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A Co-operative bank, as its name indicates is an institution consisting
of a number of individuals who join together to pool their surplus savings
for the purpose of eliminating the profits of the bankers or money lenders
with a view to distributing the same amongst the depositors and borrowers.
!he Co-operative "anks Act, of #$$% &the Act' defines a co-operative
bank as a co-operative registered as a co-operative bank in terms of the Act
whose members (
1. are of similar occupation or profession or who are employed by a
common employer or who are employed within the same business
district) or
2. have common membership in an association or organi*ation,
including a business, religious, social, co-operative, labor or educational
group) or
3. have common membership in an association or organi*ation,
including a business, religious, social, co-operative, labor or educational
group) or
4. +eside within the same defined community or geographical area.
Co-operative bank, in a nutshell, provides financial assistance to the
people with small means to protect them from the debt trap of the
moneylenders. ,t is a part of vast and powerful structure of co-operative
institutions which are engaged in tasks of production, processing, marketing,
distribution, servicing and banking in ,ndia. A co-operative bank is a
financial entity which belongs to its members, who are at the same time the
owners and the customers of their bank. Co-operative banks are often
created by persons belonging to the same local or professional community or
sharing a common interest. !hese banks generally provide their members
with a wide range of banking and financial services &loans, deposits, banking
accounts-'. Co-operative banks differ from stockholder banks by their
organi*ation, their goals, their .alues and their governance.
!he Co-operative "anking /ystem in ,ndia is characteri*ed by a
relatively comprehensive network to the grass root level. !his sector mainly
focuses on the local population and micro- banking among middle and low
income strata of the society. !hese banks operate mainly for the benefit of
rural areas, particularly the agricultural sector.
!he beginning co-operative banking in ,ndia dates back to about
11$2, when official efforts were made to create a new type of institution
based on principles of co-operative organi*ation 3 management, which were
considered to be suitable for solving the problems peculiar to ,ndian
!he philosophy of e4uality, e4uity and self help gave way to the
thoughts of self responsibility and self administration which resulted in
giving birth of co-operative. !he origin on co-operative movement was one
such event-arising out of a situation of crisis, e5ploitation and sufferings.
Co-operative banks in ,ndia came into e5istence with the enactment of
the Agricultural Credit Co-operative /ocieties Act in 11$2. Co-operative
bank form an integral part of banking system in ,ndia. 6nder the act of 11$2,
a number of co-operative credit societies were started. 7wing to the
increasing demand of co-operative credit, anew act was passed in 111#,
which was provided for establishment of co-operative central banks by a
union of primary credit societies and individuals.
Co-operative "anks in ,ndia are registered under the Co-operative
/ocieties Act. !he cooperative bank is also regulated by the +",. !hey are
governed by the "anking +egulations Act 1121 and "anking 8aws &Co-
operative /ocieties' Act, 119:.
Co-operative bank performs all the main banking functions of deposit
mobilisation, supply of credit and provision of remittance facilities.
Co-operative "anks belong to the money market as well as to the
capital market.
Co-operative "anks provide limited banking products and are
functionally specialists in agriculture related products. ;owever, co-
operative banks now provide housing loans also.
6C"s provide working capital loans and term loan as well.
Th! #hi!$ $%"#ti&"s &$ C&-&'!(ati)! ba"*s a(!:
a. !o attract deposit from non-agriculturist,
b. !o use e5cess funds of some societies temporarily to make up for
shortage in another,
c. !o supervise and guide affiliated societies.
Th! basi# '(i"#i'l!s &" +hi#h a C&-&'!(ati)! ba"* +&(*s a(!:
A co-operative character of activities and trait of mutual aid
of credit granted.
Catering for collective organi*ations and their members.
+estriction on the number of individual votes.

As a result, during #$$%-$<, the =rimary Cooperative
Agriculture and +ural >evelopment "anks have again started lending for the
?on-@arm /ector including Aewel 8oans.
Aiming at high rates on deposits and low rates on lending.
8imitation of dividends out of profits and bonus to depositors
and borrowers or grants to cultural or co-operative endeavour.
