Regulation and Supervision of Co-operative Banks PDF

Chapter 9: Regulation and Supervision of Co-operative Banks “Cooperatives are a reminder to the international community that it is possible to pursue both economic viability and social responsibility” – Former UN Secretary General - Ban Ki- moon Introduct...

Chapter 9: Regulation and Supervision of Co-operative Banks “Cooperatives are a reminder to the international community that it is possible to pursue both economic viability and social responsibility” – Former UN Secretary General - Ban Ki- moon Introduction Mahatma Gandhi once said: “Suppose I have come by a fair amount of wealth - either by way of legacy, or by means of trade and industry - I must know that all that wealth does not belong to me; what belongs to me is the right to an honorable livelihood, no better than that enjoyed by millions of others. The rest of my wealth belongs to the community and must be used for the welfare of the community”. This forms the essence of the co-operative movement, which is based on the principles of community camaraderie, mutual help, democratic decision making and open membership, etc. commonly known as “Co-operative Principles”. History of co-operative movement The co-operative movement in India is more than one century old. The organisation of co- operative institutions in India dates to 19th century, when the first mutual aid society ‘Anyonya Sahakari Mandali’ was formed in Gujarat at Baroda on February 05, 1889. The first major impetus was provided to these institutions by the passage of the Co-operative Society Act in 1904 and the Kancheepuram Co-operative Credit Society in Tamil Nadu became the first credit society to get registered under this Act. Later in 1919, the subject of co-operation was transferred from Central Government to Provincial States. Co-operative credit institutions are an important segment of the banking/financial system, as they play a vital role in mobilizing deposits and purveying credit to people of small means. They form an important vehicle for financial inclusion and facilitate transactions. Traditionally, the co-operative institutional structure in India is divided into two categories viz. ‘Rural’ and ‘Urban’ with the rural cooperatives having a federal structure. The present structure is graphically represented below. Characteristics of Co-operative Institutions  They have focused area of operation.  The Board of Directors is elected by shareholders in a democratic manner.  The borrowing from these institutions is restricted only to its members, with some exceptions i.e., consumer durables loan to nominal members, loan against term deposits of non-members (Salary Earner’s Urban Co-operative Banks), housing loan to co- operative housing societies.  There is share linking to borrowing, viz., the borrowing member is required to hold share capital in the co-operative bank, the amount of which should not be less than a certain specified percentage of the amount borrowed from the bank.  Members can cast only one vote irrespective of the number of shares held.  The shares of these institutions cannot be listed and traded. Difference between Co-operative Credit Societies and Co-operative Banks ‘Co-operative societies’ appear at entry 32 in the State List, whereas ‘Banking’ appears at entry 45 in the Union List under the Seventh Schedule to the Constitution of India. Hence, Co-operative Societies in India are a state subject, and they do not fall under the regulatory purview of RBI. Co-operative Credit Societies primarily cater to the credit needs of its members by mobilizing deposits from their own members. Co-operative Credit Societies, which are licensed to carry out banking activities function as a co-operative bank and are eligible to accept deposits from the public. Urban Co- operative Banks (UCBs) are primarily registered as Co-operative Societies under the provisions of either the State Co-operative Societies Act of the respective State or the Multi-State Co- Operative Societies Act, 2002, if the area of operation of the bank extends beyond the boundaries of one State. Legal framework for regulating Co-operative Banks Banking Regulation Act (then called the as Banking Companies Act) came into force in 1949, however, the banking laws were made applicable to co-operative societies only in March 1966 through an amendment to the Act (and renamed as Banking Regulation Act) by insertion of section 56 (Part V) of the Act, which is commonly known as Banking Regulation Act, 1949 (AACS)- (As Applicable to Co-operative Societies). With this, co-operative banks came under the dual control of respective State Governments / Central Government and the Reserve Bank, which make these institutions distinctly different from commercial banks. While administrative aspects like registration, recruitment, and liquidation are regulated by the State/Central Governments, matters related to banking are regulated by the Reserve Bank under the Banking Regulation Act, 1949 (AACS). There are also certain aspects where the Governments and RBI have concurrent powers. Recently, amendments have been made in Banking Regulation Act (BR), 1949 and Maharashtra State Co-operative Societies (MSCS) Act, 2002 vide Banking Regulation (Amendment) Act, 2020 