Co-operative banks are small-sized units which are organized in the co-operative sector of urban and non-urban centers. They have become a vital part of the success of Indian Financial Inclusion story. They have accomplished many landmarks since their creation and have helped a normal rural Indian to feel empowered and secure. The Co-operative Bank is organized and managed with the dictum of co-operation, self-help and mutual help.
License from RBI for Co-operative Banks
Every Cooperative society shall obtain a license from the Reserve Bank of India to carry banking business in India. It shall also incorporate bye-laws duly approved by the Registering Authority.
Area of Operations
The Bye-laws of the co-operative banks shall comprise the geographical area/s of Bank. The primary (urban) co-operative bank (UCB) may expand their Area of Operation by passing a resolution by the general body.
After expanding the bye-laws registered with the Registrar of Co-operative Societies (RCS)/Central Registrar of Co-operative Societies (CRCS) shall be amended.
Ways of expanding area of operations:
Extension of Area of Operation within the district of registration and adjoining districts within the State of registration
Extension of Area of Operation beyond the adjoining districts and to the entire State of registration
Extension of Area of Operation beyond the State of registration
Extension of Area of Operation of Multi-State UCBs
Extension of Area of Operation within the district of registration and adjoining districts within the State of registration:
The UCBs licensed under Tier I and Tier II, may extend its area of operation as stated above without prior permission from the Reserve Bank of India which is subject to satisfying the following conditions:
CRAR shall be at least 10 %.
Gross NPA shall be less than 7 % and Net NPAs shall be up to 3%.
UCBs shall be profit-making for at least three out of the preceding four years. However, it should not have incurred a net loss in the immediately preceding year.
UCBs shall not have defaulted in the maintenance of CRR / SLR during the preceding financial year.
UCBs shall have a sound internal control system
UCBs shall have two professional directors on the Board.
Core Banking Solution (CBS) shall be fully implemented.
USBs should have a track record of regulatory compliance and no monetary penalty should have been imposed on the bank on account of violation of RBI directives/guidelines during the last two financial years.
On compliances of the above provisions, the UCBs may be called as Financially Sound and Well Managed (FSWM) UCBs.
And such USBs shall directly approach the RCS of the State concerned for extension of the area of operation to the entire district of registration and its adjoining districts within the State of registration.
What is UCBs into Tier I and II?
Tier I Banks
Banks shall have deposits up to ₹ 100 crores and operate in a single district
Banks having deposits up to ₹ 100 crores and operating in more than one district shall be treated as Tier I if the branches are in adjoining districts. The deposits and advances of branches in one district are constituted separately a minimum 95 percent of the total deposits and advances respectively of the bank.
Banks having deposits up to ₹ 100 crore and whose branches were originally in a single district but subsequently, became multi-district due to a reorganization of the district may also be treated as Tier I UCBs.
Tier II Banks
All other Banks is other than Tier I Bank.
Extension of Area of Operation beyond the adjoining districts and to the entire State of registration:
USBs licensed under uni-state Tier II extend their area of operation as stated above on fulfilling the conditions stipulated for FSWM UCBs.
UCBs keen on extending their area of operation to the entire state shall take prior approval from the Regional Offices of Reserve Bank of India.
RBI shall consider requests for the expansion of the area of operation to the entire state from:
Licensed Tier II UCBs
UCBs registered or deemed to be registered under the Multi-State Co-operative Societies Act, 2002
USBs who have fulfilled the above criteria stated for FSWM UCBs as per the last RBI inspection.
The Assessed Net Worth of such FSWM UCBs should not be less than the entry point capital norms prescribed for the highest category center in that district(s), applicable to a new general category bank.
While considering such applications, RBI will give due consideration to the system of internal controls prevailing in the bank and supervisory comfort.
Extension of Area of Operation beyond the State of registration and Extension of Area of Operation of Multi-State UCBs:
Financially sound and well managed (FSWM) UCBs having a minimum assessed the net worth of ₹ 50 crores, is allowed to extend their area of operation beyond the State of registration as also to any other State/s of their choice subject to the criteria stipulated above for FSWM.
Considering the importance of the Co-operative Banks in Indian Financial market, RBI has granted relaxation on prior approval requirement to some USBs to extend the area of operation than mentioned in bye-laws.