!hese banks are constituted of voluntary association, self-help and
mutual aid, one share one vote and non-discrimination and e4uality of
members. !he co-operative banks are the organi*ations of and for the
Co-operative "anks are much more important in ,ndia than anywhere
else in the world. !he distinctive character of this bank is service at a lower
cost and service without e5ploitation. ,t has gained its importance by the role
assigned to them, the e5pectations they are supposed to fulfill, their number,
and the number of offices they operate. Co-operative banks role in rural
financing continues to be important day by day, and their business in the
urban areas also has increased phenomenally in recent years mainly due to
the sharp increase in the number of primary co-operative banks. ,n rural
areas, as far as the agricultural and related activities are concerned, the
supply of credit was inade4uate, and money lenders would e5ploit the poor
people in rural areas providing them loans at higher rates. /o, Co-operative
banks mobili*e deposits and purvey agricultural and rural credit with a wider
outreach and provide institutional credit to the farmers. Co-operative bank
have also been an important instrument for various development schemes,
particularly subsidy-based programs for poor.
!he Co-operative banks in (%(al a(!as mainly finance agricultural
based activities likeB

=ersonal finance
!he Co-operative banks in %(ba" a(!as finance in activities likeB
/mall scale units
;ome finance
Consumer finance
=ersonal finance
/ome of the forward looking Co-operative banks have developed
sufficient core competencies to such an e5tent that they are able to challenge
state and private sector banks.
!he e5ponential growth of Co-operative banks is attributed mainly to
their much better contacts with the local people, personal interaction with
customers, and their ability to catch the nerve of the local clientele. !he total
deposits and lendings of Co-operative banks are much more than the 7ld
=rivate /ector "anks and the ?ew =rivate /ector "anks.
Co-operative bank forms an integral part of banking system in ,ndia.
!his bank operates mainly for the benefit of rural area, particularly the
agricultural sector. Co-operative bank mobili*e deposits and supply
agricultural and rural credit with the wider outreach. !hey are the main
source for the institutional credit to farmers. !hey are chiefly responsible for
breaking the monopoly of moneylenders in providing credit to agriculturists.
Co-operative bank has also been an important instrument for various
development schemes, particularly subsidy-based programmes for the poor.
Co-operative banks operate for non-agricultural sector also but their role is
!hough much smaller as compared to scheduled commercial banks,
co-operative banks constitute an important segment of the ,ndian banking
system. !hey have e5tensive branch network and reach out to people in
remote areas. !hey have traditionally played an important role in creating
banking habits among the lower and middle income groups and in
strengthening the rural credit delivery system.
!he origins of the cooperative banking movement in ,ndia can be
traced to the close of nineteenth century when, inspired by the success of the
e5periments related to the cooperative movement in "ritain and the
cooperative credit movement in Dermany, such societies were set up in
?ow, Co-operative movement is 4uite well established in ,ndia. !he
first legislation on co-operation was passed in 11$2. ,n 1112 the Caclagen
committee envisaged a three tier structure for co-operative banking vi*.
=rimary Agricultural Credit /ocieties &=ACs' at the grass root level, Central
Co-operative "anks at the district level and /tate Co-operative "anks at
state level or Ape5 8evel.
,n the beginning of #$th century, availability of credit in ,ndia, more
particularly in rural areas, was almost absent. Agricultural and related
activities were starved of organised, institutional credit. !he rural folk had to
depend entirely on the money lenders, who lent often at usurious rates of
!he co-operative banks arrived in ,ndia in the beginning of #$th
Century as an official effort to create a new type of institution based on the
principles of co-operative organisation and management, suitable for
problems peculiar to ,ndian conditions. !hese banks were conceived as
substitutes for money lenders, to provide timely and ade4uate short-term and
long-term institutional credit at reasonable rates of interest.
!he Anyonya Co-operative "ank in ,ndia is considered to have been
the first co-operative bank in Asia which was formed nearly 1$$ years back
in "aroda. ,t was established in 1<<1 with the name Anyonya /ahayakari
Candali Co-operative "ank 8imited, with a primary objective of providing
an alternative to e5ploitation by moneylenders for "arodaEs residents.

,n the formative stage Co-operative "anks were 6rban Co-operative
/ocieties run on community basis and their lending activities were restricted
to meeting the credit re4uirements of their members. !he concept of 6rban
Co-operative "ank was first spelt out by Cehta "hansali Committee in 1101
which defined on 6rban Co-operative "ank . =rovisions of /ection : &CC.'
of "anking +egulation Act, 1121 &as applicable to Co-operative /ocieties'
defined an 6rban Co-operative "ank as a =rimary Co-operative "ank other
than a =rimary Co-operative /ociety were made applicable in 1199.
