Meaning of Bank

Bank is a lawful organisation, which accepts deposits that can be withdrawn on

demand. It also lends money to individuals and business houses that need it.

Role of Banking
• Banks provide funds for business as well as personal needs of
individuals. They play a significant role in the economy of a
nation.
• It encourages savings habit amongst people and thereby makes
funds available for productive use.
• It acts as an intermediary between people having surplus money and those
requiring money for various business activities.
• It facilitates business transactions through receipts and
payments by cheques instead of currency.
• It provides loans and advances to businessmen for short term
and long-term purposes.
• It also facilitates import export transactions.
• It helps in national development by providing credit to farmers, small-scale
industries and self-employed people as well as to large business houses which lead
to balanced economic development in the country.
• It helps in raising the standard of living of people in general by providing loans for
purchase of consumer durable goods houses, automobiles, etc
Types of Banks
There are various types of banks which operate in our country to meet the financial requirements of
different categories of people engaged in agriculture, business, profession, etc. On the basis of functions,
the banking institutions in India may be divided into the following types:
 Types of Banks

Central Bank Development Bank Specialised Banks

(RBI, in India) (EXIM Bank
SIDBI, NABARD)

Commercial Banks Co-operative Banks

(i) Public Sector Banks (i) Primary Credit Societies

(ii) Private Sector Banks (ii) Central Co-operative Banks
(iii ) Foreign Banks (iii) State Co-operative Banks
CENTRAL BANK

A bank which is entrusted with the functions of guiding and regulating the banking system of a country
is known as its Central bank. Such a bank does not deal with the general public. It acts essentially as
Government's banker, maintain deposit accounts of all other banks and advances money to other
banks, when needed. The Central Bank provides guidance to other banks whenever they face any
problem. It is therefore known as the banker's bank. The Reserve Bank of India is the central bank of
our country.

The Central Bank maintains record of Government revenue and expenditure under various heads.

It also advises the Government on monetary and credit policies and decides on the interest rates for
bank deposits and bank loans. In addition, foreign exchange rates are also determined by the central
bank. Another important function of the Central Bank is the issuance of currency notes, regulating their
circulation in the country by different methods. No other bank than the Central Bank can issue
currency.
Commercial Banks
Commercial Banks are banking institutions that accept deposits and grant short-term loans and
advances to their customers. In addition to giving short-term loans, commercial banks also give
medium-term and long-term loan to business enterprises. Now-a-days some of the commercial banks
are also providing housing loan on a long-term basis to individuals. There are also many other
functions of commercial banks, which are discussed later in this lesson.

Types of Commercial banks: Commercial banks are of three types i.e., Public sector banks, Private
sector banks and Foreign banks.

Public Sector Banks: These are banks where majority stake is held by the Government of
India or Reserve Bank of India. Examples of public sector banks are: State Bank of India, Corporation
Bank, Bank of Boroda and Dena Bank, etc.
Private Sectors Banks: In case of private sector banks majority of share capital of the
bank is held by private individuals. These banks are registered as companies with limited liability.
For example: The Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd., Development Credit
Bank Ltd, Lord Krishna Bank Ltd., Bharat Overseas Bank Ltd., Global Trust Bank, Vysya Bank,
etc.

Foreign Banks: These banks are registered and have their headquarters in a foreign country but
operate their branches in our country. Some of the foreign banks operating in our country are Hong
Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard &
Chartered Bank, Grindlay's Bank, etc. The number of foreign banks operating in our country has
increased since the financial sector reforms of 1991.

c) Development Banks
Business often requires medium and long-term capital for purchase of machinery and equipment, for
using latest technology, or for expansion and modernization. Such financial assistance is provided
by Development Banks. They also undertake other development measures like subscribing to the
shares and debentures issued by companies, in case of under subscription of the issue by the public. Industrial Finance
Corporation of India (IFCI) and State Financial Corporations (SFCs) are examples of development banks in India

Co-operative Banks
People who come together to jointly serve their common interest often form a co-operative society
under the Co-operative Societies Act. When a co-operative society engages itself in banking
business it is called a Co-operative Bank. The society has to obtain a licence from the Reserve Bank
of India before starting banking business. Any co-operative bank as a society is to function under the
overall supervision of the Registrar, Co-operative Societies of the State. As regards banking business,
the society must follow the guidelines set and issued by the Reserve Bank of India.

Specialised Banks
There are some banks, which cater to the requirements and provide overall support for setting
up business in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of such banks. They engage
themselves in some specific area or activity and thus, are called specialised banks. Let us know about them

• Export Import Bank of India (EXIM Bank): If you want to set up a business for exporting
products abroad or importing products from foreign countries for sale in our country, EXIM bank can provide you the
required support and assistance. The bank grants loans to exporters and importers and also provides information
about the international market. It gives guidance about the opportunities for export or import, the risks involved in it and
the competition to be faced, etc.

