Credit Co-operative Society

Co-operative Bank License in India

Co-operative banks are small-sized entities structured in the co-operative sector which function together in urban & non-urban centers. In India, co-operative banks finance small debtors in industrial & trade sectors, also professional & salary programmes. The co-operative banking organization in India is isolated into 4 components i.e.chiefly co-operative credit society, central co-operative bank, state co-operative banks & land development banks. Urban co-operative banks are divided into weak & urban banks, grounded on certain limits of their performance. Co-operative banks are structured by the Reserve Bank of India & governed by the Banking Regulations Act, 1949, & Banking Laws (Co-operative Societies) Act, 1965. Rural co-operative banks are controlled by the state registrar of co-operatives.

Urban co-operative banks essential have a min capital of ₹ 4 crores & membership of at least 3,000 in a population of in excess of ₹ 10 lakh. The figure for minimum membership keeps decreasing with a decrease in population. Urban co-operative banks are required to maintain SLR equivalent to 25% of net demand& bank liabilities.

A co-operative bank is classified as a weak bank if its own funds get eroded to the extent of 25% or more by doubtful debts or if it’s overdue exceed 50% of outstanding loans & advances. Or otherwise, if the bank is unsuccessful to obey with min share capital standards. It used to be easy to open a cooperative bank with as little capital as ₹ 15 lakh. But no more so. RBI is forthcoming up with new rules in which min capital requirement for the cooperative bank would be revised to ₹ 4 crores from earlier ₹ 15 lakh.

The Reserve Bank said the minimum capital requirements for cooperative banks will soon go up to as much as ₹ 4 crores from the present ₹ 15 lakh. Under the existing norms, a cooperative bank can be set up with a minimum capital of ₹ 15 lakh, which will now be increased to ₹ 50 lakh for banks in the backward areas &₹ 3 crores for urban areas which already have banking infrastructure.

Reserve Bank of India has in existing periods studied the authorizing policy for Urban Co-operative Banks (UCBs) pursuant to the approvals of the High Power Committee established for investigative the current licensing policy amongst other regulatory issues. Co-operative banks function on the basis of ‘no-profit no-loss’.

Co-operative banks, as a principle, do not pursue the goal of profit maximization. So, these banks do not an emphasis on contribution more than the basic banking services. So, co-operative banks finance small borrowers in industrial & trade sectors, besides professional & salary classes.

Some cooperative banks in India are more forward than many of the state & private sector banks. According to NAFCUB (National Federation of Urban Co-operative Banks & Credit Societies Ltd), the total deposits & lending of cooperative banks in India is much more than old private sector banks & also some new public sector banks. This exponential growth of co-operative banks in India is recognized mostly to their much better local reach, personal interaction with customers, & their ability to catch the nerve of the local clientele.

Regulatory Functions

• Licensing of New Primary (Urban) Cooperative Banks

An (urban) cooperative bank, as in the condition of the commercial bank, is vital to get a license from the Reserve Bank of India, under the provisions of Section 22 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies).

• Licensing of Existing Primary (Urban) Co-operative Banks

In terms of sub-section (2) of Section 22 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), the primary (urban) cooperative banks existing in the country as on March 1, 1966, (when some banking laws were applied to UCBs), were required to apply to the Reserve Bank of India. They were given three months to obtain a license to carry on banking business. Similarly, a primary credit society which becomes a primary (urban) cooperative bank by virtue of its share capital & reserves reaching ₹ one lakh (Rs.1,00,000) & above was to apply to the Reserve Bank of India for a licence within three months from the date on which its share capital & reserves reach ₹ one lakh. The existing unlicensed primary (urban) cooperative banks can carry on banking business until they are refused a license by the Reserve Bank of India.

• Branch Licensing

In accordance to the provisions of Section 23 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), main (urban) cooperative banks are required to obtain permission from the Reserve Bank of India for opening branches.

• Statutory Provisions

The regulatory functions of Urban Banks Department relate to monitoring compliance with the provisions of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) by urban cooperative banks. These provisions include:

Minimum Share Capital

In accordance to the provisions of Section 11 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), no primary (urban) cooperative bank can commence or carry on banking business if the real or exchangeable value of its paid-up capital & reserves is less than Rs.one lakh.