Fith gradual growth and also given philip with the economic boom,
urban banking sector received tremendous boost and started diversifying its
credit portfolio. "esides giving traditional lending activity meeting the credit
re4uirements of their customers they started catering to various sorts of
customers vi*.self-employed, small businessmen G industries, house finance,
consumer finance, personal finance etc.

1.Co-operative "anks are organi*ed and managed on the principal of co-
operation, self-help, and mutual help. !hey function with the rule of Hone
member, one voteH. function on Hno profit, no lossH basis. Co-operative
banks, as a principle, do not pursue the goal of profit ma5imi*ation.
#. Co-operative bank performs all the main banking functions of deposit
mobilisation, supply of credit and provision of remittance facilities.
0. Co-operative "anks provide limited banking products and are functionally
specialists in agriculture related products. ;owever, co-operative banks now
provide housing loans also.
2. Co-operative banks are perhaps the first government sponsored,
government-supported, and government-subsidi*ed financial agency in
,ndia. !hey get financial and other help from the +eserve "ank of ,ndia,
?A"A+>, central government and state governments. !hey constitute the
Hmost favoredH banking sector with risk of nationali*ation. @or commercial
banks, the +eserve "ank of ,ndia is lender of last resort, but co-operative
banks it is the lender of first resort which provides financial resources in the
form of contribution to the initial capital &through state government',
working capital, refinance.
:. Co-operative "anks belong to the money market as well as to the capital
market. =rimary agricultural credit societies provide short term and medium
term loans.
9. Co-operative banks are financial intermediaries only partially.
!he sources of their funds &resources' areB
&a' Central and state government,
&b' !he +eserve "ank of ,ndia and ?A"A+>,
&c' 7ther co-operative institutions,
&d' 7wnership funds and,
&e' >eposits or debenture issues.
%. /ome co-operative bank are scheduled banks, while others are non-
scheduled banks. Co-operative "anks are subject to C++ and li4uidity
re4uirements as other scheduled and non-scheduled banks are. ;owever,
their re4uirements are less than commercial banks.
<. As said earlier, co-operative banks accept current, saving, and fi5ed or
time deposits from individuals and institutions including banks.
1. ,n the recent past, the +", has introduced changes in interest rates of co-
operative banks also, along with changes in interest rates of commercial
banks. !he interest rates structure of co-operative banks is 4uite comple5.
!he rates charged by them depend upon the type of bank, the type of loans,
and vary from state to state.
!he Co-operative banking structure in ,ndia comprises ofB
1. 6rban Co-operative "anks
#. +ural Co-operatives
/ome co-operative banks are scheduled banks, while others are non-
scheduled banks. @or instance, /tate Co-operative banks and some 6rban
Co-operative banks are scheduled banks but other co-operative banks are
non-scheduled banks.
/cheduled banks are those banks which have been included in the
second schedule of the +eserve bank of ,ndia act of 1102.
Th! ba"*s i"#l%1!1 i" this s#h!1%l! list sh&%l1 $%l$ill t+& #&"1iti&"s.
1. !he paid capital and collected funds of bank should not be less than +s. :
#.Any activity of the bank will not adversely affect the interests of
E)!(2 /#h!1%l!1 ba"* !"3&2s th! $&ll&+i"4 $a#iliti!s.
1. /uch bank becomes eligible for debtsGloans on bank rate from the +",
#. /uch bank automatically ac4uire the membership of clearing house.
1. U(ba" C&-&'!(ati)! Ba"*s:
6rban Co-operative "anks is also referred as =rimary Co-operative
banks by the +eserve "ank of ,ndia. Among the non-agricultural credit
societies urban co-operative banks occupy an important place. !his bank is
started in ,ndia with the object of catering to the banking and credit
re4uirements of the urban middle classes.
!he +", defines 6rban Co-operative banks as small si*ed co-
operatively organi*ed banking units which operate in metropolitan, urban
and semi-urban centers to cater mainly to the needs of small borrowers, vi*.
