[Solved] With reference to ‘Urban Cooperative Banks’ in India , consider the following statements: 1. They are supervised and regulated by local boards set up by the State Governments. 2. They can issue equity shares and preference shares . 3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.

Q5. With reference to ‘Urban Cooperative Banks’ in India , consider the following statements:

1. They are supervised and regulated by local boards set up by the State Governments.

2. They can issue equity shares and preference shares .

3. 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 ans 3 only

            C. 1 and 3 only

            D. 1,2 and 3

Answer: B

Urban Cooperative Banks (UCBs)

• UCBs are governed by a board of directors elected by their members and operate on a cooperative principle, where each member has equal voting rights. So Statement 1 is incorrect.

• They are regulated and supervised by the Reserve Bank of India (RBI) under the Banking Regulation Act, of 1949, and are subject to various prudential norms, regulations, and guidelines issued by the RBI to ensure their stability and soundness. So, Statement 3 is correct.

• UCBs can raise capital by issuing equity shares and preference shares, debentures and bonds. However, the issuance and handling of shares must comply with the RBI’s guidelines and cooperative laws governing them. Hence, statement 2 is correct

The Banking Regulation (Amendment) Act 2020

• It enables the RBI to get all the powers, including those hitherto exclusively with the registrar of cooperative societies. However, powers of registrar continue to be with him but the powers of RBI override those of registrar.

• The 2020 notification specifies that UCBs can raise capital through three broad methods, viz:- issuance of equity shares, preference shares, and debt instruments.

• First, UCBs can raise funds by issue of equity to enrolled members within the area of operation or through additional

equity shares to existing members.

• Second, UCBs can augment Tier – I & Tier – II capital by issuing Perpetual Cumulative & Non-Cumulative Preference Shares, and, Redeemable Cumulative & Non-Cumulative Preference Shares.

• Third, UCBs can issue Perpetual Debt Instruments (PDIs) for Tier – I Capital and Long Term Subordinated Bonds as Tier – II Capital. It can be issued to institutional investors also, with the consent of the depositors.

• RBI may supersede the board of directors of a multi-state co-operative bank for up to five years under certain conditions. These conditions include cases where it is in the public interest for RBI to supersede the Board, and to protect depositors.

• The Banking Regulation Amendment Bill, 2020 will not be applicable to a) Primary agricultural credit societies, b) Cooperative societies whose principal business is long term financing for agricultural development.