SANPADA COLLEGE OF COMMERCE & TECHNOLOGY

PLOT NO: 3, 4 & 5, SECTOR-2, SANPADA (EAST)

NAVI MUMBAI-400705

UNIVERSITY OF MUMBAI

A PROJECT REPORT ON

Co-Operative Banking

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR

BACHELOR OFCOMMERCE IN BANKING &

INSURANCE

SUBMITTED BY:

SARAVANA RAJ PAULJOHNSON

BACHELOR OF BANKING & INSURANCE

SEMESTER-V

2015-2016

UNDER THE GUIDANCE OF:

PROF: PROF: SHOEB PATEL

SANPADA COLLEGE OF COMMERCE & TECHNOLOGY

PLOT NO: 3, 4 & 5, SECTOR-2, SANPADA (EAST)

NAVI MUMBAI-400705.

DECLARATION

I, SARAVANA RAJ PAULJOHNSON, STUDENT OF SANPADA

COLLEGE OF COMMERCE & TECHNOLOGY – STUDIES

BACHELOR OF COMMERCE IN BANKING & INSURANCE FIFTH

SEMESTER; HEREBY DECLARE THAT I HAVE COMPLETED

THIS PROJECT REPORT ON “ 5TH OCTOBER, 2015” DURING

THE ACADEMIC YEAR 2015-2016. THE INFORMATION

SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY

KNOWLEDGE.

SARAVANA RAJ PAUL JOHNSON

DATE: 5TH OCTOBER, 2015

ACKNOWLEDGEMENT

At the outset, I am thankful to my institute Oriental

Education Society, and the authorities, for providing me an

opportunity to undertake my B.Com Banking & Insurance,

Semester V (2015-16), and also for sponsoring me to

undertake project. I am thankful to the management for giving

me an opportunity to undertake my project Innovation In

Banking Product under the guidance of Prof. Shoeb Patel as

my mentor.

I would like to thank our Faculty guide, Prof. Mustak

Deraiya (Professor, Oriental Education Society), for providing

valuable suggestions and guidance during the project. His

perspective has encouraged me to incorporate a different

dimension to the project

I am grateful to my colleagues for being a wonderful support a

through at the same time I am thankful to all my friends of

Oriental Education Society, for being with me at different

junctures of need.

I also acknowledge great sense of gratitude to all those who

have enriched and improved my thinking, through their

conversations, thoughts, experience and guided me to complete

this report.

SARAVANA RAJ PAUL JOHNSON

INDEX

Sr.No Contents Pg.No

1. An Overview Of The Banking Sector

2. Introduction To Co-Operative Banking

3. Role & Features Of Co-Operative Banking

4. Origin And Operation Of Co-Operative Banking

5. History Of Co-Operative Banking

6. Types Of Co-Operative Banks

7. Regulatory Bodies Of Co-Operative Banks

8. Strength And Weakness Of Co-Operative Bank

9. Case Study

10. Conclusion

CHAPTER-1

An Overview Of The Banking Sector

1.1 Introduction

A bank is a financial institution that provides banking and other financial services

to their customers. A bank is generally understood as an institution which provides

fundamental banking services such as accepting deposits and providing loans. There are

also nonbanking institutions that provide certain banking services without meeting the

legal definition of a bank. Banks are a subset of the financial services industry.

A banking system also referred as a system provided by the bank which offers cash

management services for customers, reporting the transactions of their accounts and

portfolios, throughout the day. The banking system in India, should not only be hassle

free but it should be able to meet the new challenges posed by the technology and any

other external and internal factors. For the past three decades, India’s banking system has

several outstanding achievements to its credit. The Banks are the main participants of the

financial system in India. The Banking sector offers several facilities and opportunities to

their customers. All the banks safeguards the money and valuables and provide loans,

credit, and payment services, such as checking accounts, money orders, and cashier’s

cheques. The banks also offer investment and insurance products. As a variety of models

for cooperation and integration among finance industries have emerged, some of the

traditional distinctions between banks, insurance companies, and securities firms have

diminished. In spite of these changes, banks continue to maintain and perform their

primary role—accepting deposits and lending funds from these deposits.

1.2 Need of the Banks

Before the establishment of banks, the financial activities were handled by money

lenders and individuals. At that time the interest rates were very high. Again there were

no security of public savings and no uniformity regarding loans. So as to overcome such

problems the organized banking sector was established, which was fully regulated by the

government. The organized banking sector works within the financial system to provide

loans, accept deposits and provide other services to their customers. The following

functions of the bank explain the need of the bank and its importance:

• To provide the security to the savings of customers.

• To control the supply of money and credit

• To encourage public confidence in the working of the financial system, increase

savings speedily and efficiently.

• To avoid focus of financial powers in the hands of a few individuals and institutions.

