Recently, the Reserve Bank of India (RBI) Governor has indicated that the RBI will bring regulatory changes to reform urban cooperative banks (UCBs).
Context
Recently, the Reserve Bank of India (RBI) Governor has indicated that the RBI will bring regulatory changes to reform urban cooperative banks (UCBs).
- UCBs have been plagued by a series of failures.
- RBI has also warned people against depositing their savings in banks offering high returns.
What are UCBs?
- The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas.
- These banks, till 1996, were allowed to lend money only for non-agricultural purposes. This distinction does not hold today.
- These banks were traditionally centred around communities, localities and workplace groups.
- They essentially lent to small borrowers and businesses. Today, their scope of operations has widened considerably.
Difference between UCBs and Commercial Banks
- Regulation: Unlike commercial banks, UCBs are only partly regulated by the RBI.
- Banking operations of the UCBs are regulated by the RBI, but their management and resolution in the case of distress is regulated by the Registrar of Co-operative Societies either under the State or Central government.
- Borrower can be a Shareholder: In a commercial bank, there is a clear distinction between its shareholders and its borrowers whereas in a UCB, borrowers can even double up as shareholders.
