Q. 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? (UPSC Prelims 2021)
Answer: 2 and 3 only
Notes: The correct answer is [B] 2 and 3 only. Urban Cooperative Banks (UCBs) are primary cooperative banks located in urban and semi-urban areas.

• Supervision and Regulation (Statement 1 – Incorrect): UCBs are subject to dual control. While the State Government (Registrar of Cooperative Societies) manages incorporation, management, and audit, the Reserve Bank of India (RBI) handles banking functions, licensing, and regulation. They are not supervised solely by local boards of State Governments.
• Issuance of Shares (Statement 2 – Correct): Following the Banking Regulation (Amendment) Act, 2020, UCBs are permitted to raise capital by issuing equity shares, preference shares, and debt instruments (like bonds) to their members or persons within their area of operation, with prior RBI approval.
• Banking Regulation Act Purview (Statement 3 – Correct): Co-operative banks were originally outside the scope of the Banking Regulation Act, 1949. They were brought under its purview through an amendment in 1966 to ensure better regulation of their banking activities.

Historically, UCBs faced challenges due to the dual regulatory regime, leading to recent legislative changes that have granted the RBI more direct powers over their management and winding up to protect depositors.