B.

Voc Sem I
BVB 103
Topic: Cooperative Bank
By Dr. Jivan Kumar Chowdhury
Cooperative Banks
 Cooperative Banks are a part of the set of
institutions which are engaged in financing rural
and agricultural development.
 The other institutions in this set include the RBI.
NABARD, Commercial Banks and regional rural
banks. Cooperative Banking is small – scale
banking carried on a no profit, no loss basis for
mutual cooperative and help.
 Cooperative banks were assigned the important
role of delivering of fruits of economic planning at
the gross roots level.
 Cooperative banking structure is viewed as a
vehicle for democratization of the India’s financial
system. They were elevated moneylenders and
 adequate short-term and long-term institutional credit at
reasonable rates of interest.
 Cooperative bank originated with the enactment of the
Cooperative Credit Societies Act of 1904.
 A new Act was passed in 1912. After 1991, a number of
reforms have been placed under which licensing of Urban
Cooperative Banks (UCBs) has been liberalised greatly,
lending and deposit rates of all cooperative banks have been
completely freed or deregulated a cooperative development
fund has been set up by NABARD for improvement of
managerial systems and skills UCBs have been allowed to
invest in equity / bonds of all India financial Institutions,
PSUs, CDs of Scheduled Commercial Banks, subject to certain
ceilings.
Applicability of BR Act
 The Banking Regulation Act is applicable to co-operative societies
subject to the modifications stipulated in Par V (Section 56) of the
Act.
 The Act was made applicable to co-operative societies by the
Banking Laws ( Application to Co-operative Societies) Act, 1965.
As defined in Section 5(cci) of the BR Act ( as applicable to co-
operative societies), a co-operative bank means a state co-
operative, a central co-operative bank and a primary co-opertive
bank. A primary cooperative bank is a co-operative society other
than a primary agricultural credit society, which satisfies the
following criteria:
 (i) the primary object or principal business is the transaction of
banking business.
 (ii) the paid-up share capital and reserve are not less than Rs 1 lac.
 iii) The byelaws do not permit admission of any other co-
operative society as a member ( except the membership of a co-
operative bank by subscribing to the share capital of the society
out of the funds provided by the state government).
 A state co-operative bank is the principal co-operative society in
a state with the primary objective of financing other societies. A
central co-operative bank is the principal co-operative society in
a district with the primary objective of funding other co-operative
societies in the district.
 Bank, Banker, Banking: No co-operative society other than a co-
operative bank is permitted to use as part of its name or in
connection with the business, the words ‘ bank’, ‘banker’ and
‘banking’. Further, a co-operative society carrying on banking
business has to use at least one of such words as part of its
name.
Features of Cooperative Banks
 1) These banks are government sponsored, government
supported and government subsidized financial agencies in
India.
 2) Unlike commercial banks which focus on profits,
cooperative banks are organised and managed on principles of
cooperatives, self help and mutual help. They function on a “
no profit, no loss” basis.
 3) they perform all the main banking functions but their range
of services is narrower than that of commercial banks.
However, their geographic coverage is the widest.
 4) Some of them are scheduled banks but most are
unscheduled banks.
 5) they have a federal structure of their – tier linkage and
verticle integration.
 6) Cooperative banks are financial intermediaries only,
particularly because a significant amount of their
borrowings is from the RBI, NABARD, the Central and State
Governments and Cooperative apex institutions.
 7) There has been a shift of cooperative banks from the
rural to the urban areas as the urban and non-agricultural
business of these banks has grown over the years.
 The Cooperative banking structure in India is a pyramid
type of a three structure comprising
 i) Primary agricultural co-operative credit Society at the
village level
 Ii) District Central Cooperative Banks at the district level
 Iii) state Co-operative Bank at the State level
 Primary Co-operative Credit Societies:-
 The primary Co-operative society function at the base of the
Cooperative Credit system . It may be organised by ten or more
persons normally belonging to a village or a cluster of villages.
 The society funds by way of share capital, deposits from
members and non-member and loans from distfict Central Co-
operative Banks. The borrowing powers of members as well as
society is limited.
 Central Co-operative Banks:- A Central Co-operative Bank is a
federation of primary credit societies in a specified area
normally extending to the whole district.
 The Central Banks raised funds by way of share capital from
member societies, deposits from public and loans from the
State Co-operative Bank.
 State Cooperative Banks:- The State Cooperative Bank
is a federation of Central Co-operative Banks. It acts as a
watch dog of the Co-operative banking structure in the
States.
 It receives deposits from the public and from local boards,
municipalities, etc. Further it receives loans at call and
short notice from the Commercial Bank and from Reserve
Bank of India. The State governments contribute a certain
portion of their working capital.
 The State Co-operative Banks lend money to Central Co-
operative Banks which in turn lend to primary societies.
The Central Banks act as intermediaries between the State
Co-operative Bank and primary credit society.
 Licensing of Co-operative Banks: Every co-operative society
requires a licence from the Reserve Bank under Section 22 of the
Banking regulation Act ( as applicable to co-operative societies) to
carry on banking business in India.
 A co-operative bank requires the prior permission of the Reserve
Bank for opening a new place of business or changing an existing
place of business otherwise within the same city, town or village
where it has an existing place of business.
 However, opening of temporary branches for a period not
exceeding one month with the city, town or village where it has a
place of business, on the occasion of an exhibition, conference,
mela or any like occasion is permissible.
 The opening or changing of location of branches by a central co-
operative bank within its area of operation is also exempt. The
application of co-operative bank for permission to open a branch,
 Other than of a primary co-operative bank, has to
be routed through the NABARD. However, an
advance copy of the application has to be directly
to RBI.
 Co-operative banks have to maintain liquid assets
as provided in Section 24(1) of the Banking
Regulation Act, 1949.
 Account and Audit: Every co-operative bank has to
prepare a balance sheet and profit and loss account
of its business as on the last working day of the
year. Three copies of such balance sheet and
accounts, along with statutory auditor’s report has
to be submitted to the Reserve Bank within six
months. A State Co-operative Bank and a Central
 Inspection: The provision of Section 35 relating to
inspection are applicable to co-operative banks. The
Reserve Bank may supply a copy of the inspection
report or scrutiny to the state co-operative bank or
the Registrar of Co-operative Societies concerned.
 Insured Co-operative Banks: Registration of DICGC:
 The Deposit Insurance and Credit Guarantee
Corporation Act, 1961, which provides for insuring
deposits of banks, is applicable to co-operative
banks also. According, under Section 13C of the Act,
co-operative banks have to be registered with the
corporation for this purpose.
 Weaknesses: Cooperative Banks suffer from too much dependence
on RBI, NABARD and the government. They are subject to too much
politicisation. Both the quality of loans assets and their recovery are
poor.
 The primary agricultural cooperative societies – a vital link in the
cooperative credit system – are small in size, very weak and many
of them are dormant.
 The Co-operative Banks suffer from existence of multiple
regulation and control authorities. Many urban cooperative banks
have failed or are in the process of liquidation.
 Cooperative banks have increasingly been facing competition from
commercial banks, LIC, UTI and small saving organisation.
 Winding up: Section 130 of the DICGC Act mentions the
circumstances in which Reserve Bank may require winding up of a
co-operative bank. THANKS