• To set equal norms and conditions (i.e. rate of interest, period of lending etc) to all types

of customers

1.3 History of Indian Banking System

The first bank in India, called The General Bank of India was established in the

year 1786. The East India Company established The Bank of Bengal/Calcutta (1809),

Bank of Bombay (1840) and Bank of Madras (1843). The next bank was Bank of

Hindustan which was established in 1870. These three individual units (Bank of

Calcutta, Bank of Bombay, and Bank of Madras) were called as Presidency Banks.

Allahabad Bank which was established in 1865, was for the first time completely run by

Indians. Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore.

Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara

Bank, Indian Bank, and Bank of Mysore were set up. In 1921, all presidency banks were

amalgamated to

form the Imperial Bank of India which was run by European Shareholders. After that the

Reserve Bank of India was established in April 1935.

At the time of first phase the growth of banking sector was very slow. Between 1913 and

1948 there were approximately 1100 small banks in India. To streamline the functioning

and activities of commercial banks, the Government of India came up with the Banking

Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per

amending Act of 1965 (Act No.23 of 1965). Reserve Bank of India was vested with

extensive powers for the supervision of banking in India as a Central Banking Authority.

After independence, Government has taken most important steps in regard of Indian

Banking Sector reforms. In 1955, the Imperial Bank of India was nationalized and was

given the name "State Bank of India", to act as the principal agent of RBI and to handle

banking transactions all over the country. It was established under State Bank of India

Act, 1955. Seven banks forming subsidiary of State Bank of India was nationalized in

1960. On 19th July, 1969, major process of nationalization was carried out. At the same

time 14 major Indian commercial banks of the country were nationalized. In 1980,

another six banks were nationalized, and thus raising the number of nationalized banks to

20. Seven more banks were nationalized with deposits over 200 Crores. Till the year

1980 approximately 80% of the banking segment in India was under government’s

ownership. On the suggestions of Narsimhan Committee, the Banking Regulation Act

was amended in 1993 and thus the gates for the new private sector banks were opened.

The following are the major steps taken by the Government of India to Regulate Banking

institutions in the country:-

1949 : Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.

1959: Nationalization of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major Banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980 : Nationalization of seven banks with deposits over 200 Crores.

1.3.1 Nationalisation

By the 1960s, the Indian banking industry has become an important tool to

facilitate the development of the Indian economy. At the same time, it has emerged as a

large employer, and a debate has ensured about the possibility to nationalise the banking

industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the

Government of India (GOI) in the annual conference of the All India Congress Meeting

in a paper entitled "Stray thoughts on Bank Nationalisation". The paper was received

with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued

an ordinance and nationalized the 14 largest commercial banks with effect from the

midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the

step as a "Masterstroke of political sagacity" Within two weeks of the issue of the

ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of

Undertaking) Bill, and it received the presidential approval on 9 August, 1969. A second

step of nationalisation of 6 more commercial banks followed in 1980. The stated reason

for the nationalisation was to give the government more control of credit delivery. With

the second step of nationalisation, the GOI controlled around 91% of the banking

business in India. Later on, in the year 1993, the government merged New Bank of India

with Punjab National Bank. It was the only merger between nationalised banks and

resulted in the reduction of the number of nationalised banks from 20 to 19. After this,

until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average

growth rate of the Indian economy. The nationalised banks were credited by some;

including Home minister P. Chidambaram, to have helped the Indian economy withstand

the global financial crisis of 2007-2009.

1.3.2 Liberalisation

In the early 1990s, the then Narsimha Rao government embarked on a policy of

liberalisation, licensing a small number of private banks. These came to be known as

New Generation tech-savvy banks, and included Global Trust Bank (the first of such new

generation banks to be set up), which later amalgamated with Oriental Bank of

Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move

along with the rapid growth in the economy of India revolutionized the banking sector in

India which has seen rapid growth with strong contribution from all the three sectors of

banks, namely, government banks, private banks and foreign banks. The next stage for

the Indian banking has been setup with the proposed relaxation in the norms for Foreign

Direct Investment, where all Foreign Investors in banks may be given voting rights which

could exceed the present cap of 10%, at present it has gone up to 49% with some

restrictions.

The new policy shook the banking sector in India completely. Bankers, till this time,

were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning.

The new wave ushered in a modern outlook and tech-savvy methods of working for the

traditional banks. All this led to the retail boom in India. People not just demanded more

from their banks but also received more. Currently (2007), banking in India is generally

fairly mature in terms of supply, product range and reach-even though reach in rural India

still remains a challenge for the private sector and foreign banks. In terms of quality of

assets and capital adequacy, Indian banks are considered to have clean, strong and

transparent balance sheets as compared to other banks in comparable economies in its

region. The Reserve Bank of India is an autonomous body, with minimal pressure from

the government. The stated policy of the Bank on the Indian Rupee is to manage

volatility but without any fixed exchange rate-and this has mostly been true. With the

growth in the Indian economy expected to be strong for quite some time-especially in its

services sector-the demand for banking services, especially retail banking, mortgages and

investment services are expected to be strong.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake

in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor

has been allowed to hold more than 5% in a private sector bank since the RBI announced

norms in 2005 that any stake exceeding 5% in the private sector banks would need to be

voted by them. In recent years critics have charged that the non-government owned banks

are too aggressive in their loan recovery efforts in connection with housing, vehicle and

personal loans. There are press reports that the banks' loan recovery efforts have driven

defaulting borrowers to suicide.

