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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? 


1. 1 only
2. 2 and 3 only
3. 1 and 3 only
4. 1. 2 and 3 only

1 Answer

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Correct Answer - Option 2 : 2 and 3 only

The correct answer is 2 and 3 only.

  • Co-operative banks are registered under the Cooperative Societies Act, 1912.
  • Co-operative banks are regulated by the Reserve Bank of India. Hence statement 1 is incorrect.
  • Co-operative banks are regulated by the Reserve Bank of India under the Banking Regulation Act,1949 and Banking Laws (Application to Cooperative Societies) Act, 1965.  Hence, statement 3 is correct.
  • Urban Co-operative Banks:-
    • Primary (urban) co-operative banks are registered and governed by state governments under the respective co-operative societies acts of the concerned states.
    • Primary (urban) credit societies have to meet certain criteria in order to get a license from RBI.
    • The area of operation of primary (urban) co-operative banks is confined to metropolitan, urban or semi-urban centres and caters to the needs of small borrowers including retail traders, small entrepreneurs, professionals and the salaried class
  • The changes to The Banking Regulation Act approved by Parliament in September 2020, brought cooperative banks under the direct supervision of the RBI.
  • Urban cooperative banks will now be treated on a par with commercial banks and a cooperative bank can, with prior approval of the RBI, issue equity shares, preference shares, or special shares to its members or to any other person residing within its area of operation, by way of public issue or private placements. Hence, statement 2 is correct.
  • It can also issue unsecured debentures or bonds with a maturity of not less than 10 years.
  • This essentially means non-members can become shareholders of the bank, and this will allow the RBI to merge failing banks quickly.

  • Banks in India can be broadly classified under two heads:-
    • Commercial banks 
    • Co-operative banks
  • Co-operative banks have a three-tier structure:-
    • Primary (agriculture or urban) credit societies 
    • District central co-operative banks  
    • State co-operative banks.

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