and The Multi-State Co-operative Societies (Amendment) Act, 2023 respectively. The 2023 amendment to MSCS Act, 2002 seeks to amend the Act in order to align its provisions with those provided under Part IXB of the Constitution and address certain concerns with the functioning and governance of co-operative societies. The objective of the amendment to BR Act was to enhance RBI's regulatory oversight over co-operative banks in terms of management, capital, audit and liquidation in order to strengthen co-operative banks. The amended Act inter alia and provided for augmenting capital by Urban Co-operative Banks through issues of shares, debentures and other similar securities, by way of public issue or private placement, with the approval of and subject to conditions that may be stipulated by RBI. The amended Act also has various other provisions of the principal Act, such as those related to management, audit, amalgamation, etc., to co-operative banks. The amended Act empowers RBI to remove a director and appoint additional director on the board of co-operative banks. It further added that in case of a co-operative banks registered with the Registrar of Co- operative Societies of a State, the RBI may supersede the Board of Directors after consultation with the concerned State Government, and within such period as may be specified by it. Moreover, RBI may exempt a cooperative bank or a class of co-operative banks from certain provisions of the Act through notification for such time and under such conditions as may be specified by it. Over the years, the Reserve Bank has been initiating reforms to strengthen the co-operative banking structure. Its two-pronged strategy consists of statutory reforms and regulatory support. The Reserve Bank revised the regulatory framework governing UCBs on July 19, 2022. The vision guiding the framework is to consolidate their position as friendly neighborhood banks by catering to the heterogeneity in the customer base, while offering more operational flexibility to strong UCBs to enhance their contribution to credit intermediation. While UCBs are regulated and supervised by RBI, Rural Co-operative Banks, viz., the State Co-operative Banks (StCBs) and the District Central Co-operative Banks (DCCBs) are regulated by RBI but supervised by National Bank for Agriculture and Rural Development (NABARD). The Long-Term Rural Co-operatives, viz., State Co-operative Agriculture and Rural Development Bank (SCARDB) and Primary Co-operative Agriculture and Rural Development Bank (PCARDB) do not fall under the regulatory or supervisory purview of RBI. Definition of a Co-operative Bank Sec. 5 (ccv) of Banking Regulation Act, 1949 (AACS) defines UCBs as a co-operative society, other than a primary agricultural credit society and satisfying the following conditions:  The primary object or principal business of which is the transaction of banking business  The paid-up share capital and reserves of which are not less than one lakh of rupees; and  The byelaws of which do not permit admission of any other co-operative society as a member. Growth and Consolidation When the provisions of Banking Regulation Act, 1949 were made applicable to these UCBs in 1966, making it mandatory to obtain a license from RBI to do banking business, there were about 1100 UCBs with deposits and advances of ₹167 crore and ₹153 crore respectively. Thereafter, Reserve Bank pursued a liberal licensing policy, especially pursuant to the recommendations of the Marathe Committee. Accordingly, from 1311 UCBs in the year 1993, the number increased to 2104 by 2003. However, nearly one-third of the newly licensed UCBs became financially unsound within a short period. In the light of the experience and the prevailing financial health of the UCB sector, it was decided in 2004-05 that the Reserve Bank would consider issuance of fresh licenses only after a comprehensive policy on UCBs, including an appropriate legal and regulatory framework for the sector, was put in place. No fresh licenses have been issued since then for setting up of new UCBs. Due to mergers/amalgamations, conversion to credit societies and cancellation of licenses of UCBs over the years, the number of UCBs in the country has come down to 1472 as on March 31, 2024. Initiatives taken by RBI to strengthen the sector To improve the financial soundness of the UCB sector, through better coordination between the co-regulators, the Reserve Bank of India entered Memoranda of Understanding (MoU) with all State Governments and the Central Government since 2005. As part of the arrangements under MoU, the Reserve Bank constituted, in each State, a State-level Task Force for Co-operative Urban Banks (TAFCUB) for UCBs. A Central TAFCUB was constituted for the multi-state UCBs. TAFCUBs identify potentially viable and non-viable UCBs having financial weaknesses in the states and suggest revival path for the viable and non-disruptive exit route for the non-viable ones. The exit of non-viable banks could be through merger/ amalgamation with stronger banks, conversion into societies, or liquidation as the last option. To give direction and impetus to the resolution processes for weak banks (banks with precarious financial position), Reserve Bank has issued guidelines for