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Co-operative bank movement


“I know of no other instrument so potentially powerful and full of

social purpose as the co-operative movement”
-Smt. Indira Gandhi

Since India is agriculture oriented country, the importance of co-operative

movement in India is more than any other countries. The development of co-
operative movement in India is on the process but still it is not fully developed.
The Co-operative banks in India was started in 1904.Co-operative movement in
India is the result of a deliberate policy of the state and is vigorously pursued
through formation of an elaborate governing infrastructure. The successive Five-
year plans looked upon the co-operation movement as the balancing sector
between public sector and the private sector.

In India we find that the states of Maharashtra and Gujarat are well developed.
Whereas the states of Andhra Pradesh, Rajasthan and Karnataka have shown
remarkable progress in the co-operative movement and there is a vast potential for
th e development of co-operative in the remaining states.

This project is mainly focusing on the importance of co-operative bank movement

in the regional rural areas of our country. The NABARD role in the building of the
co-operative credit structure was that of an active collaborator in drawing up
schemes of development with the government of India and the State Governments,
and the provider of finance, first to the State Governments for contribution to the
share capital of co-operative credit institutions at various levels.

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1.1 What is ‘co-operative’

1.2 Definition of co-operative movement.

1.3 History of co-operative movement.

1.4 Co-operative bank movement in the world.


2.1 The principle of co-operative bank movement.
2.2 The objective of co-operative bank movement.







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6.1 Introduction of co-operative banks.

6.2 Features of co-operative bank.

6.3 Categories of co-operative bank.

6.4 Structure of co-operative bank.

6.5 Credit structure of co-operative bank.

6.6 Introduction of rural c-operative banks.

6.7 The schemes of rural co-operative banks and its Progress.

6.8 Difference between rural co-operative banks and RRBs.











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Co-operatives represent the basic qualities of our people: honesty, democratic consensus,
mutual concern and self-reliance. Throughout our land, there are co-operatives-large and small
which have succeeded. Our day starts with the consumption of milk, the sugar we use in the
preparation of sweets, the ration that we purchase from a fair price shop, the papad and pickles
which add taste to our lunch, the education our children are imparted, the fish and poultry
products that we consume for dinner; the betel nut that we chew after dinner and chocolates
given to kids put them to sleep, all have some contribution of the co-operative movement.
Indeed, co-operatives have touched our lives in more ways than one.

“India is the ‘land of co-operatives’. The largest numbers of co-operatives are in our nation.”

According to ICA, "a cooperative is an autonomous association of persons united

voluntarily to meet their common, economic, social and cultural/needs and aspirations through a
jointly owned and democratically -controlled enterprise"

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Co-operative movement can be define as a “Voluntary movement

of the people, carried out democratically by pooling together their
resources or carrying on the given activity, with the purpose of
achieving or securing certain benefits or advantage which given to
people cannot get individually and with the purpose of promoting
certain virtue and values such as self help, mutual help, self reliance and
general goods of all.”

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Around the world modern cooperatives have developed for over 200 years. Cooperative
institutions exist all over the world providing essential services which would otherwise be
unattainable. In many Third World countries, cooperatives such as credit unions and agricultural
organizations have been very successful in helping people to provide for themselves where
private and other corporate capitals do not see high profitability. In 90 countries of the world,
over 700 million individuals are members of Co-operative institutions. Globally, cooperatives
have been able to elevate its position as a powerful economic model. In some countries they are
a sizeable force within the national economy.

During the British rule, Nicholson a British Officer in India suggested to introduce
Raiffersen model of German agricultural credit Cooperatives in India. As a follow-up of that
recommendation, the first Cooperative Society Act of 1904 was enacted to enable formation of
"agricultural credit cooperatives" in villages in India under Government sponsorship. With the
enactment of 1904 Act, Cooperatives were to get a direct legal identity as every agricultural
Cooperative was to be registered under that Act only. The 1904 Cooperative Societies Act was
repealed by 1912 Cooperative Societies which provided formation of Cooperative societies other
than credit. Under 1919 Administrative Reforms act, Cooperatives was made a provincial
subject making each province responsible for Cooperative development. The impulses of the
Indian freedom movement gave birth to many initiatives and institutions in the post
independence era in India and armed with an experience of 42 years in the working of Multi
Unit Cooperative Societies and the Multi-Unit Cooperative Societies Act, 1942, the Central
Government enacted a comprehensive Act known as Multi State Cooperative Societies Act,
1984, repealing the Act of 1942.

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The Co-operative banks are an important constituent of the Indian Financial System,
judging by the role assigned to them, the expectations they are supposed to fulfill, their number,
and the number of offices they operate. The co-operative movement originated in the West, but
the importance that such banks have assumed in India is rarely paralleled anywhere else in the
world. Their role in rural financing continues to be important even today, and their business in
the urban areas also has increased phenomenally in recent years mainly due to the sharp increase
in the number of primary co-operative banks.

Cooperative banks in India finance rural areas under:

• Farming
• Cattle
• Milk
• Hatchery
• Personal finance
Cooperative banks in India finance urban areas under:

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

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The earliest co-operatives were set-up among the weavers, in other words workers in
cottage industries, who were the first and the hardest hit by the development of the mercantile
economy and the industrial revolution. So the weavers, in order to gain access to the market in
the tools of their trade or to the market in foodstuffs set up the first co-operative in Scotland
(Fenwick, 1761; Govan, 1777 ; Darvel, 1840 ), in France (Lyons, 1835 ), in England (Rochdale,
1844 ) and in Germany ( Chemnitz, 1845 ).

Though co-operation and mutual enterprise has been an essence of human-society ever since
it evolved, the real co-operative movement can be credited to the Rochdale Pioneers who
established a co-operative consumer store in North England. This store can be called as the first
in the co-operative consumer movement.

The "Rochdale Pioneers", made their first aim to establish co-operatives where the members
would not only be their own merchants but also their own producers and their own employers.
Around this time the co-operative movement was more at an utilitarian level. The concept
though old, was just being implemented and was growing slowly. Many great thinkers, far-
sighted men and visionaries were applying their minds to find practical solutions to the new
problems and to work out better systems of social organization.

In Great Britain Robert Owen (1771-1858) conceived and set up self-contained semi-
agricultural, semi-industrial communities. Dr. William King (1758-1865) helped to spread
Owen’s doctrine; his ideas were more reasonable than Owen’s and achieved more results. In France
Charles Fourier (1722-1837), a commercial clerk, published in 1822 his main work, a Treatise on
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Domestic Agricultural Association. This could be one of the first works on co-operation. Though all
these visionaries had articulated the philosophy of co-operation it was not until the World-War II
that an Authoritative Commission was appointed by the International Co-operative Alliance.


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In India the Co-operatives officially appeared through a Cooperative Society’s Act in

1904 during the British rule and subsequently it took a great shape after the independence in
1947. Since the independence the Indian Government led by Pt. Jawaharlal Nehru saw the
social, economic and egalitarian potential of co-operation in moulding Indian society. While
addressing the Indian Cooperative Congress in April, 1958 Pt. Nehru said “the whole idea
behind the cooperative movement has appealed to me for a large number of years even though I
was not personally connected with it, I was attracted by the philosophy underlined it. If we
value, individual freedom, as many of us do, how are we to find a great balance between the
individual freedom and at the same time get away from the clutches of an acquisitive society.
The cooperative movement seems to offer a philosophy, a method of approach, which would
aim at this kind of social pattern.” In April, 1959 while addressing the Parliament he said “I
should like to place a certain aspect before the House.
We talk about the cooperative movement. But I should like this matter to be considered
from an even broader point of view, of reorganizing our vast rural areas, of building of a new
social structure. Hither to, the Community development movement has sought to make people
living in the rural areas self reliant, working together, cooperating, building of their villages and
generally advancing more specially on the agricultural front.

