Restrictions on holding shares in other Co-operative Societies

The Banking Regulation Act of 1949, as it applies to Co-operative Societies, sets rules for co-operative banks about owning shares in other co-operative societies. The Reserve Bank of India oversees these rules. However, there are exceptions. A co-operative bank can own shares in another society if:

• The shares are bought with funds from the State Government.
• A central co-operative bank can hold shares in its affiliated state co-operative bank.
• A primary urban co-operative bank can hold shares in its central co-operative bank or in the state co-operative bank of the state where it’s registered.

The Reserve Bank, using its authority under the Act, has further detailed the conditions for co-operative banks investing in other societies. These conditions are:

• A co-operative bank’s total investment in other co-operative institutions should not be more than 2% of its own funds, which include its paid-up share capital and reserves. This doesn’t include the cases mentioned earlier.
• When investing in any one co-operative institution, a bank’s investment should not exceed 5% of that institution’s subscribed capital. If multiple co-operative banks invest in the same society, their combined investment should not go over this 5% limit.

Additionally, a co-operative bank should only invest in a society if that society’s rules allow for the retirement of the bank’s contributed share capital. This retirement should happen over 10 years, starting from the year after the society begins its business or production.

A co-operative bank needs the Reserve Bank’s permission to invest in a society outside its operational area. However, these restrictions don’t apply to investments in non-profit co-operative societies, like those formed for mutual interests, co-operative education, or housing co-operatives for buying premises.

Investment Portfolio of Primary (Urban) Co-operative Banks

Classification of Investments

Shifting Among Categories in the Investment Portfolio of UCBs

Valuation of Investments of Urban Co-operative Banks

Investments in Government Securities by Urban Co-operative Banks

Investment in Non-SLR Securities by Urban Co-operative Banks

Placement of Deposits with Other Banks/Institutions by Urban Co-operative Banks

Accounting and Provisioning by Urban Co-operative Banks