Here’s what differentiates cooperative banks from commercial banks


New Delhi: Last month, the Reserve Bank of India (RBI) put the Punjab and Maharashtra Co-operative (PMC) on restrictions after suspected financial irregularities on some loan accounts were exposed. In its instructions, the umbrella institution limited withdrawals from the bank, capping them at Rs 1,000 per customer for the next six months, which was then revised to Rs 25,000. Then, on Monday, the withdrawal limit was increased to Rs 40,000.

Hundreds of people with bank accounts protested the withdrawal limits imposed by RBI, many of whom had their life savings in the bank.

With new developments taking place every other day in the PMC banking crisis, here is an overview of cooperative banks in India and how they are different from commercial banks.

What are cooperative banks?

Co-operative banks are where members of a community come together on a co-operative basis to take care of the ordinary banking operations of depositing and lending money to each other. Like other banks, cooperative banks accept deposits and provide loans to members as well as to non-members.

Cooperative banking in India began at the turn of the 20th century with the passage of the Co-operative Societies Act in 1904 and later with the Co-operative Societies Act, 1912.

These are classified into two broad categories: urban cooperative banks (UCB) and rural cooperative banks. According to the RBI, there were 1,551 UCBs and 96,612 rural cooperative banks in the country as of March 2019. Structurally, UCBs are further classified into scheduled UCBs and unscheduled UCBs. Of the total UCBs, 54 are scheduled and the remaining 1,497 are unscheduled.

As for rural cooperative banks, they are classified into five different categories. These are State Cooperative Banks, Central District Cooperative Banks, Primary Agricultural Credit Societies, State Cooperative Banks for Agriculture and Rural Development, and Primary Cooperative Banks for Agriculture and Rural Development. rural development. Of all rural cooperative banks, nearly 99 percent fall into the third category.

How are cooperative banks different from commercial banks?

Aside from the basic operation, there are a few key differences between cooperative banks and commercial banks.

First, while commercial banks are fully regulated by the RBI, cooperative banks are regulated by both banking law and cooperative law. Essentially, the RBI regulates and supervises the banking functions of UCBs under the provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934, while matters relating to incorporation, registration, management, audit, liquidation, etc. under the jurisdiction of the Registrar of Cooperative Societies.

In addition, unlike commercial banks, which issue shares with limited liability and where a shareholder’s voting right is determined by the number of shares they own, cooperative banks issue shares with unlimited liability and one shareholder obtains only one vote regardless of their shareholding.

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