Now the cooperative comes and gives these aims an institutional character. This has to be
an attempt on a magnificent scale.” In pursuant to the above theme given by Pt. Nehru, the
cooperative movement in India underwent several phases in consolidating the poor, the rural, the

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artisans, and the farmers etc. to join together in forming their respective cooperative societies
and made the umbrella bigger and bigger to attain the objectives laid down by Pt. Nehru for the
poor country like India. The National Cooperative Union of India (NCUI) was established in
1929 as an apex promotional organization for promoting and strengthening of cooperative
sector, providing education and training in cooperative, propagation of cooperative ideology and
research in cooperatives, international cooperative relations, cooperative planning and
information services. Similarly, a National Cooperative Development and Warehousing Board
were set up in 1956, in pursuance to the recommendations of the All India Rural Credit Survey
Committee (1954) under the aegis of the Reserve Bank of India. The National Cooperative
Development Corporation (NCDC) was established in March, 1963 by the Government of India
under NCDC Act 1962 as a successor organization to the above Board, with an objective of
“planning and promoting programs for production, processing, marketing, storage, export and
import of agricultural produce, foodstuffs and certain other notified commodities and collection,
processing, marketing, storage and export of minor forest produced on cooperative principles.”
NCDC since then have been playing a very crucial role in promoting the cooperatives on the
above said objective.

India unlike the developed countries started the cooperative movement with the poor people
so as to share the benefit with the poor in improving their quality of life. In some countries, we
come across very small community based cooperatives and large industrial cooperative
establishment which are sometimes difficult to distinguish from other industrial enterprises but
their service to members is unique. In India the industrial cooperatives in the fertilizer sector,
milk sector, sugar sector which have come up a long way to compete with the big industries
have maintained their structure of primarily serving to the poors


There have been also other principles like the principles of political neutrality, correct
weight and measures, purity of goods and thrift which were also taken into consideration.

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These principles have been reformulated recently by the Manchester Congress in 1995 and
now the principles of co-operation are as follows:

I Principle: Voluntary and Open Membership:

Co-operatives are voluntary organizations; open to all persons who use their services and
willing to accept the responsibilities of membership, without gender, social, racial, political or
religious discrimination.

II Principle: Democratic Member Control:

Co-operatives are democratic organizations controlled by their members, who actively

participate in setting their policies and making decisions. Men and women serving as elected
representatives are accountable to the membership. In Primary co-operatives members have
equal voting rights (one member, one vote) and co-operatives at other levels are also organized
in a democratic manner.

III Principle: Autonomy and Independence:

Co-operatives are autonomous, self-help organizations controlled by their members. If

they enter into agreements with other organizations, including governments or raise capital from
external sources they do so on terms that ensure democratic control by their members and
maintain their co-operative autonomy.

IV Principle: Education, Training and Information:

Co-operatives provide education and training for their members, elected representatives,
managers and employees so that they can contribute effectively to the development of their co-
operatives. They inform the general public particularly young people and opinion leaders about
the nature and benefits of co-operation.

V Principle: Co-operation among Co-operatives:

Co-operatives serve their members most effectively and strengthen the co-operative
movement by working together through local, regional, national and international structures.

VI Principle: Concern for Community:

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Co-operatives work for the sustainable development of their communities through policies
approved by their members. The seventh Principle was added at the Manchester Congress of


1) Service to the people:-

The primary objective of the co-operative body is to take care of its members and the
community as a whole. Their primary aim is to serve the people, without becoming too
commercial like the private sector.

2) Equal distribution of Income and Wealth:-

The main objective of co-operatives is to share the income and wealth amongst its
members. The members will reap the fruits of success in the form of wealth and share the same
fruit in times of crisis.

3) Monopoly in Control:-

One of the main roles of co-operatives is to arrest the monopolistic situation of the market.
In many countries, the MNC’s create a monopoly of some products. In such areas, the co-
operatives enter and curb the monopolistic status earned by the MNC’s

4) To increase the income of the people , thereby improving their economic

conditions :-
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Co-operatives play a pivotal role in bringing about a change in the standards of living for
many rural people. They provide employment opportunities and serve the needs of the members
financially as well as help in upgrading social development.

5) Reduction in cost of production:-

Co-operatives follow the strategy of backward integration. They make their own raw
materials and hence, reduce the cost of production. As members themselves play a major part in
running the co-operative, the labour cost is considerably reduced. The Co-operatives pass on the
benefits of low cost to the customers by pricing their goods at the reasonable rates.

6) Protection of consumers:-

The ultimate aim of a co-operative organization is to protect the interest of its consumers.
Co-operatives also follow fair means of running the institution. No exploitation in the product,
price etc is done by the co-operatives.

7) Self- help and mutual help:-

Co-operatives follow the principle of ‘EACH FOR ALL, ALL FOR EACH.’ A member
of a co-operative develops himself, and also develops the members of co-operative and the
society as a whole.

8) Development of certain economic activities:-

The main role of co-operatives is to develop the economy in rural areas. Co-operatives
have played a multifaceted role in developing the sectors, especially in areas of forest produce,
honey, silkworms, fruit processing etc.

9) Prevention of exploitation of working class:-

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Co-operatives help protect the working class from the exploitation by the owners. In some
countries, co-operatives have developed as an offshoot to capitalism. As workers form their own
co-operative body, they help each other and stand united for a common cause.

10) To develop the backward classes and poor:-

Co-operatives have been formed to counteract the problems faced by the backward classes
and the upper classes in villages. Many co-operatives have also begun to overcome the problems
of poverty.


In 1904 the co-operative act was passes as a part of co-operative movement in India. The
act can be studied as under:-

1] Beginning Period of Co-operative Movement in India (1904-1912): –

The Indian co-operative movement started on 25 March 1904 with the passing of an act.
The objectives are as under:
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1. Establishment of co-operative societies.

2. Legal existence.
3. Control of Registrar.
4. Free audit of accounts by the registrars.
5. Classification of rural and urban societies.
6. Responsibilities of members.
7. Limits on the distribution of dividend.
8. Loans to members.
9. Interest of members in society.

This stage has been termed as the primary stage in the development of co-operative
societies because the promoters had no idea of cooperation and had very less experience about

2] Period of Harried Expansion: (1912 to 1918): –

As the government doubtful about the act passed in 1904, as it was not sufficient to cop
up with the needs of societies, govt. passed another act in 1912 to curtail the deficiencies in the
act of 1904.
The main features of the act were as follows:
1. Permission to start non credit supplying societies.
2. Classification of societies as per their responsibilities.
3. Utilization of profit.
4. Special rights to societies.
5. Concessions to co-operative societies.
6. Restrictions in using co-operative in name.
7. Permission to establish central societies.
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8. Shares of society.
The shortcomings of 1904 act were overcome by 1912 act. Permission was granted to
start co-operative societies in other fields. Co-operative Movement was shooted for expansion.

3] Unplanned Rapid Development: (1919-1929):–

The matter of cooperation was entrusted to the provincial govt. due to passing of reforms
act in 1919. The co-operative movement flourished thereafter in many provinces. Provincial
govt. appointed committees to study the co-operative movement. Depending upon the situation
of the province various acts were passed by the respective provincial govt. to develop the co-
operative movements in their provinces. Due to the passing of co-operative act in 1919the co-
operative movement boosted up and there was a tremendous development in the no. of societies
providing credit. At the outset govt. of Bombay first passed the act in 1925. In 1932, 1935 and
1941 the acts were passed by the govt. of Madras, Bihar, Orissa and Bengal respectively. During
1919- 1929 only quantitative growth of societies would be seen. No proper attention was given
to qualitative growth. Therefore this cooperative movement was defined as “Unplanned

4] Period of Consolidation and Re-organization (1929- 1939): –

There was vigorous blow to the Indian co-operative movement because of the worldwide
financial depression in 1929 and so the development of co-operative movement stopped. The
existing societies have to face various problems. The co-operative credit societies had invested
their capital in agricultural activities. The price of agricultural produce went down thus the
arrears increase and the existence of co-operative societies was in danger. It affected the co-
operative movement in Punjab, Haryana, Bihar and Bengal. The ratio of loans to arrears was
20% in 1927-28 which increased to 40% in 1932-32. The percentage of arrears went up to 93%
in Bombay in 1938-39. During this period about 50% of co-operative societies went into
liquidation. In 1935 Reserve Bank of India was established. A separate section for providing
agricultural credit was opened. In 1937 this section studied various problems of Indian co-
operative movement and submitted its report stating that development of co-operative societies
should be given priority.

