CO-OPERATIVE BANKING IN INDIAIntroduction

India is an agricultural country. Agriculture is an important sector of Indian economy. Agriculture, like any other industry, requires adequate credit of all types, viz., short-term, medium-term a long-run. But, in India, agriculturists in villages on a small scale generally carry on agriculture. Further, it is widely scattered and highly disorganized. Again, it is highly exposed to the risks of nature.

Above all, an individual Indian agriculturist can offer only his personal property, movable or immovable, his neighbor (i.e., neighbor’s guarantee). So, Indian commercial banks, which are mainly guided by the principles of safety, liquidity and profitability, scrupulously kept themselves away from agriculture finance till very recently. Consequently, the village moneylenders were the only source of credit for Indian agriculturists in villages till very recently.

Unfortunately, the rates of interest charged by village money lenders were very high, and their lending practices were quite unfair. This led to chronic poverty, heavy indebtedness to moneylenders and stagnation of rural masses. The chronic poverty, heavy indebtedness and stagnation or rural masses attracted the attention of the Government and made the Government to take steps for the creation of an institutional credit agency for the provision of cheap and adequate credit to agriculturists in rural areas. The co-operative movement was started in India in 1904 with the object of providing finance to agriculturists for productive purposes at low rates of interest, and thereby, relieving them (i.e., the agriculturists) from the clutches of the money lenders. A large number of agricultural credit societies were set up in the villages under the co-operative societies Act 1904. The co-operative society’s act of 1912 contributed to the establishment of central co-operative banks and the state co-operative banks to provide refinance to primary credit societies which could not mobilize funds by their own efforts. By facilitating the formation of central co-operative banks and the state co-operative banks, the co-operative societies Act of 1912 gave stimulus to the co-operative credit movement in India. The co-operative credit movement made good progress during and after the first world war of 1914-1918. but during the great depression of 1929-1933, it received a serious setback. With the out break of the second world war of 1939-45, the co-operative credit movement made considerable progress once again. The number of co-operative credit institution has increased, their membership had gone up and their deposits and advances also had increased considerably. During the post-independence era, much progress has been made in co-operative banking thanks to the keen interest shown by the reserve bank of India in co-operative credit movement.CO-OPERATIVE BANKING STRUCTURE IN INDIA

The Indian co-operative banking structure or system is a three-tier system. It consists of three sections, viz.,

1) Primary credit societies at the base.2) Central co-operative banks in the middle and3) State co-operative banks or the apex bank at the top.

MEANING OF CO-OPERATIVE BANKING A co-operative bank is a co-operative organization (i.e., an organization where persons voluntarily associate together as human beings on the basis of quality for the promotion of the economic interests of themselves) engaged in the banking functions of acceptance of deposits and lending of credit.In short, a co-operative bank is an institution which performs the banking functions of acceptance of deposits and barrowing of funds and lending of credit.DEFINITION OF CO-OPERATIVE BANKING

Devine defines a co-operative bank as “ a mutual society formed, composed and governed by working people themselves for encouraging regular saving and granting loans on easy terms of interest and repayment.