1.3.3 Government policy on banking industry (Source:-The federal

Reserve Act 1913 and The Banking Act 1933)

Banks operating in most of the countries must contend with heavy regulations,

rules enforced by Federal and State agencies to govern their operations, service offerings,

and the manner in which they grow and expand their facilities to better serve the public.

A banker works within the financial system to provide loans, accept deposits, and provide

other services to their customers. They must do so within a climate of extensive

regulation, designed primarily to protect the public interests.

The main reasons why the banks are heavily regulated are as follows:

• To protect the safety of the public’s savings.

• To control the supply of money and credit in order to achieve a nation’s broad

economic goal.

• To ensure equal opportunity and fairness in the public’s access to credit and other vital

financial services.

• To promote public confidence in the financial system, so that savings are made speedily

and efficiently.

• To avoid concentrations of financial power in the hands of a few individuals and

institutions.

• Provide the Government with credit, tax revenues and other services.

• To help sectors of the economy that they have special credit needs for eg. Housing,

small business and agricultural loans etc.

1.3.4 Law of banking

Banking law is based on a contractual analysis of the relationship between the

bank and customer—defined as any entity for which the bank agrees to conduct an

account. The law implies rights and obligations into this relationship as follows:

• The bank account balance is the financial position between the bank and the customer:

when the account is in credit, the bank owes the balance to the customer; when the

account is overdrawn, the customer owes the balance to the bank.

• The bank agrees to pay the customer's cheques up to the amount standing to the credit

of the customer's account, plus any agreed overdraft limit.

• The bank may not pay from the customer's account without a mandate from the

customer, e.g. cheques drawn by the customer.

• The bank agrees to promptly collect the cheques deposited to the customer's account as

the customer's agent, and to credit the proceeds to the customer's account.

• The bank has a right to combine the customer's accounts, since each account is just an

aspect of the same credit relationship.

• The bank has a lien on cheques deposited to the customer's account, to the extent that

the customer is indebted to the bank.

• The bank must not disclose details of transactions through the customer's account—

unless the customer consents, there is a public duty to disclose, the bank's interests

require it, or the law demands it.

• The bank must not close a customer's account without reasonable notice, since cheques

are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the

customer and the bank. The statutes and regulations in force within a particular

jurisdiction may also modify the above terms and/or create new rights, obligations or

limitations relevant to the bank-customer relationship.

1.3.5 Regulations for Indian banks

Currently in most jurisdictions commercial banks are regulated by government

entities and require a special bank license to operate. Usually the definition of the

business of banking for the purposes of regulation is extended to include acceptance of

deposits, even if they are not repayable to the customer's order—although money lending,

by itself, is generally not included in the definition.

Unlike most other regulated industries, the regulator is typically also a participant in the

market, i.e. a government-owned (central) bank. Central banks also typically have a

monopoly on the business of issuing banknotes. However, in some countries this is not

the case. In UK, for example, the Financial Services Authority licenses banks, and some

commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to

those issued by the Bank of England, the UK government's central bank. Some types of

financial institutions, such as building societies and credit unions, may be partly or

wholly exempted from bank license requirements, and therefore regulated under separate

rules. The requirements for the issue of a bank license vary between jurisdictions but

typically include:

• Minimum capital

• Minimum capital ratio

• 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior

officers

• Approval of the bank's business plan as being sufficiently prudent and plausible.

1.4 Classification of Banking Industry in India

Indian banking industry has been divided into two parts, organized and

unorganized sectors. The organized sector consists of Reserve Bank of India,

Commercial Banks and Co-operative Banks, and Specialized Financial Institutions

(IDBI, ICICI, IFC etc). The unorganized sector, which is not homogeneous, is largely

made up of money lenders and indigenous bankers.

An outline of the Indian Banking structure may be presented as

follows:-

1. Reserve banks of India.

2. Indian Scheduled Commercial Banks.

a) State Bank of India and its associate banks.

b) Twenty nationalized banks.

c) Regional rural banks.

d) Other scheduled commercial banks.

