Urban Co-operative Banks The cooperative sector in India is divided into two major segments, viz.

, the Urban Cooperative Banks (UCBs) and Rural Cooperatives. As names indicate, UCBs concentrate on credit delivery in urban areas, while Rural Cooperatives concentrate on rural areas. Urban Co-operative Banks (UCBs) are an important part of the financial system in India. It is, therefore, necessary that the UCBs emerge as a sound and healthy network of jointly owned, democratically controlled, and ethically managed banking institutions providing need based quality banking services, essentially to the middle and lower middle classes and marginalized sections of the society in urban and semi urban areas. The primary (urban) cooperative banks (UCBs), like other co-operative societies, are registered under the respective State Co-operative Societies Act or Multi State Cooperative Societies Act, 2002 and governed by the provisions of the respective acts.

The regulation and supervision of the rural cooperative sector (State Cooperative Banks (StCBs) and District Central Cooperative Banks (DCCBs)) is much more complex with a triangular structure, where the Registrar of cooperatives, the Reserve Bank and the NABARD are entrusted with separate responsibilities. For the rural cooperative sector, MoUs

have been entered into by majority of State Governments with the NABARD as per the Recommendations of the Committee headed by Dr A Vaidyanathen. With a view to bringing primary (urban) co-operative banks under the purview of the Banking Regulation Act, 1949, certain provisions of the Banking Regulation Act, 1949 were made applicable to co-operative banks effective March 1, 1966. With this, these banks came under the dual control of respective State Governments/Central Government and the Reserve Bank. While the non-banking aspects like registration, management, administration and recruitment, amalgamation and liquidation are regulated by the Registrar of Cooperative Societies (RCS) and Central RCS of State/ Central Governments, matters related to banking are regulated and supervised by the Reserve Bank under the Banking Regulation Act, 1949 (as applicable to co-operative societies). The main objectives of the B.R. Act 1949 (AACS) are to Safeguard the interest of the depositors Develop the co-operative banking institutions on a sound line UCBs

Scheduled UCBs

Non-Scheduled UCB.

Multi State

Single State

Multi State

Single State

Single District

Multi District

Unit UCB Broad Features of Urban Banks Essentially Coop. Societies

Non-Unit UCBs

Localized Operation--They mobilize savings from the middle and low income groups and extend credit to people residing in their area of operation Democratic set-up Low level of professionalism These Institutions are required to collect deposits and extend credit facilities only to their members Dual Control

Role of RBI

REGULATORY
Regulatory Role of RBI

SUPERVISORY

DEVELOPMENTAL

Grant of Bank Licenses under section 22 of B.R.Act,1949(AACS) Grant of Branch Licenses under section 23 of B.R.Act,1949(AACS) Compliance under section 11 of B.R.Act 1949 (AACS) Compliance with maintenance of CRR/SLR under relevant provisions of RBI Act and B.R.Act,1949(AACS)

Supervisory Role of RBI On-Site Inspections under section 35 of B.R. Act,1949 (AACS) Off-Site Supervision by calling various returns OSS/SOSS UBD Package. Now all the UCBs are submitting the Returns through Email. Grade I & II banks are inspected once in two years Grade III & IV banks are Inspected every year.

Developmental Role of RBI Rehabilitation of Grade III & Grade IV UCBs. Monitoring the deployment of Credit by UCBs to Priority Sector and weaker section of the societies. To impart training for the personnel of UCBs for improving/up gradation of the skills.

Regulatory Framework Licensing UCBs have to obtain a licence from the Reserve Bank for doing banking business. The unlicensed primary (urban) co-operative banks can continue to carry on banking business till they are refused a licence. There are few unlicensed bank operating in the country as of now. Further UCBs also have to obtain prior authorisation of the Reserve Bank to open a new place of business. Prudential Norms Prudential norms relating to income recognition, asset classification and provisioning and capital adequacy ratio are applicable to urban co-operative banks as well.

Supervisory Framework To ensure that primary (urban) co-operative banks function on sound lines and their methods of operation are consistent with statutory provisions and are not detrimental to the interests of depositors, they are subject to (i) on-site inspection, and (ii) off-site surveillance. On-site Inspection The principal objective of inspection of primary (urban) co-operative banks is to safeguard the interests of depositors and to build and maintain a sound banking system in conformity with the banking laws and regulations. While all scheduled urban co-operative banks, and select non-scheduled urban co-operative banks are inspected on an annual basis, other non-scheduled UCBs are inspected once in two years.

Off-site Surveillance In order to have continuous supervision over the UCBs, the Reserve Bank has supplemented the system of periodic on-site inspection with off-site surveillance (OSS) through a set of periodical prudential returns to be submitted by UCBs. In 1968, UCBS were extended the benefits of Deposit Insurance. The RBI has been taking a series of steps since 2001-02 to align cooperative banking with that of commercial sector. The prudential banking norms viz. capital adequacy, asset classification, provisioning norms, individual and group exposure norms, KYC norms etc., applicable to commercial banks are by and large are now applicable to UCBs as well.

