Reserve Bank of India has informed the public at large of imposing a monetary penalty of ₹ 4.00 lakh (Rupees Four lakh only) on Progressive Co-operative Bank Ltd., Mumbai.
The monetary penalty was for violation of instructions/guidelines issued by the Reserve Bank of India relating to lending to nominal members, financing an NBFC and KYC norms.
There are two classes of Members in Urban Co-operative Banks i.e Regular Members and Nominal Members.
Regular members subscribe to the share capital of the bank, participate in the affairs of the bank, have right to contest to the Management Committee and can avail of any type of loan facility.
Nominal membership in Urban Cooperative Banks was introduced only to enable borrowers to occasionally borrow against pledge of tangible securities such as gold, government securities and NSCs, etc. Besides, if a person has to stand as a surety to a borrower, he has to necessarily be a nominal member under the cooperative law.
Thus, nominal members are those, who are not interested in the management of the bank but desire to avail of loan facilities at infrequent intervals, who do not subscribe to the share capital of the bank, and hence, are not eligible for dividend.
Besides, nominal members also do not have voting rights, nor can they contest elections to the Boards of the Banks. Under the existing policy of RBI, nominal membership should not exceed 20% of the regular membership.
Financing an NBFC
Financing of Leasing / Hire Purchase Companies - Enrolment of Financial Companies as Members
(i) UCBs are normally not expected to enroll non-banking financial institutions like investment and financial companies as their members since it would be in contravention of the State Co-operative Societies Act concerned and will also not be in conformity with the provisions of model bye-law No.9 recommended for adoption, by all banks.
(ii) Therefore, the UCBs are not permitted to finance non-banking financial companies (NBFCs), other than those engaged in hire purchase / leasing. Such NBFCs stand reclassified as Asset Finance Companies vide DNBS Circular dated September 15, 2008.