3. Foreign Banks 4. Non-scheduled banks.

5. Co-operative banks.

1.4.1 Reserve bank of India

The reserve bank of India is a central bank and was established in April 1, 1935 in

accordance with the provisions of reserve bank of India act 1934. The central office of

RBI is located at Mumbai since inception. Though originally the reserve bank of India

was privately owned, since nationalization in 1949, RBI is fully owned by the

Government of India. It was inaugurated with share capital of Rs. 5 Crores divided into

shares of Rs. 100 each fully paid up.

RBI is governed by a central board (headed by a governor) appointed by the central

government of India. RBI has 22 regional offices across India. The reserve bank of India

was nationalized in the year 1949. The general superintendence and direction of the bank

is entrusted to central board of directors of 20 members, the Governor and four deputy

Governors, one Governmental official from the ministry of Finance, ten nominated

directors by the government to give representation to important elements in the economic

life of the country, and the four nominated director by the Central Government to

represent the four local boards with the headquarters at Mumbai, Kolkata, Chennai and

New Delhi. Local Board consists of five members each central government appointed for

a term of four years to represent territorial and economic interests and the interests of

cooperative and indigenous banks.

The RBI Act 1934 was commenced on April 1, 1935. The Act, 1934 provides the

statutory basis of the functioning of the bank. The bank was constituted for the need of

following: - To regulate the issues of banknotes. - To maintain reserves with a view to

securing monetary stability - To operate the credit and currency system of the country to

its advantage.

Functions of RBI as a central bank of India are explained briefly as follows:

Bank of Issue: The RBI formulates, implements, and monitors the monitory policy. Its

main objective is maintaining price stability and ensuring adequate flow of credit to

productive sector.

Regulator-Supervisor of the financial system: RBI prescribes broad parameters of

banking operations within which the country’s banking and financial system functions.

Their main objective is to maintain public confidence in the system, protect depositor’s

interest and provide cost effective banking services to the public.

Manager of exchange control: The manager of exchange control department manages the

foreign exchange, according to the foreign exchange management act, 1999. The

manager’s main objective is to facilitate external trade and payment and promote orderly

development and maintenance of foreign exchange market in India.

Issuer of currency: A person who works as an issuer, issues and exchanges or destroys

the currency and coins that are not fit for circulation. His main objective is to give the

public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role: The RBI performs the wide range of promotional functions to

support national objectives such as contests, coupons maintaining good public relations

and many more.

Related functions: There are also some of the related functions to the above mentioned

main functions. They are such as, banker to the government, banker to banks etc….

• Banker to government performs merchant banking function for the central and the state

governments; also acts as their banker.

• Banker to banks maintains banking accounts to all scheduled banks.

Controller of Credit: RBI performs the following tasks:

• It holds the cash reserves of all the scheduled banks.

• It controls the credit operations of banks through quantitative and qualitative controls.

• It controls the banking system through the system of licensing, inspection and calling

for information.

• It acts as the lender of the last resort by providing rediscount facilities to scheduled

banks.

Supervisory Functions: In addition to its traditional central banking functions, the

Reserve Bank performs certain non-monetary functions of the nature of supervision of

banks and promotion of sound banking in India. The Reserve Bank Act 1934 and the

banking regulation act 1949 have given the RBI wide powers of supervision and control

over commercial and co-operative banks, relating to licensing and establishments, branch

expansion, liquidity of their assets, management and methods of working, amalgamation,

reconstruction and liquidation. The RBI is authorized to carry out periodical inspections

of the banks and to call for returns and necessary information from them. The

nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new

responsibilities on the RBI for directing the growth of banking and credit policies

towards more rapid development of the economy and realisation of certain desired social

objectives. The supervisory functions of the RBI have helped a great deal in improving

the standard of banking in India to develop on sound lines and to improve the methods of

their operation.

Promotional Functions: With economic growth assuming a new urgency since

independence, the range of the Reserve Bank’s functions has steadily widened. The bank

now performs a variety of developmental and promotional functions, which, at one time,

were regarded as outside the normal scope of central banking. The Reserve bank was

asked to promote banking habit, extend banking facilities to rural and semi-urban areas,

and establish and promote new specialized financing agencies.

1.4.2 Indian Scheduled Commercial Banks

The commercial banking structure in India consists of scheduled commercial banks, and

unscheduled banks.

Scheduled Banks: Scheduled Banks in India constitute those banks which have been

included in the second schedule of RBI act 1934. RBI in turn includes only those banks

in this schedule which satisfy the criteria laid down vide section 42(6a) of the Act.

“Scheduled banks in India” means the State Bank of India constituted under the State

Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the s State Bank of

India (subsidiary banks) Act, 1959 (38 of 1959), a corresponding new bank constituted

under section 3 of the Banking companies (Acquisition and Transfer of Undertakings)

Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule

to the Reserve bank of India Act, 1934 (2 of 1934), but does not include a co-operative

bank”. For the purpose of assessment of performance of banks, the Reserve Bank of India

categories those banks as public sector banks, old private sector banks, new private sector

banks and foreign banks, i.e. private sector, public sector, and foreign banks come under

the umbrella of scheduled commercial banks.