Weak financial position of a number of UCBs has been the major cause for concern in the UCB sector for decades. The dual regulatory control over this sector contributed a lot to the weak financial position of this sector. To address this issue, the Reserve Bank in March 2005 prepared a Vision Document and based on that a Medium-Term Framework (MTF), which envisaged regulatory coordination between the two main regulatory authorities of the urban cooperative banking sector, viz., the Reserve Bank and the respective State Governments (Central Government for multi-State UCBs) through signing of a Memorandum of Understanding (MoU) in each State within the existing legal framework. As on date, MoUs have been entered into with Central Government and all 28 States having presence of UCBs, thus covering the entire UCB sector. Task Force for Cooperative Urban Banks (TAFCUBs) has been constituted in all these States and a Central TAFCUB has also been constituted for the multi-State UCBs.

The Regional Director concerned is the Chairman of TAFCUB and the RCS is the coChairman. The HoD of local UBD will be the convener. Members are drawn from CO, UBD (represented at the GM level), state Govt (Joint or Deputy Secretary from the Cooperative Dept) and a representative each from the National and State level Federation of Cooperative banks. The Committee meets periodically depending on the need and structured discussions take place on the basis of agenda notes sent in advance by the local UBD. The Committee essentially focuses on weak banks and strategies are worked out by consensus to bring about their recovery and to upgrade their status by better financial performance. The deficiencies are identified and bank specific solutions including capital infusion by the concerned State Govt, if necessary are decided. The TAFCUB also monitors the implementation of the decisions taken in the earlier meetings. The supervisory actions taken on the basis of recommendations of the TAFCUBs include cancellation of licenses or rejection of license applications of unviable UCBs, supersession of errant Board of Directors, and placing/modification of operational restrictions/directions on the banks. The TAFCUB also oversee the implementation of the Guidelines on Fair Practice Code for Lenders and issue of Guidelines on Fit & Proper Criteria for appointment of CEOs of UCBs. Further, TAFCUBs identify the potentially viable UCBs and suggest solutions for their revival while formulating non-disruptive exit strategies for non-viable banks. The exit of non-viable banks could be through merger/amalgamation with stronger banks, conversion into societies or liquidation, as the last option. This is a perceptible improvement achieved over the years through the MOU and TAFCUB mechanism and consolidation and merger of weak banks with strong banks. The percentage of banks in grades III and IV witnessed a sharp decline and the Sector has been significantly strengthened in financial terms. For regulatory purposes, UCBs are classified into Grades I, II, III and IV based on CRAR, net NPA, and profitability during previous years and compliance with CRR/SLR in the previous financial year. Banks with no supervisory concerns are classified as grade I banks. Banks classified in grade II are also relatively sound while those in grades III and IV are financially weak banks. Basis for Grading CRAR as per prescribed norms. Net NPAs less than 10%. Net profit for the financial year. Maintenance of CRR/SLR.

The main objective behind the system of grading of UCBs is to initiate prompt supervisory action, wherever necessary. In terms of geographical spread, UCBs are unevenly distributed across the states. Five states viz., Maharashtra, Gujarat, Karnataka, Andhra Pradesh and Tamil Nadu account for roughly 80% of total banks that presently comprise the sector. Please see the Table at the end. Further, the UCBs in these states account for approximately 82% of the deposits and advances of the sector. In terms of deposit share, Maharashtra leads with more than 55% followed by Gujarat with 15%. As at March 2010, there were 1674 banks with Rs 1,82,862 crore deposits and Rs 1,10,308 crore advances. Of these, 53 banks were scheduled. Urban banks with presence in more than one State are covered under Multi State Cooperative Societies Act (1942, 1984 and 2002).
There were 25 scheduled and 17 non-scheduled Multi State Cooperative Urban banks as on March 2010.

There were 879 Grade I banks, 465 Grade II banks and 179 Grade III banks and 151 banks in Grade IV as of March 2010. State-wise and Centre-wise Details of UCBs (As at end-March 2010) State Centre/s Grades I II 1 Gujarat Karnataka Madhya Pradesh Orissa PB/HR/HP Tamil Nadu Uttarakhand Assam/North East Andhra Pradesh Rajasthan Jammu and Kashmir West Bengal/Sikkim Uttar Pradesh Maharashtra New Delhi Bihar/Jharkhand Chhattisgarh Kerala Total 2 Ahmedabad Bangalore Bhopal Bhubaneswar Chandigarh Chennai Dehradun Guwahati Hyderabad Jaipur Jammu Kolkata Lucknow Mumbai Nagpur New Delhi Patna Raipur TVM 3 118 126 13 2 7 98 4 9 65 26 3 30 48 216 59 11 5 7 32 879

III

IV 6 21 16 5 3 3 4 1 8 2 1 11 7 45 20 1 1 2 151

4 5 98 12 90 38 24 11 5 2 5 1 27 1 1 6 1 34 4 10 1 4 3 6 9 91 51 38 37 2 1 3 2 21 5 465 179 ********

Number of All Branches UCBs 7 8 249 874 270 848 53 91 12 45 16 40 130 313 5 54 17 40 111 245 39 189 4 16 48 101 70 190 557 3,407 15 5 13 60 1,674 65 6 21 339 6,884

Extension Counters 9 10 9 1 4 3 2 1 5 3 4 2 28 122 1 1 2 2 200

ATMs 10 69 19 2 4 3 2 1 8 731 1 840