owners of small scale industrial units, retail traders, professional and salaries
6rban Co-operative banks mobili*e savings from the middle and
lower income groups and purvey credit to small borrowers, including weaker
sections of the society. !hese banks organi*e on a limited liability basis,
generally e5tend their area of operation over a town. !he main functions of
these banks are to promote thrift by attracting deposits from members and
non-members and to advance loans to the members. ,t is registered under
Co-operatives /ocieties Act of the respective state Dovernments. =rior to
1199, 6rban Co-operative banks were e5clusively under the purview of
/tate Dovernment. @rom Carch 1, 1199 certain provisions of "anking
+egulation Act have been made applicable to these banks. Conse4uently, the
+", became the regulatory an supervisory authority of 6rban Co-operative
"anks for their related operations. Canagerial aspects of such banks
continue to remain with /tate Dovernments under the respective Co-
operative /ocieties Act. !hese banks with multi-presence are regulated by
the Central Dovernments and registered under Culti-/tate Co-operative
/ocieties Act. !he +", e5tends refinance to 6rban Co-operative "anks at
bank ate against their advances to tiny and cottage industrial units. !hese
banks grants si*eable loans and advances under priority sector for lending to
small business enterprises, retail trade, road and water transport operators
and professional and self-employed persons. 6rban Co-operative banks are
mostly located in towns and cities and cater to the credit re4uirement of the
urban clientele.
Th! &b3!#ti)!s a"1 $%"#ti&"s &$ th! U(ba" C&-&'!(ati)! ba"*s:

=rimarily, to raise funds for lending money to its members.
!o attract deposits from members as well as non-members.
!o encourage thrift, self-help ad mutual aid among members.
!o draw, make, accept, discount, buy, sell, collect and deal in bills of
e5change, drafts, certificates and other securities.
!o provide safe-deposit vaults.
A(!a &$ O'!(ati&" :
!he area of operation of these banks are usually restricted by its
byelaws to a municipal area or a town. ,n some occasions it e5ceeds this
limit. !he study group on Credit Co-operatives in ?on-Agricultural /ectors
has recommended that normally, it would be advisable for an urban co-
operative bank to restrict its area of operation to the municipality or the
taluka town where it operates.
2. R%(al C&-&'!(ati)!s:
+ural Cooperative "anking plays an important role in meeting the
growing credit needs of rural population of ,ndia. ,t provides institutional
credit to the agricultural and rural sector. !he inade4uacy of rural credit
engaged the attention of +", and Dovernment throughout the 11:$s and
119$s. 7ne important feature of providing agriculture credit in ,ndia has
been the e5istence of a widespread network of rural financial institutions.
!he rural credit structure consists of many types of financial institutions as
large scale branch e5pansion was undertaken to create a strong institution
based in rural area. ,t has served as an important instrument of credit
delivery in rural and agricultural areas. !he separate structure of rural Co-
operative sector for long-term and short-term loans has enabled these
institutions to develop a speciali*ed institution for rural credit delivery. !he
volume of credit flowing through these institution has increased. !he +ural
Co-operative structure has traditionally been bifurcated into two parallel
wings, i.e.
,. /hort-term +ural Co-operatives,
,,. 8ong-term +ural Co-operatives.
!here is a larger network of co-operative banks in the rural sector,
consisting of #1 /tate Co-operative "anks and 09% >istrict Central Co-
operative "anks, with 10,$#: branches. ,n addition, there are 1#,$$$ =rimary
Agricultural Co-operative Credit /ocieties, 11 /tate 8and >evelopment
"anks and %2: =rimary 8and >evelopment "anks, along with 1,<2%
branches, which are not strictly banks as they are not covered under the
"anking +egulation Act, 1121. !he +", DovernorEs proposals should,
therefore, encompass the entire Co-operative banking system.
I. /h&(t-t!( R%(al C&-&'!(ati)!s:
!he short-term rural co-operatives provide crop and other working
capital loans to farmers and rural artisans primarily for short-term purpose.
!hese institutions have federal three-tier structure.
At the Ape5 of the system is a /tate Co-operative bank in each state.
At the middle &or district' level, there are Central Co-operative "anks
also known as >istrict Co-operative banks.
At the lowest &or village' level, are the =rimary Agricultural Credit
i. C&-&'!(ati)! /tat! Ba"*s:
/tate Co-operative "anks are the ape5 of the three-tier
Co-operative structure dispensing mainly short Gmedium term credit. ,t is the
principal society in a /tate which is registered or deemed to be registered
under the Dovernment /ocieties Act, 111#, or any other law for the time
being in force in ,ndia relating to co-operative societies and the primary
object of which is the financing of the other societies in the /tate which are
registered or deemed to be registered. !he /tate Co-operative "anks receive
current and fi5ed deposits from its constituent banks as well as savings,
current and fi5ed deposits from the general public and from local boards,
other local authorities, etc. @urther, they receive loans from the +", and
?A"A+>. ?A"A+> is the supervisory authority for /tate Co-operative
"anks. !he state government contributes the certain portion of their working
capital. !he principal function of /tate Co-operative "anks is to assist the
Central Co-operative "anks and to balance e5cesses and deficiencies in the
resources of Central Co-operative "anks. ,t also act as the balancing
centre for Central Co-operative "anks in the sense that surplus fund of
some of these banks are made available to other needy banks. ,t also serves
the link between +", and the Central Co-operative "anks and =rimary
Agriculture Credit /ocieties. "ut the connection between the /tate Co-
operative "anks and =rimary Co-operative /ocieties is not direct. !he
Central Co-operative "anks are acting as intermediaries between the /tate
Co-operative "anks and =rimary societies.