• Small Industries Development Bank of India (SIDBI): If you want to establish a small-scale business
unit or industry, loan on easy terms can be available through SIDBI. It also finances modernisation of small-scale
industrial units, use of new technology and market activities. The aim and focus of SIDBI is to promote, finance
and develop small-scale industries

• National Bank for Agricultural and Rural Development (NABARD): It is a central

or apex institution for financing agricultural and rural sectors. If a person is engaged in agriculture or other activities
like handloom weaving, fishing, etc. NABARD can provide credit, both short-term and long-term, through regional rural
banks. It provides financial assistance, especially, to co-operative credit, in the field of agriculture, small-scale industries,
cottage and village industries handicrafts and allied economic activities in rural areas.
VARIOUS DEFINITIONS OF COOPERATIVE BANK.
A cooperative (also co-operative; often referred to as a co-op) is a business
organization owned and operated by a group of individuals for their mutual benefit.
Cooperatives are defined by the International Co-operative Alliance's Statement on
the Co-operative Identity as autonomous associations of persons united voluntarily
to meet their common economic, social, and cultural needs and aspirations through
jointly owned and democratically controlled enterprises.A cooperative may also be
defined as a business owned and controlled equally by the people who use its
services or by the people who work there. Cooperative enterprises are the focus of
study in the field of cooperative economics.
Cooperative banking is retail and commercial banking organized on a cooperative
basis. Cooperative banking institutions take deposits and lend money in most parts
of the world.
Cooperative banking (for the purposes of this article), includes retail banking, as
carried out by credit unions, mutual savings and loan associations, building
societies and cooperatives, as well as commercial banking services provided by
mutual organizations (such as cooperative federations) to cooperative businesses.
Definition of a cooperative bank
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. Co-operative banks generally provide their members
with a wide range of banking and financial services (loans, deposits, banking
accounts…). Co-operative banks differ from banks by their organization, their
goals, their values and their governance. In most countries, they are supervised and
controlled by banking authorities and have to respect prudential banking
regulations, which put them at a level playing field with stockholder banks.
Depending on countries, this control and supervision can be implemented directly
by state entities or to a co-operative federation or central body.

Co-operative banks are deeply rooted inside local areas and communities. They are
involved in local development and contribute to the sustainable development of
their communities, as their members and management board usually belong to the
communities in which they exercise their activities. By increasing banking access
in areas or markets where other banks are less present – SMEs, farmers in rural
areas, middle or low income households in urban areas - co-operative banks reduce
banking exclusion and foster the economic ability of millions of people. They play
an influential role on the economic growth in the countries in which they work in
and increase the efficiency of the international financial system. Their specific
form of enterprise, relying on the above-mentioned principles of organization, has
proven successful both in developed and developing countries
Cooperative banks
Larger institutions are often called cooperative banks. Some of these banks are
tightly integrated federations of credit unions, though those member credit unions
may not subscribe to all nine of the strict principles of the World Council of Credit
Unions (WOCCU).
Like credit unions, cooperative banks are owned by their customers and follow the
cooperative principle of one person, one vote. Unlike credit unions, however,
cooperative banks are often regulated under both banking and cooperative
legislation. They provide services such as savings and loans to non-members as
well as to members, and some participate in the wholesale markets for bonds,
money and even equities.[2] Many cooperative banks are traded on public stock
markets, with the result that they are partly owned by non-members. Member
control is diluted by these outside stakes, so they may be regarded as semi-
cooperative.
Cooperative banking systems are also usually no more integrated than credit union
systems. Local branches of cooperative banks elect their own boards of directors
and manage their own operations, but most strategic decisions require approval
from a central office. Credit unions usually retain strategic decision-making at a
local level, though they share back-office functions, such as access to the global
payments system, by federating.
Some cooperative banks are criticized for dilution of cooperative principles. A
cooperative bank that raises capital on public stock markets creates a second class
of shareholders who compete with the members for control. In some
circumstances, the members may lose control. This effectively means that the bank
ceases to be a cooperative. Accepting deposits from non-members may also lead to
a dilution of member control.
Features of Cooperative Banks:
• Customer-owned entities : in a co-operative bank, the needs of the customers
meet the needs of the owners, as co-operative bank members are both. As a
consequence, the first aim of a co-operativebank is not to maximise profit but to
provide the best possible products and services to its members. Some co-operative
banks only operate with their members but most of them also admit non-member
clients to benefit from their banking and financial services.
• Democratic member control : co-operative banks are owned and controlled by
their members, who democratically elect the board of directors. Members usually
have equal voting rights, according to the co-operative principle of “one person,
one vote”.
• Profit allocation : in a co-operative bank, a significant part of the yearly profit,
benefits or surplus is usually allocated to constitute reserves. A part of this profit
can also be distributed to the co-operative members, with legal or statutory
limitations in most cases. Profit is usually allocated to , which is related to the use
of the co-operative’s products and services by each member, or through an interest
or a dividend, which is related to the number of shares subscribed by each member.

