TOPIC

COOPERATIVE
BANKS IN
INDIA
K.K. WAGH ARTS COMMERCE SCIENCE AND
COMPUTER SCIENCE COLLEGE.

SARASWATI NAGAR.
PROJECT ON
CO-OPERATIVE BANKS IN INDIA
PROECT BY
SACHIN DAULAT SANGAMNERE
S.Y.B.B.A (BANKING & FINANCE)
ROLL NO – 64
UNDER GUIDANCE OF
PROF. SUPRIYA DAWRE
SAVITRI BAI PHULE PUNE UNIVERSITY
ACADMIC YEAR
2021-2022
 Completion certificate
Date :

This is to certify that Mr. Sachin Daulat Sangamnere

of SY.BBA Roll No 64 Having specialization in
Finance has successfully completed his project titled
E_BANKING as per the name of Savitribai Phule
Pune University under the guidance of PROF
SUPRIYA DAWRE for the academic year 2021-22

Internal Guide External Guide HOD/Principal

 ACKNOWLEDGEMENT
Any accomplishment requires the effort of many people and
this work is not different. Regardless of my source, I wish to
express my gratitude to those who may have contributed to
this
work, even though anonymously.
First, I would like to express my deepest sense of gratitude to
K.K WAGH ART SCIENCE AND COMPUTER COLLEGE for
providing me with an opportunity for training and
encouragement
in conducting the research work.
I would like to pay my sincere thanks to my project guide,
MRS. SUPRIYA DAWRE MAM under whose guidance I was able
to complete my project successfully. I have been fortunate
enough
to get all the support, encouragement and guidance from her
needed to explore, think new and initiate.

DATE: SACHIN DAULAT SANGAMNERE

Place: Nashik (S.Y.B.B.A)
 INDEX
SR.NO CONTENT PG

01 OBJECTIVES OF THE STUDY 7

02 INTRODUCTION 08

03 HISTORY OF COOPERATIVE BANKING 10

04 CHARACTERISTICS OF THE COOPERATIVE BANKING 14

05 STRUCTURE OF COOPERATIVE BANKS IN INDIA 20

06 TYPES OF COOPERATIVE BANKS IN INDIA 24

07 FUNCTIONS OF COOPERATIVE BANKS 32

08 OBJECTIVES OF COOPERATIVE BANKS 34

09 IMPORTANCE OF COOPERATIVE BANKS 35

10 ADVANTAGES OF COOPERATIVE BANKS 36

11 DISADVANTAGES OF COOPERATIVE BANKS 41

12 DIFFERENCE BETWEEN COOPERATIVE BANKS AND 45

COMMERCIAL BANKS.

13 SUGGESTIONS 46
OBJECTIVE OF THE STUDY
• To analysis cooperative banks.

• To study the history & rise of cooperative banks.

• To know the contribution of cooperative banks

in banking sector.

• To study various aspects of cooperative banks.

• To determine the advantages and disadvantages

of cooperative banks.

• To understand the difference between

commercial banks and cooperative banks.
 INTRODUCTION
Co-operative banks are financial entities established
on a co-operative basis and belonging to their
members. This means that the customers of a co-
operative bank are also its owners. These banks
provide a wide range of regular banking and financial
services. However, there are some points where they
differ from other banks.
In India, co-operative banks play a crucial role in rural
financing, with funding of areas under agriculture,
livestock, milk, personal finance, self-employment,
setting up of small-scale units among the few focus
points for both urban and rural cooperative banks.
They provide a much-needed alternative to the age-
old exploitative practice of people approaching the
village moneylender, most often getting into a debt-
trap that they struggle to pull themselves out of.
The cooperative banking system came into being
with the aim to promote saving and investment
habits among people, especially in rural parts of the
country
What are cooperative banks?
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. It is often established
by people belonging to the same local or professional
community having a common interest. It is formed to
promote the upliftment of financially weaker sections
of the society and to protect them from the clutches
of money lenders who provide loans at an
unreasonably high-interest rate to the needy. The co-
operative structure is designed on the principles of
cooperation, mutual help, democratic decision making
and open membership. It follows the principle of ‘one
shareholder, one vote’ and ‘no profit, no loss’.
Cooperatives Banks are registered under the
Cooperative Societies Act, 1912. These are regulated
by the Reserve Bank of India and National Bank for
Agriculture and Rural Development (NABARD) under
the Banking Regulation Act, 1949 and Banking Laws
(Application to Cooperative Societies) Act, 1965
 History of Cooperative
Banks in India

