Cooperative Banking in India is divided into two distinct segments- Rural and Urban.
Rural Cooperative structure comprises short-term and long-term co-operative credit structures.
Short term Cooperatives operate with a three-tier system - Primary Agricultural Credit Societies (PACS) at the village level, Central Cooperative Banks (CCBs) at the district level and State Cooperative Banks (StCBs) at the State level.
Long term Cooperatives comprises of- SCARDBs: State Co-operative Agriculture and Rural Development Banks; PCARDBs: Primary Co-operative Agriculture and Rural Development Banks.
Urban Cooperative Banks cater to the financial needs of customers in urban and semi-urban areas.
UCBs are primarily registered as cooperative societies under the provisions of either the State Cooperative Societies Act of the State concerned or the Multi State Cooperative Societies Act, 2002 if the area of operation of the bank extends beyond the boundaries of one state.
Details about Primary Agriculture Credit Societies (PACS)
Basic unit and smallest co-operative credit institutions that work on the grassroots level.
These societies are generally started by 10 or more persons who contribute a nominal amount.
The working capital of the PACS is derived mainly from borrowings from Central Co-operative Banks (CCBs) and the small proportion from owned funds and deposits from members.
In general, only the members of a PACS are entitled to borrow from it.
Main Functions of PACS
Provide short-term and medium-term credit for agriculture and allied activities.
Distribute inputs such as seeds and fertilizers.
Provide various agricultural implements on rent to the farmers.
Provide marketing facilities for the sale of agricultural produce.
Provide loans for non-agricultural purposes such as purchase of consumer durables, housing loans, education loans and professional loans.
Computerization of Primary Agriculture Credit Societies (PACS)
Presently, State Cooperative Banks (StCBs) and District Central Cooperative Banks (DCCBs) have already been computerised by the NABARD and brought on Common Banking Software (CBS).
However, the majority of PACS have so far been not computerised and still functioning manually resulting in inefficiency and trust deficit.
Further, there is no uniformity in the software being used by them and they are not interconnected with the DCCBs and StCBs.
Regulation of Cooperative banks
PACS and long-term credit co-operatives are outside the purview of the Banking Regulation Act, 1949 and are hence not regulated by the Reserve Bank.
StCBs/DCCBs are under the dual regulation by the RBI and Registrar of Cooperative Societies. The Banking related functions are regulated by RBI, while the Management related functions are regulated by Registrar of Cooperative Societies. Here, the RBI has delegated its powers to NABARD under Sec 35A of the Banking Regulation Act to conduct inspection of state and central co-operative banks.
Even Urban Cooperative Banks (UBCs) are under the dual regulation of RBI and Registrar of Cooperative Societies of concerned state/ Central Registrar of Cooperative Societies (Depending upon whether the Urban Cooperative Bank is registered under State Cooperative Societies Act of the State concerned or the Multi State Cooperative Societies Act, 2002).
Banking Regulation (Amendment) Act 2020
Strengthen the RBI’s regulation over the UCBs: Expand RBI’s regulatory control over co-operative banks in terms of management, capital, audit and liquidation. However, it does not put a complete end to the dual regulation of the Urban Cooperative Banks.
Supersession of Board of Directors: The RBI has been empowered to supersede the Board of Directors of all the UCBs.
Audit and winding up: Under the Bill, audit of co-operative banks would be conducted on par with scheduled commercial banks. Accounts would be audited by a qualified person and RBI approval would be required before appointing, re-appointing or removing an auditor. RBI may order a special audit for such transactions and such periods as specified in the order.
Issuance of shares and securities: Co-operative banks are excluded from the provision on issuance of shares and securities under the BR Act. The Bill modifies the relevant provision of the BR Act to provide that co-operative bank may, with prior approval of RBI, issue equity, preference or special shares.