HISTROY
The origins of the cooperative banking movement in India can be traced to the
close of nineteenth century when, inspired by the success of the experiments
related to the cooperative movement in Britain and the cooperative credit
movement in Germany, such societies were set up in India. Cooperative banks are
an important constituent of the Indian financial system. They are the primary
financiers of agricultural activities, some small-scale industries and self-employed
workers. The Anyonya Co-operative Bank in India is considered to have been the
first cooperative bank in Asia.
The Co operative banks in India started functioning almost 100 years ago. The
Cooperative bank is an important constituent of the Indian Financial System,
judging by the role assigned to co operative, the expectations the co operative is
supposed to fulfil, their number, and the number of offices the cooperative bank
operate. Though the co operative movement originated in the West, but the
importance of such banks have assumed in India is rarely paralleled anywhere else
in the world. The cooperative banks in India plays an important role even today in
rural financing. The businessess of cooperative bank in the urban areas also has
increased phenomenally in recent years due to the sharp increase in the number of
primary co-operative banks.

Co operative Banks in India are registered under the Co-operative Societies Act.
The cooperative bank is also regulated by the RBI. They are governed by the
Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act,
1965

The Bank was formed in 1872 as the Loan and

Deposit Department of Manchester's Co-operative
Wholesale Society, becoming the CWS Bank four years
later. However, the bank did not become a registered
company until 1971. In 1975, the bank became the first
new member of the Committee of London Clearing Banks
for 40 years, and thus able to issue its own cheques.
Since 1974 the Co-operative Bank has consistently
offered free banking for personal customers who remain
in credit. It was also the first Clearing Bank to offer an interest bearing cheque
account called Cheque & Save,
in 1982. In 1991 the Bank shook the credit card market
when it introduced a guaranteed "free for life" Gold Visa
card.
The Co-operative banks in INDIA have a history of
almost 100 years. The Co-operative banks are an
important constituent of the Indian Financial System,
judging by the role assigned to them, the expectations
they are supposed to fulfil, their number, and the
number of offices they operate. The co-operative
movement originated in the West, but the importance
that such banks have assumed in India is rarely
paralleled anywhere else in the world. Their role in rural
financing continues to be important even today, 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.
Co operative Banks in India are registered under the Co-
operative Societies Act. The cooperative bank is also regulated by the RBI. They
are governed by the Banking
Regulations Act 1949 and Banking Laws (Co-operative
Societies) Act, 1965.

Establishment of Cooperative Banks in India

INTRODUCTION
The Co-operative Bank plc is a commercial bank in the United Kingdom and Guernsey, with its headquarters
in Manchester.
The bank markets itself as an ethical bank, and refuses to invest in companies involved in the arms trade,
global climate change, genetic engineering, animal testing and use of sweated labour as stated in its ethical
policy. The ethical policy was introduced in 1992.[2] In 2002, Co-operative Group Limited brought the bank
and Co-operative Insurance Society under the control of a newly incorporated holding society, Co-operative
Financial Services.

The Bank was formed in 1872 as the Loan and Deposit Department of Manchester's Co-operative Wholesale
Society, becoming the CWS Bank four years later. However, the bank did not become a registered company
until 1971.[3] In 1975, the bank became the first new member of the Committee of London Clearing Banks for
40 years.[4] and thus able to issue its own cheques.
In 1974 the Co-operative Bank has offered free banking for personal customers who remain in credit. It was
also the first Clearing Bank to offer an interest-bearing cheque account, in 1982.
Membership

The Co-operative Membership logo

Unlike other co-operative banks, such as the Dutch Rabobank, the Co-operative Bank does not have a federal
structure of local banks, instead being a single national bank. Nor is the bank directly owned by its own
members or account holders, unless they are also Co-operative Group members. In this instance, the Co-
operative Bank is wholly owned by Co-operative Financial Services, whose sole shareholder is the (member-
owned) Co-operative Group. Members of the Co-operative Group are also entitled to earn dividend on their
account holdings and borrowing with the Bank.
Smile
The Bank launched a separate internet-only operation known as Smile in 1999, which, according to surveys,
has the highest satisfaction ratings among UK banks and has received many awards in recent years for
customer service and online banking. It has around half-a-million customers. Smile has its call centre based at
a unique pyramid building

The Co-operative Bank offers whole of market independent financial advice (IFA) through Co-operative
Independent Financial Advisers (CIFA). CIFA are based about 500 metres from the Co-operative Bank
"Pyramid" in Regent House, Stockport. CIFA offers independent advice mainly on investment, retirement and
Inheritance Tax planning. CIFA has over 100 advisers across the UK, incorporating specialists in Complex
Pensions and Corporate Financial Planning. CIFA currently has around 70,000 clients across the UK made up
of clients with links to the bank, and through their extensive seminar programme held at venues up and down
the country.

Co-operative movement is quite well established in

India. The first legislation on co-operation was passed in
1904. In 1914 the Maclagen committee envisaged a
three tier structure for co-operative banking viz. Primary
Agricultural Credit Societies (PACs) at the grass root
level, Central Co-operative Banks at the district level and
State Co-operative Banks at state level or Apex Level.
The first urban co-operative bank in India was formed
nearly 100 years back in Baroda.