The genesis of the cooperative movement and its

implementation in a modern technical sense can
be traced after the Industrial Revolution in England
during the period of 18th and 19th century. The
idea of Hermann Schulze and Friedrich Wilhelm
Raiffeisen during the economic meltdown to
provide easy credit to small businesses and poor
sections of the society took shape as cooperative
banks of today across the world.
 Pre-independence period (prior to
1947)
• British India replicated this model and based on
the recommendations of Sir Frederick Nicholson
(1899) and Sir Edward Law (1901), the Co-
operative Credit Societies Act, 1904 was passed. It
tried to deal with the problems of rural
indebtedness and consequent conditions of
farmers in the country. The Act promoted the
establishment of credit cooperative societies
which led to the formation of first urban co-
operative credit society, registered on October
1904 at Kanjeepuram now in Tamil Nadu State. It
marked the beginning of the institutionalization
of the Cooperative Banking system in India. But
there were certain defects in the Act which
restricted the reach of the expected benefits of
cooperatives. The Act only permitted the
registration of credit societies, and there was no
provision for the protection of non-credit
societies or federal societies. These shortcomings
were recognised by the Government and to
remedy it; more comprehensive legislation was
introduced, known as the Cooperative Societies
Act of 1912. It recognized the formation and
organisation of non-credit societies and the
central co-operative federations.
• In 1919, after the end of the first world war under
the Treaty of Versailles,1919, the Montague
Chelmsford Reforms were introduced in India
under which Cooperation becomes a transferred
subject which was to be administered by the
States. The need for separate acts for effective
implementation and to widen the reach of the
cooperative banks was felt by the States. The
Bombay Provincial Government was the first to
pass its own act which was known as Bombay
Provincial Cooperative Societies Act, 1925. Other
state governments like Madras, Bengal, Bihar and
Punjab followed the Bombay Act and passed their
own legislation in the following years.
• In 1942, the British Government enacted the
Multi-Unit Cooperative Societies Act, 1942, the
ambit of which covered societies whose
operations are extended to more than one state.
The Act provided for the regulation of affairs of
such society by the provisions of cooperative
societies act of the state where the principal
business of the society is located.
 Post-independence period (after
1947)
After independence, the movement of cooperative
societies maintained its pace even after facing several
hardships during that phase and continued to be part of
the economic development of the country. The First Five
Year Plan recognised the importance of cooperatives in
the implementation of development plans, particularly
targeting the farmers and weaker section of the society.
In 1954, Government of India appointed a committee
called All India Rural Credit Survey Committee to remedy
the problem of rural credit and other financial issues of
the rural community. It recommended a well defined
institutional framework for cooperative organizations,
particularly for meeting the needs of rural India. The
recommendations of the committee were recognised
and were put into effect under the Second Five Year
Plan. The Second Five Year Plan recommended
expanding the scope of cooperative activities to other
fields with special emphasis on the warehousing sector.
The Third Five Year Plan emphasised on training
personnel for the cooperative sector and to increase the
reach of the cooperative movement. The Fourth Five
Year Plan recommended the consolidation of a
cooperative system for effective functioning. The Fifth
Five Year Plan recommended the establishment of
Farmers Service Societies. The Sixth Five Year Plan
developed a point programme for a cooperative society
to bring economic development and for expanding the
scope of cooperative societies.
Characteristics of the
co-operative banking
1]Deeply anchored within the local economy

Co-operative banks are key actors in the European

society. They provide access to finance at local
level and are widespread even in remote areas of
the continent. More than 43,000 outlets offer
close and unique relationships with customers.
The European co-operative movement also
reflects the tradition of responsibility and social
cohesion since their creation in the 19th Century.
Their wide-ranging networks often make them
the main employers and taxpayers in their own
regions. Co-operative banks employ
approximately 705,000 people in Europe
2]Property of their own members/customers