ii. C!"t(al C&-&'!(ati)! Ba"*s:
Central Co-operative "anks form the middle tier of Co-
operative credit institutions. !hese are the independent units in as much as
the /tate Co-operative "anks have control to control or supervise their
affairs. !hey are of two kinds i.e. IpureJ and Imi5edJ. !hose banks are the
membership of which is confined to co-operative organi*ations only are
included in IpureJ type, while those banks the membership of which is open
to co-operative organi*ations as well as to the individuals are included in
Imi5edJ type. !he pure type of Central "anks can be seen in Kerala,
"ombay, 7rissa, etc., while the mi5ed type can be seen in Andhra =radesh,
Assam, !amil ?adu, etc. !he pure type of banks is based on strict co-
operative principles. ;owever, the mi5ed type has an advantage over the
pure type in so far as they can draw their funds from the non-agricultural
sector too.
!he Central Co-operative "anks draw their funds from share
capital, deposits, loans from the /tate C-operative "anks and where /tate
"anks do not e5ist from the +",, ?A"A+> and commercial banks.
?A"A+> is the supervisory authority for Central Co-operative "anks.
>eposits constitute the major component of sources of funds, followed by
borrowings. !he main function of Central Co-operative "anks is to finance
the primary credit societies. ,n addition they carry on Commercial banking
activities like acceptance of deposits, granting of loans and advances on the
security of first class guilt-edged securities, fi5ed deposit receipts, gold,
bullion, goods and documents of title to goods, collection of bills, che4ues,
etc., safe custody of valuables and agency services. !hey are e5pected to
attract deposits from the general public. !hey also act as Ibalancing centresJ,
making available access funds of one primary to another which is in need of
!he central co-operative banks are located at the district head4uarters
or some prominent town of the district. !hese banks have a few private
individuals also who provide both finance and management. !he central co-
operative banks have three sources of funds,
!heir own share capital and reserves
>eposits from the public and
8oans from the state co-operative banks
iii. P(ia(2 A4(i#%lt%(! C(!1it /&#i!ti!s:
=rimary Agricultural Credit /ocieties is the foundation
of the co-operative credit system on which the superstructure of the short-
term co-operative credit system rests. ,t deals directly with individual
farmers, provide short and medium term credit, supply agricultural inputs,
distribute consume articles and also arrange for the marketing of products of
its members through a c-operative marketing societies. !hese societies form
the basic unit of co-operative credit system in ,ndia. !hese voluntary
societies based on principle of one man one vote has posed challenge to
e5ploitative practices of the village moneylenders. !he farmers and other
small-time borrowers come in direct contact with these societies. !he
success of the co-operative credit movement depend largely on the strength
of these village level societies.
!he major objective of =rimary agricultural Credit /ocieties is
to serve the need of weaker sections of these society. @or this purpose, the
people with limited means, particularly with schedules castes and scheduled
tribes, are encouraged to become members of these societies. /o, they must
function effectively as well-managed and multi-purpose institutions
mobili*ing the savings of the rural people and providing the package of
services including credit, supply of agricultural inputs and implements,
consumer goods, marketing services and technical guidance with focus on
weaker sections. Dovernment has promoted multi-purpose societies in tribal
areas for the benefit of people living there.
Chall!"4!s $a#!1 b2 this s&#i!ti!s5 a'a(t $(& i'(&)i"4 (!s&%(#!s
&bili6ati&"5 a(! th! $&ll&+i"4:
,mproving volume of business
+educing cost of management.
Correcting imbalances in loan outstanding.
,mproving skill of the staff and imparting proffesionalisation
/trenghtening Canagement ,nformation /ystem &C,/'.