Regional Rural Bank: The government of India set up Regional Rural Banks

(RRBs) on October 2, 1975 . The banks provide credit to the weaker sections of the rural

areas, particularly the small and marginal farmers, agricultural labourers, and small

enterpreneurs. Initially, five RRBs were set up on October 2, 1975 which was sponsored

by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank

and United Bank of India. The total authorized capital was fixed at Rs. 1 Crore which has

since been raised to Rs. 5 Crores. There are several concessions enjoyed by the RRBs by

Reserve Bank of India such as lower interest rates and refinancing facilities from

NABARD like lower cash ratio, lower statutory liquidity ratio, lower rate of interest on

loans taken from sponsoring banks, managerial and staff assistance from the sponsoring

bank and reimbursement of the expenses on staff training. The RRBs are under the

control of NABARD. NABARD has the responsibility of laying down the policies for

the RRBs, to oversee their operations, provide refinance facilities, to monitor their

performance and to attend their problems.

Unscheduled Banks: “Unscheduled Bank in India” means a banking company as defined

in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not

a scheduled bank”.

1.4.3 NABARD

NABARD is an apex development bank with an authorization for facilitating

credit flow for promotion and development of agriculture, small-scale industries, cottage

and village industries, handicrafts and other rural crafts. It also has the mandate to

support all other allied economic activities in rural areas, promote integrated and

sustainable rural development and secure prosperity of rural areas. In discharging its role

as a facilitator for rural prosperity, NABARD is entrusted with: 1. Providing refinance to

lending institutions in rural areas 2. Bringing about or promoting institutions

development and 3. Evaluating, monitoring and inspecting the client banks Besides this

fundamental role, NABARD also: • Act as a coordinator in the operations of rural credit

institutions • To help sectors of the economy that they have special credit needs for eg.

Housing, small business and agricultural loans etc.

1.4.4 Co-operative Banks Co-operative banks are explained in detail in

Section

1.5 Services provided by banking organizations Banking Regulation Act in India, 1949

defines banking as “Accepting” for the purpose of lending or investment of deposits of

money from the public, repayable on demand and withdrawable by cheques, drafts,

orders etc. as per the above definition a bank essentially performs the following

functions:-

• Accepting Deposits or savings functions from customers or public by providing bank

account, current account, fixed deposit account, recurring accounts etc.

• The payment transactions like lending money to the public. Bank provides an effective

credit delivery system for loanable transactions.

• Provide the facility of transferring of money from one place to another place. For

performing this operation, bank issues demand drafts, banker’s cheques, money orders

etc. for transferring the money. Bank also provides the facility of Telegraphic transfer or

tele- cash orders for quick transfer of money.

• A bank performs a trustworthy business for various purposes.

• A bank also provides the safe custody facility to the money and valuables of the

general public. Bank offers various types of deposit schemes for security of money. For

keeping valuables bank provides locker facility. The lockers are small compartments with

dual locking system built into strong cupboards. These are stored in the bank’s strong

room and are fully secured.

• Banks act on behalf of the Govt. to accept its tax and non-tax receipt. Most of the

government disbursements like pension payments and tax refunds also take place through

banks. There are several types of banks, which differ in the number of services they

provide and the clientele (Customers) they serve. Although some of the differences

between these types of banks have lessened as they have begun to expand the range of

products and services they offer, there are still key distinguishing traits. These banks are

as follows:

Commercial banks, which dominate this industry, offer a full range of services for

individuals, businesses, and governments. These banks come in a wide range of sizes,

from large global banks to regional and community banks. Global banks are involved in

international lending and foreign currency trading, in addition to the more typical

banking services. Regional banks have numerous branches and automated teller machine

(ATM) locations throughout a multi-state area that provide banking services to

individuals. Banks have become more oriented toward marketing and sales. As a result,

employees need to know about all types of products and services offered by banks.

Community banks are based locally and offer more personal attention, which many

individuals and small businesses prefer. In recent years, online banks—which provide all

services entirely over the Internet—have entered the market, with some success.

However, many traditional banks have also expanded to offer online banking, and some

formerly Internet-only banks are opting to open branches. Savings banks and savings and

loan associations, sometimes called thrift institutions, are the second largest group of

depository institutions. They were first established as community-based institutions to

finance mortgages for people to buy homes and still cater mostly to the savings and

lending needs of individuals. Credit unions are another kind of depository institution.

