Setting up of Co-operative Banks

A co-operative banks are the financial entities that belongs to its members, who are both owners and customers of their bank. Cooperative banks are often created by people belonging to the same local or professional community who share a common interest. Cooperative banks generally provide their members with a wide range of banking and financial services (loans, deposits, bank accounts, etc.). Cooperative banks differ from the action bank by their organization, their objectives, their values ​​and their governance. In most countries, they are controlled by banking authorities and must comply with prudential bank regulations, which place them on an equal footing with shareholder banks. Depending on the countries, this control and supervision can be implemented directly by state or delegated entities in a cooperative federation or a central organization.

Co-operative banking in the Indian context

The structure of the cooperative bank in India is divided into a short-term structure and a long-term structure. Although the short-term structure is three levels, the structure of long-term cooperative banks is two-tier, as follows:

Short Term Co-operative structure

  • A state cooperative bank works at the highest level (i.e. it works at the state level).
  • The Central Cooperative Bank operates at an intermediate level (e.g. District Bank Cooperatives Ltd. District-level works)
  • Primary credit unions at the grassroots level (at village level)

Long Term Co-operative bank structure

  • State agricultural cooperatives and rural development banks (SCARDB) at the highest level.
  • Primary cooperative banks for agriculture and rural development (PCARDB) at the district or block level.

Part played by co-operative banks in India

Cooperative banks in India play an important role in rural financing. Even the activity of cooperative banks in urban areas has increased phenomenally in recent years due to the sharp rise in the number of popular cooperative banks. Cooperative banks should carry out some tasks, i.e. extend all types of credit lines to customers in cash and in kind, to anticipate consumer loans, extend banking services in rural areas, mobilize deposits, control the use of loans, etc. The needs of the cooperative bank are different.

Cooperative banks in India fund rural areas under:

  • Agriculture
  • Livestock
  • Milk
  • Nursery
  • Personal finance

Cooperative banks in India finance urban areas by virtue of:

  • Self-employment
  • Industries
  • Small-scale units
  • Home finance
  • Consumer finance
  • Personal finance

Types and functioning of Co-operative Banking System in India

Cooperative banks are small units that operate in urban and non-urban centres. They finance small debtors in industrial and commercial sectors as well as professional and salary classes. Regulated by the Reserve Bank of India, they are governed by the Banking Act of 1949 and bank laws (cooperative societies) operate in 1965. The structure of the cooperative bank in India is divided into the following 5 categories:

Primary Co-operative Credit Society

The primary credit cooperative society is an association of borrowers and non-borrowers residing in a particular locality. The company’s funds derive from the share capital and members’ deposits and loans from cooperative central banks. The debt powers of members and society are fixed. Loans are granted to members for the purchase of livestock, fodder, fertilizers and pesticides.

Central Co-operative Banks

These are federations of primary credit societies in a district and are of two types:

  • those that have membership only in primary societies and
  • those that belong to companies and individuals.

The bank’s funds consist of equity capital, deposits, loans and bank overdrafts of state-run cooperative banks and joint ventures. These banks provide loans to associated companies within the limits of the company’s debt capacity. They also perform all the activities of a stock exchange.

State Co-operative Banks

The state cooperative bank is a federation of the central cooperative bank and acts as custodian of the cooperative banking structure in the State. Its funds are obtained from the social capital, deposits, loans and overdrafts of the Reserve Bank of India. State-owned cooperative banks lend money to cooperative central banks and to primary companies and not directly to farmers.
Land Development Banks

The banks for the development of the territory are organized in 3 levels, that is to say; State, central and primary level and meet the long-term credit requirements of farmers for development purposes. They oversee state development banks, the main land development banks located in the districts and areas of Tehsil in the state. They are governed by the state government and the Reserve Bank of India. Recently, the supervision of banks for land development has been taken over by the National Bank of Agriculture and Rural Development (NABARD). The sources of financing of these banks are the obligations underwritten by central and state governments. These banks do not accept deposits from the general public.

Urban Co-operative Bank

The term Urban Cooperatives Banks (UCB), although not formally defined, refers to primary cooperative banks located in urban and semi-urban areas. Until 1996, these banks were authorized to lend money for non-agricultural purposes only. This distinction is not satisfied today. These banks traditionally focused on communities, localities and workplace groups. Basically, they lend to small borrowers and businesses. Today, its operating environment has greatly increased.

Functions of Co-operative Banks

Co-operative banks also perform the basic banking functions of the banking sector, but differ from commercial banks in the following aspects:

  • Commercial banks are companies under the Companies Act of 1956, or the public sector bank under a separate law from the parliament, while cooperative banks have been established under the laws of cooperative societies of different states.
  • The structure of the commercial bank is the banking structure while the cooperative banks have a configuration of three tiers, with the State Cooperative at the Apex level, the central / district cooperative bank at the district level and the primary rural Cooperatives.
  • Only some of the sections of the 1949 Banking Regulation Act (fully applicable to commercial banks) are applicable to cooperative banks, with the sole result of partial control by RBI cooperative banks.
  • Cooperative banks operate according to the principle of cooperation and not completely in the commercial parameters.


The concept of cooperation is as old as humanity and forms the basis for domestic and social life. Cooperation is just a group instinct in human beings that allows us to live with others, work with others and help each other in moments of stress and tension. Without cooperation, the social and economic progress would not be possible. It’s impossible for anyone civilization to thrive unless cooperation completes competition in human society, if there is one. This is because human beings have developed of group life and, therefore, naturally respond to group and social stimuli. Thus, the cooperative spirit is innate and intrinsic in human beings.

book mark this link

anmol ghai