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PMC Bank Crisis: Here’s What Makes Co-operative Banks Different From Commercial Ones

Co-operative banking in India started in the early 20th century with the passing of Co-operative Societies Act in 1904 and later with The Co-operative Societies Act, 1912.


Updated:October 15, 2019, 10:39 AM IST
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PMC Bank Crisis: Here’s What Makes Co-operative Banks Different From Commercial Ones
Representative image.

New Delhi: Last month, Reserve Bank of India (RBI) put the Punjab and Maharashtra Co-operative (PMC) Bank under restrictions after alleged financial irregularities in some loan accounts came to light. In its directions, the apex institution placed curbs on withdrawals from the bank, capping them up to Rs 1,000 per customer for the next six months, which was later revised to Rs 25,000. Then on Monday, the withdrawal limit was increased to Rs 40,000.

Hundreds of people having accounts in the bank have been protesting against the withdrawal limits imposed by RBI, many of whom had their life’s savings in the bank.

With new developments unfolding every other day in the PMC bank crisis, here’s a look at co-operative banks in India and how they’re different from commercial banks.

What Are Co-operative Banks?

Co-operative banks are where members of a community come together on a cooperative basis to deal in ordinary banking operations of depositing and lending money to each other. Similar to other banks, co-operative banks accept deposits and extend loans to members as well as non-members.

Co-operative banking in India started in the early 20th century with the passing of Co-operative Societies Act in 1904 and later with The Co-operative Societies Act, 1912.

These are classified broadly into two categories: Urban Co-operative Banks (UCBs) and rural co-operative banks. According to the RBI, there were 1,551 UCBs and 96,612 rural co-operative banks in the country as of March 2019. Structure-wise, UCBs are further classified into Scheduled UCBs and Non-scheduled UCBs. Of the total UCBs, 54 are scheduled and the remaining 1,497 are non-scheduled.

As for rural co-operative banks, they are classified into five different categories. These are: State Co-operative Banks, District Central Co-operative Banks, Primary Agricultural Credit Societies, State Co-operative Agriculture and Rural Development Banks, and Primary Co-operative Agriculture and Rural Development Banks. Among all the rural co-operative banks, almost 99 per cent fall in the third category.

How Are Co-operative Banks Different From Commercial Banks?

Basic functioning aside, there are a couple of key differences between co-operative banks and commercial banks.

Firstly, while commercial banks are wholly regulated by the RBI, co-operative banks are regulated under both banking and co-operative legislation. Essentially, the RBI regulates and supervises the banking functions of UCBs under the provisions of Banking Regulation Act, 1949 and Reserve Bank of India Act, 1934, whereas matters with regards to incorporation, registration, management, audit, liquidation, etc. of UCBs fall under the jurisdiction of Registrar of co-operative societies.

Moreover, unlike commercial banks, which issue shares of limited liability and where the voting right of a shareholder is determined by the number of shares she/he possesses, co-operative banks issue share of unlimited liability and one shareholder gets only one vote irrespective of their shareholding.

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