II. ,&"4-t!( R%(al C&-&'!(ati)!s:
!he long-term rural co-operative provide typically medium and
long-term loans for making investments in agriculture, rural industries and,
in the recent period, housing. Denerally, these co-operatives have two tiers,
i.e. /tate Co-operative Agriculture and >evelopment "anks &/CA+">s' at
the state level and =rimary Co-operative Agriculture and +ural >evelopment
"anks &=CA+>"s' at the taluka or tehsil level. ;owever, some /tates have a
unitary structure with the state level banks operating through their own
i. /tat! C&-&'!(ati)! A4(i#%lt%(! a"1 D!)!l&'!"t Ba"*s
/tate Co-operative Agriculture and >evelopment "anks
constitute the upper-tier of long term co-operative credit structure. !hough
long term credit co-operatives have been allowed to access public deposits
under certain conditions, such deposits constitute a relatively small
proportion of their total liabilities. !hey are mostly dependent on borrowings
for on-lending.
!he main objective of the Co-operative /tate Agriculture and +ural
>evelopment bank is to finance primary agriculture and rural development
banks. !he bank undertakes the following functions to achieve the above
&a' @loatation of >ebentures,

&b' +eceiving >eposits)
&c' Drant of loans to primary cooperative agriculture and rural
development banks for purposes approved by the ?ational "ank for
Agricultural and +ural >evelopment and +egistrar of Cooperative /ocieties)
&d' !o function as the agent of any cooperative bank subject to such
conditions as the +egistrar may specify)
&e' !o develop, assist and coordinate the work of affiliated primary
cooperative agriculture and rural development banks.

!he bank issues long term and medium term loans towards
agricultural and allied activities like construction of godowns, cattle shed,
farm house, purchase of lands etc., and for minor irrigation purposes like
construction of new wells, deepening of e5isting wells etc., ,n addition, long
term loans are also sanctioned for animal husbandry, fisheries, plantation,
farm mechani*ation, non-farm sector and other non-minor irrigation
ii. P(ia(2 C&-&'!(ati)! A4(i#%lt%(! a"1 R%(al D!)!l&'!"t
Ba"*s 7PCARDBs8:
=rimary Co-operative Agriculture and +ural
>evelopment "anks are the lowest layer of long term credit co-operatives. ,t
is primarily dependent on the borrowings for their lending business.
!hey provide credit for developmental purposes like minor irrigation,
cultivation of plantation crops and for diversified purposes like poultry,
dairying and sericulture on schematic basis. !hey get re4uisite financial
assistance from the Cooperative /tate Agriculture and +ural >evelopment
,n order to widen their scope of lending to compete with other
financial agencies, the primary cooperative agriculture and rural
development banks have been permitted to finance artisans, craftmen and
small scale entrepreneurs. !hey have also been permitted to issue loans to
small road transport operators in rural areas for purchase of goods carriers
and passenger vehicles.
As a result, during #$$%-$<, the =rimary Cooperative
Agriculture and +ural >evelopment "anks have again started lending for the
?on-@arm /ector including Aewel 8oans.
As an ape5 bank involved in refinancing credit needs of major
financial institutions in the country engaged in offering financial assistance
to agriculture and rural development operations and programmes, ?A"A+>
has been sharing with the +eserve "ank of ,ndia certain supervisory
functions in respect of co-operative banks and +egional +ural "anks
As 'a(t &$ th!s! $%"#ti&"s5 it
6ndertakes inspection of +egional +ural "anks &++"s' and co-
operative banks &other than urbanGprimary co-operative banks' under
the provisions of "anking +egulation Act, 1121.
6ndertakes inspection of /tate Co-operative Agriculture and +ural
>evelopment "anks &/CA+>"s' and ape5 non-credit co-operative
societies on a voluntary basis
6ndertakes portfolio inspections, systems study, besides off-site
surveillance of co-operative banks.
=rovides recommendations to +eserve "ank of ,ndia on opening of
new branches by /tate Co-operative "anks.
Administering the Credit Conitoring Arrangements in Co-operative
C&(! F%"#ti&"s &$ NABARD $&( C&-&'!(ati)! Ba"*s:
?A"A+> has been entrusted with the statutory responsibility of
conducting inspections of /tate Co-operative "anks &/C"s', >istrict Central
Co-operative "anks &>CC"s' and +egional +ural "anks &++"s' under the
provision of the "anking +egulation Act, 1121. ,n addition, ?A"A+> has
also been conducting periodic inspections of state level co-operative
institutions such as /tate Co-operative Agriculture and +ural >evelopment
"anks &/CA+>"s', on a voluntary basis.