Most credit unions are formed by people with a common bond, such as those who work

for the same company or belong to the same labour union or church. Members pool their

savings and, when they need money, they may borrow from the credit union, often at a

lower interest rate than that demanded by other financial institutions. Federal Reserve

banks are Government agencies that perform many financial services for the

Government. Their chief responsibilities are to regulate the banking industry and to help

implement our Nation’s monetary policy so our economy can run more efficientlyby

controlling the Nation’s money supply—the total quantity of money in the country,

including cash and bank deposits. For example, during slower periods of economic

activity, the Federal Reserve may purchase government securities from commercial

banks, giving them more money to lend, thus expanding the economy. Federal Reserve

banks also perform a variety of services for other banks. For example, they may make

emergency loans to banks that are short of cash, and clear checks that are drawn and paid

out by different banks. The money banks lend, comes primarily from deposits in

checking and savings accounts, certificates of deposit, money market accounts, and other

deposit accounts that consumers and businesses set up with the bank. These deposits

often earn interest for their owners, and accounts that offer checking, provide owners

with an easy method for making payments safely without using cash. Deposits in many

banks are insured by the Federal Deposit Insurance Corporation, which guarantees that

depositors will get their money back, up to a stated limit, if a bank should fail.

CHAPTER 2

INTRODUCTION TO CO-OPERATIVE BANKING

2.1 DEFINATION:

“A Co-operative bank, as its name indicates is an institution consisting of a

number of individuals who join together to pool their surplus savings for the purpose of

eliminating the profits of the bankers or money lenders with a view to distributing the

same amongst the depositors and borrowers.” The Co-operative Banks Act, of 2007 (the

Act) defines a co-operative bank as a co-operative registered as a co-operative bank in

terms of the Act whose members

1. Are of similar occupation or profession or who are employed by a common employer

or who are employed within the same business district; or

2. Have common membership in an association or organization, including a business,

religious, social, co-operative, labour or educational group; or

3. have common membership in an association or organisation, including a business,

religious, social, co-operative, labour or educational group; or

4. Reside within the same defined community or geographical area.

2.2 MEANING

Co-operative bank, in a nutshell, provides financial assistance to the people with

small means to protect them from the debt trap of the moneylenders. It is a part of vast

and powerful structure of co-operative institutions which are engaged in tasks of

production, processing, marketing, distribution, servicing and banking in India. A co-

operative bank is a financial entity which belongs to its members, who are at the same

time the owners and the customers of their bank. Co-operative banks are often created by

persons belonging to the same local or professional community or sharing a common

interest. These banks generally provide their members with a wide range of banking and

financial services (loans, deposits, banking accounts…). Co-operative banks differ from

stockholder banks by their organization, their goals, their Values and their governance.

The Co-operative Banking System in India is characterized by a relatively comprehensive

network to the grass root level. This sector mainly focuses on the local population and

micro- banking among middle and low income strata of the society. These banks operate

mainly for the benefit of rural areas, particularly the agricultural sector.

In the organized sector of the money market, commercial banks and cooperative banks

have been in existence for the past several decades. A commercial bank which is run for

the benefit of a group of members of the cooperative body, e.g., housing cooperative

society. The commercial banks are spread across the length and breadth of the country,

and cater to the short term needs of industry, trade and commerce and agriculture unlike

the developmental banks which focus on long term needs. These days the commercial

banks also look after other needs of their customers including long term credit

requirements. The Central Bank (Reserve Bank of India) Old Banks Local Banks Indian

Banking System Commercial Banks Regional Rural Banks Cooperative Banks Public

Sector Banks Private Sector Banks State Cooperative Bank Nationalized Banks State

Bank Group Indian Foreign Central/ district Cooperative Banks Public Credit Societies

SBI Subsidiary Banks New Banks 19 The banking sector has been undergoing drastic

metamorphosis. The rapid progress witnessed in the realm of banking services has been

engineered by the trends in globalization, liberalization and privatization. The

technological revolution and demographic changes have also helped to change the face of

banking in India. More banks are switching over virtual banking for the brick and mortar

banks, and are providing a vast array of products through very innovative channels and at

highly competitive prices. Banks are now free to quote their own interest rates in

loan/advances and term deposits. They now have to manage their investments and loans

portfolios based on the international norms and practices of risk management including

asset liability management. Commercial banks operating in India may be categorized into

public sector, private sector, and Indian or foreign banks depending upon the ownership,

management and control. They may also be differentiated as scheduled or non-scheduled,

licensed or unlicensed

2.3 OBJECTIVES OF STUDY

The Objective of the study of Co-operative Banking is to know the origin of

Co-operative Banks in India.

To know the role of Co-operative banks in India.

To know the importance of Co-operative Banks in India.

To know the types of Co-operative Banks.

To know the Development of Co-operative Banks in India.

