RBI Grade BNABARD ESISEBI
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Context:
“RBI MPC Unpacked: Key Theory Meets Today’s Macro Trends”Tap to play · from the C4S channel
The Reserve Bank of India (RBI) has announced plans to issue a discussion paper on licensing new banks in the Urban Cooperative Banking (UCB) sector, indicating a shift in policy after nearly two decades.
Background
- 2004 Freeze: Fresh licenses for UCBs were stopped due to weak financial health and governance issues in the sector.
- The decision to explore new licences comes in light of improved financial performance and regulatory compliance among existing UCBs.
- Consolidation Drive (2004–24):
- Amalgamation of unviable UCBs.
- Closure of non-viable entities.
- Suspension of new licenses.
- As a result, the number of UCBs fell from 1,926 (2004) to 1,472 (March 2024).
What are UCBs?
- Urban Cooperative Banks (UCBs) are cooperative banks operating in urban and semi-urban areas, primarily catering to small borrowers, traders, low- and middle-income groups.
- They are organised under the cooperative structure but perform banking functions like accepting deposits, lending, remittances, and other retail banking services.
RBI Governance of UCBs
| Aspect | Legal Framework / Authority | Scope of Regulation |
|---|---|---|
| Banking Regulation Act, 1949 | Applied to UCBs since 1966; regulated by RBI | Banking activities such as deposit mobilization, lending, capital adequacy, prudential norms, and supervision. |
| State Cooperative Societies Act | Registration under respective State Act | Governance, management elections, audit, and administrative control at the state level. |
| Multi-State Cooperative Societies Act, 2002 | Registration if UCBs operate in more than one state | Governance, management elections, audit, and administration under Central Registrar of Cooperative Societies. |