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5] Period of Recovery (1939-1947): -

During this period the financial depression of Indian co-operative movement had been
removed and this movement was again on the path of its development. The atmosphere of world
war proved to be beneficial for the co-operative movement. The price of the agricultural produce
started increasing thereby there was an increase in the income of the agriculturists and their
repayment capacity went to a higher level. The consumer co-operative stores prospered due to
the restriction imposed during war time. The industrial co-operative societies came into
existence for the purpose of providing war materials. Non-profit supplying societies and
multipurpose societies had developed. The development of co-operative movement during 1929
to 1947 can be seen from the following table:

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Year No.of societies Membership Capital

(in 000’s) (in lakhs) (in crores)

1939 122.00 53.07 106.47

1943 146.00 69.01 121.14

1946 172 91.6 104.00

1947 139.00 90.00 156.00

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Due to the bifurcation in 1947 some of the co-operative societies had been shifted to
Pakistan thereby reducing the number of societies, its membership and capital. During 1939-
1946 the field of co-operative movement was spread over a large scale.

6] The Sixth Stage (1947-1970): -

After attaining independence the government felt that co-operatives should play an
important role in the development of rural areas. The late Prime ministers Jawaharlal Nehru and
Lal bahadur shastri stressed on the importance co-operatives. Co-operatives were included in 5
year plans.

7] The Seventh Stage (1970- 2000): -

During this period the government laid more importance on the development of rural
banking sectors. Co-operatives were asked to develop rural banks. The formation of NABARD
as an apex bank was formed for monitoring the co-operative bank.The government also took the
initiative in replicating the Anand pattern Model for dairy cooperative across the country.

8] The Eighth Stage (2000 onwards): -

The rise of the new millennium has thrown many challenges to the cooperatives. The WTO
restrictions and the threat from global co-operation have grown. The co-operatives have to face
direct competition from multinationals. The government is providing adequate support and help
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to the co-operatives by building brands, distribution network and also in exporting their products
to global market.



A) Role of Central Govt. in the Development of the Co-op.


a) The Central Govt. initiative started with the passing of the legal framework pertaining to
the co-op. movement in 1904 with the passing of the Co-op. Societies Act.

b) The Govt. amended the act in 1912.

c) Govt. provided protection to co-op. societies from the restrictive provision of certain laws
such as farmers debts relief act, etc.

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d) Expert committees were appointed from time to time and policy changes were made
depending on the recommendation and suggestions by these committees.

e) Govt. provided financial assistance to the co-op. organization.

f) An independent co-op. department was established to deal with the problems of the co-op.

g) Govt. provides assistance in the form of contribution and guarantees for loans secured by
co- op. institution.

h) Govt. provides privileges in the form of special concessions and tax exemptions
w.r.t.income tax, registration fees, etc.

B) Role of the State Govt. in the Development of the Co-operative


a) The state provides direct assistance by subscribing to the share capital of co-op.organizations
such as co-op. banks, co-op. marketing federations, etc

b) Indirect assistance is also provided by the state to enable co-op. credit societies to purchase
shares of any other co-op. organization with limited liability.

c) The State Govt. gives guarantee in the following respect:

d) Repayment of loans

e) Repayment of share capital of the societies to their members

f) Payment of dividend, etc. at prescribed rate

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g) The State provides assistance in the form of subsidies

h) The state provides concession w.r.t. stamp duty, sales tax, etc.

i) Training facilities are provided to personnel of co-operative organizations

j) The govt. also controls the working of the co-op. organization through periodical audit and
administrative measures so that the co-ops. Function according to law.

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C) Role of RBI and Co-op. Movement (1935-1982):

a) From 1935 till 1982, the RBI provided finance and guidance for the development of the co-
op. movement. Section 54 of the RBI Act provides that the bank shall create a special
Agriculture Credit Development Fund and department to perform the following functions:

b) To maintain expert staff to study all questions of agricultural credit and to make the funds
available after consulting the central government, state co-op. bank and other banking

c) To co-ordinate the operations of the bank with agricultural credit and its relations with the
state co-op. bank and other banking organizations.

1) Pre-Independence Period (1935-1947):

a) The involvement of RBI with respect to the Co-op. Movement is divided into two phases.
The first phase is from 1935-1947 when the British ruled India.

b) During this stage RBI concentrated on finding a method on which the co-op. movement
should be organized.

c) The RBI could not make much of a contribution to co-operatives during this period as some
parts of India were controlled by the princely states which were not accountable to the RBI.

d) But in places where the RBI was able to implement its policies, the co-operative Movement
developed well.

e) The RBI policy led to low credit limits for state co-operative banks.

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f) In 942, the RBI formulated a more positive policy under which it began to provide
financial assistance also for other activities.

g) In 1944, RBI provided more financial assistance at concessional rates of interest for
agricultural development. The concession provided by the bank was in the form or rebate
on the rate of interest.

h) The total withdrawal of Co-op. Banks in 1946-47 was Rs. 1.50 lacs.

2) Post-Independence Period:

a) The Co-op. movement gained ground during this period with the RBI being instrumental
in bringing about changes and developments.

b) The RBI convened a conference of people connected with the Co-op. Movement in
1951.This conference considered various problems related to the movement. Following
recommendations were made:

c) RBI should play a more positive role in respect of Agricultural Development.

d) Procedure of providing assistance should be liberalized.

e) New framework for providing assistance to the Co-op. Movement should be prepared and
there should be coordination between different organizations engaged in the development
of this movement.

f) RBI took a few steps in view of these recommendations:

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g) Procedure for providing financial assistance was liberalized thus allowing cooperatives to
obtain assistance from RBI without much difficulty and formalities.

h) RBI agreed to provide loans for seasonal operation in states where Co-op.Banking
structure was weak.

i) RBI also agreed to provide assistance for agriculture production and marketing in order to
facilitate the supply of credit to co-op. organizations.

j) RBI established a Standing Advisory Committee on Agriculture Credit with the purpose of

bringing about close coordination between different co-op institutes so as to ensure policies

are implemented in an effective manner.

k) RBI re-designed its agricultural credit department in order to provide financial assistance
the agricultural sector in a smooth manner.

l) RBI initiated steps to ensure that rural credit is channelized in a proper manner while it
made efforts to study the co-op movement in different states.

m) The role of the RBI increased after the publication of the All India Rural Credit Survey
Report in 1954. The suggestion that there should be an integrated scheme for rural
development was well accepted.

n) For the purpose of providing long term loans to state governments so that they could
subscribe to the share capital, a fund known as National Agricultural Credit Fund was

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o) RBI established the Agricultural Credit Board to provide financial assistance and guidance
for agricultural and rural development.

p) In 1982, the RBI created a separate organization known as National Agricultural and
Development Bank which has since been performing the functions of the RBI.

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Despite rapid growth the overall progress of cooperative movement during 100 years of its
existence is not very impressive. It is therefore necessary to know the causes of poor
Performance of the movement and on that basis take such steps as would promote a faster
growth of cooperative movement in India.

A. Government Interference:-

The cooperative movement in India was initiated in 1904 under the auspices of British
government. Right from the beginning the govt. has adopted an attitude of patronizing the
movement. Cooperative institutions were treated as if these were part and parcel of the
administrative set up of the government. The govt. interference thus became an essential element
in the working of these institutions. As a result people’s enthusiasm for the movement did not

B. Mismanagement and manipulation:-

The essence of the cooperative movement is that it gives the farmers the status of
shareholder and assures them agricultural, educational and medical facilities. Under the
Maharashtra State Co-operatives Act, a minimum of 11 farmers is required to form a Co-
operative. Today the shareholder membership averages between 15,000 and 25,000 farmers. The
relationship between the shareholder farmer and the cooperative is simple - the farmer is
committed to contributing a certain amount of cane per season and the mill is bound to take this
cane. The strength of the movement was the involvement of the farmers who were shareholders
in the sugar mill regardless of the size of their holdings. Over the years, this truly democratic
idea got corrupted and farmers with larger holdings grew more powerful.

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C. Lack of Awareness:-

People are not well informed about the objectives of the movement, the contributions it
can make in rebuilding the society and the rules and regulations of cooperative institutions.
Unfortunately, no special efforts have been made in this direction. People look upon these
institutions as means for obtaining facilities and concessions from the govt.

D. Restricted Coverage:-

The cooperative movement has also suffered on account of two important limitations on it
working. One is that the size of these societies has been very small. Two, the most of the
societies have been single purpose societies. For this reason these societies are unable to take a
total view of the persons seeking help, nor can they analyze and solve problems from different
angles. Under these circumstances it has not been possible for these societies to make much

E. Functional Weakness:-

The cooperative movement has suffered from inadequacy of trained personnel right from
its inception. Lack of trained personnel has been caused by two major factors. In the first place,
there has been a lack of institutions for this purpose of training personnel. Secondly because of it
unsatisfactory working of cooperative institutions, efficient personnel did not feel attracted or
motivated towards them.

