Context: Recently, the Reserve Bank of India (RBI) has brought out a document titled the ‘Technology Vision for Cyber Security for Urban Co-operative Banks (UCBs) 2020-2023’.
Key Points
It has 12 specific action points and plans to achieve its objective through a five-pillared strategic approach GUARD

• Governance Oversight
• Utile Technology Investment
• Appropriate Regulation and Supervision
• Robust Collaboration
• Developing necessary IT, cybersecurity skill sets.

With wider adoption of digital banking channels, the cybersecurity landscape will continue to evolve.

• It would necessitate the UCBs to manage the associated risks effectively.
• Active collaboration within UCBs and stakeholders would be necessary for sharing and coordinating various measures taken on cybersecurity aspects.

Objective

• It has been drafted to enhance the cybersecurity of urban co-operative banks (UCBs).

It aspires to

• Involve more board oversight over cybersecurity.
• Enable UCBs to better manage and secure IT assets.
• Implement an offsite supervisory mechanism framework for UCBs on cybersecurity-related controls.
• Develop a forum for UCBs so that they can share best practices and discuss practical issues and challenges.
• Implement a framework for providing awareness/training for all UCBs.

What are Co-operative Banks?

• Co-operative banks are financial entities established on a co-operative basis and belonging to their members. This means that the customers of a co-operative bank are also its owners.
• These banks provide a wide range of regular banking and financial services.

Background

• The problem of rural credit was the key reason behind the advent of the co-operative movement in India, which began with the passage of the Co-operative Societies Act in 1904.
• The next addition was the Co-operative Societies Act, 1912, which focussed on the need for regulation of such societies and hence the establishment of appropriate bodies to oversee their functioning.

Structure of co-operative banks in India

• Broadly, co-operative banks in India are divided into two categories – urban and rural.
• Rural cooperative credit institutions could either be short-term or long-term in nature.
• Short-term cooperative credit institutions are further sub-divided into State Co-operative Banks, District Central Co-operative Banks and Primary Agricultural Credit Societies.
• Long-term institutions are either State Cooperative Agriculture and Rural Development Banks (SCARDBs) or Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).
• Urban Co-operative Banks (UBBs) are either scheduled or non-scheduled. Scheduled and non-scheduled UCBs are again of two kinds- multi-state and those operating in single state.

Who oversees these banks?

• In India, co-operative banks are registered under the States Cooperative Societies Act. They also come under the regulatory ambit of the Reserve Bank of India (RBI) under two laws, namely, the Banking Regulations Act, 1949, and the Banking Laws (Co-operative Societies) Act, 1955.
• They were brought under RBI in 1966, a move which brought the problem of dual regulation along with it.

Difference between scheduled commercial banks and co-operative banks

• Primary Function: Commercial bank’s primary function is to accept deposits from the public and provision loans to individuals or businesses. A cooperative bank’s primary business is to accept deposits from members and the public, and grant loans to farmers and small businessmen.
• Motive: Commercial banks can be considered as joint stock companies, incorporated as a banking company that operates for profit. Cooperative banks work for service (Financial Inclusion, Community Service) motive.
• Regulation: Unlike commercial banks, UCBs are only partly regulated by the RBI. While their banking operations are regulated by the RBI, their management and resolution in the case of distress is regulated by the Registrar of Co-operative Societies either under the State or Central government.
• Area of Operation: The area of operation of a commercial bank is comparatively larger than a cooperative bank, as opposed to the cooperative banks which are confined to a limited area.
• Voting Powers: The borrower in a commercial bank do not have any voting power. Cooperative banks borrowers influence the credit policy through their voting power.
• Interest Rates: Commercial bank’s interest rate on deposits is relatively lesser than a cooperative bank.
• However, in the event UCBs fail, deposits with them are covered by the Deposit Insurance and Credit Guarantee Corporation of India up to a sum of Rs 1 lakh per depositor, the same as for a commercial bank.