Co-operative Banks in India

A co-operative bank is a small-sized, financial entity, where its members are the owners and customers of the Bank. They are regulated by the Reserve Bank of India (RBI) and are registered under the States Cooperative Societies Act.

The Co-operative Banks have recently been in news after RBI’s restrictions on one of the leading banks, where they were denied any kind of money withdrawal. This incident of the Punjab and Maharashtra Co-operative Bank (PMC) has raised questions over the reliability of such financial entities.

In this article, we shall discuss the history, structure, benefits, and disadvantages of Co-operative Banks in India. To know more about the different Types of Bank in India, visit the linked article. 

Co-operative Banking has proved to be an asset in terms of acting as a financial intermediary to agricultural and allied activities, small scale industries, and self employed workers. 

For information regarding the banking sector in general and the various Bank Exams conducted in the country, visit the linked article.

The Co-operative Banks in India are governed as per the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1955.

These Banks have been opened with the motto of ‘no-profit-no-loss’ and thus, do not seek for profitable ventures and customers only. As the name suggests, the main objective of Co-operative Banks is mutual help. 

Given below are a few important features of Co-operative Banking in India:

• They work on the principle of ‘one person, one vote’. Since these banks are owned by the members, a Board of Directors is chosen democratically and then they are responsible for controlling the Organisation
• Farmers can avail agricultural loans on minimum interest rates from the Co-operative Banks
• Providing easy and accessible loans and credit benefits in the rural areas with scarce banking facilities
• The annual profit earned is spent on financial reserves and required resources and a part of it is distributed among the Co-operative members, as per the prescribed limitations

These institutions play a critical role in last-mile credit delivery and in extending financial services across the length and breadth of the country through their geographic and demographic outreach.

The concept of Co-operative banking is also extremely important for candidates preparing for the upcoming IAS Exam. Aspirants can visit the linked article for more details. 

The structure of a Co-operative Bank is given in the image below: 

The image below is as per the annual report released by the Reserve Bank of India in March 2019. Of the total number of Cooperative Banks in India, they can be divided into two types, which can further be subdivided:

• Urban Co-operative Banks
  • Non-Scheduled UCBs
  • Scheduled UCBs
• Rural Co-operative Banks
  • State Cooperative Banks
  • District Central Cooperative Banks
  • Primary Agricultural Credit Societies

Single-state UCBs are regulated by State Registrars of Co-operative Societies (RCS) and multi-state UCBs are governed by Central Registrar of Co-operative Societies (CRCS).

To know the important responsibilities that the Indian Banking sector possesses, visit the Functions of Banks page. 

The introduction of Co-operative Banks in India dates back to the early 20th century, which was a time of distress for the Indian society.

A timeline as to how the co-operative banking emerged in India has been given below:

• The Cooperative Credit Societies Act, 1904, was the first step taken for the co-operative society, which got accelerated with the introduction of the Cooperative Societies Act of 1912
• In post-independent India, Central Committee for Cooperative Training (1953) was set up by RBI for establishing co-operative training centres
• To solve the issue of the financial crisis in the rural areas, Rural Credit Survey Committee was set up 1954
• This co-operative movement spread through the banking sector as well and by 1950s, Co-operative Banks had started extending their reach to the public in both rural and urban areas

The Co-operative banks have acted as a boon to various sectors of Indian society and also played an important role in the development of the economy.

Given below are a few advantages of the Co-operative Banks in India:

• These banks have provided aid to the rural population by granting loans and credits with interest rates, lower in comparison to that asked by local money lenders
• They have their reach at every corner of the country and have managed to maintain a personal rapport with the customers
• Since the bank is owned and governed by the members themselves, they do not seek huge profits and believe in mutual help
• The interest rate on deposits is high and on loans is low
• They promote productive borrowing, in order to reduce the risk of loss
• Co-operative Banks have helped the farmers by providing them agricultural credits to buy basic products like fertilizer, seeds, etc.

Discussed below are a few disadvantages of the Co-operative Banks in India:

• To lend money, they need investors which are tough to find
• Over the years, the number of NPAs and overdues have been increasing
• Since the lack of investors and money, few of them have not been delivering the credits and money to the rural population
• Rather than small industrialists, the benefits from Co-operative Banks have been enjoyed by rich landowners
• The Co-operative Banks across the country are not equally developed. A few states have more functioning and beneficial units, while some states have faced loss
• Political interference has also been observed in these banks
• With new types of banks opening up, the Co-operative Banks are facing the risk of losing their customers

To overcome this loss, the RBI must take up steps regarding audit facilities and implementation of strict rules must be followed.

Given below are a few points of takeaway to understand the Co-operative Banking in India even better.

• Based on the current situation of the Co-operative Banks in India the regulating body, RBI, under the guidance of former Deputy Governor of RBI, R. Gandhi has decided to merge few co-operative banks with small financial banks
• It has also been advised that a special committee must be assigned only to monitor the proper functioning of these financial entities
• With PMC Bank coming under the radar of RBI, other co-operative banks need to gain back the confidence of the common public to invest and borrow from them
• Strict rules, as followed by other banks, must be implemented in this case as well, to reduce the risk factor

The information regarding the Indian Co-operative Banks and their development over the years has been explained well in detail in this article. 

To know more about the various other Banking, National, and International Organisations, you can turn to BYJU’S for assistance.