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The Co-operative Movement was introduced into India by the Government as the only
method by which the farmers could overcome their burden of debt and keep them away from the
clutches of the money-lenders. The Co-operative Credit Societies Act, 1904 was passed by the
Government of India and rural credit societies were formed.

(1)The Primary Agricultural Credit/Service Societies –

The agricultural co-operative credit structure in the Punjab State is broadly divided into two
sectors, one dealing with the short-terms and medium-terms finance and the other with the long-
term credit. In the State, the short-term and medium-term credit structure is based on a three-tier
system, i.e. the Apex Co-operative Bank at the State level, the Central Co-operative Bank at the
district / tensile level and the Primary Agricultural Credit Societies at the village level. The
major objectives of the primary agricultural credit service societies are to supply agricultural
credit to meet the requirements of funds for agricultural production, the distribution of essential
consumer commodities, the provision of storage and marketing facilities and for light
agricultural implements and machinery.

The first Agricultural Credit Society in the Firozpur District was registered on 4 October
1911, at the Village of Khalchi Kadim in the Firozpur Tensile. Originally, the movement was
confined to the credit societies only and, thus, credit dominated till the partition (1947).

After the partition, the Co-operative Movement began to spread to other field, viz labour,
construction and farming. In 1979-80, the number of agricultural cooperative credit societies in
the District was 309 with a membership of 1, 21,761. The loan advanced during the same year
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Co-operative bank movement

amounting to Rs. 2,180.35 lakhs and the deposits to Rs. 26.84 lakhs.

(2) Agricultural Non-Credit Societies –

When the non-credit societies were brought officially under the protection of the
Movement. The World War II came as a God send boon with respect to the development of the
Cooperative Movement. Prices of agricultural goods began to rise and touched new peaks. The
repayment of loans was accelerated and deposits began to increasing. The number of societies
also rose. Another interesting development in co-operative during the War was the extension of
the Movement to non-credit activities, namely consumer’s co-operative marketing societies,
integration of societies, etc.

(3) Agricultural co-operative Marketing Societies –

Marketing has occupied a far smaller place in the co-operative picture in India than in many
countries. The full utilization of loans advanced depends upon the arrangements for the
marketing of surplus produce. These societies also provide other agricultural Facilities and make
arrangements for the supply of domestic items in the rural areas. At the State level, the Punjab
State co-operative Supply and Marketing Federation is playing an important role in building up
an integrated structure for remunerative marketing and storing of agricultural produce.It has
played an important role in the Green Revolution in the State by arranging ready supplies of
essential farm inputs needed by the cultivators.

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Co-operative bank movement

(4) Co-operative Farming Societies –

The Royal Commission on Agriculture in 1928 observed that it co-operation failed, there
would fail the hope of the Indian agriculturist. Under this system, all landowners in a village
form a co-operative society for cultivate the land. The land is combined, but each farmer retains
the right of property. They are allowed to withdraw from the cooperative farm whenever they
desire. In India, the exceedingly small size of holdings is perhaps the most serious defect in our
agriculture. If agriculture has to be improved, the size of the holdings must be enlarged. The
operative farming societies, thus, enable the cultivators to enjoy the economies of large-scale
farming through the pooling of land management resources.

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Co-operative bank movement




In the early 20th century, the availability of credit in India, more particularly in rural areas

was non existent. There was no organized institutional credit for agricultural and related activities.

People in the rural areas largely depended on money lenders who lent money at very high rates of

interest. Thus, there was need to create an institution which would cater to the needs of ordinary

people and was based on the principles of co-operative organization and management. In 1904,

first legislation on cooperatives was passed. In 1914, the Maclagen committee suggested a three

structure for cooperative banking i.e. Primary agricultural credit societies at the grass root level,

Central cooperative banks at the district level and State cooperative banks at the state level.

Cooperative banks were expected to serve as substitutes for money lenders, and provide both short

term and long term institutional credit at reasonable rates of interest.

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Co-operative bank movement


1) Cooperative banks are organized and managed on the principal of cooperation, self help
mutual help. They function with the rule of “one member, one vote”. Function on “no profit,
no loss” basis. Co-operative banks, as a principle, do not pursue the goal of profit

2) Co-operative banks perform all the main banking functions of deposit mobilization supply of
credit and provision of remittance facilities.

3) Co-operative banks provide limited banking products and are functionally specialist in
agriculture related products. However, co-operative banks now provide housing loans also.

4) Primary Agricultural credit societies provide short term and medium term loans.

5) Co-operative banks do banking business mainly in the agriculture rural sector. However,
UCBs, SCBs, CCBs operate in semi urban, urban and metropolitan areas also.

6) The SCBs, CCBs and UCBs can normally extend housing loans upto Rs. 1lakh to an

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Co-operative bank movement


There are two categories of the co-operative banks:-

a) Short term lending oriented co-operative banks – within this category there are three sub
Categories of banks viz. State co-operative Banks, DCBs, PACs.

b) Long term lending oriented co-operative banks – within the second category there are land
development banks at three levels state level, district level and village level.

The co-operative banking structure in India is divided into following main 5 categories

1) Primary Urban Co-operative banks

2) Primary Agricultural Credit Societies

3) District Central Co-operative banks

4) State Co-operative Banks

5) Land Development Banks

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Co-operative bank movement


The cooperative structure in India consists of different constituents. At the bottom of this
structure are the primary societies which render various types of services. Of this large number
about 80% is concerned with agriculture. Most of these societies, about 60% deal with credit
only. Thus a large majority of primary societies are related to agriculture and credit. They
perform various functions such things as credit, irrigation, marketing, transports etc. These are
generally divided into two groups (i) credit societies and (ii) non credit societies Each of these
two sub groups is further split up into sub groups :( a) agricultural societies and (b) non –
agricultural societies.

Agricultural societies (both credit and non credit are found in rural areas, but non
agricultural scoieties9both credit and non credit) are found in urban areas. For supervision and
financial assistance to cooperative credit societies there are central banks and state cooperative
banks. The central banks supervise the functioning of the primary societies of a district or art of
a district and offer financial assistance to them their capital is drawn from public deposits, share
capitals and loans from other sources. Because of variety of sources from which these banks can
draw money, they act as a link between cooperative societies and the money market. They
function as balancing centers by diverting funds of surplus societies to the needy societies. They
also perform ordinary banking functions also. At the top of the cooperative credit is the state
cooperative bank, at the state level, known as the apex bank.

It controls the working of central banks and provides finance to them. It also acts as the
link between reserve bank of India from which it borrows and the central banks and primary
societies. It directs the cooperative movement in the state. Its capital comes from share capital,
public deposits and loans and advances from the state and Reserve bank of India.

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Co-operative bank movement

The National Cooperative Union of India is the apex organization promoting the
cooperative movement in the country. All the above three types of institutions are concerned
with short and medium term credit of people. Long term loans are given by Land Development
banks, which has a unitary structure having branches at different places. These banks obtain
their funds from share capital, reserves, deposits, issue of bonds and debentures. However the
major part of their resources is drawn from the floating of ordinary debentures in the market.
The investors in these debentures are LIC, commercial banks, Cooperative banks, central and
state governments and Reserve bank of India.

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Co-operative bank movement

Share of Cooperatives in National Economy - in per cent


Rural Network(Villages Covered)


Agricultural Credit Disbursed by Coops


Fertilizer Disbursed (6.103 million Tones)

Fertilizer production (3.293 M.T. - N&P) Nutrient


Sugar produced (10.400 million tons)


Capacity Utilization of Sugar Mills


Wheat Procurement (4.50 million tons)

Animal Feed Production/Supply 50%

Retail Fair Price Shops (Rural + Urban) 22%

Milk Procurement to Total Production 7.44%

Milk Procurement to Marketable surplus 10.5%

Ice Cream Manufacture 45%

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Co-operative bank movement

Cooperation in a vast country like India is of great significance because:

• It is an organization for the poor , illiterate and unskilled people
• It is an institution of mutual help and sharing
• It softens the class conflicts and reduces the social cleavages
• It reduces the bureaucratic evils and follies of political factions
• It overcomes the constraints of agricultural development
• It creates conducive environment for small and cottage industries

The statistics here indicates that modern cooperative movement has made tremendous progress
in every walk of its activities and occupies a major place in the share of the national economy.