financial restructuring to aid revival of weak banks including various financial instruments that can be used for the purpose and on merger of UCBs with other UCBs including with and without Deposit Insurance and Credit Guarantee Corporation (DICGC) support, acquisition of UCBs with commercial banks, etc. Guidelines for voluntary transition of UCBs into Small Finance Banks (SFBs) was brought out in 2018 subject to certain conditions and, in 2019, for bringing about improvement in the governance and banking functions of UCBs, guidelines were issued for constitution of Board of Management (BOM), in addition to Board of directors (BoD). Apart from this, Reserve Bank increased the Priority Sector Lending (PSL) target for UCBs from 40% to 75% (in a graded approach) in order to strengthen the role of UCBs in financial inclusion. To disincentivize the non-achievers, contribution towards eligible funds with National Bank for Agriculture and Rural Development (NABARD)/ National Housing Bank (NHB)/ Small Industries Development Bank of India (SIDBI) / Micro Units Development and Refinance Agency ltd (MUDRA) and other similar funds has been prescribed. The UCBs achieving the PSL targets are incentivized by way of higher limits on bullet repayment loans. Further, RBI has tightened exposure norms linking the ratio to the robust Tier I capital instead of total capital and mandated UCBs to have at least 50 per cent (to be achieved in phased manner) of their aggregate loans and advances comprising of small value loans. Nonetheless, they continue to remain outside the Lead Bank Scheme of RBI and not represented in various fora of State Level Bankers Committee (SLBC). To bolster cyber security preparedness of UCBs, baseline cyber security controls have been prescribed in a graded manner. The approach for a graded approach was to help the UCBs bolster their cyber security preparedness and to also ensure that the UCBs offering a range of payment services and higher. Information Technology penetration is brought at par with commercial banks in addressing cyber security threats. The approach for a graded approach was to help the UCBs bolster their cyber security preparedness and to also ensure that the UCBs offering a range of payment services and higher Information Technology penetration are brought at par with commercial banks in addressing cyber security threats. With an aim to strengthen the cyber resilience of the UCBs against the evolving IT and cyber threat environment, in September 2020, the Reserve Bank released the ‘Technology Vision for Cyber Security: 2020-2023’ for UCBs, based on inputs from various stakeholders. It envisaged a five-pillared strategic approach covering (i) governance oversight; (ii) utile technology investment; (iii) appropriate regulation and supervision; (iv) robust collaboration; and (v) developing necessary IT and cyber security skills sets. For handholding UCBs in improving their cyber security posture, a comprehensive set of training programmes tailor-made for UCBs were designed by Cyber Security and Information Technology Examination (CSITE) Group in collaboration with College of Agricultural Banking, Pune. This initiative was rolled out in the month of August 2021. Regulation of UCBs The Reserve Bank of India derives its powers to regulate UCBs mainly from the Banking Regulation Act, 1949 (AACS) and Reserve Bank of India Act, 1934. The regulations include issue of branch licenses, authorization for extending their area of operation, prescribing CRR and SLR requirements and prudential norms for capital adequacy, income recognition, asset classification and provisioning norms, exposure norms, targets for priority sector lending, inclusion of UCBs into second Schedule of RBI Act, 1934, governance related guidelines, etc. Approach to Regulation of Co-operative Banks With a view to enabling UCBs to offer banking services on par with commercial banks, RBI has permitted them to open specialized branches, currency chests, on-site/off-site/mobile Any Time Money (ATMs), undertake intra-day short selling in government securities and ready forward contracts in corporate debt securities, access Centralized Payment System/Real Time Gross Settlement (RTGS) /National Electronic Fund Transfer (NEFT) /Negotiated Dealing System – Order Matching (NDS-OM), open Current Account and SGL accounts with RBI, sell insurance products/mutual fund units, act as PAN service agents, undertake Point of Presence services for Pension Fund Regulatory Development Authority (PFRDA), engage Business Correspondents/Business Facilitators, offer mobile banking /internet banking facility and trading facilities to Demat account holders, issue prepaid instruments, etc. Scheduled UCBs have been permitted access to Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) of RBI. Thus, these co-operatives provide universal banking services in a niche geographical area, whereas commercial banks are mandated to provide niche services throughout India. Revised Regulatory framework for UCBs The UCBs have been categorized into following four tiers for regulatory purposes:  Tier 1 - All unit UCBs and salary earners’ UCBs (irrespective of deposit size), and all other UCBs having deposits up to ₹100 crore.  