Banking Regulation Act, 1949

Section 3 - Act not to apply to certain co-operative societies

Section 3 of the Banking Regulation Act, 1949 identifies limited categories of co-operative societies to which the Act does not apply, subject to the conditions stated in the provision.

Current position: Section 3 was substituted by section 2 of the Banking Regulation (Amendment) Act, 2020 (Act 39 of 2020) with effect from 26 June 2020.

Text of Section 3

Notwithstanding anything contained in the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981), this Act shall not apply to -

(a) a primary agricultural credit society; or

(b) a co-operative society whose primary object and principal business is providing of long-term finance for agricultural development,

if such society does not use as part of its name, or in connection with its business, the words "bank", "banker" or "banking" and does not act as drawee of cheques.

What Section 3 means

The section creates a specific statutory exclusion. It does not exempt every co-operative society from the Banking Regulation Act. The exclusion is confined to the categories described in clauses (a) and (b), and clause (b) is additionally subject to conditions concerning the society's name, business description and cheque-drawing functions.

1. Primary agricultural credit society

A primary agricultural credit society, commonly referred to as a PACS, falls within the exclusion in clause (a). RBI material also explains that PACS are outside the purview of the Banking Regulation Act and are not regulated by RBI as co-operative banks.

2. Long-term agricultural finance co-operative society

Clause (b) applies to a co-operative society whose primary object and principal business is the provision of long-term finance for agricultural development. The wording requires both the stated object and the principal business to satisfy this agricultural-development test.

3. Conditions concerning banking terminology and cheques

For the clause (b) exclusion to apply, the society must not use the words "bank", "banker" or "banking" as part of its name or in connection with its business, and it must not act as drawee of cheques.

Key legal effect at a glance

Category	Section 3 treatment	Main condition
Primary agricultural credit society	Banking Regulation Act does not apply under clause (a)	Must fall within the statutory category of PACS
Co-operative society providing long-term finance for agricultural development	May be excluded under clause (b)	Its primary object and principal business must be long-term agricultural development finance; it must also satisfy the naming and cheque conditions
Other co-operative banks and co-operative societies	No blanket exclusion under Section 3	Application of the Act depends on the relevant provisions, including Part V and Section 56 where applicable

Relationship with the NABARD Act, 1981

The opening words of Section 3 are a non-obstante clause: "Notwithstanding anything contained in the National Bank for Agriculture and Rural Development Act, 1981". This gives the Section 3 exclusion effect despite anything inconsistent in that Act, for the limited purpose and categories specified in Section 3.

Official legal sources

For the authoritative statutory text and regulatory background, consult the following official sources:

India Code - Banking Regulation Act, 1949 Official Act PDF - India Code Reserve Bank of India NABARD Act, 1981 - official PDF

Related provisions

Editorial note: This page is a plain-language legal reference. For a disputed classification or regulatory issue involving a particular co-operative society, the society's objects, actual principal business, licensing status and applicable State co-operative law should also be examined.