Cooperative societies should not use bank, banker, or banking in their names: Reserve Bank warns

THIRUVANANTHAPURAM: The Reserve Bank has issued a warning through a newspaper advertisement against cooperative societies adding the word "bank" to their names. Under the Banking Regulation Act, 1949, only those with special permission from the Reserve Bank are considered banks. Under the Banking Regulation Amendment Act, 2020, cooperative societies are not allowed to use the words "bank", "banker" and "banking" in their names.

The Reserve Bank says that it has come to its notice that some cooperative societies are violating this by adding the word bank to their names and accepting deposits from non-members. The RBI has clarified its stance through an advertisement after it was noticed that cooperative societies are operating in the name of banks despite the 2020 Act coming into force. The RBI issues such advertisements every six months.

Since the cooperative sector falls under the jurisdiction of the state, everything related to it, including the name change, has to be decided by the state government. This law has not been implemented in Kerala.

Meanwhile, many cooperative societies have expressed their willingness to change their names. The word bank has been omitted from the bye-laws as well. However, the state government has not given its approval. That is the obstacle to changing the name.

The RBI has not given a banking license to the societies. Due to this, the insurance cover provided by the Insurance and Credit Guarantee Corporation (ICGC) is not available for deposits in cooperative societies. Deposits in banks up to Rs 5 lakh have insurance cover.

1650 cooperative societies working as banks

There are 1650 cooperative societies in Kerala operating with the name 'bank'. The argument is that there is no obstacle to operating even if the name is changed. The Reserve Bank cannot take action even if the name is not changed. If a complaint is filed, there will be legal complications.

Deposits in cooperative societies do not get the insurance protection which banks receive. Deposits can be accepted only from members with voting rights. This means that the activities of the society will have to be limited to members only. It is indicated that deposits of Rs 60,000 crore will have to be returned if the regulation is implemented. However, there is no confirmation in this regard.