Tier 2 - UCBs with deposits more than ₹100 crore and up to ₹1000 crore.  Tier 3 - UCBs with deposits more than ₹1000 crore and up to ₹10,000 crore.  Tier 4 - UCBs with deposits more than ₹10,000 crore. The deposits referred to above shall be reckoned as per audited balance sheet as on 31st March of the immediately preceding financial year. If a UCB transits to a higher Tier on account of increase in deposits in any year, it may be provided a glide path of up to a maximum of three years, to comply with higher regulatory requirements, if any, of the transited higher tier. Revised Regulatory Framework for Urban Co-operative Banks (UCBs) – Net Worth and Capital Adequacy UCBs shall have minimum net worth as under:  Tier 1 UCBs operating in a single district shall have minimum net worth of ₹2 crore.  All other UCBs (of all tiers) shall have minimum net worth of ₹5 crore.  UCBs which currently do not meet the minimum net worth requirement, as above, shall achieve the minimum net worth of ₹2 crore or ₹5 crore (as applicable) in a phased manner. Such UCBs shall achieve at least 50 per cent of the applicable minimum net worth on or before March 31, 2026 and the entire stipulated minimum net worth on or before March 31, 2028. UCBs shall maintain minimum Capital to Risk Awaited Ratio (CRAR) as under:  Tier 1 UCBs shall maintain, as hitherto, a minimum CRAR of 9 per cent of Risk Weighted Assets (RWAs) on an ongoing basis.  Tier 2 to 4 UCBs shall maintain a minimum CRAR of 12 per cent of RWAs on an ongoing basis.  UCBs in Tier 2 to 4, which do not currently meet the revised CRAR of 12 per cent of RWAs, shall achieve the same in a phased manner. Such UCBs shall achieve the CRAR of at least 10 per cent by March 31, 2024, 11 per cent by March 31, 2025, and 12 per cent by March 31, 2026. Share linking to borrowing norms In terms of the extant norms, UCBs which maintain CRAR of 12 per cent on a continuous basis, are exempted from the mandatory share linking norms. On a review, it has been decided that the share-linking to borrowing norms shall be discretionary for UCBs which meet the minimum regulatory CRAR criteria of 9 per cent and a Tier 1 CRAR of 5.5 per cent as per the latest audited financial statements and the last CRAR as assessed by RBI during statutory inspection. National Urban Cooperative Finance and Development Corporation Limited (NUCFDC)- Umbrella Organisation for UCBs The NUCFDC, registered with RBI as type-II NBFC-ND, has been granted Certificate of Registration as a non-deposit accepting Non-Banking Financial Company by the RBI to function as an umbrella organization for UCBs as well as self-regulatory organization (SRO) for the urban cooperative banking sector (going forward). This dual role would empower the NUCFDC to provide financial support and establish certain regulations for the sector, driving positive change. NUCFDC mission is to foster mutual support and protect UCBs in their growth, governance, enhance their IT capabilities and inculcate ability to face the challenges of competition and contribute towards the nation’s economic and social development. Appointment of Chief Risk Officer in Primary (Urban) Cooperative Banks With the growing complexities in the cooperative sector and the increase in their size and scope of business, UCBs face diverse and greater degree of risks in their operations. Accordingly, UCBs having asset size of ₹5,000 crore or above have been advised in June 2021 to appoint a chief risk officer. They have also been advised to set up a risk management committee of the Board in order to provide the required level of attention on various aspects of risk management. Supervision of UCBs To ensure that UCBs function on sound lines and their methods of operation are consistent with statutory provisions and are not detrimental to the interests of depositors, they are subject to both (i) on-site inspection and (ii) off-site surveillance. i) On-site Inspection: The statutory inspections conducted under Section 35 read with Section 56 of the Banking Regulation Act, 1949 follows the CAMELS pattern to assess the Capital Adequacy (C), Asset Quality (A), Management (M), Earnings (E), Liquidity (L) and Systems & Control (S) of the UCBs. These inspections basically make a core assessment and brings out specific review of: a. Financial condition and performance, b. Governance and oversight of Board and Management, systems and controls and Compliance with regulatory and other guidelines. c. Risk assessment that is inherent to the banks business models, management, credit, liquidity, market, operational and systems and controls. ii) Off-site surveillance: In order to have continuous supervision over the UCBs, the Reserve Bank has supplemented the system of periodic on-site inspections with off- site surveillance (OSS) through a set of periodical prudential returns that will be submitted by UCBs to RBI. These returns are analyzed at RBI for identifying incipient indicators that may cause deterioration in the health of the banks. Sometimes, the analysis may also act as a trigger to take up a UCB for inspection before it is scheduled. Prompt Corrective Action (PCA) Framework The existing Supervisory Action Framework (SAF) for Primary Urban Co-operative banks has been reviewed vide DoS, Central Office Circular dated