The Supreme Court (SC) brought cooperative banks under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Act of 2002 (Sarfaesi Act) that empowers lenders to seize and sell defaulters’ assets.
The move by the apex court aims to boost the cooperative banks that play a vital role in financial inclusion across large swathes of India.
The cooperative banks come under the category of banks as defined under Section 2(1)(c) of the Sarfaesi Act. Hence, the recovery procedures mentioned under the law will be applied to the cooperative banks as well.
Under Sarfaesi Act, the secured creditors can take possession of the assets of a borrower who fails to pay dues within 60 days of demanding repayment.
The judgment stated that cooperative banks were bound by the provisions of the Banking Regulation Act, 1949, and all the other legislation applicable to banks under the RBI Act. Now, the cooperative banks will have to comply with these rules.
Cooperative banks will now be involved in banking activities that are covered u/s 5(c) & 56(a) of the Banking Regulation Act.
As per the Reserve Bank of India (RBI) report, as of 31 March 2018, there are 1,551 urban cooperative banks (UCBs), and 96,612 rural cooperative banks (as on 31 March 2017). The rural cooperative banks account for 65.8% of the total asset size of all cooperative banks.