The Co-operative banks arrived in India in the

beginning of 20th 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 Indian
conditions. These banks
were conceived as substitutes for money lenders, to
provide timely and adequate short-term and long-term
institutional credit at reasonable rates of interest.
In the formative stage Co-operative Banks were
Urban Co-operative Societies run on community basis
and their lending activities were restricted to meeting
the credit requirements of their members. The concept of Urban Co-operative Bank
was first spelt out by Mehta
Bhansali Committee in 1939 which defined on Urban Co-
operative Bank. Provisions of Section 5 (CCV) of Banking
Regulation Act, 1949 (as applicable to Co-operative
Societies) defined an Urban Co-operative Bank as a
Primary Co-operative Bank other than a Primary Co-
operative Society was made applicable in 1966.
Facts about Cooperative banks
• Some cooperative banks in India are more forward than many of the state and
private sector banks.
• According to NAFCUB the total deposits & lendings of Cooperative Banks
in India is much more than Old Private Sector Banks & also the New Private
Sector Banks.
• This exponential growth of Co operative Banks in India is attributed mainly
to their much better local reach, personal interaction with customers, their
ability to catch the nerve of the local clientele
MAIN FUNCTIONS OF COOPERATIVE BANKS

1. Co-operative Banks are organised and managed on the

 principal of co-operation, self-help, and mutual help. They
function with the rule of "one member, one vote" function
on "no profit, no loss" basis. Co-operative banks, as a
principle, do not pursue the goal of profit maximisation.
Co-operative bank performs all the main banking
functions of deposit mobilisation, supply of credit and
provision of remittance facilities. Co-operative Banks
provide limited banking products and are functionally
specialists in agriculture related products. However, co-
operative banks now provide housing loans also. UCBs
provide working capital loans and term loan as well.

2. Co-operative bank do banking business mainly in the

agriculture and rural sector. However, UCBs, SCBs, and
CCBs operate in semi urban, urban, and metropolitan
areas also. The urban and non-agricultural business of
these banks has grown over the years. The co- operative banks demonstrate a shift
from rural to urban, while the
commercial banks, from urban to rural. Co-operative
Banks belong to the money market as well as to the
capital market. Primary agricultural credit societies
provide short term and medium term loans.
3. Cooperative banks in India finance rural areas under:
·
Farming
Cattle
·
Milk
·
Hatchery
·
Personal finance
4. Cooperative banks in India finance urban areas under:
·
Self-employment
·
Industries
·
Small scale units
·
Home finance
·
Consumer finance
·
Personal finance
Co-operative Banks Types:

There are two types of co-operative banks in INDIA

1. The first is the short term lending oriented Co-
operative Banks. In this category there are again three
sub categories of banks which are the State Co-
operative banks, District Co-operative banks and the
Primary Agricultural Co-operative societies.

2. The second is the long term lending oriented Co- operative banks. In this second
category there are
land developments banks which are at three levels.
First is the state level, the second is district level, and
the third is the village level.

It is very much clear that co-operative banks have very much importance in
national development. Without the help of co-operative banks, millions of people
in INDIA would be lacking the much needed financial support.
CLASSIFICATION OF COOPERATIVE BANKS

Some co-operative banks are scheduled banks, while

others are non-scheduled banks. For instance, SCBs and
some UCBs are scheduled banks but other co-operative
banks are non-scheduled banks. At present, 28 SCBs and
11 UCBs with Demand and Time Liabilities over Rs 50
crore each included in the Second Schedule of the
Reserve Bank of India Act.
Co-operative Banks are subject to CRR and liquidity
requirements as other scheduled and non-scheduled
banks are. However, their requirements are less than
commercial banks.
Recent Developments
Over the years, primary (urban) cooperative banks have
registered a significant growth in number, size and
volume of business handled. As on 31st March, 2003
there were 2,104 UCBs of which 56 were scheduled
banks. About 79 percent of these are located in five
states, - Andhra Pradesh, Gujarat, Karnataka,
Maharashtra and Tamil Nadu. Recently the problems
faced by a few large UCBs have highlighted some of the
difficulties these banks face and policy endeavours are geared to consolidating and
strengthening this sector and improving governance.

Features of Cooperative Banks

Co-operative Banks are organised and managed on the principal of co-operation,

self-help, and mutual help. They function with the rule of "one member, one vote".
function on "no profit, no loss" basis. Co-operative banks, as a principle, do not
pursue the goal of profit maximisation.

Co-operative bank performs all the main banking functions of deposit mobilisation,
supply of credit and provision of remittance facilities.

Co-operative Banks provide limited banking products and are functionally

specialists in agriculture related products. However, co-operative banks now
provide housing loans also.

UCBs provide working capital loans and term loan as well.

The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and
Urban Co-operative Banks (UCBs) can normally extend housing loans upto Rs 1
lakh to an individual. The scheduled UCBs, however, can lend upto Rs 3 lakh for
housing purposes. The UCBs can provide advances against shares and debentures
also.

Co-operative bank do banking business mainly in the agriculture and rural sector.
However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan
areas also. The urban and non-agricultural business of these banks has grown over
the years. The co-operative banks demonstrate a shift from rural to urban, while the
commercial banks, from urban to rural.

