With reference to ‘Urban Cooperative Banks’ in India, consider the following statements: ​ 1. They are supervised and regulated by local boards set up by the State Governments. ​ 2. They can issue equity shares and preference shares. ​ 3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966 . ​ Which of the statements given above is/are correct? ​

The correct answer is B, that is, statements 2 and 3 are correct.

• Statement 1 is wrong. Urban Cooperative Banks are regulated by the Reserve Bank of India under the Banking Regulation Act, 1949, as applied to cooperative banks. State Governments and their Registrars of Cooperative Societies handle registration, management and some governance matters, but not banking supervision. The 2020 amendment to the Banking Regulation Act strengthened RBI's powers over cooperative banks further.
• Statement 2 is correct. UCBs can raise capital through equity shares and preference shares, subject to RBI norms on capital adequacy and ownership. Their members are usually shareholders, which is why the capital structure looks different from a commercial bank's.
• Statement 3 is correct. The Banking Laws (Amendment) Act, 1965, which came into force in 1966, extended the Banking Regulation Act to cooperative banks. Primary credit societies were kept outside that extension, which is a detail aspirants often miss.

The core concept here is the dual structure of cooperative banking in India: the state handles cooperative law, while RBI handles banking regulation. This is a recurring theme in Mains GS-3 on banking sector reforms, the Madhavpura Mercantile Cooperative Bank scam, and the 2020 PMC Bank crisis.

Trap: Candidates assume that because cooperatives are a state subject, the state also supervises their banking activities. Banking regulation rests with RBI.