Maintenance of CRR & SLR

As in the circumstance of commercial banks, primary (urban) cooperative banks are also required to maintain a certain amount of cash reserve & liquid assets. The scheduled primary (urban) cooperative banks are required to maintain with the Reserve Bank of India an average daily balance, the amount of which should not be less than 5 percent of their net demand& time liabilities in India in terms of Section 42 of the Reserve Bank of India Act, 1934. Non-scheduled (urban) cooperative banks, under the provision of Section 18 of Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) should maintain a sum equivalent to at least 3 percent of their total demand& time liabilities in India on a day-to-day basis. For scheduled cooperative banks, CRR is required to be maintained in accounts with Reserve Bank of India, whereas for non-scheduled cooperative banks, it can be maintained by way of whichever cash with themselves or in the form of balances in a present account with the RBI or the state co-operative bank of the state concerned or the central cooperative bank of the district concerned or by way of net balances in current accounts with public sector banks. Moreover to the cash reserve, every chief (urban) cooperative bank (scheduled/non-scheduled) is mandatory to reserve liquid assets in the form of cash, gold or unencumbered approved securities which must not be less than 25 percent of the total of its demand& time liabilities in accordance with the provisions of Section 24 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies). The agreed SLR, the UCBs have been recommended to preserve a certain amount in the form of SLR Securities as under:

Sr. No.	Class of bank	Min SLR holding in Government & other permitted securities as % of Net Demand& Time Liabilities (NDTL)
1.	Scheduled banks	25%
2.	Non-Scheduled banks –  with NDTL of Rs.25 crore & above –  with NDTL of less than ₹ 25 crores	15%10%

• Supervisory Functions

To confirm that the UCBs behavior their businesses in the welfares of the depositors & also comply with the regulatory framework prescribed by the Reserve Bank of India, the department undertakes onsite inspection of these banks with frequency ranging from one to two years depending upon the financial condition/status of banks. The shove of management is to safeguard that banks’ affairs are not conducted in a manner detrimental to the depositors’ interest & also to assess the solvency of the bank vis-à-vis its liabilities, besides examining the banks’ compliance with the existing regulatory framework. The department also assumes off-site investigation of scheduled banks & non-scheduled banks with a deposit base of ₹ 100 crores & above created on a set of quarterly & annual returns.

• Developmental Functions

With a view to extending institutional credit support to tiny & cottage units, the Reserve Bank of India grants refinances facilities to urban cooperative banks under the provisions of Section 17 of the Reserve Bank of India Act, 1934. The refinance is given at the Bank Rate. Training is imparted to the middle & top management of urban cooperative banks through the College of Agricultural Banking, Pune.

• Sections / Divisions of Urban Banks Department

1. Administration

This Unit deals with staff matters of the department.

2. New Bank Licensing & Branch Licensing

This section frames policies for the issue of bank license /allots centers for the opening of branches & authorizes regional offices to take action accordingly. It also transactions with a change of cooperative credit societies into urban banks.

3. Returns

Returns unit at every one of the regional offices is accountable for monitoring receipt of various statutory returns under the necessities of Banking Regulation Act, 1949, (AACS) & Sec 42 of Reserve Bank of India Act 1934 in case of scheduled UCBs. They also verify compliance with the provisions of the Acts, ibid, & take suitable action against non-compliant UCBs.

4. Banks Supervision

This unit assembles examination of urban cooperative banks done local offices &thoroughly displays the occupied by the UCBs to correct the indiscretions/shortages pointed out in inspection reports &also link itself with the RCS of respective states in the rehabilitation of financially weak UCBs.

5. Banking Policy

Itlimitsrules on prudent standards, investment policies, examination primacy subdivision targets, refinancing, issue of orders on interest rates, CRR/SLR, etc. Policies connecting to para-banking activities such as Merchant Banking License, hire purchase, leasing, insurance business, etc. are also expressed by this division & also joins to compliance with the directions of Local Board / Central Board / BFS, furnishes requisite material for Bank’s publications such as Annual Report, Report on Trend & Progress of Banking in India, Currency & Finance, etc.

Additional, it understands the necessities of Banking Regulation Act 1949 (AACS), pledges amendments, synchronises with the Government, corresponds with numerous State Governments on substances affecting to amendments of State Cooperative Societies Acts, coordinates with DICGC on matters pertaining to banks under liquidation, maintains & updates the list of urban cooperative banks, monitors cooperative credit societies having paid up capital above ₹ 1 lakh, obedience to Section 9, 29 & 31 of Banking Regulation Act, appears to cooperative banks working out of the purview of Banking Regulation Act etc.