A cooperative bank is a financial cooperative that provides standard banking services. Cooperative banks, like conventional banks, are capitalised via the sale of shares, receive deposits, and make loans. A cooperative bank is a financial institution in which the members are both the owners and the clients.
The States Cooperative Societies Act governs the establishment of cooperative banks in India. The Reserve Bank of India (RBI) controls all banks in India, including cooperative banks. They are regulated by the Banking Regulations Act, 1949 and the Banking Laws (Co-operative Societies) Act, 1955.
Cooperative banks in India: Characteristics
- Organisations in which the customers also own ownership stakes include cooperative banks.
- Cooperative banks are owned and governed by their members, who elect a board of directors in a fair and open election process. According to the cooperative concept of “one person, one vote,” all members typically have the same number of votes.
- The majority of the annual profit, benefits, or surplus is often set aside to establish reserves, and the remaining portion of the profit may be given to the cooperative members, subject to legal and statutory restrictions.
- They have been instrumental in bringing the unbanked rural populace into the formal banking system.
- One individual equals one vote in their system. Since the members own the banks, they elect a Board of Directors who are then responsible for running the organisation.
- Cooperative banks provide low-interest loans to farmers for agricultural purposes. Loans and other forms of credit should be made readily available in rural communities that lack adequate banking services.
Cooperative banks in India: History
Banking cooperatives in India have a long and storied history, with the cooperative movement first spawning to address the country’s dire need for rural finance. It wasn’t until the enactment of the Cooperative Societies Act in 1904 that cooperative banking in India got its start. This law’s stated goal was “to foster thrift, self-help, and collaboration among agriculturists, craftsmen, and individuals of restricted means,” and it did so by creating cooperative credit companies.
Under this Act, several cooperative credit organisations were established. New organisations for cooperative credit regulation, auditing, and provision were mandated by the Cooperative Societies Act of 1912. (a) a confederation of primary-level societies; (b) a centralised banking authority; and (c) a network of regional financial institutions.
Cooperative banks in India: Structure
In India, you may find a variety of cooperative credit organisations. These establishments may be divided into agricultural and non-agricultural institutions. Most of the cooperative credit system is run by agricultural credit institutions.
There are two main types of agricultural credit institutions, those that provide loans for shorter and those that provide loans for longer periods of time.
There is a federal three-tier structure for the short-term agricultural credit institutions that serve the short-term financial needs of farmers: (a) at the top is the state cooperative bank in each state; (b) in the middle are the central cooperative banks in each district, and (c) at the bottom are the primary agricultural credit societies in each village.
Land development banks are institutions that provide farmers access to long-term financing.
Cooperative banks in India: Importance
- Cooperative banking is a viable alternative to the flawed credit system established by local moneylenders.
- It allows people in rural regions to get low-cost borrowing.
- The culture of constructive borrowing has been formed thanks to the efforts of cooperative banks, which have successfully prevented borrowing for personal consumption.
- As a result of the cooperative credit movement, individuals in rural areas are less likely to hoard their cash and more likely to put it to work in small businesses.
- Better farming practices have been widely adopted due in large part to the efforts of cooperative groups. In order to finance the acquisition of hybrid seeds, chemical fertilisers, cutting-edge farming equipment, etc., cooperative financing is made accessible.
- A deposit with a cooperative bank earns a better rate of interest.
Cooperative banks in India: Dual cooperative banking supervision in urban areas
Urban cooperative banks are subject to regulation and supervision by the Reserve Bank of India (RBI) and, in the case of single-state cooperative banks, the relevant State Registrar of Co-operative Societies (RCS), or, in the case of multi-state co-operative banks, the relevant Central Registrar of Co-operative Societies (CRCS).
When it comes to incorporating, registering, managing, amalgamating, reconstructing, or liquidating UCBs with a multi-state presence, the CRCS exercises rights under the relevant Co-operative Societies Act of the States.
The Reserve Bank, in accordance with the Banking Regulation Act of 1949, regulates and supervises the banking sector, including the issuance of licences to establish new banks and branches, as well as interest rates, lending policies, investments, and prudential exposure rules.
The Reserve Bank of India (RBI) has implemented a scheme for the voluntary transition of urban cooperative banks into small finance banks, per the recommendation of a high-level committee led by the bank’s former deputy governor, R. Gandhi.
Cooperative banks in India: Types
Short-Term Rural Cooperative Credit Structure
Short-term rural cooperatives in India are organised in a three-tiered framework. Tier-I is made up of SCBs at the state level, CCBs at the district level, and PCSs at the primary level of the agricultural credit system (PACSs).
1. State Cooperative Banks (SCBs)
First, there are SCBs, or state cooperative banks, which serve as the top layer of the cooperative credit framework. Every one of the 50 states has its own cooperative bank.
2. Central Cooperative Banks (CCBs)
CCBs, or central cooperative banks, are the second layer of the three-tiered cooperative credit framework. It is possible to form credit unions whereby only members of cooperatives are allowed to join. Haryana, Punjab, Rajasthan, Orissa, and Kerala all have cooperative banking unions. Individuals and cooperative groups can both join central cooperative banks as members.
3. Primary Agricultural Credit Societies (PACSs)
The third level of the cooperative credit system is made up of Primary Agricultural Credit Societies (PACSs), which serve as the foundation. Located at the local level, this organisation serves the villagers directly. It receives deposits from farmers, lends money to those in need, and then gets paid back by them.
Some of the best-performing cooperative banks in India are:
- Saraswat Co-operative Bank
- Cosmos Co-operative Bank
- Shamrao Vithal Co-operative Bank (SVC Bank)
- Abhyudaya Co-operative Bank Ltd
- Bharat Co-operative Bank
- TJSB Co-operative Bank
- Janata Co-operative Bank
- Kalupur Commercial Co-operative Bank
- NKGSB Co-operative Bank
- The Ahmedabad Mercantile Co-operative Bank
FAQs
What is the total number of cooperative banks in India?
In India, 31 different government-run companies operate cooperative banks for the benefit of their workers.
Which Indian cooperative bank has the most customers?
Without a doubt, MSC Bank is the largest cooperative bank in the nation. In addition, The Banker, a London-based publication, has repeatedly ranked it as one of the world's top 1000 banks on the basis of financial soundness (Capital Adequacy), and it is the only cooperative bank in India to do so.
Do RBI regulations apply to cooperative banks?
The Reserve Bank of India does not oversee PACS since they are not covered by the Banking Regulation Act of 1949. SCBs and CCBs are supervised by the Reserve Bank of India and operate with registration under the State Cooperative Societies Act of the relevant state.
