Context:
In a historic move, Vishweshwar Sahakari Bank, a leading Urban Cooperative Bank (UCB) based in Pune, has been granted Scheduled Bank status by the Reserve Bank of India (RBI). This is the first such approval in over two decades, signalling a renewed regulatory thrust to empower well-performing cooperative banks.
What Are Urban Cooperative Banks (UCBs)?
Urban Cooperative Banks (UCBs) are financial institutions based on the cooperative model. They emerged from co-operative credit societies where members pooled resources to provide affordable loans within the community.
- Classification
- UCBs operate in urban and semi-urban areas
- Rural Co-operative Banks operate in rural regions
- Regulation
- Initially regulated by State Registrars (RCS) and Central Registrar (CRCS)
- Since 2020, all UCBs and multi-state cooperatives are under RBI supervision
Four-Tier Structure Proposed by RBI (2021)
- Tier 1: All unit UCBs, salary earners’ UCBs, and UCBs with deposits up to ₹100 crore
- Tier 2: UCBs with deposits between ₹100 crore and ₹1,000 crore
- Tier 3: UCBs with deposits between ₹1,000 crore and ₹10,000 crore
- Tier 4: UCBs with deposits above ₹10,000 crore
RBI’s Key Recommendations for UCBs
- Governance Improvements
- Strengthen compliance, risk management, and internal audit frameworks
- Ensure proactive asset liability management and liquidity planning
- Board Reforms
- Boards should include skilled professionals with relevant expertise
- Promote diversity, transparent decision-making, and defined tenures
- Strengthen board-level committees for accountability
- Financial and Strategic Discipline
- Avoid masking financial health through creative accounting
- Develop modern business strategies for growth
- Leverage digital technology for better customer service
What Scheduled Bank Status Enables
- Access to RBI liquidity facilities at preferential rates
- Participation in clearinghouse operations
- Eligibility to handle government business and project lending
- Enhanced credibility and visibility in the financial system
- Ability to attract institutional investors and lower-cost funds
BS
UPSC Civil Services Examination, Previous Year Question (PYQ)
Prelims
Q. With reference to ‘Urban Cooperative Banks’ in India, consider the following statements:
- They are supervised and regulated by local boards set up by the State Governments.
- They can issue equity shares and preference shares.
- They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