CHAPTER-3

ROLE & FEATURES OF CO-OPERATIVE BANKING

3.1 ROLE OF CO-OPERATIVE BANKING IN INDIA

Co-operative Banks are much more important in India than anywhere else in the

world. The distinctive character of this bank is service at a lower cost and service without

exploitation. It has gained its importance by the role assigned to them, the expectations

they are supposed to fulfill, their number, and the number of offices they operate. Co-

operative banks role in rural financing continues to be important day by day, 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. In rural areas, as far as

the agricultural and related activities are concerned, the supply of credit was inadequate,

and money lenders would exploit the poor people in rural areas providing them loans at

higher rates. So, Co-operative banks mobilize deposits and purvey agricultural and rural

credit with a wider outreach and provide institutional credit to the farmers. Co-operative

bank have also been an important instrument for various development schemes,

particularly subsidy-based programmes for poor.

3.2.1 The Co-operative banks in rural areas mainly finance agricultural

based activities like:

• Farming

• Cattle

• Milk

• Hatchery

• Personal finance

3.2.2 The Co-operative banks in urban areas finance in activities like:

• Self-employment

• Industries

• Small scale units

• Home finance

• Consumer finance

• Personal finance

Some of the forward looking Co-operative banks have developed sufficient core

competencies to such an extent that they are able to challenge state and private sector

banks.

The exponential growth of Co-operative banks is attributed mainly to their much better

contacts with the local people, personal interaction with customers, and their ability to

catch the nerve of the local clientele. The total deposits and lendings of Co-operative

banks are much more than the Old Private Sector Banks and the New Private Sector

Banks.

3.3 IMPORTANCE OF CO-OPERATIVE BANKING

Co-operative bank forms an integral part of banking system in India. This bank

operates mainly for the benefit of rural area, particularly the agricultural sector. Co-

operative bank mobilize deposits and supply agricultural and rural credit with the wider

outreach. They are the main source for the institutional credit to farmers. They are chiefly

responsible for breaking the monopoly of moneylenders in providing credit to

agriculturists. Co-operative bank has also been an important instrument for various

development schemes, particularly subsidy-based programmes for the poor. Co-operative

banks operate for non-agricultural sector also but their role is small.

Though much smaller as compared to scheduled commercial banks, co-operative banks

constitute an important segment of the Indian banking system. They have extensive

branch network and reach out to people in remote areas. They have traditionally played

an important role in creating banking habits among the lower and middle income groups

and in strengthening the rural credit delivery system.

3.4 FEATURES OF CO-OPERATIVE BANKING

1. Co-operative Banks are organized and managed on the principal of cooperation, self-

help, and 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 maximization.

2. Co-operative bank performs all the main banking functions of deposit mobilisation,

supply of credit and provision of remittance facilities.

3. Co-operative Banks provide limited banking products and are functionally specialists

in agriculture related products. However, co-operative banks now provide housing loans

also.

4. Co-operative banks are perhaps the first government sponsored, government-

supported, and government-subsidised financial agency in India. They get financial and

other help from the Reserve Bank of India, NABARD, central government and state

governments. They constitute the "most favoured" banking sector with risk of

nationalisation. For commercial banks, the Reserve Bank of India is lender of last resort,

but co-operative banks it is the lender of first resort which provides financial resources in

the form of contribution to the initial capital (through state government), working capital,

refinance.

5. Co-operative Banks belong to the money market as well as to the capital market.

Primary agricultural credit societies provide short term and medium term loans.

6. Co-operative banks are financial intermediaries only partially.

The sources of their funds (resources) are:

(a) Central and state government,

(b) The Reserve Bank of India and NABARD,

(c) Other co-operative institutions,

(d) Ownership funds and,

(e) Deposits or debenture issues.

7. Some co-operative bank are scheduled banks, while others are nonscheduled banks.

Co-operative Banks are subject to CRR and liquidity requirements as other scheduled and

non-scheduled banks are. However, their requirements are less than commercial banks.

8. As said earlier, co-operative banks accept current, saving, and fixed or time deposits

from individuals and institutions including banks.

9. In the recent past, the RBI has introduced changes in interest rates of cooperative

banks also, along with changes in interest rates of commercial banks. The interest rates

structure of co-operative banks is quite complex. The rates charged by them depend upon

the type of bank, the type of loans, and vary from state to state.

10. Since 1966 the lending and deposit rate of commercial banks have been directly

regulated by the Reserve Bank of India. Although the Reserve Bank of India had power

to regulate the rate co-operative bank but this have been exercised only after 1979 in

respect of non-agricultural advances they were free to charge any rates at their discretion.

Although the main aim of the cooperative bank is to provide cheaper credit to their

members and not to maximize profits, they may access the money market to improve

their income so as to remain viable.

11.Co-operative banks (COBs), in short, have played a pivotal role in the development of

short-term and long-term rural credit structure in India over the years. The co-operative

credit effort is said to be the first ever attempt at micro-credit dispensation in India.

3.5 Co-operative Banks share some common features for their customer

benefit:

Customer's owned entities :

In a co-operative bank, the needs of the customers meet the needs of the owners, as co-

operative bank members are both. As a consequence, the first aim of a co-operative bank

is not to maximise profit but to provide the best possible products and services to its

members.

