Banking and Financial Awareness: Regulation and Cooperative Structure
Banking and Financial Awareness tests the legal scaffolding of Indian banking, with cooperative banking weighted heavily because the recruiting institution sits at the apex of a state cooperative structure.
Frameworks to know cold
- RBI Act, 1934 establishes the Reserve Bank; the Banking Regulation Act, 1949 governs banking business.
- Cooperative banks are dual-regulated: RBI for banking functions, the Registrar of Cooperative Societies for management. The Banking Regulation (Amendment) Act, 2020 extended RBI powers over management, capital, audit and amalgamation of cooperative banks; PACS remain outside.
- The 97th Constitutional Amendment, 2011 gave the right to form cooperative societies and inserted Part IXB.
- Short-term cooperative credit structure: PACS, then DCCB, then the State Cooperative Bank, which is the Apex Bank.
- Deposit insurance: DICGC covers up to Rs 5 lakh per depositor per bank.
- CRR is cash held with RBI and earns no interest; SLR is held in approved securities. An NPA is an advance overdue beyond 90 days.
- Priority sector lending is 40% of ANBC for domestic banks; SARFAESI Act 2002 covers secured asset enforcement.
Worked example
A term loan instalment of Rs 2,00,000 due on 1 April is unpaid. It becomes an NPA on 30 June, because 90 days have passed from the due date, not the billing date. Remaining substandard beyond 12 months moves it to doubtful; a loss asset is one identified as uncollectible.
Traps
- Assuming a cooperative bank is regulated only by the state registrar.
- Confusing CRR (cash with RBI) with SLR (securities with the bank itself).
- Mixing NABARD's refinance and supervision role with RBI's regulatory role.