Cooperative Banking and Banking Operations: Structure and Classification
What the section tests
This section separates a prepared candidate from a general banker. It tests the three-tier cooperative credit structure, the legal framework and day-to-day branch operations.
Structure and regulation
- Short-term structure: PACS at village level, DCCB at district level, StCB at state level. BSCB is the State Cooperative Bank for Bihar, headquartered at Patna.
- Long-term structure: PCARDBs at district level and SCARDB at state level.
- Dual regulation: cooperative banks are registered under the State Cooperative Societies Act and regulated by RBI. After the Banking Regulation (Amendment) Act, 2020, RBI's powers extend to management and capital issues of cooperative banks.
- PACS are not banks under the BR Act: they are outside RBI's direct licensing, and the Registrar of Cooperative Societies handles registration and elections.
Operations
- KYC: identity and address proof, with periodic updation - 10 years for low risk, 2 years for high risk.
- NPA: a loan turns non-performing when interest or principal is overdue for more than 90 days. Substandard means NPA for up to 12 months; doubtful beyond that; loss when identified as unrecoverable.
- CTS clears cheques using their images, not the physical instrument.
Worked example
A crop loan of ₹2,00,000 has principal overdue for 100 days. Classify it. Overdue exceeds 90 days, so the account is an NPA. It has been an NPA for less than 12 months, so it is a substandard asset. The bank must hold a higher provision than for a standard asset and report it as NPA in the balance sheet. Classification dates from the 91st day past due, not the day the customer was reminded.
Traps that cost marks
Saying PACS are regulated by RBI; mixing up DCCB and RRB; claiming the NPA norm is 180 days; and forgetting the Registrar's role in registration and elections.