1

Introduction :      The greatest challenge to any civilized society is the economic deprivation it harbours, in league with social deprivation. It is inescapable that a collective war is waged to banish human deprivation from our midst. No other organized set up can be more potent for this attack than building human capital among the deprived, through sustainable cooperative Development Initiatives. Congruity with human nature further enhances the value of such initiatives. This principle is germane to the cooperative management in the Country and Karnataka in particular, which encompasses the basic human feeling of self-worth as its core. The cooperative strategy goes deep into the realms of building financial capabilities and self-confidence especially among the rural poor.       The Department of Co-operation is a vital Department of the Government of Karnataka. The Department functions in close co-operation and co-ordination with various other Departments connected with the implementation of socio-economic plans and schemes.        The Department of Co-operation overseas the administration and functioning of various Co-operative Institutions namely Textiles, Sericulture, Industries, Animal Husbandry, Fisheries, Sugar, Horticulture, Agriculture and Irrigation and also assist the societies financially besides providing technical guidance and input. HUNDRED YEARS OF COOPERATIVE MOVEMENT:       The Co-operative Movement in India took birth in 1904 by the enactment of Co-operative Societies Act 1904 and after making a long journey it has entered into the new millennium with lots of hopes and expectations.       Two movements in the last century had a cascading effect on the well being of the vast population of this country. The independence movement got India rid of foreign yoke. Soon it was realized that political freedom had no meaning unless the country enjoyed the fruits of sustained economic growth. Independence movement was the movement of the people. And so has been the cooperative movement.       Enshrined in both the movements had been the urge and aspirations of the teeming millions of India – small and marginal farmers, landless laborers, workers, members of the weaker sections of the community viz. handloom weavers, fishermen, artisans etc. who were otherwise steeped in poverty and deprived of the means and fruits of an economic upsurge for centuries. The post independence era witnessed the saga of human struggle not only to better the lot of the poor people but also to ensure equitable distribution of wealth and in this endeavour cooperatives had a crucial role to play. People from various classes assembled under the umbrella of cooperatives. Be it green (agriculture), white (dairy), yellow (poultry) and blue (fishery) revolutions, their success depended on the vast cooperative network spread in the nook and corner of the country. The age old institution of money lenders crumbled under the weight of credit cooperatives and banking institutions in rural and urban conglomerations. Spread of the movement in non-credit sector also followed in a big way.       Right from the fifties of the 20th century, the country charted its course of economic development and chose mixed economy as the means to attain the goals. Whereas public and private sectors were assigned specific roles., the cooperative movement which has not been designated as a distinct sector even today had to fight its own battle and carve out a niche for itself in the economy. State participation in the financial set up of cooperatives became an integral part of the deliberate policy of the Government to promote cooperatives. Agricultural development became a major plank of the government. Cooperatives were to support the massive programmes for increasing agriculture production and creating suitable post- harvest facilities. The wide network of credit movement was assisted by non-credit cooperatives in various areas of socio-economic activities.      There was mushroom growth of cooperatives in credit and non-credit areas. Both credit and non-credit cooperatives had various tiers extending from primary to national levels. There was massive diversification of cooperatives in all spheres of the economy be it primary, secondary and tertiary sectors. Today Cooperative Movement in India is the largest in the world. The movement has permeated all walks of life i.e., agriculture, horticulture, credit and banking, housing, agro-industries, rural electrification, irrigation, water harvesting,

2

labour, weaker sections, dairy, consumers, public distribution system, tribals, international trade, exports, agri-business, human resource development, information technology.   PRINCIPLES OF CO-OPERATION

Voluntary & Open Membership        Cooperatives are voluntary organizations, open to all persons capable of using their services and willing to accept the responsibilities of membership, without discrimination on the basis of gender, social status, racial, political ideologies or religious consideration.

Democratic Member Control       Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and decision making. Elected representatives of these cooperatives are responsible and accountable to their members.

Member's Economic Participation        Members contribute equitably and control the capital of their cooperative democratically. At least a part of the surplus arising out of the economic activity would be the common property of the cooperatives. The remaining surplus could be utilized benefiting the members in proportion to their shares in the cooperative.

Autonomy & Independence       Cooperatives are autonomous self-help organizations controlled by their members. If cooperatives enter into agreement with other organizations including government or raise capital from external sources, they do so on the terms that ensure democratic control by members and maintenance of cooperative autonomy.

Education,Training & Information        Cooperatives provide education and training to their members elected representatives and employees so that they can contribute effectively to the development of these institutions. They also make the general public, particularly young people and leaders aware of the nature and benefits of cooperation.

  Cooperation among cooperatives       Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through the available local, regional, national and international structure.

COOPERATIVE MOVEMENT IN KARNATAKA

      The first co-operative society of our country was registered in 1905 at Kanaginahal village of Gadag district in Karnataka. Sri Siddanagouda Sannaramana Gouda Patil is considered as the pioneer in the co-operative movement as he is the founder president of the said co-operative society in our country.   The Mysore Co-operative Societies Act 1959 is the first legislation in our state pertaining to the co-operative societies and has come into being from 25-05-1960.Karnataka occupies third position in the co-operative movement in India. It has been playing an important role in improving the economic condition of people involved in co-operative movement and has spread to almost all sectors of economic activities, both in rural and urban areas.  Karnataka is the first state where in Agricultural loans through co-operatives are available at 3% which, is  the lowest in the country. This facility is also extended to the loans borrowed by weavers and fishermen. Loans are available, if borrowed through co-operatives, for self-help groups at 4%. Government of Karnataka is subsidizing the co-operatives by providing Interest- subsidy through budgetary provisions.  Since the implementation of the recommendations of Prof.Vaidyanathan Committee through MOU with Government of India, NABARD and the state Government in March 2008, the role of the state Government in respect of Agricultural credit structure Institutions has metamorphised from the role of regulator, supervisor to the role of being a Friend, Philosopher and Guide. All statutes, circulars, orders which were coming in the way of day to day internal affairs of the institutions have been withdrawn.

3

A new era of co-operative credit structure through self-governance and independent decision making has come in to being and it is hoped that the co-operatives will become professionally efficient and financially viable in the years to come.The state has witnessed a tremendous growth in the Cooperative Sector.

