Dual Regulation of Urban Co-operative Banks — RBI and the Registrar

The most distinctive — and the most examined — feature of an urban co-operative bank is that it is regulated by two authorities at the same time, because it is at once a co-operative society and a bank. This is called the dual control or dual regulation of urban co-operative banks.

Why two regulators? A UCB is registered as a co-operative society, so it falls under the co-operative law and its Registrar of Co-operative Societies. But it also carries on banking business, so — like every bank — it must obey the banking law and its regulator, the Reserve Bank of India. Each authority looks after a different side of the bank's life.

The Reserve Bank's role (the banking side). No co-operative society may do banking without a licence from the RBI. Once licensed, the bank must keep the prescribed Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), follow the RBI's directions on lending and interest, submit to its inspection, and observe its prudential norms (on capital, bad debts and exposure). Deposits in a licensed UCB are insured up to the prescribed limit by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI, which protects the small depositor.

The Registrar's role (the co-operative side). The Registrar registers the bank, approves and amends its bye-laws, oversees the election and conduct of its managing committee, calls for and audits its accounts, and deals with disputes, amalgamation and winding-up. In short, the Registrar governs the bank as a co-operative organisation — its membership, management and internal democracy.