Union Cabinet approves an Ordinance to bring UCBs and MSCBs under RBI supervision

It will give added protection and comfort to depositors of the UCBs and MSCBs

• The Union Cabinet has approved an ordinance to bring Urban Cooperative Banks (UCBs) and
  multi-state cooperative banks (MSCBs) under RBI’s supervision
• The decision was taken by the Government following the financial irregularities of the
  Punjab & Maharashtra Cooperative (PMC) Bank
• This decision to bring these banks under the RBI supervision process applicable to scheduled
  commercial banks will give added protection and comfort to depositors of the UCBs and MSCBs

Highlights of the Cabinet’s decision

• Earlier on 1st February 2020, the Finance Minister during her Budget Speech had announced
  that the Cooperative Banks will be brought under the Supervision of RBI
• The Cabinet cleared the amendment Bill on 5th February 2020 following which the Banking
  Regulations (Amendment) Bill, 2020 was introduced in Lok Sabha on 3rd March 2020
• However, the Bill could not be passed as the Budget Session was curtailed due to the outbreak
  of the global COVID-19 pandemic

Key highlights of the Ordinance

• This decision to bring these banks under the RBI supervision process applicable to scheduled
  commercial banks will give added protection and comfort to depositors of the UCBs and MSCBs
• RBI’s supervision implies that the 8.6 crore depositors of those 1482 UCBs and 58 MSCBs
  across the nation will have the ability to get the added safety and luxury
• It might be at current relevant for the scheduled industrial banks within the nation, comparable
  to Deposit Insurance coverage to per depositor of as much as Rs 5 lakh and so on
• Currently, cooperative banks are governed by dual control of cooperative societies as well as the
  RBI. While the role of cooperative society includes incorporation, registration, management,
  recovery, audit, supersession of board of directors and liquidation, RBI is responsible for regulatoryfunctions
• The cabinet also approved 2% interest rate subvention for a period of 12 months to prompt loan
  payees under the Mudra scheme’s Shishu category
• The relief was announced as a part of the Aatma Nirbhar Bharat package last month and is
  expected to bring relief to small borrowers under the Mudra Shishu loans up to ₹50,000

Background for the decision

• Cooperative institutions play a crucial role in financial inclusion and cater to both rural and
  urban areas
• The recent crisis surrounding Punjab and Maharashtra Co-operative Bank Ltd and other such
  lenders exposed the vulnerability of cooperative banks after the central superseded the lenders’
  board after uncovering several irregularities
• Giving greater power to the RBI will prevent malpractices and ensure better regulation
• These banks will come under the supervision of the RBI with immediate effect from the date of
  the President’s approval on the ordinance

What are “Urban Cooperative Banks (UCBs)
and Multi-State Cooperative Banks (MSCBs”?

• The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary
  cooperative banks located in urban and semi-urban areas
• These banks were traditionally centered on communities, localities work place groups and they
  essentially lent to small borrowers and businesses
• Multi-State Cooperative Banks (MSCBs) are the apex institutions in the three-tier cooperative
  credit structure, operating at the state level and every state has a state cooperative bank
• They function as balancing centers for the central cooperative banks by making available the
  surplus funds of some central cooperative banks. The central cooperative banks are not permitted
  to borrow or lend among themselves

Pic courtesy : updatedyou.com