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Co-operative bank movement




Short term and small term loans Long term
(Three tier system) (two tier system)

State co-operative banks (SCBs) Central and development bank

(At state level)

Primary land development bank
District central co-operative bank
(At taluka level)
(At district level)

Primary agricultural co-operative

Credit societies

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Co-operative bank movement

1) The PACSs:

The Primary Agricultural Credit Societies (PACS) constitute the `hub’ of the Indian co-op
movement. Every fourth co-operative in India is a primary credit society. The main objectives of
a PACS are:

• To raise capital for the purpose of giving loans and supporting the essential
Activities of the members.
• To collect deposits from members with the objective of improving their
savings habit.
• To supply agricultural inputs and services to members at remunerative prices.

The Primary Agricultural Co-operative Societies

Indicators Value

Village covered by PACS 99.5%

Total Number of PACS 100000

Membership per PACS (Average) 10,00,00,000

2) The DCCB

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Co-operative bank movement

The PACS are affiliated to the District Central Co-operative Banks (DCCBs) who
perform the following functions.

• Serve as balancing centre in the district central financing agencies.

• Organize credit to primaries.

• Carry out banking business.

District Central Co-operative Banks

Indicators Value

No. of Banks 361

Total membership (Million) 1.579

Total loans advanced Rs.326,995Million

3) The SCBs:
The DCCBs in turn are affiliated to State Co-operative Banks (SCBs), which perform the
following functions.
• Serve as balancing centre in the States
• Organize provision of credit for credit worthy farmers
• Carry out banking business
• Leader of the Co-operatives in the States

States Co-operative Banks:-

Indicators Value

No. of Banks 28

No. of branches 742

Total membership 139,676

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Co-operative bank movement

4) Primary Land Development Banks (PLDBs)

The establishment of the Land Mortgage Bank (LMBs) on cooperative lines dates back to
the year 1920 in Punjab. Later during the period 1920-29, a number of LMBs were established
in the states of Punjab, Madras, Mysore, Assam and Bengal. After that not much growth was
observed in the number of LMBs till 1945. However, during 1945-53 a rapid growth was
observed in the number of these banks. During this period only rich and affluent farmers derived
benefits of these banks and small and marginal farmers remained untouched of the
developments. LMBs got massive support from the RBI, SBI, LIC and Agricultural Refinance

As a result LMBs had to reorient its lending policies in favour of marginal and small
farmers. LMBs were renamed as Land Development Banks (LDBs) in 1974. Primary LDBs are
generally organized to serve the farmers at Taluka level.

Its specific functions are:

(i) To provide long term finance to the needy farmers for the development of land, Increasing
production and productivity of land;

(ii) To provide long term loan for minor irrigation and for redemption of old debts and purchase
of land;

(iii) To provide long term finance for purchase of tractors, machinery and equipments and
construction of farm structures; and

(iv) To mobilize rural savings.

5) Central Land Development Bank (CLDBs)

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Co-operative bank movement

In many states PLDBs are federated into CLDBs. Branches of CLDBs, PLDBs and
individual entrepreneurs are the members of the CLDB. NABARD and LIC subscribe for its
debentures in large amounts. In fact, NABARD is the refinance agency of CLDBs. It acts as a
link between NABARD and the Government in long-term business transactions. It supervises
and guides the PLDBs. It inculcates the practice of thrift among member banks by mobilizing
savings and stimulating capital formation. The CLDBs provides loans to member banks for the
redemption of old debts, improvement, reclamation and development of land, purchase of
agricultural machinery and equipment and development of minor irrigation.

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Co-operative bank movement


Co-operative banks, another component of Indian banking system, originated with the
enactment of the co-operative credit societies Act of 1904, which provided for the formation of
co-operative credit societies. Under the Act of 1904, a number of co-operative credit societies
were started.

Co-operative banks were established in India to facilities rural credit, and to cater to the
needs of small farmers and businessmen. They were popular with middle and lower income
groups because of the high interest rates they offered as compared to commercial banks.

However, with the passage of time, most co-operative banks lost their purpose. Excessive
state control and politicization further led to their deterioration. By the 1990’s, none of the privet
or public sector banks were willing to deal with co-operative banks and thus even otherwise
healthy co-operative banks were facing a tough time. In 2001-2002, many co-operative banks
were rocked by scams that exposed the malpractices in these banks. Many of these banks did not
adhere to the prudential norms prescribed by the Reserve Bank of India.

The distinct point between the co-operative banking sector and commercial banking sector
is the focus. First, co-operative banks focus on the local population and micro banking among
middle and low income state of the society. As compare to nearly 300scheduled commercial
banks, inclusive of regional banks, there were more than 90000 primary agricultural credit
societies in rural sector as at the end of 2002.

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Co-operative bank movement

Co-operative banks are an important segment of the organized sector of the Indian banking
system. They have been organized under the provision of the co-operative society’s law of the
states. They have grown with the specific purpose of financing agriculture and other economic
units in the unorganized sector of the economy.

Both commercial banks and co-operative bank perform the main banking functions of
deposit mobilization, supply of credit, and provision of remittance facilities. The major
beneficiary, in the case of commercial bank, is industry, trade and commerce whereas co-
operative bank have been concern with agricultural finance.

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Co-operative bank movement



The Government while understanding the importance of co-operatives has introduced

several schemes for promoting the spirit of co-operation. Both the Indian Government as well as
the Government of the State of Maharashtra has introduced several schemes for the co-
operatives. A few of them are listed here. Take benefit of them.

Scheme 1:
Share Capital Contribution to Credit Institutions under LTO Fund (State Level Scheme)
The Government sanctions share capital contribution to District Central Co-operative Banks.
This contribution is given out of the LTO Fund of the NABARD. The provision is made every
year to repay this loan.

Scheme 2:
Loans to Co-operative Credit Institutions for conversion of short term loans into medium
term loans.

Scheme 3:
National Agricultural Credit Stabilization Fund (Centrally Sponsored Scheme) In drought
conditions the members of Agricultural Credit Societies may not be able to repay the crop loans.
This scheme helps to convert their short-term loans into medium term loans and fresh crop loans
are made available to the members.

Scheme 4:
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Co-operative bank movement

Crop Production Incentive to Agriculturists (Dr.Punjabrao Deshmukh Crop Production

Incentive Scheme) this scheme is applicable for Kharif and Rabbi Crops taken from 1.4.90
onwards. The farmers borrowing loans of RS.25, 000 or less and who repay their loans fully
before the due date are eligible for 4 % of the principal amount as an incentive.

Scheme 5:

In the industrial co-operative societies of weaker sections of the societies, the Government
has several schemes.

1) The Government sanctions share capital in the ratio 1:3, to enable the societies to borrow
funds from the financial institutions.

2) Financial Assistance for Tools and Equipment's.

3) Interest Subsidy for Working capital:

The government gives an interest subsidy up to 3.5% to 4.5% on the amount borrowed by
the co-operative. This scheme helps to reduce the burden of interest on the co-operative society
which is to be paid to financial agencies.

Scheme 6:
Central Sector Scheme for Development of Women Co-operatives Under this scheme
financial assistance would be provided by the Central Government on 100 % basis to the newly
formed co-operative societies by the women as well as existing women’s co-operatives. The
financial assistance is as under

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Co-operative bank movement

No. Item Share Capital Subsidy Total

1.New Societies 40,000 40,000 20,000 1, 00,000

2.District 2, 00,000
80,000 80,000 40,000

3.State Federation 2, 00,000 2, 00,000 1, 00,000 5, 00,000

Scheme 7:
Co-operative Go downs: The Warehousing Corporation 90% assistance for the construction
of go down out of which 50% is loan and 40% is Government share capital.

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Co-operative bank movement



RRBs are by nature co-operative banks but are different from the co-operative banks

1) Aim:
RRBs have been established to supplement the resources of the co-operative banks and not
to complete with them. The principle of co-operation is “all for each and each for all”. Its aim is
to provide an institutional framework to organized ‘self help’ among persons of small means. Its
basis is self-help through mutual help. It combines economic, social and political objectives. It
aims at bringing about socio-economic changes in the country. The RRBs aim at ‘providing
credit and other facilities especially to the small and marginal farmers, agricultural laborers,
artisans and small entrepreneurs in the rural areas.

