Institutions that are not authorised under the Banking Regulation Act, 1949, shall not be allowed to use the words ‘Bank,’ ‘Banker,’ or ‘Banking’ in their names or in connection with their business, the Kerala Lok Ayukta has held. A Division Bench of the forum consisting of Lok Ayukta Justice N. Anilkumar and Upa Lok Ayukta Justice Ashok Menon directed the Registrar of Cooperative Societies to take effective and continuing steps, including public awareness measures, to prevent such misuse and to safeguard the interests of depositors.

The order was passed in a petition filed by one Babu Joseph, who highlighted the provisions of the Banking Regulation (Amendment) Act, 2020, which barred the cooperative societies from using the words bank, banker and banking in their names and business without the prior approval of the Reserve Bank of India (RBI).

Leads to confusion

The complainant argued that the misuse of the expressions by unlicensed cooperative societies had led to widespread confusion among the general public and facilitated serious financial frauds in Kerala, particularly affecting small depositors and economically vulnerable sections. He further contended that the issue had a great bearing on consumer protection, public confidence in the banking system, and financial discipline.

The Lok Ayukta pointed out that the Banking Regulation Act, 1949 had prohibited persons or entities other than banking companies from using the word Bank in any language, as part of their business name. The RBI has reiterated these statutory provisions through its master directions. Also, only banking companies are permitted to accept deposits from the public for lending or investment and to allow withdrawal of such deposits by cheque, draft or other recognised means, it pointed out.

Can’t accept public deposits

The forum held that the institutions not licensed by the RBI as banks cannot accept public deposits in a manner that creates the impression that they are banks. The Registrar of Cooperative Societies, who is a public servant as defined under the provisions of the Kerala Lok Ayukta Act, is bound to ensure transparency in administration, and to ensure that no citizen suffers injustice on account of maladministration on the part of the public servant concerned.

It is the duty of the Registrar to caution depositors before they deposit money with any institution, and to advise them to verify whether the institution concerned is a licensed bank regulated by the RBI, particularly since the list of banks licensed by the RBI is available on its website. The Registrar cannot absolve himself of his statutory duty to caution the public and to ensure that unlicensed institutions do not use the expressions in violation of the 1949 Act, it held.

The Lok Ayukta also held that the allegation against the Registrar that the official failed to take effective steps to prevent the misuse of banking-related nomenclature by unlicensed societies and to protect the interests of depositors and the general public was substantiated. A compliance report in tune with the directive of the forum in the case shall be filed within three months, the forum directed the Registrar.

Published - July 29, 2026 03:31 pm IST