Caution against various Co-operative societies using the word “Bank” in their names: History rhymes itself

RBI in its recent (22-Nov-2021) press release cautions cooperatives from using the word “bank” against their name:

The Banking Regulation Act, 1949 (BR Act, 1949) was amended by the Banking Regulation (Amendment) Act, 2020 (Act 39 of 2020) which came into force on September 29, 2020. Accordingly, co-operative societies cannot use the words “bank”, “banker” or “banking” as part of their names, except as permitted under the provisions of BR Act, 1949 or by the Reserve Bank of India (RBI).

It has come to the notice of RBI that some Co-operative Societies are using the word “Bank” in their names in violation of Section 7 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies) (the BR Act, 1949).

It has also come to the notice of RBI that some Co-operative societies are accepting deposits from non-members/ nominal members/ associate members which tantamount to conducting banking business in violation of the provisions of the BR Act, 1949.

Members of the public are hereby informed that such societies have neither been issued any licence under BR Act, 1949 nor are they authorized by the RBI for doing banking business. The insurance cover from Deposit Insurance and Credit Guarantee Corporation (DICGC) is also not available for deposits placed with these societies. Members of public are advised to exercise caution and carry out due diligence of such Co-operative societies if they claim to be a bank, and look for banking license issued by RBI before dealing with them.

This is super interesting.

In Indian Banking history, it has been seen that all kinds of firms use banks against their name without really doing banking work.

In 1949, when Banking Regulation Act was instituted, one of the first things was to do away with this practice. Section 7 of BR Act says:

7. Use of words “bank”, “banker”, “banking” or “banking company”

(1) No company other than a banking company shall use as part of its name 2[o in connection with its business] any of the words “bank”, “banker” or “banking” and no company shall carry on the business of banking in India unless it uses as
part of its name at least one of such words.

(2) No firm, individual or group of individuals shall, for the purpose of carrying on any business, use as part of its or his name any of the words “bank”, “banking” or “banking company

As Cooperatives have been included in BR Act and are not defined as a bank, they cannot be using the word bank.

However, given some (if not most) cooperatives have used the word bank for so long, if they remove the name bank how will public react?

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