DEPARTMENT OF CO-OPERATION Mission The Mission of the Department of Co-operation is to create an efficient and effective co-operative sector for Karnataka.Objective of the departmen t The primary objective of the Department of Co-operation is to see that genuine Co-operatives are organized and managed on sound lines as per the basic principles of Co-operation for the promotion of the economic interests and welfare of the people and to render guidance and assistance for the development of Co-operative movement in the State. Objectives And responsibility   Department's

1. The primary objective of the Department of cooperation is to see that genuine cooperatives are organized and managed on the basis of sound cooperative principles for the promotion of economic interest and welfare of the people, and to render guidance and assistance for development of cooperative movement in the state.

2. Administering proper supervision and control on the registered co-operative societies based on the above objectives as per the provisions of the Karnataka co-operative societies Act and Rules.

3. Enforcement of the Government policy pertaining to Agricultural credit, Agricultural produce, Horticulture, Fisheries, Dairy, their marketing and processing  and implementation of various schemes.

4. Providing share capital, loan, interest subsidy to the members of the  credit, marketing, consumers, industries and various co-operative societies but also extending govt.  guarantee to loans availed by state level Institutions,

5. Providing financial assistance for the upliftment of the SC/ST backward classes and minorities through the special schemes formulated by Government so that they can not only participate in the co-operative societies activities, obtain the various benefits but also come to the main stream of co-operative movement crossing the  threshold.

6. Provide technical guidance for the implementation of the schemes formulated by the Government.7. Collection and compilation of statistics of department as required by Central, State Government, RBI,

NABARD etc.To exercise proper control and supervision on the administration of various cooperative societies within the legal frame work of cooperative Acts and Rules.           Characteristic features of co-operative banking

Co-operative banking has certain characteristic features of its own. The important characteristics features of co-operative banking are

Like commercial banking, co-operative banking also is concerned with performance of the banking functions of acceptance of deposits and lending of funds.

Co-operative bank is established under the co-operative societies Acts. A co-operative bank is an association of persons, and not of capital. Co-operative banking is generally, federal in structure. For instance, in Indian, short-term co-operative

banks have a three tier set up, and long term co-operative banks have a two tier set up. Co-operative banks are democratic institution, in the sense that they follow the principle of ‘one man,

one vote’ in their management. Co-operative banking is based on the principle of mutual help. Thrift and saving is the essence of the working of co-operative banks.

OBJECTIVES OR AIMS OF CO-OPERATIVE BANKINGThe main objectives of co-operative banking system are

4

To promote thrift among the members, and thereby increase the supply of funds. To tap outside sources for the supply of funds (i.e., to raise funds from non-members). To promote the effective use of credit and to reduce the risk in the granting of credit through careful and

continuous supervision of the operation of the barrowing members. To reduce the cost of management through the honorary services of members and thereby keep the cost

of the credit as low as possible To make the co-operative credit societies or co-operative banks credit-worthy and to enable them to

raise sufficient funds to finance other co-operative enterprisesPRINCIPLES OF CO-OPERATIVE BANKINGCo-operative banking has certain principles of its own. the important principles of co-operative banking are

Principle of co-operation and mutual help Principle of service, and not profit Principle of one-man one vote in management Principle of thrift and savings Principle of personalization of credit (i.e., laying emphasis on credit worthiness and honesty of the

barrowing members)TYPES OF CO-OPERATIVE BANKSCo-operative banks can be broadly classified into two types

1. Agricultural co-operative banks and2. Non-Agricultural co-operative banks

MERITS OF CO-OPERATIVE BANKINGCo-operative banking has certain merits or benefits. The main merits of co-operative banking are1. Co-operative banks play a very significant role in rural banking is owing to the following reasons.

(i) Co-operative banks have a rural touch(ii) They have local feel(iii) They are familiar with rural problems(iv) They have attitudinal identification with rural economy(v) Their methods and procedure and orientation are best adapted to rural economy(vi) Their relations with the members and non-members are not only personal but are also humane

2. As the management of co-operative banks at the lower rung of the ladder depends on the honorary services of the members, the cost of operations to co-operative banks is relatively low. Because of the low cost of operation, the co-operative banks are able to provide credit to the weaker sections in the rural areas at cheaper rates.

3. The impact of co-operative banking on rural peasants is very great. De Foe has beautifully summed up the impact of co-operative banking on people as follows “Drunkards are made to take care of wife and children, spendthrifts lay up for a wet day, lazy fellows become diligent and thoughtless Scottish men careful and prudent”.

4. With the expansion of co-operative banking in rural areas, the hold of village moneylenders over rural masses has been considerably loosened.

5. Co-operative banking is widely accepted as the only means of eradicating poverty and raising standards of living of rural masses.

LIMITATION OR DRAWBACKS OF CO-OPERATIVE BANKINGCo-operative banking gas, no doubt, enjoys several merits. But it is not free from defects or limitations. It suffers from the following limitations1. The co-operative banking structure is weak. A top heavy structure of co-operative banking is built on

very flimsy foundation2. The size of co-operative banks, particularly the size of agricultural primary credit societies is very small

size of co-operative banks has checked the growth of co-operative banking.