2) Act applicable:
The RRBs are governed by the regional rural banks Act 1976, RBI Act, NABARD Act,
whereas the co-operative banks are governed by co-operative societies Act 1965.

3) Status:
The co-operative banks do not become scheduled banks automatically, whereas RRBs are
scheduled commercial banks. The scheduled status given automatically.

4) Area of operation:
Area of operation of the co-operative banks is restricted to only one district only. But the
area of operation of RRBs is extending up to one or more districts of a state.

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Co-operative bank movement

5) Coverage of population:
The co-operative banks are voluntary organization for masses. But the beneficiaries of the
RRBs are specially class of rural area. It includes small and marginal farmers, agricultural
laborers, artisans and small entrepreneurs in the rural areas.

6) Organization:
The organizational set up of the co-operative banks is pyramidal. At the apex level, state
co-operative banks functions as apex body, at district level Central co-operative banks and
village level Primary agricultural credit societies. It has federal set up and each unit is partially
autonomous managed by depositors and borrowers on the basis of one men one vote. The RRBs
are bureaucratic institutions whereas co-operatives are democratic institutions.

7) Beneficiaries:
The Beneficiaries of the co-operative banks are mainly rural masses. Whereas the
Beneficiaries of the RRBs includes special class of people i.e., the weaker section of societies.

8) Resources:
The RRBs have owned funds which include share capital and reserve funds as well as
procured funds which include deposits and borrowings/ refinance. But the co-operative banks
depend on the RBI and deposits from members.

9) Lending operations:
The Co-operative banks lend mainly to the farmers.

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Co-operative bank movement

10) Monitoring and control:

The RRBs are controlled by the Central Government, RBI, State Government and
Sponsor Banks, whereas the co-operative banks are controlled by RBI and Registrar of co-

11) Staff:
The co-operative banks get talented staff. Whereas RRBs attract less talented staff.

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Co-operative bank movement



The RBI since its inception has been concerned with the problems of agriculture credit. It
has been conducting studies to identify the problems of agricultural credit. It was found in the
studies conducted in 1930’s that almost entire finance required by agriculturists in India was
supplied by money lenders the part played by co-operative and other agencies being negligible.
In 1951, the RBI appointed an All-India Rural credit survey committee to conduct a
comprehensive rural credit survey. It was found that only 3.1 per cent (of Rs.750 crores worth of
borrowings of the cultivators) was owed to co- operative societies.

It was found that co-operative credit fell short of the right quantity was not of the right
type ,did not serve the right purpose and often Failed to go to the right people . The committee
concluded that thought co-operation has failed but it must succeed. It was realized that only the
co-operative credit system can play the prime role in the provision of rural finance. This was
rightly thought so since there is the existence of vast network of village level primary credit
societies through- out the country. further , these societies have intimate knowledge of local
problems .A require structure was already available for an effective credit delivery system for
rural areas, therefore, RBI has made all possible efforts to strengthen and improve the co-
operative credit structure.

The RBI was assigned a crucial role on three main items:

➢ The development of co-operative credit,

➢ Expansion of co-operative economic activity and
➢ Training of co-operative personnel.

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Co-operative bank movement

The RBIs role in the building of the co-operative credit structure was that of an active
collaborator in drawing up schemes of development with the government of India and the State
Governments, and the provider of finance, first to the State Governments for contribution to the
share capital of co-operative credit institutions at various levels, and secondly, to the co-
operative credit structure itself to meet its requirements of short- term, and long-term, finance.
The details are given as below:


The RBI extends finance under two

A) Agriculture finance:

The RBI extends finance to agriculturists indirectly through co-operative sector. The credit
extended is of three types i.e. short term, medium term and long term.

To meet its aforementioned financial obligation, the RBI had established in 1956 two national

1) The national a Agriculture credit fund (long term operations)

2) The national Agriculture credit (Stabilization) fund, the first und is used for:

a. Advancing to state co-operative banks- medium term loans for agriculture

And allied purposes,

b. Making loans to state land development banks etc,

c. Purchasing the debentures of state land development banks, and

d. Making loans and advances to NABARD, started with an initial contribution Of Rs.
10 crores in 1956, the total outstanding under this fund had grown to Rs. 3,315 crores
by the end of June 1990 through annual subscription from the profits of the RBI.

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Co-operative bank movement

The second fund, viz. NAC (stabilization) fund, is used For converting the RBI’s
short term loans and advances to state co-operativeBanks into medium term loans
whenever they are unable to pay their dues in time owing to drought. Famine or other
natural calamities. This fund was set up in 1956 with an initial contribution o Rs. 1 crore.
The total outstanding under this fund stood at Rs. 660 crore at June end 1990.

B) Non Agricultural finance:

The RBI also provides short- term finance for

a. The production marketing activity of cottage and small-scale industries, and

b. The purchase and distribution of fertilizers, these loans are generally provided through
state co-operative bank against guarantees of the state governments. However, all such
finances have constituted a small property (less than %) of the total RBI short-term
to co-operatives. The bulk of it goes to Agricultural co-operatives.

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Co-operative bank movement



There is a three-tire wide network of co-operative credit structure meeting the rural credit
requirement. Though the co-operative credit movement in India developed in numbers but its
performance considered as poor due to reason more than one. So far as financial weakness of the
co-operative credit institutions is concerned, their low income and low credit worthiness is
mainly responsible for the affairs. As a result, large number of societies became dormant i.e.
societies which do not advance or collect loans for quite a few years. The administrative
problem was another major obstacle stood in the way of effective functioning of the co-operative
credit institution. While lack of sense of business management and administrative led to
insolvency of many primary credit societies, it also accounted for the poor recovery performance
of many credit societies particularly after 1981. The mounting over dues are another factor
inhibiting expansion of coverage and lending of these societies. Thus, overdue took the effect of
choking of the credit channel.

In India the co-operative credit structure is also victim of the problem of organizational
weaknesses. Lack of organizational skills in the co-operative credit structure was also
responsible for the fragmented approach of the co-operative towards finding solutions to rural
problems without trying to meet all the wants of activities. It was found that in many cases co-
ordination between the central co-operative banks and primary agricultural societies as also
between credit and non-credit societies was lacking. The necessity or the re-organization o large
number of societies has not been denied in government reports.

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Co-operative bank movement

Though the number of co-operative credit societies has increased but their scale of activities
and coverage is not satisfactory. In fact the size of credit societies accounted for a low volume of
loan transactions and this is supposed to have endangered the viability of the credit societies.
Further, the coverage of credit societies is not considered as satisfactory and it is reported that a
relatively small proportion of the total cultivators borrowed from the co-operatives. The status of
borrower, it will be clear that among the cultivators who obtain loans, were the relatively big
farmers more than relatively the poor and small cultivators.



1) Slow progress:

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Co-operative bank movement

The progress of co-operative banks is not up to the expectation and is slow when
comparing other type of banks because of many restrictions on their operations.

2) Limited scope of investment:

The main objective of co-operative banks is to provide credit facilities to the poor people
i.e., to small and marginal farmers and other weaker sections. They were originally having
limited scope to invest their surplus funds freely.

3) Delay in decision making:

The co-operative banks directly or indirectly by various agencies i.e., NABARD, RBI.
Thus it takes long time to take decision on some important issues. This, in turn affects the
progress of co-operative banks.

4) Lack of training facilities:

Generally the staff of co-operative banks is urban oriented and they may not know the
problems and conditions of rural areas. Lack of training facility concerning these areas also
affects the growth of co-operative banks.

5) Poor recovery rate:

The recovery performance of the co-operative banks is not up to the mark. the reason for
poor recovery of loans and mounting overdue are; inadequate supervision and follow up action
to assess the end use of credit by co-operative banks due to inadequate staff in banks, poor
identification of beneficiaries, inadequate generation of output and income by the beneficiaries,
poor marketing facilities.

6) Lack of local participation:

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Co-operative bank movement

Rural co-operative banks have not received sufficient local participation. The co-
operative banks have been thrust upon the rural people from above without involving local
people in its operation and management. In this connection, it is suggested that knowledgeable
persons in the rural areas need be associated with the management of co-operative banks.

7) Lack of co-ordination:

There is lack of proper co-ordination between co-operative banks and other institutional
financing agencies like commercial banks and RRBs. Also, there is inadequate co-ordination
between co-operative banks and other developmental agencies operating in rural areas. This has
hampered the progress of co-operative banks.