Co-operative banks are perhaps the first government sponsored, government-

supported, and government-subsidised financial agency in India. They get financial
and other help from the Reserve Bank of India NABARD, central government and
state governments. They constitute the "most favoured" banking sector with risk of
nationalisation. For commercial banks, the Reserve Bank of India 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 Banks belong to the money market as well as to the capital market.

Primary agricultural credit societies provide short term and medium term loans.

Land Development Banks (LDBs) provide long-term loans. SCBs and CCBs also
provide both short term and term loans.

Co-operative banks are financial intermediaries only partially. The sources of their
funds (resources) are (a) central and state government, (b) the Reserve Bank of
India and NABARD, (c) other co-operative institutions, (d) ownership funds and,
(e) deposits or debenture issues. It is interesting to note that intra-sectoral flows of
funds are much greater in co-operative banking than in commercial banking. Inter-
bank deposits, borrowings, and credit from a significant part of assets and
liabilities of co-operative banks. This means that intra-sectoral competition is
absent and intra-sectoral integration is high for co-operative bank.

Some co-operative bank are scheduled banks, while others are non-scheduled
banks. For instance, SCBs and some UCBs are scheduled banks but other co-
operative bank are non-scheduled banks. At present, 28 SCBs and 11 UCBs with
Demand and Time Liabilities over Rs 50 crore each included in the Second
Schedule of the Reserve Bank of India Act.

Co-operative Banks are subject to CRR and liquidity requirements as other

scheduled and non-scheduled banks are. However, their requirements are less than
commercial banks.

Since 1966 the lending and deposit rate of commercial banks have been directly
regulated by the Reserve Bank of India.

Although the Reserve Bank of India had power to regulate the rate co-operative
bank but this have been exercised only after 1979 in respect of non-agricultural
advances they were free to charge any rates at their discretion. Although the main
aim of the co-operative bank is to provide cheaper credit to their members and not
to maximize profits, they may access the money market to improve their income so
as to remain viable.

Categories

There are two main categories of the co-operative banks.

(a) short term lending oriented co-operative Banks - within this category there
are three sub categories of banks viz state co-operative banks, District co-operative
banks and Primary Agricultural co-operative societies.

(b) long term lending oriented co-operative Banks - within the second category
there are land development banks at three levels state level, district level and
village level.

The co-operative banking structure in India is divided into following main 5

categories :

1. Primary Urban Co-op Banks:

2. Primary Agricultural Credit Societies:

3. District Central Co-op Banks:

4, State Co-operative Banks:

5. Land Development Banks.

Structure of co-operative banks in India

Credit cooperatives are the oldest and most numerous of all the types of
cooperatives in India. The cooperative credit institutions in the country may be
broadly classified into urban credit cooperatives and rural credit cooperatives.
There are about 2090 urban credit cooperatives and these societies together
constitute for about 10 percent of the aggregate banking business and therefore
regarded as an important segment of the banking system. The urban credit
cooperatives are also popularly known as Urban Cooperative Banks. The rural
credit cooperatives may be further divided into short-term credit cooperatives and
long-term credit cooperatives. With regard to short-term credit cooperatives, at the
grass-root level there are around 92,000 Primary Agricultural Credit Societies
(PACS) dealing directly with the individual borrowers. At the central level (district
level) District Central Cooperative Banks (DCCB) function as a link between
primary societies and State Cooperative Apex Banks (SCB). It may be mentioned
that DCCB and SCB are the federal cooperatives and thus the objective is to serve
the member cooperatives. As against three-tier structure of short-term credit
cooperatives, the long-term cooperative credit structure has two tiers in many states
with Primary Cooperative Agriculture and Rural Development Banks (PCARDB)
at the primary level and State Cooperative Agriculture and Rural Development
Bank at the state level. However, some states in the country have unitary structure
with state level cooperative operating with through their own branches and in one
state an integrated structure prevails. The organizational structure of the credit
cooperatives in India is illustrated in chart I. Interestingly, under the Banking
Regulation Act 1949, only State Cooperative Apex Banks, District Central
Cooperative Banks and select Urban Credit Cooperatives are qualified to be called
as banks in the cooperative sector. In other words, only these banks are licensed to
conduct full-fledged banking business.
The Co-operative Banks function in India on State Levels. Most of the Rural Co-
operative banks function on Three-Tier and the Urban banks function on Two-Tier.
At the National Level there is NABARD to organise the Agricultural Co-
operatives. Also there is National Co-operative Union of India, as an apex
instituion at National Level.
The Reserve Bank of India controls the Co-operative Banks that falls under the
Banking Regulation Act of 1949.

More information about the bank.

