What are urban cooperative banks? Discuss their significance and the challenges faced by them in India

 About Urban Cooperative societies:
Urban co-operative banks are confined to the municipal area of a town. They are of types: (i) unit banking type, and (ii) branch banking type.
Urban co-operative banks usually meet the needs of specific types or groups of members pertaining to a certain trade, profession, community or even locality.
Urban Co-operative Banks are also called Primary Co-operative Banks (PCBs) by the Reserve Bank. The Reserve Bank of India defines PCBs as ‘small-sized co-operatively organised banking units which operate in metropolitan, urban and semi-urban centres to cater mainly to the needs of small borrowers, viz., owners of small scale industrial units, retail traders, professionals and salaried classes’.
Challenges

• Lack of corporate governance.
• Dual control.
• Political interference.
• Lack of professionalism.
• Incidence of financial weakness.

Eg- Ten years after the Permanent Account Number (PAN) was made mandatory for banking transactions above Rs. 50,000, a Mangaluru-based urban cooperative bank was found to have allowed 3,500 transactions without PAN, involving a whopping Rs. 4,400 crore. This bank either did not ask for PAN for these transactions or underreported them, just to prevent information flow to the Income Tax Department.These cooperative banks, in the last decade, have emerged to facilitate money laundering and as a means to escape the tax net since other banks insist on PAN. To make matters worse, such banks are based on caste, community or religious lines, and some are managed by politicians.
Significance

• Local knowledge.
• Undeniable edge in the area of relationship banking.
• Local flavour

In the wake of demonetization of higher currencies by the govt majority of Urban Cooperative Banks and almost all the credit co-operatives in the country have simply ceased to exist as far as servicing their members is concerned.
These co-op organizations mostly keep their deposits with commercial banks which treat each credit co-op as an individual which can withdraw Rs 10,000 per day and Rs 20,000 per week following the RBI guidelines. Some of the credit co-ops especially the multi state credit co-op societies among them have become huge entities servicing sometimes a twenty thousand strong clientele.

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