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Q35 (IAS/2021) Economy › Money, Banking & Inflation › Banking structure Official Key

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?

Result
Your answer: —  Âˇ  Correct: B
Explanation

The correct answer is Option 2 (2 and 3 only). The explanation for the statements is as follows:

  • Statement 1 is incorrect: Urban Cooperative Banks (UCBs) are under dual regulation. While registration and management fall under the State Government (or Central Government for multi-state UCBs), their banking functions are supervised and regulated by the Reserve Bank of India (RBI), not just local boards.
  • Statement 2 is correct: Following recent amendments to the Banking Regulation Act, UCBs are permitted to raise capital by issuing equity shares, preference shares, and debt securities (like bonds) to members or persons within their area of operation, subject to RBI approval.
  • Statement 3 is correct: Initially, cooperative banks were outside the RBI's direct purview. They were brought under the Banking Regulation Act, 1949, through an amendment in 1966 to ensure better financial discipline and depositor protection.

Thus, statements 2 and 3 accurately reflect the regulatory and financial framework of UCBs in India.

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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. With reference to 'Urban Cooperative Banks' in India, consider the following statements : 1. They are supervised and regulated by local b…
At a glance
Origin: Mixed / unclear origin Fairness: Moderate fairness Books / CA: 6.7/10 ¡ 0/10
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This question was triggered by the PMC Bank crisis and the subsequent Banking Regulation (Amendment) Act, 2020. While the context was current, the content was static legal history (1966 Amendment) and governance structure. Strategy: When a sector faces a crisis, do not just read the news; go back to its statutory origin and regulatory jurisdiction.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Are Urban Cooperative Banks in India supervised and regulated by local boards set up by State Governments?
Origin: Weak / unclear Fairness: Borderline / guessy
Indirect textbook clues
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.31 Previous Years Questions > p. 121
Strength: 3/5
“Which of the above statements are correct? • (a) (i) & (ii) only• (b) (ii) & (iii) only• (c) (i) & (iii) only• (d) All of the above• 44. With reference to 'Urban Cooperative Banks' in India, consider the following statements : [2021] • (i) They are supervised and regulated by local boards set up by the State Governments.• (ii) They can issue equity shares and preference shares• (iii) They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.”
Why relevant

The question statement (presented as an option) explicitly asserts that UCBs are 'supervised and regulated by local boards set up by the State Governments', showing this claim exists in exam-style material and is worth checking.

How to extend

A student could compare this phrasing with authoritative descriptions (e.g., 'Registrar of Cooperative Societies') to see if 'local boards' is the correct institutional actor.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 4. Co-operative Banks: > p. 82
Strength: 5/5
“regulation of State governments and RBI. All Rural Cooperative Banks are supervised by NABARD (RBI delegated its supervisory power) and Registrar of Cooperative Societies of State. Though the Banking Regulation Act came into force in 1949, the banking laws were made applicable to cooperative societies only in 1966 through an amendment to the Banking Regulation Act, 1949. Since then, there is 'duality of control' over cooperative banks (urban and rural both) between the State Registrar of Cooperative Societies/Central Registrar of Cooperative Societies and the RBI. RBI regulates and supervises the banking functions and amalgamation and liquidation of UCBs/StCB/DCCB through the Banking regulation Act, 1949 and the non-banking aspects like registration, management, administration and recruitment are regulated and supervised by the State/ Central Governments.”
Why relevant

States the 'duality of control' over cooperative banks between the RBI and the State Registrar of Cooperative Societies/Central Registrar; RBI handles banking functions while State/Central governments handle registration and management.

How to extend

Use this to test whether 'local boards set up by State Governments' matches the named regulator 'Registrar of Cooperative Societies' (i.e., are they the same or different bodies?).

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 4. Co-operative Banks: > p. 81
Strength: 5/5
“The Co-operative banks are of two categories viz. Urban Co-operative banks (UCB) and Rural Co-operative banks. • The Urban Co-operative banks (UCB) (also called Primary Co-operative Banks) are located in urban and semi urban areas and were traditionally centred around communities, localities work place groups. They essentially lent to small borrowers and businesses. Today, their scope of operations has widened considerably.• UCBs are again classified into Scheduled and Non-scheduled categories, which are then further classified into single state and multi state. Single State UCBs are registered as cooperative societies under the provisions of the State Government Cooperative Societies Act and are regulated by the Registrar of Cooperative Societies (RCS) of State concerned.”
Why relevant

Says Single State UCBs are registered as cooperative societies under the State Cooperative Societies Act and are regulated by the Registrar of Cooperative Societies of the State concerned.

How to extend

A student can check whether the Registrar is a 'local board set up by State Governments' or a statutory office distinct from ad hoc/local boards.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Commercial Banks > p. 67
Strength: 4/5
“5 lakhs (maximum, depending on what is in your account) within 90 days. This was a major issues for depositors as in the last few years several banks had cases related to fraud and were not doing well and RBI imposed moratorium/restrictions on public deposit withdrawal. (It was done by amending the DICGC Act in 2021).• The RBI has permitted banks to undertake para-banking (non-traditional banking) activities such as mutual fund business, insurance business, venture capital etc. Cooperative Banks Cooperative Banks are under dual regulation of RBI and Government. Banking related functions are regulated by RBI and management related functions are regulated by respective State governments or Central government, as the case may be.”
Why relevant

Reiterates that cooperative banks are under 'dual regulation' — RBI for banking functions and respective State governments for management-related functions.

How to extend

Use this to infer that supervision/regulation is split and to verify which specific state-level entity (Registrar or 'local board') carries the supervisory role.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > The Banking Regulation (Amendment) Act, 2020 > p. 180
Strength: 4/5
“In short, only certain categories of Co-operative Banks have been brought under the RBI supervision process, same as that applicable to Scheduled Commercial Banks (SCBs). Such a move to bring Urban Co-operative Banks (UCBs) under the supervision of the RBI comes after several instances of fraud and serious financial irregularities (major scam/crisis at the Punjab and Maharashtra Co-operative (PMC) in 2019).”
Why relevant

Notes that certain categories of cooperative banks (including UCBs) have been brought under enhanced RBI supervision, indicating a shift in supervisory responsibility away from purely state bodies.

How to extend

Combine this with the 'duality' clue to assess whether state 'local boards' alone could be the supervisors, or whether RBI now supervises many UCB functions.

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Statement analysis

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