8) Poor development of rural areas:

In spite of several efforts made during the course o development plans to promote the
development of rural areas, it has not taken place in a significant way. The areas, at present lack
economic infra- structures like; facilities of marketing storage and distribution of inputs.
Besides, social infrastructure like; schools, medical facilities. As a result, co-operative banks
find it extremely difficult to operate in such areas.



The Amending Act has added to the principle Act a new Part-Part V, which consists of
Section 56.

Section56 of the principle Act, added as above, provides to the effect that the provisions
of the Act as in force for the time being shall apply to, or in relation to, co-operative societies as
they apply to banking companies, but subject to the modifications laid down in the section and
that all references to a “banking company” or “the company” or “such company” in the Act

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Co-operative bank movement

shall be construed as references to such co-operative banks to which the Act applies, as
specified in the preceding paragraphs.

Section 56 then proceeds to specify the modifications in several sections of the Act to
make them applicable to co-operative banks. Thus, when the Act is to be applied to those co-
operative banks to which it is made applicable, its sections are to be read a modified by Section

The second amending Act 58 of 1968 while imposing social control over banks,
introduced some amendments to Section 56 of the Act, Section 56 has also been amended by
the National Bank for Agriculture and Rural Development Act, 1981(Act 61 of 1981) and the
Act 1 of 1984.

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Co-operative bank movement


Co-operative Movement in India was formally launched in 1904 when the first Co-op.
Societies Act was enacted . it would thus be appropriate to undertake an analytical review of its
achievement & failures and the problems and challenges which it has to face in the context of
the present economic situation and the policy framework within which it has to function .

At the outset it must be recorded with pride that the movement is the biggest in size in the
whole world in terms of its membership base, working capital and multi-dimensional expansion
to touch every aspect of economic and social life of the people. Presently, we have over 5 lakh
Co-op. societies of various types like credit co-ops; C0-op. banks, marketing societies and their
federations, producers societies like, sugar factories, housing and consumer societies, artisans
societies including handloom weavers and women's societies. The total working funds of these
societies exceed Rs. 300000 crores and they have a membership base of over 20 crores. The
coverage of villages by rural credit societies is cent per cent and these co-operatives account for
nearly 50% of the total rural credit provided by various agencies like nationalized banks, rural
banks etc. These societies which operate at the village level have a direct link with the rural
population. They are organized and managed, on a democratic basis, by the local villagers.

While there could be difference of opinion about the agency which is most suited to
operate efficiently and optimally at the tertiary and the apex level, there is by and large, a
consensus reached by various expert bodies and study groups that the villages primaries which
as observed earlier, have a cent per cent coverage of villages in the country, are the most
appropriate institutional mechanism for provision of rural credit at the village level.

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Co-operative bank movement

In this connection, it may be worthwhile recording the observation made in NABARD’s.

Annual Report for 2001-2002, according to which “Co-operatives have contributed
significantly to the growth of institutional infrastructure in the rural areas, private capital
formation in the agriculture sector and distribution of farm input like fertilizers, seeds etc.

" In recent years, self-help groups sponsored by NGOs and financial institutions coming
up as on alternative and innovative credit delivery system, particularly in areas where the
village primaries are either dormant financially weak. It is reported that almost lakh such SHGs
are now operating in various parts of the country for provision of rural credit. The number of
such SHGs could increase over a period of time and their operations could pose a threat to the
existence of village primaries, particularly because unlike village primaries, they function, more
or less an informal and flexible basis.

Another sector in which co-operatives have played a significant role is milk procurement.
At the end of 1999-2000 there were over 84000 village dairy co-operatives operating in various
parts of the country having a membership base of over 100 lakhs they procured 157.80 lakhs
liters of milk every day and marketed nearly 130.00 lakhs liter of milk every day. Agricultural
processing is another area where co-ops have registered notable achievements.

This is particularly so in respect of sugar-cane crushing. Presently there are over 251
working co-op. sugar factories in the country, producing about 60% of total sugar production in
India. Apart from this, their contribution toward socio-economic development of the region in
which they are operating is also significant, there by leading to the up gradation of the overall
standard of living of the rural population.

The urban credit movement comprising of urban banks, urban credit societies and salary
earners societies have also done in commendable work in mobilization of resources and
provision of credit to the economically disadvantaged sections of the community. Housing
sector, particularly in urban areas, is dominated by co-operatives.

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It would thus appear from the above overall review that the co-operative movement in the
country has been able to attract the attention of the community, particularly the rural community
which continues to have its faith in the movement as some kind of a vehicle through which the
community, particularly the weaker sections thereof can hope to improve their socio-economic
standard of living. Apart from this, the basic principles and values of co-operation like open

Democratic management, concern for the poor, self-help and mutual help and social
responsibility towards the local community, help in raising the ethical foundation of the
community in which it operates. From a long in term point of view, this is bound to have an
invisible but qualitative impact on the civil society. For this to happen, however, the movement
must to financially strong organically integrated, professionally managed and forward looking. It
must also be able to withstand completion from its private sector and public sector rivals,
particularly in areas marketing, technological innovations, and mobilization of Resources

The opening up of the economy and its integration with forces of globalization in matters
of trade, agriculture production, financial services and intellectual property rights, in the wake of
the New Economic Policy which is being implemented since 1 991 have brought in to focus
important issues relating to organizational and business restructuring adoption of modem
technology ,new ways of mobilizing resources an measures required to be taken to upgrade
standards of productivity and overall co, effectiveness. The movement will be able to rive
strength and resilience only if it is able tackle these issues effectively. Some of the important
challenges which the movement is presently facing are:

a) Market Competition.

b) Removal of Regional Imbalances in Co-op. growth.

c) Innovative measures for mobilization of resources.

d) Organizational restructuring aimed improving the strength of the movement to with stand
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competition from multinational corporations.

e) Professional Management with its emphasis on quality in delivery of services.

f) Continuous efforts to upgrade and improve technological growth.

a) Market Competition:

Co-operatives in India particularly in the rural areas have up till now been enjoying Govt.
support and protection in the shape of subscription to share capital, preference in the matter of
grant of licenses, reservation of certain products for co-ops. etc. These props are being gradually
withdrawn and co-ops. have to face competition not only from the private sector but also from
the NGOs in micro finance and poverty alleviation activity and from Multinational Corporations
in the field of agricultural and industrial production and consumer retail trade. Member loyalty
and member user link are sources of inherent strength of the co-ops. These strengths will have to
be harnessed effectively by the co-operatives to sustain themselves in the competitive
environment. AMUL has shown by its example, how this can be successfully achieved.
Producer’s co-ops, particularly those like sugar co-ops. engaged in agricultural processing have
a particular advantage is as much as more than 70% of the cost of production of is sugar is
accounted for by the cost of sugarcane produced by members. Co-operatives will have to
formulate and implement pragmatic strategy for re-engineering the co-op system to harness the
strange of its organizational ad and proximity to member users. This would apply not merely in
respect of marketing of do but it would be applicable to provision of services also. Thus co-op.
banks which provide banking and financial services will also have to leverage their inherent
strengths arising of member loyalty for the purpose of strengthening their competitive ability.

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b) Removal of Regional Imbalances :

It has been mentioned earlier that the Indian Co-op. Movement is the biggest in the
world in terms of numbers membership, working funds etc. However, there is a gaping hole in
this big size which projects a high level regional imbalance in the spread and development of
the movement across the country. Thus the movement is still very weak, both quantitatively and
qualitatively in North Eastern states as also in parts to West Bengal, Bihar and Eastern U.P and
also in tribal and hilly areas in the country. Participation of the poor in the movement in these
areas is also not satisfactory.

Further, diversification of the movement in sectors other than credit in these areas is also
lacking. This is an important shortcoming which has to be corrected soon. This is a challenge
before policy -makers and operative advocacy groups. Mores, however, it is a challenge for the
co-operative leaders in those areas and leaders at the national level. They will have to undertake
considerable pains to build up the movement by devising suitable programmes of financial
organizational and managerial restructuring including programmes for development of
responsive local leadership.

c) Measures for Mobilization of Resource:

As stated earlier co-op. credit institutions in the country presently account for about 50%
of the total rural credit provided by various financial institutions like commercial bank rural
banks etc. The working group on Agricultural Credit, Co-op and Crop Insurance set up by the
planning commission has estimated total credit flow of Rs. 7,36,000 crores for the Tenth Five
Year Plan period (2002-2007).Out of this, the share of short term production credit is alone
estimated at about Rs. 3,60000 crores. Presently, shot term production credit provided by co-
operatives is about Rs. 40000 crores. This would mean that at the end of the Tenth Five Year
Plan, co-operatives will be called upon to provide additional short term credit of about Rs.
1,40,000 crores, assuming that the share of co-ops. Remains at 50% as at present.

