Co-Operative Societies Can’t Use ‘Bank’ In Their Names, Rules RBI

The RBI noted that some co-operative societies are accepting deposits from non-members/ nominal members which tantamount to conducting banking business in violation of the provisions of the BR Act

New Delhi: The Reserve Bank of India (RBI) on Monday issued a warning against some co-operative societies for using the word ‘bank’ in their names and accepting deposits from non-members/ nominal members/ associate members which tantamount to conducting banking business in violation of the provisions of the BR Act, 1949. 

In a statement, the RBI said, “It has come to the notice of RBI that some co-operative societies are using the word ‘bank’ in their names in violation of Section 7 of the Banking Regulation (BR) Act, 1949 (as applicable to co-operative societies) (the BR Act, 1949). It has also come to the notice of RBI that some co-operative societies are accepting deposits from non-members/ nominal members/ associate members which tantamount to conducting banking business in violation of the provisions of the BR Act, 1949.”

The central bank further noted, “Members of the public are hereby informed that such societies have neither been issued any licence under BR Act, 1949 nor are they authorized by the RBI for doing banking business.”

The RBI in its statement added, “The insurance cover from Deposit Insurance and Credit Guarantee Corporation (DICGC) is also not available for deposits placed with these societies. Members of public are advised to exercise caution and carry out due diligence of such co-operative societies if they claim to be a bank, and look for banking licence issued by the RBI before dealing with them.”

In another development, the RBI on Monday placed in public domain a draft scheme of amalgamation of The Punjab and Maharashtra Cooperative (PMC) Bank with Unity Small Finance (USFB), a banking company incorporated in India under Companies Act, 2013. USFB has commenced operations with effect from November 1, 2021.

Given the financial condition of the PMC Bank and in the absence of proposals for capital infusion, the bank was not viable on its own. In that event, the only course of action could have been cancellation of its licence and taking it for liquidation, wherein, depositors would have received payment up to the insurance ceiling of ₹5 lakh.