Public Sector Banks and Cooperative Banks Free E-book

Public Sector Banks and Cooperative Banks: Public sector banks are those in which the central or state government owns more than 50% of the shares. Private sector banks are those in which private firms or individuals own the majority of the shares. The State Bank of India and its subsidiaries, as well as the Nationalized Banks of India and Regional Rural Banks, are public sector banks governed by unique legislation. Co-operative banks are financial institutions that are owned by their members and operated cooperatively. This means that a co-operative bank’s clients are also its proprietors. These banks offer a comprehensive variety of banking and financial services.

Public Sector Banks 

State Bank and Its Subsidiaries

• The State Bank of India was created in 1955 under Section 3 of the State Bank of India Act, to take over the Imperial Bank’s undertaking and carry out banking and other activities in conformity with that Act.
• The State Bank may conduct banking business as described in Section 5(b) of the Banking Regulation Act, as well as other business as defined in Section 6(1) of that Act.
• State Bank and its affiliate banks conduct banking and other permitted banking operations as a nationalised bank. The Reserve Bank of India is the largest shareholder. The Reserve Bank can transfer its shares at any time, although it cannot do so if doing so would reduce its holdings below 50% of the issued share capital. Only the Reserve Bank has more than 10% voting power.
• Management: The Managing Director and Chairman are chosen for a five-year term with the chance to be reappointed at the conclusion. After consultation with the Reserve Bank, the government may end their job by providing three months’ notice or notice pay in lieu. In performing financial activity on behalf of the Central Government, nationalised institutions and the State Bank operate as agents for the Reserve Bank.
• Accounts and Audit: The State Bank must close its books and balance financial records each year on March 31st or such other date as the Central Government and RBI may specify. This includes the balance sheet and profit and loss account, as well as the auditors’ report and a report by the Central Board on the Bank’s operations and activities. Any individual duly qualified as a company auditor under section 266 of the Companies Act, 1956 may undertake the audit (Corresponding Section 141 of the Companies Act, 2013).
• Regulations and Rules: According to Section 62 of the Act, the Central Government is entitled to enact rules to carry out the Act’s objectives. The state bank can also enact rules according to Section 63 with the RBI’s permission to carry out the Act’s objectives.

Subsidiary Bank: As stipulated in Section 18 of the Act, subsidiary bank shares are freely transferable. Section 47 gives the state bank the authority to inspect the subsidiary bank. 

1. SBS Saurashtra State banks (amalgamation) Ordinance, 1950
2. SBH State Bank of Hyderabad Act, 1956
3. All other banks State Bank Of India (Subsidiary Banks) Act, 1959

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• The major portion of the shares is owned by the State Bank of India. In line with Section 18 of the Act, the State Bank may freely transfer its shares, but it may not do so if doing so would decrease its shareholding to less than 50%.
• Subsidiary Bank Management: The State Bank Chairman (ex-officio chairman), the Managing Director, and other directors make up the Board. After discussing with the subsidiary bank’s board, the state bank picks the Managing Director with Reserve Bank’s permission.
• Subsidiary Bank’s Operations: A subsidiary bank is required to operate as an agent of the State Bank under Section 36 of the SBI Subsidiary Act.

Nationalized Banks

The Banking Companies (Acquisition and Transfer of Undertaking) Act 1980 and the Bank Nationalisation Act 1970. Existing private banks’ obligations were transferred to the matching new institutions, dubbed “Nationalised banks.” 

The voting rights limitation (200 shares only) was changed, and the dividend restriction was removed for BC(A&T)3 with an authorised capital of Rs.1,500 crore divided into Rs.10 shares.

Directors: Directors of nationalised banks are either appointed by the government or elected by the shareholders. The following are the nominees for the director:

• There should be no more than four full-time directors (as against 2 earlier)
• The Central Government will appoint no more than 6 directors.
• 1 official director, 1 director representing bank employees, 1 director representing bank officers, 1 director with appropriate skills and experience in matters relevant to commercial bank regulation and supervision
• RBI may designate one or more extra directors to a Nationalized bank’s board of directors. 

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