COOPERATIVE BANKS

Introduction: - definition and concept of cooperative society, brief mention of cooperative

principles, definition of banking. Cooperative Banks are an amalgamation of the two
institutions – banks and cooperative society.

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 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’. As the name
suggests, the main objective of Co-operative Banks is mutual help.

History of Cooperative Banks:

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.

- 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.

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 organization.
 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.

Structure of cooperative banks:

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). The term
Urban Cooperative Banks (UCBs) is not formally defined but refers to primary cooperative
banks located in urban and semi-urban areas. The Urban Cooperative Banks (UCBs), the
Primary Agricultural Credit Societies (PACS), the Regional Rural Banks (RRBs), and Local
Area Banks (LABs) could be considered as differentiated banks as they operate in localized
areas. Till 1996, these banks were allowed to lend money only for non-agricultural purposes.
This distinction does not hold today.

These banks were traditionally centered on communities and local workgroups as they
essentially lent to small borrowers and businesses. Today, their scope of operations has
widened considerably.

Advantages:

- 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.

Disadvantages:

- To lend money, they need investors which are tough to find.

- Over the years, the number of NPAs and over-dues 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.

cooperative banks in Punjab:

- Section 70-A of Punjab Cooperative Societies Act.

- Sections 11, 22, 35 of Banking Regulation Act, 1949.
- Punjab State Cooperative Bank Ltd. - The Punjab State Cooperative Bank was
established on 31st August, 1949 at Shimla vide registration No. 720 is a principal
financing institution of the cooperative movement in Punjab. In 1951 its Head Office
was shifted to Jalandhar from where it moved in 1963 to Chandigarh. In the cooperative
Banking structure, the position of the Punjab State Cooperative Bank is extremely
important as the whole credit system revolves around it. It has 17 branches and 1
extension counter in Chandigarh. There are 20 District Central Cooperative Banks
having 802 branches all over Punjab, mostly in rural areas of the State.

Modern day Challenges:

- Changes in the financial sector and evolving microfinance, FinTech companies,

payment gateways, social platforms, e-commerce companies, and Non-Banking
Financial Companies (NBFCs) challenge the continued presence of the UCBs, which
 are mostly small in size, lack professional management, and have geographically less
diversified operations.
- The RBI noted that despite a crucial role played by the sector, its share in total
agricultural lending diminished considerably over the years, from as high as 64 % in
1992-93 to just 11.3 % in 2019-20.
- It is well known that audits are done entirely by department officials & are neither
regular nor comprehensive. Delays in the conduct of audits and submission of reports
are widespread.
- Right from the beginning the government has adopted an attitude of patronizing the
movement. Cooperative institutions were treated as if these were part & parcel of the
administrative set up of the government.
- The size of these societies has been very small. Most of these societies are confined to
a few members and their operations extended to only one or two villages. as a result
their resources remain limited, which make it impossible for them to expand their
means and extend their area of operations.
- Investigations into the case of Punjab and Maharashtra Cooperative (PMC) Bank scam
have shown gross financial mismanagement and a complete breakdown of internal
control mechanisms.

Latest Developments: -

- In January 2020, the RBI revised the Supervisory action Framework (SAF) for UCBs.
- In June 2020, the Central government approved an Ordinance to bring all urban and
multi-state cooperative banks under the direct supervision of RBI.
- In 2021 RBI appointed a committee that suggested 4 tier structure for the UCBs.
Tier 1 with all unit UCBs and salary earner’s UCBs (irrespective of deposit size) and
all other UCBs having deposits up to Rs 100 crore.
Tier 2 with UCBs of deposits between Rs 100 crore and Rs 1,000 crore,
Tier 3 with UCBs of deposits between Rs 1,000 crore and Rs 10,000 crore and
Tier 4 with UCBs of deposits more than Rs 10,000 crore.
- the Minster of Home Affairs and Cooperation has addressed a conclave, organised by
the National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB),
emphasising the needed Reforms for Urban Cooperative Banks (UCB).

Conclusion.