Clients can become members/owners of co-

operative banks with relatively small investments.
As a result, they have a direct say in the business
and are involved in the governance, strategy and
risk management processes. The core business of
co-operative banks is value creation for their
members and a long-term relationship of trust,
opposed to the profit maximization approach of the
mainstream banks.
3]One person = one vote

Co-operative banks bring together modernity,

innovation and the traditions of the founding fathers
of the movement, like Raiffeisen and Schulze-
Delitzsch. They comply with the banking and co-
operative legislation of their respective countries,
with the key principle of one person=one vote, found
in the EACB Statute. Their unique stakeholders
structure brings about efficiency and sound
governance: members control the co-operative by
exerting checks and balances at each level of the
business. This minimizes the organization’s risk,
identifies creditworthiness and gives immediate
response to customers’ needs.
4]Sound business practices and resilient
structures

Co-operative banks generally have a high level of

capitalization, stable incomes from retail
business and a diversified credit portfolio. Credit
ratings reflect this very well; ranging between
AA and AAA for the largest co-operative banking
groups in Western Europe. Stakeholders banks
are able to face the challenges of the new post-
crisis environment because their business model
responds to the present needs and expectations.
5]Financing the real economy

Co-operative banks contribute to stability thanks to

their proximity to their clients. They continue to
provide credit to their clients and members in
good and bad times. They are key players in
financing the real economy: the households and
the SMEs on our territories. In Italy, France,
Germany and the Netherlands, co-operative banks’
market share in loans ranges between 25% and
45%. In those same markets SMEs represent
between 20% and 50% of the total client portfolio
of co-operative banks.
6]Leading the way in the field of social
responsibility

