Cooperative and Commercial Banks

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Difference Between Cooperative and Commercial Banks

• Commercial banks are joint-stock banks. Co-operatives banks, on the other hand, are co-operative organisations.
• Commercial banks are governed by the Banking Regulation Act. Co-operative banks are governed by the Co-operative Societies Act of 1904.
• Co-operative banks have lesser scope in offering a variety of banking services than commercial banks.
• Commercial banks in India are on a larger scale. They have adopted the system of branch banking, so they have countrywide operations. Co-operative banks are relatively on a much smaller scale. Many co-operative banks follow only a unit-bank system, though there are co-operative banks with a number of branches but their coverage is not countrywide.
• In co-operative banks, borrowers are member shareholders, so they have some influence on the lending policy of the banks, on account of their voting power. Borrowers of commercial banks are only account-holders and have no voting power as such, so they cannot have any influence on the lending policy of these banks.

Banking Regulation (Amendment) Bill, 2020

• The bill proposes amendments to the Banking Regulation Act, 1949. With this new bill, the central government aims to bring cooperative banks under the supervision of the Reserve Bank of India (RBI).
• For the last two years, depositors of cooperative banks and small banks are facing problems. The bill is trying to protect the depositors.
• 1,482 urban and 58 multi-state cooperative banks would be brought under the supervision of the central bank.
• The bill does not regulate cooperative banks. The amendment is not for the central government to take over the cooperative banks. 
• The Bill provides that a co-operative bank may issue equity, preference, or special shares on face value or at a premium to its members or to any other person residing within its area of operation.
• Further, it may issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons. Such issuance will be subject to the prior approval of the RBI, and any other conditions as may be specified by RBI.  
• The Act states that RBI may supersede the Board of Directors of a multi-state co-operative bank for up to five years under certain conditions. These conditions include cases where it is in the public interest for RBI to supersede the Board, and to protect depositors. 
• The Bill applies certain provisions of the Act to co-operative banks in relation to its management. Under the Bill, co-operative banks cannot employ as Chairman, someone who is insolvent or has been convicted of a crime involving moral turpitude, among other restrictions. RBI may remove the Chairman if he is not fit and proper and appoint a suitable person if the bank does not do so.

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