🧷 Classroom Explanation | IAS Monk Standard Format

📌 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 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

📌 Answer: (b)

---

🧠 Classroom Explanation

🔹 Core Concept: Regulation of Urban Cooperative Banks (UCBs)

Urban Cooperative Banks occupy a unique position in India’s banking system because they historically operated under dual control:

• RBI for banking functions
• State Governments / Registrar of Cooperative Societies for management-related aspects

---

🔍 Statement-wise Analysis

❌ Statement 1: They are supervised and regulated by local boards set up by State Governments — Incorrect

• UCBs are not supervised by local boards.
• Traditionally, there was dual control:
  • RBI: licensing, banking operations, prudential norms
  • State Registrar: registration, management, audit, liquidation
• After the Banking Regulation (Amendment) Act, 2020, RBI’s powers override those of State registrars.

❌ Incorrect.

---

✅ Statement 2: They can issue equity shares and preference shares — Correct

• RBI has permitted Primary Urban Cooperative Banks to raise capital through:
  • Equity shares
  • Preference shares
  • Certain debt instruments
• Equity shares can be issued to members within the area of operation.

✔️ Correct.

---

✅ Statement 3: They were brought under the Banking Regulation Act, 1949 in 1966 — Correct

• By the 1965–66 amendment, cooperative banks with paid-up capital and reserves of ₹1 lakh or more were brought under the Banking Regulation Act, 1949 (effective from 1 March 1966).
• This marked the formal entry of RBI supervision over cooperative banks’ banking activities.

✔️ Correct.

---

✅ Final Answer Logic

Correct statements: 2 and 3 only

➡️ Correct answer: (b)

---

🔍 Curiosity Raiser

Why did “dual control” weaken governance in cooperative banks and lead to repeated banking failures?

---

🧘 IAS Monk Whisper

When responsibility is shared but accountability is divided,
institutions slowly lose their spine.