As making legal amendments is time consuming process, the state
governments may issue L5ecutive 7rders under the e5isting powers to bring
in the desired reforms which will relate toB
i. Lnsuring full voting membership rights on all users of financial services
including depositors in cooperatives other than cooperative banks.
ii. +emoving state intervention in all financial and internal administrative
matters in cooperatives.
iii. =roviding a cap of #:M on government e4uity in cooperatives and
limiting participation in the "oards of cooperative banks to only one
nominee. Any state government or a cooperative wishing to reduce the state
e4uity further would be free to do so and the cooperative will not be
prevented from doing so.
iv. Allowing transition of cooperatives registered under the C/A to migrate
under the =arallel Act &wherever enacted'
v. Fithdrawing restrictive orders on financial matters
vi. =ermitting cooperatives in all the three tiers freedom to take loans from
any financial institution and not necessarily from only the upper tier and
similarly placing their deposits with any regulated financial institution of
their choice.
vii. =ermitting cooperatives under the parallel Acts &wherever enacted' to be
members of upper tiers under the e5isting cooperative societies Acts and
viii. 8imiting powers of state governments to supersede "oards
i5. Lnsuring timely elections before the e5piry of the term of the e5isting
5. @acilitating regulatory powers for +", in case of cooperative banks as
mentioned earlier.
!he cooperative banksGcredit institutions constitutes the second
segment of ,ndian banking system, comprising of about 12M of the
total banking sector asset &Carch #$$%'.
"ulk of the cooperative banks operate in the rural regions with rural
coop banks accounting for 9%M of the total asset and 9%M of the total
branches of all cooperative banks.
/hare of rural cooperatives in total institutional credit was 9#M in
111#-10, 02M in #$$#-$0 and :0M in #$$9-$%.
Cooperative banks have an impressive network of outlets for
institutional credit in ,ndia, particularly in rural ,ndia &1 =AC/ per %
,n Carch #$$%, there were 1%,##2 =AC/ in rural ,ndia against 0$,010
branches of commercial banks &more than 0 times of outlet of coop
,n Carch #$$%, there were 1$# savings AGC and 110 cooperative bank
members per 1$$$ rural in ,ndia.
Cooperative banks &both rural and urban' cater to small and marginal
@inancial health of the cooperative credit institutions, particularly the
rural cooperatives, has been found to be poor by several Committees.
!he main weaknesses of co-operative banks are as followsB
1. !he vital link in the co-operative credit system namely, the =rimary
Agricultural Co-operative /ocieties, themselves remain very weak. !hey are
too small in si*e to be economical and viable) besides too many of them are
dormant, e5isting only on paper.
#. Fith the e5panding credit needs of the rural sector, the commercial banks
have come in actively to meet the credit re4uirements of this sector, and this
has aggravated the difficulties of co-operative banks. !he theory that co-
operative banks would be buoyed up by the competition from other financial
institutions does not appear to have worked.
0. Co-operative banks are not doing well in all the states) only a few account
for a major part of their business. @or e5ample, %: per cent of total deposits
mobilised by /tate C-operative "anks was from only seven states in 11<%-
Andhra =radesh, Dujarat, Karnataka, Cadhya =radesh, Caharashtra, !amil
?adu, and 6ttar =radesh.
2. !hese banks still rely very heavily on refinancing facilities from the
government, the +",, and ?A"A+>. !hey have yet not been able to
become self-reliant in respect of resources through deposit mobilisation.
:. !hey suffer from dangerously low or weak 4uality of loan assets, and
from highly unsatisfactory recovery of loans. !hey suffer from
infrastructural weaknesses and structural flaws. !hey do not look like banks
and do not inspire confidence in the potential members, depositors and
9. =oor resource base is main constraint of these banks. +elatively low per
capita base and less e4uity base due to non-participations of the members in
the financial activities and limited area of operation is becoming a
permanent obstacle in the progress of this sector.
%. =oor profit position and burden of huge accumulated losses of several co-
operative banks has threatened the very survival of these banks. !he amount
of cost of management of this sector has adversely affected its profitability.
Lven before the submission of the Khusro Committee +eport, the
government and the +", had initiated certain measures to strengthen the
development of co-operative banks. /ome of these policy initiatives were as
&i' !he ?A"A+> had formulated a scheme for the reorganisation of
=rimary Agricultural Co-operative /ocieties and the implementation of this
scheme had started in those states which have accepted it.
&ii' !he programme for development of selected =rimary Agricultural Co-
operative /ocieties into truly multi-purpose co-operative societies has been
implemented in many states and 6nionterritories.