Co-operative banks foster self-help, responsibility

and solidarity. They emphasize the common good
of society. They were historically founded to
improve access to finance for their members, who
would otherwise have had limited access to finance
at reasonable rates. As a result, co-operative banks
take part in a range of schemes, such as
microfinance and financial education of long-term
unemployed personnel. They also traditionally
foster the development of their communities
through cultural sponsorship and responsible
citizenship. Co-operative banks are among the
market leaders for Socially Responsible Investment
(SRI) products such as funds and savings accounts.
Nowadays, green finance is gaining an increasing
importance; customers can contribute to the
preservation of the environment through a variety
of investment solutions.
Structure of cooperative
banks in india
1] State Cooperative Banks (SCBs):
• State cooperative banks are the apex
institutions in the three-tier cooperative credit
structure, operating at the state level. Every
state has a state cooperative bank.
• They provide a link through which the Reserve
Bank of India provides credit to the
cooperatives and thus participates in the rural
finance,
• They function as balancing centers for the
central cooperative banks by making available
the surplus funds of some central cooperative
banks. The central cooperative banks are not
permitted to borrow or lend among themselves,
• They finance, control and supervise the central
cooperative banks, and, through them, the
primary credit societies.
• State cooperative banks are mainly interested in
providing loans and advances to the
cooperative societies. More than 98 per cent
loans are granted to these societies of which
about 75 per cent are for the short-period.
Mostly the loans are given for agricultural
purposes.
2] Central Cooperative Banks (CCBs):
•
mixed central cooperative banks whose
membership is open to both individuals and
cooperative societies. The central cooperative
banks in the remaining states are of this type. The
main function of the central cooperative banks is
to provide loans to the primary cooperative
societies. However, some loans are also given to
individuals and others.
• The central cooperative banks raise their working
capital from own funds, deposits, borrowings and
other sources. In the own funds, the major
portion consists of share capital contributed by
cooperative societies and the state government,
and the rest is made up of reserves.
• Deposits largely come from individuals and
cooperative societies. Some deposits are received
from local bodies and others. Deposit
mobilisation by the central cooperative banks
varies from state to state.
3] Primary Agricultural Credit Societies (PACSs:
• It is a village-level institution which directly deals
with the rural people. It encourages savings
among the agriculturists, accepts deposits from
them, gives loans to the needy borrowers and
collects repayments.
• It is a village-level institution which directly deals
with the rural people. It encourages savings
among the agriculturists, accepts deposits from
them, gives loans to the needy borrowers and
collects repayments.
• The working capital of the primary credit
societies comes from their own funds, deposits,
borrowings and other sources. Own funds
comprise of share capital, membership fee and
reserve funds. Deposits are received from both
members and non- members. Borrowings are
mainly from central cooperative banks.
• Only the members of the societies are entitled to
get loans from them. Most of the loans are short-
term loans and are for agricultural purposes. Low
interest rates are charged on the loans.
Types of Cooperative Banks
in India
1] Primary Co-operative Credit Society
• Primary Cooperative Credit Societies are formed at
village or town level. A primary credit society refers
to any cooperative society other than a primary
agricultural credit society. It is basically an
association of members residing in a particular
locality. The members can be borrowers or non-
borrowers. The funds of this society are derived
from the share capital of the deposits and also the
loans from central cooperative banks.
• According to the norms, the paid-up share capital
and reserves of a Primary Credit Society should be
less than Rs 1 lakh. Such as society can do banking
business without being required to take a licence
from the RBI. However, the Banking Laws
(Amendment) Act, 2012 has permitted RBI to
assume additional regulatory powers over co-
operative banks. It also gives the regulator the
power to withdraw freedom given to primary co-
operative credit societies to operate as banks
without a licence from RBI.
• In the Primary Cooperative Credit Society, the
borrowing powers of the members as well as of the
society are fixed. It generally gives small credit for
farm inputs, fodder, fertilizers, pesticides etc.
2] Central Co-operative Banks
These are the federations of primary credit societies in
a district and are of two types:
Those having a membership of primary societies only.
Those are having a membership of societies as well as
individuals.
The funds of the bank consist of share capital, deposits,
loans and overdrafts from state co-operative banks and
joint stocks.
These banks provide finance to member societies
within the limits of the borrowing capacity of societies.
They also conduct all the business of a joint-stock
bank.
3] State Co-operative Banks
The state co-operative bank is a federation of
central co-operative bank and acts as a watchdog
of the co-operative banking structure in the state.
It procures funds from share capital, deposits,
loans and overdrafts from the Reserve Bank of
India.
The state co-operative banks lend money to
central co-operative banks and primary societies
and not directly to the farmers.
4] Land Development Banks

These are organized in 3 tiers, namely; state,

central, and primary level with the objective to
meet the long term credit requirements of the
farmers for developmental purposes.
National Bank for Agriculture and Rural
Development (NABARD) supervises Land
development banks.
The sources of funds for these banks are the
debentures subscribed by both Central and State
government as these banks do not accept
deposits from the general public.
agency 2006- 2007- 2008- 2009- 2010- growth rate[%]
07 08 09 10 2011

2006- 2009- 2010-

10# 10* 11*

Cooperativ 4248 48258 45966 63497 70105 15.66 38.14 10.41

e banks 0

Regional 2043 25312 26765 35217 43968 20.4 31.58 24.85

rural 5
banks

Commerci 1664 18108 228951 285800 332706 20.01 24.83 16.41

al banks 85 8

Total 2294 25465 301908 384514 446779 18.97 27.36 16.19

00 8
It is clear from the above table that the amount of
cooperative credit in India has increased from 2006-
07 to 2008 and suddenly decreased by 2,292 crores
in the next year and again increased up to 70,105
crores in the year 2010-11. On the other hand there
is a continuous increase in credit in Regional Rural
Banks and Commercial Banks. The compound
growth rate of credit for cooperative banks from the
year 2006-2010 is 15.66 percent and for Regional
Rural Banks and Commercial Banks is 20.4 and
20.01 respectively. The percentage change of
cooperative bank credit for the year 2009-10 is
38.14 percent which is higher than regional rural
banks (31.58 percent), and commercial banks
(24.83percent). Again the percentage change in
credit of all the banks has declined for the year
2010-2011, whereas the percentage change of
credit for cooperative banks the massive in
comparison to other banks for the current years .
5] Urban Co-operative Banks