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Needless to say that unless Herculean efforts are taken by the co-operatives to mobilize
maximum resources, it will not be possible to meet the expectations of the planners. This in
respect of production credit alone. It does not take into account resources required for supporting
programmers of agricultural processing and marketing industrial production etc. This underlines
the imperative need to undertake innovative measures to optimistic resources. In this connection,
it may be worthwhile to state some of the recommendations made by the Fifth Asia Pacific Co-
op. Ministers Conference convened by the International Co-op. Alliance in Oct 1999 to enable

To mobilize ad equal capital from members and non-member: These are:

a) Market competitive rate of return may be paid on additional capital provided by Members
beyond the basic level prescribed under normal rules.

b) Co-operatives should be encouraged to invest share capital in other co-operatives, both

within the country and abroad.

c) Co-ops. May accept capital from non members, provided it does not lead to loss of member

d) Co-ops. May be permitted to set up holding companies/subsidiaries, provided they are

established to serve, member interest and they retain member control over such institutions.

e) Govt. should recognize the special nature of co-ops, while formulating taxation law and

Adoption of the above recommendation would need amendment of co-operative and other
related laws in the country. Co-operative leaders at the national and State level should examine
the issue and impress upon the State Governments to amend the relevant laws early.

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d) Organizational Restructuring:

The New Economic Policy of Globalization and Deregulation has put an end to the old
regime of licenses, sectoral preferences and monopoly and replaced it with open trade, removal
of unnecessary controls and fierce competition among the various players in the economy.

Private sector has bestirred itself and is pursuing various measures to ensure that the
organizational structure is thin and lean, cost effective and result-oriented. Strategic alliances,
acquisitions and mergers, outsourcing of specific activities and concentration on core
competencies and voluntary retirement schemes for employees are some of the important
measures taken across the private industrial sector with the aim of improving the ability of the
industry to face fierce competition from multinational corporations and others:

Unfortunately;Cooperative movement in sectors other than rural credit does not seem to be
adequately aware of the imperative need to restructure itself. Even in regard to co-operative
credit the pace of restricting is still halting. Vertical integration of village primaries with higher
institutions like district central co-op. banks and the State Coop. Bank is still far from organic.

Thus at the of March 2000, out of a total of about 93000 village primaries more than 40%
were in loss Similarly, out of 367 district central co-op banks, 142 banks were not complying
with statutory provisions of S. 11 (1) of the banking Regulation Act relating to the real and
exchangeable value of owned funds. Coordination between short term credit and term credit is
still lacking. Nearly 60% of consumer societies do not earn profit. Nearly one third of primary
marketing societies in the country are in loss. Thus, while federations hove grown stronger in
terms of their operations and sources, the federating units operating at the grass-root Level
continues to be financially and organizationally weak. There is, therefore, an imperative need for
the Co-operatives, particularly those operating at the higher levels to restructure their
organization so as to achieve organic integration with The primaries. Is alone will enable the Co-
op. Movement face competition in the new scenario of globalization.

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e) Professional Management:

Management of Co-operatives, both at the board and the executive level, has to be totally
professional with focus on corporate governance and efficiency of the delivery system so as to
optimize return to the members. Co- operatives have to maintain their identity rooted in basic
co-op. values and principles at the same time achieve maximum business growth in a
competitive environment.

This is a challenging task which the co-operatives will have to undertake. For this purpose,
attention will have to be continuously concentrated on various areas like systematic reforms,
organizational and business restructuring, development of knowledge based leadership up
gradation of skills of officers and staff at various levels, training and motivation and sound
policies of H.R.D.

The idea is that the co-operatives adopt modem management practices in their day-to-day
operations aimed at improving their competitive capacity. For this to be achieved their inherent
strengths like member loyalty, co-operation, among co-operatives", democratic management etc.
will have to be synergised with modern techniques of management.

f) Technological Growth:

A significant development, especially during the past 10-15 years is a tremendous

improvement and sophistication in the technique with which things are managed. This is a
world-wide phenomenon seen in every field like manufacturing, provision of services
management of business etc. Wide-spread use computers accompanied with revolution in e
system of communication has injected an element of dynamism and competition in almost every
field. There is every day an explosion of new knowledge which can be immediately accessed.
This is possible because of the discovery of newer and newer technologies. Against this
background co operatives have to develop technology based core competencies to keep pace
with their competitors.

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Unless awareness of new technologies and the urge to adopt them are created across the
entire co-operative enterprise and that too, on a continuing basis, co-op. movement will find it
increasingly difficult to maintain its competitive position. It will be worthwhile for the co-
operatives to incorporate aspect in their planning exercises and to make annual provisions in
their budgets for successful adoption of new technique in their respective fields.

11.2 ISSUES.

A part from the general issues outlined above which the Co-op. movement as a whole will
have to tackle in the immediate future, there are specific sectoral issues which will also have to
be resolved soon by the respective sectoral organizations, particularly the federal organizations.
Thus, rising level of Non-performing Assets in co-op: banks, increasing number of weak and
sick urban banks, serious irregularities noticed in the functioning of a large number of district
central and urban co-ops banks, affecting the confidence and trust of depositors are some of the
important issues the co-op. banking sector will have to resolve. Similarly, agricultural
processing societies like sugar co-ops. are facing problems of sickness arising out of un
remunerative prices of sugar and the inability of most of them to pay minimum support price to
their members. The textile industry in the country is presently going through a critical situation
which has affected the prospects of co-op. spinning mills. All such sectoral issues will have to be
carefully examined by the respective sectoral federations and a short term and a long term
strategy to resolve them will have to be evolved and implemented in a concerted and time bound

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The need for greater participation of women in cooperatives especially in areas where they
have a natural advantage is accepted by all. It is known that under the system of adult franchise
prevailing in India, Women have equal opportunities for voting and electing their representatives
in Central and State Legislatures as also in local bodies and panchayats. Central and State
Governments are also extending various concessions for promoting education among girls and
women. However, despite these favorable developments a majority of women in our country are
still illiterate and do not have access to various resources including credit from banking
channels. For the uplift of women the Self Help Group (SHGs) is in the tune with Co-operatives.

Their conversion to co-operative form of organization will go a long way in empowering

women in view of the vibrant democratic structure of the Co-operatives. Micro finance through
SHGs by involving more and more women will be important task in the 21st century.


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Co-operative movement is worldwide. India also has an extensive co-operative movement

and we need only to look at the Anand experiment to appreciate what economic impact the co-
operatives can produce. Co-operative Banks are only special creatures of this movement.
Agriculture, as practiced by Indian farmers, was not exactly a profitable activity and getting
hold of loans was rather difficult (and perhaps remains so) for the Indian farmer enter the Co-
operative Banks. The importance of co-operative bank movement in the regional rural areas of
our country. Because of that reason The Government has introduced several schemes for
promoting the spirit of co-operation for the co-operative bank movement

The Co-operatives in the 21st Century must remain on the front line in providing the
required lead to the millions of our producers. This calls for well managed efficient Co-
operative sector and to keep them away from the fears to draconian laws and unwanted
interference. The vision for the second century is to withstand the challenges of competitive
business environment where excellence, efficiency and high productivity parameters will be
given priority. Emphasis will continue to be laid on an improvement with Co-operative
governance through the process of restructuring and upgrading the co-operative movement.

India, with a huge population of 1 billion people, can make the cooperatives a strong
medium for economic growth and socio-economic upliftment. The thrust is needed now for the
resurgence of cooperative movement through innovations to make it competitive through
qualitative and economically viable business practices.

Some of the Innovations needed for the resurgence in the cooperative movement are;

1) Change of mindset,
2) Human resource development,

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3) Use of information technology,

4) Adoption of innovative process technology for manufacturing,
5) Value addition to the services and the products,
6) Leadership with vision, dedication, commitment and innovative approach to organize the

The innovations will help in transforming the whole system of cooperative management
for betterment and cooperatives must not lag behind in keeping pace with the changing socio-
economic environment.

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Books Refered:

➢ Co-operative movement in world book.



➢ bank


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