Cooperative banks have long grappled with operational problems, as they are both state sponsored and patronized,

which negates democratic management. The basic principle of cooperative banking, namely, reliance on resources mobilized locally and lesser dependence on higher credit institutions, has historically been absent from the Indian system (Kamarker, 1999). High arrears, interest rate ceilings, high priority sector lending targets, and duality of control between the state governments on one hand and the Reserve Bank/NABARD on the other have adversely affected the working of cooperative banks and added to their dubious state. In view of this, the central government constituted a special task force in April 1999 to study the functioning of rural cooperative credit institutions. The task force made suggestions for: strengthening the resource base of cooperative banks; reducing government control and making them member driven; bringing bank related functions exclusively under the purview of Banking Regulation Act of 1949; evolving strong managerial and personnel systems; diversifying their business products to consumer loans, consortium financing,