• It refers to primary
cooperative banks
located in urban and
semi-urban areas.
• Earlier the scope of
these banks was
restricted, which now
has been considerably
widened.
• They provide funds
and services to small
borrowers and small
business.
• urban cooperative
banks can
issue Perpetual Non-
Cumulative Preference
Shares. They are also
permitted to offer
perpetual debt
instruments and long
term subordinated
bonds.
In the above graph we can clearly see how
important role cooperative banks play in the
credit control of rural households. Nearly 25% of
rural credit is being distributed by the
cooperative banks. Were just like cooperative
banks, commercial banks share in the credit
distribution in rural house holds is nearly similar.
Functions of
Cooperative
Banks

• It provides financial assistance to people with

small means and protects them from the latches
of money lenders providing loans and other
services at a higher rate at the expense of the
needy.
• It supervises and guides affiliated societies.
• Rural financing- It provides financing to rural
sectors like cattle farming, crop farming, hatching,
etc. at comparatively lower rates.
• Urban financing- it provides financing for small
scale industries, personal finance, home finance,
etc.
• It mobilises funds from its members and provides
interest on the invested capital.
 Objectives of
Cooperative Banks

• To provide rural financing and micro-financing.

• To remove the dominance of money lenders and
middleman.
• To provide credit services to agriculturalists and
weaker sections of the society at comparatively
lower rates.
• To provide financial support and personal financial
services to small scale industries, housing financial
assistance, etc.
• To provide basic banking services to its members.
• To promote the overall development of rural areas.
 Importance of Cooperative
Banks

• It has an extensive branch network all over the

country, making credit easily available even to rural
areas. It accounts for 67 per cent of total rural
credit.
• It is an integral source for credit to agriculturalists.
• It confirms to the requirements of democratic
planning and economic progress.
• It provides support to small and marginal farmers
for buying inputs, storage and marketing
assistance.
 ADVANTAGES OF
COOPERATIVE BANK
1] Easy to Form:
Forming a cooperative society is a no-brainer.
Minimum 10 adults are needed to form a
cooperative society. The funds and time required
is minimal to get the society registered. The legal
formalities are bare minimum.

2] No Restriction on Membership:
The membership of cooperative society is open
for all and the members can walk out of the
organisation of their own free will. No
discrimination is made on the basis of gender,
caste, creed and political association. The shares
of a cooperative society are so affordable that
even the low income groups can purchase them.
3] Limited Liability:
The liability of the members is limited to the extent of
the capital contributed by them. Therefore, not only
the members are absolved from the fear of
attachment to their private property, in case the
society goes through financial losses; the share of risk
of each member is also known beforehand.

4] Service Motive:
Cooperative societies are meant for serving their
members. Unlike other business organisations, they
are not profit-driven. They aim to provide finer goods
and services at reasonable rates. Further, cooperative
societies render financial help to their members at a
concession. They prevent the concentration of
economic power and wealth in a few hands. They are
also a breeding ground for mutual cooperation,
brotherhood, moral values, service and many other
virtues.
5] Democratic Management:
In a cooperative society, the representatives are
elected on the basis of ‘one member one vote.’
Therefore, the management is totally democratic.
Each member has the right to equal say or equal
vote regardless of the capital contributed by him
or her.

6] Low Cost of Operations:

The operational or administrative expenses of
cooperative societies are low because the
members offer their services in exchange for
nothing. There is no loss due to bad debts
because the goods and services are being sold in
cash. Moreover, there is no need for massive
advertisement to promote the stock. Absence of
middlemen is another factor that regulates
unnecessary expenditure.
7] Internal Financing:
Cooperative societies transfer a part of their
profits to the general reserve every year. The
dividend to the shareholders on profit cannot be
more than 10 percent. Consequently, the
‘retained earnings’ are ploughed back into the
company for diversification of its business.

