Even though Cashaa’s Unicas does not claim to be a bank, should the route taken by Gaurav to offer loans against cryptocurrencies raise alarm bells?
“Since United is a co-operative society and not a bank, the RBI doesn’t have any regulatory or supervisory powers over the institution,” said NS Vishwanathan, former deputy governor at RBI.
“The cooperative societies which aren’t licensed to do banking business provide loans and advances to their members out of deposits raised from their members,” he said. “Here, the risk of failure, unlike banks, is shared by its members, who are not depositors in the way they are understood in the case of banks.”
Multi-state co-operative societies are guided by the Central Registrar of Cooperative Societies under the Multi-State Cooperative Societies Act.
Further, a co-operative society isn’t allowed to issue cheques, provide inter-bank cash withdrawal facilities, issue debit and credit cards payable at any other bank, deal in foreign exchange, or take services of a clearing house, said R Gandhi, former deputy governor at RBI.
“It (United) is a credit society, it can lend money to its members for their own purposes, whether it is to buy a car, to start a business, or to buy crypto tokens,” he said. “But Unicas branches should clearly mention it is a multi-state co-operative society, so that members can take its services, bearing that in mind.”
As per Section 56 of the Banking Regulation Act, no co-operative society other than a co-operative bank shall use as part of its name or in connection with its business any of the words “bank”, “banker” or “banking”.
A primary credit society is required to convert into a primary co-operative bank if its paid-up share capital and reserves cross the threshold of Rs 1 lakh, under Section 56 of the Banking Regulation Act, said Gandhi.
But the same rule doesn’t apply to multi-state co-operative societies.
“The RBI recognises the loophole and has appealed to the government to harmonise these rules, so that multi-state co-operative societies are required to convert into banks beyond a certain threshold, in order to avoid a systemic risk,” he said.