What is Your Registered Address?
The Co-operative Bank p.l.c., P.O. Box 101, 1 Balloon Street, Manchester, M60 4EP. Registered in England
and Wales No. 990937.
Who regulates you?
The Co-operative Bank is authorised and regulated by the Financial Services Authority (No. 121885),
subscribes to the Lending Code, is a member of the Financial Ombudsman Service and is licensed by the
Office of Fair Trading (No. 006110).
What are co-operative banks?
Co-operative banks are small-sized units organised in the co-operative sector
which opreate both in urban and non-urban centres.
What is the role of co-operative banks in India’s banking structure?
In India, co-operative banks finance small borrowers in industrial and trade sectors,
besides professional and salary classes.
What functions do co-operative banks perform?
Co-operative banks perform the main banking functions of deposit mobilisation,
supply of credit and provision of remittance facilities. They provide limited
banking products and are specialists in agriculture-related products.
Who acts as the regulator for co-operative banks?
Co-operative banks are regulated by the Reserve Bank of India and governed by
the Banking Regulations Act, 1949, and Banking Laws (Co-operative Societies)
Act, 1965. Rural co-operative banks are regulated by state registrar of co-
operatives.
What is the minimum capital requirement and membership required for co-
operative banks ?
Urban co-operative banks should have a minimum capital of Rs 4 crore and a
membership of at least 3,000 in a population of more than Rs 10 lakh. The figure
of minimum membership keeps decreasing with a decrease in population.
What is the minimum Statuatory Liquidity Ratio (SLR) for co-operative
banks?
Urban co-operative banks are required to maintain a SLR equivalent to 25% of net
demand and bank liabilities.
What are weak urban co-operative banks?
Urban co-operative banks are divided into weak and urban banks, based on certain
parameters of their performance. India has a total of 261 weak banks at the end of
June 2001.
When is a co-operative bank classified as a weak one?
A co-operative bank is classifed as a weak bank if its own funds get eroded to the
extent of 25% or more by doubtful debts or if its overdues exceed 50% of
outstanding loans and advances. Or else, if the bank fails to comply with minimum
share capital norms.
How many cases of fraud by co-operative banks were registered with the
RBI?
Between June 2000 and June 2001, 149 cases of fraud involving Rs 27 crore were
registered with RBI.
What is the punishment for a defaulting co-operative bank?
According to RBI, the punishment differs on a case-to-case basis and is mutually
agreed by the apex bank and the Registrar of Co-operative Societies. Like in the
case of Ahmedebad-based Madhavpura Mercantile Bank scam in 2001, the RBI
made it mandatory for scheduled urban co-operative banks to maintain SLR at 25%
of net demand and time liabilities from April 2003 and also seek credit
enhancements from state governments for their deposits and bonds.
Define the co-operative banking structure in India.
The co-operative banking structure in India is divided into four components:
primary co-operative credit society, central co-operative bank, state co-operative
banks and land development banks.
On what basis do these banks function?
Co-operative banks function on the basis of "no-profit no-loss". Co-operative
banks, as a principle, do not pursue the goal of profit maximisation.
What are state co-operative banks?
State co-operative banks are a federation of central co-operative banks and act as a
watchdog of the co-operative banking structure in the state. Its funds are obtained
from share capital, deposits, loans and overdrafts from the Reserve Bank of India.
State co-operative banks lend money to central co-operative banks and primary
societies and not directly to farmers.
What are central co-operative banks?
Central co-operative banks are the federations of primary credit societies in a
district and are of two types – those having a membership of primary societies only
and those having a membership of societies as well as individuals. The funds of the
bank consists of share capital, deposits, loans and overdrafts from state co-
operative banks and joint stocks. These banks finance member societies within the
limits of the borrowing capacity of societies.
Do co-operative banks have access to money market?
Although the main aim of a co-operative bank is to provide cheaper credit to their
members and not to maximize profits, they may access the money market to
improve their income and remain viable.
What are the sources of funds for co-operative banks?
The sources of funds for co-operative banks are: central and state government,
Reserve Bank of India and NABARD, other co-operative institutions, ownership
funds and deposits or debenture issues. Intra-sectoral flows of funds are much
greater in co-operative banking than in commercial banking. Inter-bank deposits,
borrowings and credit also form a significant part of assets and liabilities of co-
operative banks.

Role of Co-Operative Banks in Financial Inclusion

As per the Committee on Financial Inclusion (Dr. Rangarajan Committee), the

short term cooperative credit structure has nearly 1.25 lakh outlets spread
throughout the length and breadth of the country. Located in rural areas, these units
have a better knowledge of their existing and potential clients. Further, Know of
Your Customer (KYC), guidelines will be easier to comply with.

As per the recommendations of Rangarajan Committee report, Reserve Bank of

India has issued instructions that Primary Agricultural Credit Societies (PACS) can
be appointed as Business Correspondents by banks for promoting financial
inclusion. Besides, Cooperatives can adopt group approach for financing excluded
groups in which community based organisations such as joint liability groups will
provide some degree of mutual guarantee to enable its members to access credit.
National Bank for Agriculture and Rural Development (NABARD) has already
circulated the guidelines on Self Help Groups to the Cooperatives.