5

3. Co-operative banks are not able to mobilize adequate resources from members as well as non-members for one reason or the other therefore; they depend upon the central bank for re-finance facilities to a large extent.

MEASURES TO BE TAKEN FOR THE IMPROVEMENT OF CO-OPERATIVE BANKINGSome of measures that could be taken up for the improvement of co-operative banking are1. The primary co-operative credit societies, which are the pivot of the whole co-operative banking

system, should be reconstituted on sound co-operative lines.2. Proper training should be given to the staff co-operative credit societies in co-operation, rural

economics and theory and practice of banking.3. Co-operative banks (i.e., co-operative credit societies) should build up enough reserves out of their

profits for overcoming the problems of shortage of funds and for withstanding financial stress and strain.

4. The official machinery of a Government should provide timely guidance and raise the tone of the administration of the co-operative credit societies.

5. The co-operative credit movement should be made a movement of the people, and not a movement of the Government.

Deposit productsCurrent A/cMinimum balance Rs 5,000/-Not eligible for interestMaximum balance-no ceiling Pass book, pass sheet availableSaving bank A/c

An a/c for individuals, non-trading organization etc.Minimum amount to be maintained

Rs 250/- without cheque book facilityMinimum amount to be maintained

Rs. 1,000/- with cheque book facilityInterest 3.5% quarterly credit

OperationsSingly or ERS or jointly

Pass book, pass sheet, and nominations, standing instructions and cheque collection facilities available.Current A/c

Current accounts are the most important type of bank accounts. They are generally opened by trading and industrial concerns, public authorities etc.

Current accounts customers can deposit any amount of money and any number of times. Current deposits are repayable on demand. It is for this reason, they are called demand deposits or demand liabilities.

Fixed depositsMinimum Rs.1000/-Maximum Through cash Rs 49,000/-

Through a/c No ceiling.Period of deposit Minimum NOMaximum 3 years

Fixed depositFixed deposit interest rates revised W.E.F 24/02/2003 period of deposit interest rates

Period of Deposits Interest rates1 year to 2 years 8%2 years & above 8.5%

6

DIFFERENT TYPES OF LOANS ANDMAXIMUM PERMISSIBLE AMOUNT AND RATE OF INTEREST

1. VEHICLE LOANMaximum permissible loan amount is Rs. 5,00,000Rate of interest- 15%

2. GOLD LOANMaximum permissible loan amount Rs. 50,000 for 200 to 300 grams.Rate of interest charged is 15%

3. BUSINESS LOANMaximum permissible loan amount is Rs. 2,00,000Retail business within 1, 00,000/- The Rate of interest is 15%

4. AGRICULTURE ALLIED LOANMaximum permissible loan amount is Rs.20,00,000/-Rate of interest is 15%

5. HOUSING LOANMaximum permissible loan amount is Rs. 65,000/-Rate of interest is 15%

6. LOAN ON FIXED DEPOSIT (MONTHLY)Maximum permissible loan amount is 80% of the FD amount

SWOT ANALYSIS OF THE BANKSTRENGTHS

Strengths of the banks is quick service to the customer. Co-operative bank provide the quick service for the loan sanctions, cheque discounting and all services, which are provide by the bank. Loans are within reasonable time, after obtaining all the documents and necessary certificate it submitted to the board and board take the decision are quick compared to the nationalized banks because there is a lengthy process for sanctioning of loans.WEAKNESSES

1. lack of staff the number of saving bank account, current account fixed deposit account, other loan accounts has increased to the greatest extent over the years but management has not appointed additional staff to look after increased work.

2. lack of training to the staff Developing skills require to perform various jobs with efficiently and to import knowledge, as functional and behavioral areas, by providing need based training. But T.C.A & R.D banks is not giving the proper training to staff members to developing their skills.

3. insufficient knowledge about the computersOPPORTUNITIES: There is a opportunity of the bank to attract the customer by providing high interest rates in their fixed deposits. In hospet area small scale industry situated. It is the great opportunity for the bank to provide the loans and advances to these industries.THREATS: The greatest threats from nationalized banks because they provide the loans and advances at lower rate of interest usually co-operative bank charge high interest rates for loans and advances. So, nationalized banks grasp the customer from the co-operative bank.PERFORMANCE OF T.C.A & R.D BANKS

T.C.A & R.D banks played a significant role in providing loans to the trader’s shop-keepers individuals in Chickballpaur. But high rate of interest and deposits, surplus of funds, lack of sufficient staff competition from other co-operative banks commercial banks and centralized banks, have affected smooth running of the banks.

7