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Question 5

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?

AOptions

A) 1 only

B) 2 and 3 only

C) 1 and 3 only

D) 1, 2 and 3

BSolution

Statement 1: Urban Cooperative Banks (UCBs) are regulated by a dual control mechanism. They are supervised and regulated by the Reserve Bank of India (RBI) concerning banking functions (like licensing, capital adequacy, lending, etc.) and by the Registrar of Cooperative Societies (RCS) of the respective state (or Central RCS for multi-state UCBs) regarding their registration, management, and administration as cooperative societies. They are not supervised by 'local boards set up by the State Governments' in the manner implied. This statement is incorrect.

Statement 2: Previously, UCBs faced limitations in raising capital. However, the Banking Regulation (Amendment) Act, 2020, brought UCBs under the direct supervision of the RBI and allowed them to raise capital through the issue of equity shares, preference shares, and other specified instruments, subject to RBI regulations. This was a significant reform aimed at strengthening their financial position. This statement is correct.

Statement 3: Urban Cooperative Banks were indeed brought under the regulatory purview of the Banking Regulation Act, 1949, through the Banking Laws (Application to Co-operative Societies) Act, 1965, which came into effect from March 1, 1966. This amendment extended significant regulatory powers of the RBI over UCBs. This statement is correct.

Therefore, statements 2 and 3 are correct.

CStrategy

For questions on banking and financial institutions, it is crucial to understand their regulatory framework, including the roles of the central bank (RBI) and other bodies. Stay updated on recent legislative changes or significant amendments that impact the functioning or regulation of different types of banks.

DSyllabus Analysis

This question falls under the Indian Economy, specifically the Banking Sector, Cooperative Banking, and Financial Regulations.

EQuestion Analysis

Medium to Difficult. It requires specific knowledge of the regulatory structure and recent legislative changes concerning Urban Cooperative Banks.