Based on the recommendations of the report of the Committee on Financial

Inclusion, Government of India created the Financial Inclusion Fund and Financial
Inclusion Technology Fund in NABARD. The Cooperative Banks have been
advised that they are eligible institutions to access these funds for financial
inclusion.
Introduction
The Co-operative banks has a history of almost 100 years. The Co-operative banks are an important
constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are
supposed to fulfil, their number, and the number of offices they operate. The co-operative movement
originated in the West, but the importance that such banks have assumed in India is rarely paralleled
anywhere else in the world. Their role in rural financing continues to be important even today, 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.

While the co-operative banks in rural areas mainly finance agricultural based activities including farming,
cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment
driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-
employment, industries, small scale units, home finance, consumer

Some of the co-operative banks are quite forward looking and have developed sufficient core competencies to challenge
state and private sector banks.

According to NAFCUB the total deposits & lendings of Co-operative Banks is much more than Old Private Sector Banks
& also the New Private Sector Banks. This exponential growth of Co-operative Banks is attributed mainly to their much
better local reach, personal interaction with customers, their ability to catch the nerve of the local clientele.

Though registered under the Co-operative Societies Act of the Respective States (where formed originally) the banking
related activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed by the
Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
Overview
Co-operative movement is quite well established in India. The first legislation on co-
operation was passed in 1904. In 1914 the Maclagen committee envisaged a three tier
structure for co-operative banking viz. Primary Agricultural Credit Societies (PACs) at the
grass root level, Central Co-operative Banks at the district level and State Co-operative
Banks at state level or Apex Level. The first urban co-operative bank in India was formed
nearly 100 years back in Baroda.

Co-operative Institutions are engaged in all kinds of activities namely production,

processing, marketing, distribution, servicing, and banking in India and have vast and
powerful superstructure. Co-operative Banks are important cogs in this structure.

In the beginning of 20th century, availability of credit in India, more particularly in rural areas,
was almost absent. Agricultural and related activities were starved of organised, institutional
credit. The rural folk had to depend entirely on the money lenders, who lent often at usurious
rates of interest.

The co-operative banks arrived in India in the beginning of 20th 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 Indian conditions. These banks were
conceived as substitutes for money lenders, to provide timely and adequate short-term and
long-term institutional credit at reasonable rates of interest.
In the formative stage Co-operative Banks were Urban Co-operative Societies run on community basis and their lending
activities were restricted to meeting the credit requirements of their members. The concept of Urban Co-operative Bank
was first spelt out by Mehta Bhansali Committee in 1939 which defined on Urban Co-operative Bank . Provisions of
Section 5 (CCV) of Banking Regulation Act, 1949 (as applicable to Co-operative Societies) defined an Urban Co-
operative Bank as a Primary Co-operative Bank other than a Primary Co-operative Society were made applicable in
1966.

With gradual growth and also given philip with the economic boom, urban banking sector received tremendous boost and
started diversifying its credit portfolio. Besides giving traditional lending activity meeting the credit requirements of their
customers they started catering to various sorts of customers viz.self-employed, small businessmen / industries, house
finance, consumer finance, personal finance etc.

Where did cooperative banking originate?

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<a href="http://answers.encyclopedia.com/question/did-cooperative-banking-originate-84285.html" >Where did
cooperative banking originate?</a>
Cooperative banking originated in Germany in the middle of the 19th cent.; it was developed by Hermann Schulze-
Delitzsch and later was particularly adapted to rural communities by F. W. Raiffeisen.

Slogan for cooperative bank

Good with Money (previously Customer led, ethically guided)"
"Customer led, ethically guided / Good with Money
Co-operative Banks and the
Role of Supervision
 Co-operative Banks and the Role of Supervision
I. Co-operative Banks
1. Banks
2. Executive Bodies
3. Auditing by Associations of Co-operative Societies
II. The most important Supervisory Structural Standards
1. Solvency
2. Liquidity
3. Large Loans Regulations
4. Overall Banking Management
5. Managing Board Member Qualification
III. The Process of Supervision
1. Federal Financial Supervisory Authority's Sources of
Information
2. Measures and Sanctions

IV. Current Problems Relating to the Supervision

1. Large Number of Mergers
2. Observation of Disclosure Requirements
3. Outsourcing of Certain Areas to Other Companies
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 Co-operative Banks and the Role of Supervision

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 Co-operative Banks and the Role of Supervision

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 Co-operative Banks and the Role of Supervision
The most important difference between co-operative banks and
private banks is that co-operative banks' annual accounts are not
inspected by a private auditing company, but by a regional
auditing association, to which all co-operative banks must belong.
This obligatory membership of regional auditing associations was
introduced in 1934 for all co-operatives for reasons that were not
specific to banks. The regional auditing associations are not only
responsible for the co-operative banks, but also for all other co-
operatives. The associations of co-operative societies also have
further duties, such as offering advice to and providing super-
vision for their member co-operatives as well as representing their
interests in the public domain, in particular with respect to
government agencies.

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 Co-operative Banks and the Role of Supervision

Besides the solvency regulations, which are based on

the standards of the Basel Committee and which in
Germany are summarized in what is known as Principle
I, weighted risk assets are to be covered with 8 %
liable equity capital. Risk assets are essentially all
balance sheet assets, i.e. in particular loans that have
been issued.