&iii' ,n addition to such programmes, certain state governments like Andhra
=radesh, Cadhya =radesh Fest "engal had also initiated development
programmes to strengthen the working of the co-operative credit institutions
at the base level.
&iv' 7n the basis of their financial position as on 0$ Aune 11<%, 1%: Central
Co-operative "anks and % /tate Co-operative "anks in the country were
identified as EweakE banks and brought under the programme of rehabilitation
which, however, did not really work 4uite well.
&v' Fith a view to enabling weak banks which were either ineligible or were
on the verge of becoming ineligible for refinance /6==$11, a 1#-=oint
Action =rogramme had been formulated and circulated by ?A"A+> to all
the state governments.
1. +eorganisation of =rimary Agricultural credit /ocieties.
&a scheme by ?A"A+>'
#. ?ational Co-operative "ank of ,ndia &?C",' was registered in
1110.&Culti-state co-operative society'-it has no regulatory functions.
0. Co-operative development bank &set up by ?A"A+>'.
2. Allowing all =C"Js to undertake e4uipment leasing and hire- purchase
:. 8icensing of new banks.
!he following suggestions can be made for improving the effectiveness in
operation of Co-operative bankingB
1. ,t is apparent that the mountain overdue has become a major problem of
most of the co-operative banks and their performance in managing ?on
=erforming Assets is not satisfactory. @irm measure should be followed to
make credit appraisal, documentation, disbursement, monitoring, etc. !he
following strategies may help the banks in avoiding or reducing ?=AJs.
=re-sanction strategiesB "efore sanctioning a loan, a bank has to go for
detailed in4uiry about borrower and his loan proposal.
=ost-sanction strategiesB After the loan is disbursed, proper supervision of
loan utili*ation is to be ensured. "ank has to maintain proper relationship
with the borrower and ensure that first installment id deposited timely.
=ersuasion or @ollow-upB As a step, bank has to pursue with borrower
and if re4uired, rescheduling of installments be made.
!he bank should adopt he system of computeri*ed monitoring of loans.
#. !hese banks can also go for such schemes for opening of saving bank and
other accounts treated as low cost deposit base as well as clientele base of
the banks will take remarkable shape. ,n this respect, banks can introduce
effectively various innovative deposit schemes like womenJs savings,
childrenJs savings, savings scheme for youth, daily collection etc.
0. Fith limited area of operation for so many decades together, 6rban Co-
operative banks cold not e5pand their business in other area in general. At
this juncture, it should have governmental support and the government
should liberali*e this area of operation, so that they could incrase their
business at their will.
2. All Co-operative banks should come in one umbrella i.e. C7+L
:. Co-operative banks, with their newly formed emphasis on prudential
norms, need a high degree of professionalism in management.
9. /ome Co-operative banks particularly which are small banks not having
sufficient branch network are suggested to enter into tie-up arrangements
with commercial banks like ,C,C, "ank, ;>@C "ank, etc and in this way
these banks could e5pand their business.
/&! $a#ts ab&%t C&&'!(ati)! ba"*s i" I"1ia:
/ome cooperative banks in ,ndia are more forward than many of the state
and private sector banks.
!he total deposits 3 lending of Cooperative "anks in ,ndia is much more
than 7ld =rivate /ector "anks 3 also the ?ew =rivate /ector "anks.
!his e5ponential growth of Co operative "anks in ,ndia is attributed
mainly to their much better local reach, personal interaction with
customers, and their ability to catch the nerve of the local clientele.
?ow, ,t is very much clear that co-operative banks have very much
importance in national development. Fithout the help of co-operative banks,
millions of people in ,ndia would be lacking the much needed financial
Co-operative banks take active part in local communities and local
development with a stronger commitment and social responsibilities. !hese
banks are best vehicles for taking banking to doorsteps of common men,
unbanked people in urban and rural areas. !heir presence in the social,
economic and democratic structure of the country is essential to bring about
harmonious development and that perhaps is the best justification for
nurturing them and strengthening their base. !hese banks are sure to win in
the race because they are from the people, by the people and of the people.
"anking >evelopment ,n ,ndia 112%-#$$% - Drowth,
+eforms and 7utlook
( by Niti Bhasin
"anking !heory and =ractice
( by K.C. Shekhar and Lekshmy Shekhar
Co-operative "anks in ,ndia ( @unctioning and +eforms
( by Amit Bhasak