What is a cooperative bank?
Banks in India can be broadly classified under two heads - commercial banks and cooperative banks. While
commercial banks (nationalised banks, State Bank group, private sector banks, foreign banks and regional
rural banks) account for overwhelming share of banking business, co-operative banks also play an important
role. Initially set up to supplant money-lenders, today they mostly serve the needs of agriculture and allied
activities, rural-based industries and to a lesser extent, trade and industry in urban centres. Co-operative
banks have a three tier structure –
primary (agriculture or urban) credit societies, district central cooperative banks and at the apex level, state co-operative banks.

What are urban co-operative banks? Who regulates them?
Primary (urban) credit societies that meet certain specified criteria can apply to RBI for a banking license to
operate UCBs. Primary UCBs are registered and governed by state governments under the respective co-
operative societies acts. Since they are also covered by the provisions of the Banking Regulation Act, 1949,
they come under RBI control as well. While the managerial aspects of these banks are controlled by the state
governments, matters regarding banking are governed by RBI. Traditionally, the area of operation of primary
UCBs is confined to metropolitan, urban or semi-urban centres to small borrowers including SSIs, retail traders,
small entrepreneurs, professionals and the salaried class. However, there is no formal restriction as such and
today UCBs can conduct business in the entire district in which they are registered, including rural areas. Well
managed primary UCBs with deposits of over Rs 50 crore are also allowed to operate in more than one state
subject to certain norms.

These, as the name suggests, are cooperative banks at the district level and at the state level. Each district will
have not more than one DCCB with a number of DCCBs reporting to the SCB. Earlier these two tiers were also
under RBI supervision. However, following the establishment of the National Bank of Agriculture and
Development (NABARD) in 1982, the supervisory function of these banks has been passed on to NABARD.

What ails co-operative banks?
The biggest problem facing co-operative banks is the they have more than one master - in the case of UCBs,
they have the RBI and the Registrar of Cooperative Societies (RCS) of the respective state and in the case of
the distinct and state cooperative banks, they have NABARD, the RBI and the RCS. Given the close links
between politicians and cooperatives and the fact that the RCS functions under the state government, in
practice this dual or triple control of co-operative banks has led to poor supervision and control. Also most co-
operative banks lack skill/expertise. Recruitments are politicised at most levels. Income recognition and
prudential norms introduced for commercial banks were also not extended to the co-operative sector.