July 26, 2024, on Prompt Corrective Action Framework (PCA) for UCBs. The PCA Framework shall be applicable to all UCBs under Tier 2, Tier 3 and Tier 4 categories except UCBs under All Inclusive Directions. Tier 1 UCBs, though not covered under the PCA Framework as of now, shall be subject to enhanced monitoring under the extant supervisory framework. The exemption of Tier 1 UCBs from the PCA Framework shall be reviewed in due course. The objective of the PCA Framework is to enable supervisory intervention at an appropriate time and require the UCBs to initiate and implement remedial measures in a timely manner, to restore their financial health. The PCA Framework does not preclude RBI from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the Framework. The provisions of the PCA Framework will be effective from April 1, 2025. Capital, Asset Quality and Profitability will be the key areas for monitoring in the revised PCA Framework. Indicators to be tracked for Capital, Asset Quality and Profitability would be CRAR, Net NPA Ratio (percentage of net NPA to net advances) and net profit, respectively. Breach of any risk threshold (as detailed under) may result in invocation of PCA. A bank will generally be placed under PCA Framework based on the Reported/Audited Annual Financial Results and/or the ongoing Supervisory Assessment made by RBI. However, RBI may impose PCA on any bank during the course of a year (including migration from one threshold to another) in case the circumstances so warrant. Although supervisory action taken will primarily be based on the criteria specified under the PCA Framework, the Reserve Bank will not be precluded from taking appropriate supervisory action in case stress is noticed in other important indicators/parameters or in case of serious governance issues. Also, the Reserve Bank will not be precluded from taking any supervisory action other than those indicated in this circular, based on the merits of each case. Exit from PCA and Withdrawal of Restrictions under PCA - Once a bank is placed under PCA, taking the bank out of PCA Framework and/or withdrawal of restrictions imposed under the PCA Framework will be considered: a) if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be Audited Annual Financial Statement (subject to assessment by RBI); and b) based on supervisory comfort of the RBI, including an assessment on sustainable improvement in key financials of the bank. Framework for Compromise Settlements and Technical Write-offs In terms of the extant regulations, credit related recovery matters of lending institutions are largely deregulated. Such recovery measures could be either through resolution of the stress in the borrowers’ accounts through various statutory or out of the Court mechanisms or it may be through compromise settlements. While certain regulations were issued to commercial banks and NBFCs with regard to undertaking compromising settlements/write offs, in the case of cooperative banks, RBI had not issued guidelines on compromise settlements, as respective State statutes require permission of the Registrar of Co- operative Societies (RCS) for waiver of any loan/ dues owed to co-operative banks. Hence, a comprehensive regulatory framework governing compromise settlements and technical write-off of loans covering all regulated entities (including UCBs, State Co- operative Banks and Central Cooperative Banks) was issued on June 08, 2023. The Framework covers inter alia the factors to be considered before considering sacrifice/waiver, norms for permitted sacrifice/waiver, delegation of power, prudential treatment, reporting mechanism, oversight by the Board, cooling period, treatment of accounts categorized as fraud and wilful defaulter. Provisioning for Standard Assets On April 24, 2023, the Reserve Bank harmonised the provisioning norms for ‘standard’ assets applicable to all categories of UCBs, irrespective of their tier in the revised framework. The direct advances to agriculture and small and medium enterprise (SME) sectors attract a uniform provisioning requirement of 0.25 per cent, while the provisioning requirement for advances to the commercial real estate (CRE) sector, commercial real estate - residential housing (CRE-RH), and all other standard advances is 1.00 per cent, 0.75 per cent and 0.40 per cent, respectively. Tier 1 UCBs, which were maintaining 0.25 per cent provisions on “all other standard advances” were permitted to achieve the requirement of 0.40 per cent in a staggered manner by March 31, 2025. Regulatory measures to enhance Cyber Security in UCBs A set of baseline cyber security controls was prescribed for UCBs in October 2018. Subsequently, considering the different levels of Information Technology maturity level of the UCBs, a need was felt to prescribe a cyber security framework which will mandate implementation of progressively stronger security and IT/cyber governance measures based on the nature, variety and scale of digital product offerings by the UCBs. The graded approach was sought to be adopted to help the UCBs bolster their cyber security preparedness and to also ensure that the UCBs offering a range of payment services and higher Information Technology penetration are brought at par with commercial banks