are correct regarding their capital-raising powers and legislative history.
❌ Statement 1 – Incorrect: Urban Cooperative Banks are jointly regulated by the Reserve Bank of India (RBI) and respective State Governments under a dual control structure, not solely by local boards set up by State Governments. The Banking Regulation (Amendment) Act, 2020 further strengthened RBI's regulatory oversight over UCBs.
✅ Statement 2 – Correct: UCBs can issue equity shares and preference shares to raise capital, as permitted under the Banking Regulation (Amendment) Act, 2020, subject to RBI approval, which helps them strengthen their capital base.
✅ Statement 3 – Correct: Urban Cooperative Banks were brought under the purview of the Banking Regulation Act, 1949 through an amendment in 1966, which gave RBI regulatory powers over their banking operations while administrative control remained with state cooperative laws.
📝 Short Notes: Urban Cooperative Banks (UCBs)
| Aspect | Details |
|---|---|
| Definition | Primary cooperative credit societies operating in urban and semi-urban areas, providing banking and financial services to small businesses, artisans, and middle-class segments |
| Dual Regulation | Regulated by both RBI (banking operations) and State Governments/Central Registrar (administrative and management aspects under Cooperative Societies Acts) |
| Legislative History | 1966 Amendment to Banking Regulation Act, 1949 brought UCBs under RBI's regulatory purview for banking functions |
| 2020 Amendment | Banking Regulation (Amendment) Act, 2020 enhanced RBI's powers over UCBs including supersession of boards, removal of directors, and merger/reconstruction powers |
| Capital Raising | Can issue equity shares, preference shares, and unsecured debentures with RBI approval (post-2020 Amendment) |
| Types | Scheduled UCBs (listed in RBI's Second Schedule) and Non-Scheduled UCBs |
| Significance | Important for financial inclusion, serve as an alternative to commercial banks in urban areas, support small-scale industries and self-employed individuals |
Question 5 of 15 Banking Structure in India
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