Cooperative credit societies will have to get bank licence

MUMBAI: Thousands of cooperative credit societies will have to seek banking licence from the Reserve Bank of India following amendments to the Banking Regulation Act.

Currently, cooperative credit societies are registered and regulated by the Registrar of Co-operative Societies, and their operations do not come under the purview of RBI despite them accepting deposits and giving loans.

There are many cooperative credit societies in India, mainly floated by employees of large companies to encourage savings.

For instance, IDBI Bank has an in-house credit society even as it operates as a bank. It was floated when it was operating as a financial institution.

While those co-operative credit societies with reserves and paid-up capital of over Rs 1 lakh have to register with RBI, most of them operated with a lower capital to avoid regulatory overview. Following the amendments to the Act, the RBI will issue detailed guidelines regarding capital requirements for such societies.

As per the amendment, these societies will have to comply with the norms within one year of them being notified. Or else, they will be forced to suspend banking operations.

The move is aimed at protecting the interest of depositors since none of these entities have insurance cover for the deposits they mobilise. As of now, all deposit-taking activities are regulated, except for co-operative societies.