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 Co-operative Banks and the Role of Supervision

Like all banks, co-operative banks must also show

sufficient liquidity. A liquid asset ratio must be
calculated every month as well as observation ratios for
the next 3, 6 and 12 months. This involves comparing
the payment commitments with the funds available for
payment for each particular period. This procedure is
relatively new in Germany and was first adopted by the
banks in the mid of 2000.

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 Co-operative Banks and the Role of Supervision

The regulations regarding large loans serve to spread

the risks. In Germany the classification large-scale
lending is defined depending on liable equity capital. A
large-scale loan is a loan that amounts to 10 % of the
liable equity capital. No single large-scale loan may
exceed 25 % of the liable equity capital, and all large-
scale loans together must not exceed eight times the
value of the liable equity capital.

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 Co-operative Banks and the Role of Supervision

Since 1998 banks have - in accordance with the German Banking Law -
been obliged to have suitable instruments in place for management,
monitoring and control of risks, as well as suitable instruments with which to
determine the financial position of the institution with sufficient accuracy
at any time. These organizational obligations were adopted in German
Banking Law in order to implement EC directives concerning the
harmonization of regulations in the laws governing banking and securities
supervision. Of course, prior to that co-operative banks already had -
depending on their business activities - a risk management and a risk
control systems, as well as an accounting and a management information
system. However, these management instruments were all clearly
improved after the introduction of statutory organizational obligations.
Worthy of particular mention here are the new instruments for measuring
interest rate fluctuation risks and address loss risks.

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 Co-operative Banks and the Role of Supervision

Every bank and therefore every co-operative bank

must have at least two members of its board of
directors, who are not just active for the bank in an
honorary capacity. (This is known as the Four Eyes
Principle.) This principle is in the interest of mutual
control and allows for representation in case of
absence.

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 Co-operative Banks and the Role of Supervision
Besides the annual accounts that are submitted, the main sources of
information for the Federal Financial Supervisory Authority are the
auditors' report on the annual accounts, which the associations of co-
operative societies produce each year. The Federal Financial
Supervisory Authority does not receive these audit reports auto-
matically, but only when requested. The Federal Supervisory
Authority aims to request the auditors' reports for all co-operative
banks, but is unable to meet this goal because of the current size of
its staff. The auditors' reports for all larger co-operative banks are
always requested, as are those for problem banks, while the others
are requested on an alternating basis. The evaluation of the auditors'
reports is generally carried out by the Deutsche Bundes- bank; that is
a valuable service to the Federal Financial Super- visory Authority.

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 Co-operative Banks and the Role of Supervision

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Co-operative Banks and the Role
of Supervision
According to the German Banking Law, a
credit institution can only make a loan totaling
more than 750,000 Euros if the borrower has
disclosed its financial position, in particular
by presenting its annual accounts. In the
practice of bank supervision, great atten-
tion is given to the observation of this
requirement, since from our experience in the
past loans have been made too often without
sufficient checks on the borrower's financial
circumstances. This has led to banks having
to make large valuation adjustments. It is an
important goal in bank supervision to
cultivate and maintain a high level of risk
awareness in the banks when they make
loans. I should point out that banks are not
prevented from making loans that do have a
risk attached to them. However, the banks
must be quite clear about this and have the
necessary resources to cover the risk.

ROLE OF THE COOPERATIVE BANKS IN REALIZATION

OF AGRICULTURAL AND RURAL DEVELOPMENT POLICY
1 INTRODUCTION

Cooperative banks belong to the oldest forms of the collective action in Poland playing essen-
tial role in the realization of the agricultural and in local development. They serve both rural
and urban population, and are main banks in Poland supporting development of agriculture
and rural areas. Their key role is to give credits financing various rural based enterpreneur-
ships.

Agricultural credits play a number of significant functions of which the primary include the
intensification and growth of the agricultural production. Moreover, they are supposed to en-
courage the introduction of technical, biological and social progresses in agriculture-related
activities. Credits are regarded as the most flexible tool for governing agriculture industry.
They affect farming in spatial-structural dimension, sectoral and subject dimensions related to
the level, orientation and structure of agricultural production.
 CONCLUSIONS

1. Cooperative banks are the most important actors on financial markets in Poland with re-
spect to channeling funds which support agriculture and rural areas in the framework of
agricultural and rural development policies.
2. Polish farmers rely primarily on cooperative banks for agricultural credit. These banks are
main financial institutions taking into consideration the provision of preferential loans with
interest rates subsidized by Agency for Restructuring and Modernization of Agricul- ture to
support agricultural sector and the rural community.
3. The majority of current accounts in which direct farm payments from the EU funds and
national budget are putted are with the cooperative banks. In other words, those banks are the
main intermediaries in direct payments' flow between Agency for Restructuring and
Modernization of Agriculture (paying agency) and farmers being their final beneficiaries.
4. Over 1996-2006, the level of agricultural loans granted by the cooperative banks was gen-
erally positively and statistically significantly associated with development of Polish agri-
culture as measured by composite indicator. However, only in two of sixteen voivodships
they had positive statistically significant impact on this development.