in addressing cyber security threats. Accordingly, a comprehensive cyber security framework was issued on December 31, 2019. The framework categorized UCBs into four levels based on their digital depth and interconnectedness to the payment systems landscape. Apart from this, a number of controls have been prescribed for UCBs covering payment ecosystem between UCBs and sponsor banks, Board oversight over cyber security, migration to bank specific email domain, mitigation of ransomware threats, etc. RBI’s Supervisory strategy for Cyber Security As part of the offsite review, an incident reporting mechanism has been established, requiring UCBs and other Supervised Entities (SEs) to report unusual cyber incidents to the RBI. If the reported incidents are deemed to have systemic implications, they are analyzed, and the modus operandi is communicated to other SEs through advisories and alerts, enabling them to take timely preventive or corrective measures. As part of onsite examination of UCBs, selected UCBs undergo onsite IT Examination (ITE), which focuses primarily on verifying compliance with the cybersecurity framework established by the RBI for UCBs. Rural Co-operatives Rural credit co-operatives came into existence essentially as an institutional mechanism to provide credit to farmers at affordable cost and address the twin issues of rural indebtedness and poverty. With its phenomenal growth in outreach and volume of business, rural credit co-operatives have a unique position in the rural credit delivery system. Through the short-term and long-term structures, they continue to play a crucial role in dispensation of credit for increasing productivity, providing food security, generating employment opportunities in rural areas and ensuring social and economic justice to the poor and vulnerable.  The long-term co-operative credit structure has the State Co-operative Agriculture and Rural Development Banks (SCARDBs) at the apex level and the Primary Co- operative Agriculture and Rural Development Banks (PCARDBs) at the district or block level. These institutions were conceived with the objective of meeting long-term credit needs in agriculture, and they are not under the regulatory purview of Reserve Bank of India.  The short-term co-operative credit structure (STCCS) of the country primarily meets the crop and working capital requirements of farmers and rural artisans. The pyramid of STCCS is primarily 3-tier and is federal in nature within a State. At the apex level is the State Co-operative Bank (StCB) at the state, at the district level there are District Central Co-operative banks (DCCBs) and at the village level, there are Primary Agricultural Credit Societies (PACS). Across India, there are more than 95000 PACS. They are not subject to regulation by the Reserve Bank of India, as they fall outside the scope of the Banking Regulation Act of 1949. They are regulated and monitored by the respective State Governments. While regulation of State Co-operative Banks (StCBs) and District Central Co- operative Banks (DCCBs) vests with Reserve Bank, their supervision is carried out by National Bank for Agriculture and Rural Development (NABARD) under Section 35 (6) read with Section 56 of the Banking Regulation Act, 1949. As part of regulation of StCBs and DCCBs, RBI prescribes CRR and SLR requirement in addition to prescribing prudential norms on capital adequacy, income recognition, asset classification and provisioning norms, exposure norms, etc. Regulation of Rural Co-operatives The Banking Regulation (Amendment) Act, 2020 (39 of 2020) has been notified for the State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs) with effect from, April 1, 2021, vide Notification dated December 23, 2020, issued by Government of India. With the issue of the notification, the amalgamations of the DCCBs with StCBs have to be sanctioned by Reserve Bank of India in terms of the provisions of the Section 44-A read with Section 56 of the Banking Regulation Act, 1949. Also pursuant to this notification, DCCBs are permitted to open new place of business/install ATMs or shift the location of such offices only after obtaining prior approval of the Reserve Bank of India in terms of Section 23 read with Section 56 of BR Act, 1949. Further, RBI has allowed RCBs to offer various services like mobile banking and internet banking facility, distribute insurance products, undertake Point of Presence services for Pension Fund Regulatory Development Authority (PFRDA), issue prepaid instruments and Point of Service (PoS) terminals (for cards) and they can act as a co-branding partner for credit cards etc. Conclusion Co-operative banks stand out due to their distinct structure, clientele, and approach to credit delivery. They serve as foundational institutions in India’s banking system, offering essential banking services to middle- and lower- income groups in urban and semi-urban areas. Their resilience and stability during the global financial crisis have highlighted their significance within the financial systems of both developed and emerging economies. The Reserve Bank of India (RBI) has implemented various policy initiatives to bolster and unify the co-operative banking sector and will maintain these efforts in the future.