8] Income Tax Exemption:

Cooperative societies enjoy the privilege of
paying no taxes to the government on their
earnings. They are also exempt from paying
Stamp Duty and Registration Fees.
9] Durability:
After getting registered, a cooperative society
becomes a distinct legal entity. The death or
bankruptcy of the members has no effect on its
functioning. For this reason, it is a durable
enterprise.

10] Cheaper Goods:

The cooperative societies directly buy goods from
wholesalers and producers. Thus, they are able to
procure goods at a cheaper rate.

11] State Patronage:

The aim of cooperative societies is to serve and
strengthen the weaker sections of the society.
Therefore, the government helps them by offering
them loans on easy terms and conditions. They
also offer special grants and subsidies to the
cooperative societies
 Disadvantages of a
Cooperative Society:
1] Limited Resources:
The financial strength of cooperative societies is
low due to limited supply of capital. The
membership fee is less as most members belong to
middle and low income groups. The face value of
shares is also very nominal. In addition, the loan
raising capacity from state cooperative banks is
also limited. Thus, cooperative societies are
incapable of striving for expansion due to shortage
of funds.

2 Incapable Management:
The managerial board of a cooperative society is
elected by the members. These members may not
possess adequate qualifications and skills to run a
business organisation efficiently. This can prove to
be a major drawback for the success of the
cooperative society.
3]Lack of Motivation:
Honorary office bearers of the society may lack
enthusiasm to perform their office duties as they get
little or no incentive to work hard. Due to absence of
link between efforts and material rewards, the
members may lack the zest to serve the organisation
to the best of their abilities. The results of such
negatives are bound to show up in the functioning of
the cooperative society.

4] Rigid Business Practices:

Cooperative societies follow conventional modes of
sale. They cannot embrace new-age selling methods
such as credit sale, home delivery, discount sales, etc.
Therefore, their rigid business techniques fail them in
competing with private business establishments.
5] Limited Consideration:
The cooperative societies are established for the
purpose of serving their members. Profits earned by
them are very low. As a result, the low return on
investment is a factor which demotivates people
from becoming the member of these enterprises.

6] High Interest Rate:

The cooperative societies enjoy the privilege of
credit options from banks. Yet, the high rate of
interest eats away a big chunk of their earnings.
Thus, they are unable to save much as a large part of
their income is spent on paying the high interest and
principle amount to the financial institutions.
7] Lack of Secrecy:
The affairs of a cooperative society are openly
discussed in meetings. The members can
independently audit the books and records. Due to
lack of secrecy in the business affairs, a number of
loopholes are created within the organisation.
8] Undue Government Intervention:
The daily operations of a cooperative society are
subject to government rules and regulations.
Regular book-keeping, auditing and inspection of
accounts by the government officials are
mandatory aspects of the organisation. The
reports have to be submitted to the registrar. All
these legal formalities take a lot of time and
consequently inhibit efficiency.
9] Conflict among Members:
The members of cooperative society come from
different walks of life. Often, their views on
important issues may differ from each other
leading to strong resentment and disharmony
among them. Some ambitious members also want
to control the functions of the organisation.
Blinded by the society, thus, crippling its efficiency.
 Difference between cooperative
Comparison Chart

bank and commercial bank

BASIS FOR COMPARISON COMMERCIAL BANK COOPERATIVE BANK

Meaning A bank, that offers banking services to A bank set up to provide finance to
individuals and businesses is known as agriculturists, rural industries and to
a commercial bank. trade and industry of urban areas (but
up to a limited extent).

Area of operation Large Small

Motive of operation Profit Service

Borrowers Account holders Member shareholders

Main function Accepting deposits from public and Accepting deposits from members and
granting loans to individuals and the public, and granting loans to
businesses. farmers and small businessmen.

Banking service Offers an array of services. Comparatively less variety of services.

Interest rate on deposits Less Slightly higher

 SUGGESTIONS
• The banks should adopt the modern methods
like internet banking, credit, ATM.etc.
• The banks should plan to introduce new
schemes for attracting new customers and
satisfy the present ones.
• The Banks should plan for the expansion of
branches.
• The banks should improve the customer services
of the bank to better extent.