Democratic member control :

Co-operative banks are owned and controlled by their members, who democratically elect

the board of directors. Members usually have equal voting rights, according to the co-

operative principle of "one person, one vote".

Profil allocation :

In a co-operative bank, a significant part of the yearly profit, benefits or surplus is usually

allocated to constitute reserves. A part of this profit can also be distributed to the co-

operative members, with legal or statutory limitations in most cases. Profit is usually

allocated to members either through a patronage dividend, which is related to the use of

the co-operative's products and services by each member, or through an interest or a

dividend, which is related to the number of shares subscribed by each member.

CHAPTER-4

ORIGIN AND OPERATION OF CO-OPERATIVE

BANKING

4.1 ORIGIN OF CO-OPERATIVE BANKING

The beginning co-operative banking in India dates back to about 1904, when

official efforts were made to create a new type of institution based on principles of co-

operative organization & management, which were considered to be suitable for solving

the problems peculiar to Indian conditions.

The philosophy of equality, equity and self help gave way to the thoughts of self

responsibility and self administration which resulted in giving birth of co-operative. The

origin on co-operative movement was one such event-arising out of a situation of crisis,

exploitation and sufferings.

Co-operative banks in India came into existence with the enactment of the

Agricultural Credit Co-operative Societies Act in 1904. Co-operative bank form an

integral part of banking system in India. Under the act of 1904, a number of co-operative

credit societies were started. Owing to the increasing demand of co-operative credit, anew

act was passed in 1912, which was provided for establishment of co-operative central

banks by a union of primary credit societies and individuals.

Co-operative Banks in India are registered under the Co-operative Societies Act.

The cooperative bank is also regulated by the RBI. They are governed by the Banking

Regulations Act 1949 and Banking Laws (Cooperative Societies) Act, 1965.

4.2 OPERATION OF CO-OPERATIVE BANKING:

Establishments:

Co-operative bank performs all the main banking functions of deposit

mobilisation, supply of credit and provision of remittance facilities.

Co-operative Banks belong to the money market as well as to the capital market.

Co-operative Banks provide limited banking products and are functionally

specialists in agriculture related products. However, cooperative banks now

provide housing loans also.

UCBs provide working capital loans and term loan as well.

The chief functions of Co-operative banks are:

a. To attract deposit from non-agriculturist,

b. To use excess funds of some societies temporarily to make up for shortage in

another,To supervise and guide affiliated societies.

The basic principles on which a Co-operative bank works are:

• A co-operative character of activities and trait of mutual aid of credit granted.

• Catering for collective organizations and their members.

• Restriction on the number of individual votes.

As a result, during 2007-08, the Primary Cooperative Agriculture and

Rural Development Banks have again started lending for the Non-Farm Sector including

Jewel Loans.

• Aiming at high rates on deposits and low rates on lending.

• Limitation of dividends out of profits and bonus to depositors and borrowers or

grants to cultural or co-operative endeavour.

These banks are constituted of voluntary association, self-help and mutual aid,

one share one vote and non-discrimination and equality of members. The co-operative

banks are the organizations of and for the people.

CHAPTER-5

HISTORY OF CO-OPERATIVE BANKING

5.1 HISTORY OF CO-OPERATIVE BANKING

The origins of the cooperative banking movement in India can be traced to the

close of nineteenth century when, inspired by the success of the experiments related to

the cooperative movement in Britain and the cooperative credit movement in Germany,

such societies were set up in India.

Now, Co-operative movement is quite well established in India. The first legislation on

co-operation was passed in 1904. In 1914 the Maclagen committee envisaged a three tier

structure for co-operative banking viz. Primary Agricultural Credit Societies (PACs) at

the grass root level, Central Co-operative Banks at the district level and State Co-

operative Banks at state level or Apex Level.

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

areas, was almost absent. Agricultural and related activities were starved of organised,

institutional credit. The rural folk had to depend entirely on the money lenders, who lent

often at usurious rates of interest.

The co-operative banks arrived in India in the beginning of 20th Century as an official

effort to create a new type of institution based on the principles of co-operative

organisation and management, suitable for problems peculiar to Indian conditions. These

banks were conceived as substitutes for money lenders, to provide timely and adequate

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

The Anyonya Co-operative Bank in India is considered to have been the first co-

operative bank in Asia which was formed nearly 100 years back in Baroda. It was

established in 1889 with the name Anyonya Sahayakari Mandali Co-operative Bank

Limited, with a primary objective of providing an alternative to exploitation by

moneylenders for Baroda's residents.

In the formative stage Co-operative Banks were Urban Co-operative Societies run on

community basis and their lending activities were restricted to meeting the credit

requirements of their members. The concept of Urban Co-operative Bank was first spelt

out by Mehta Bhansali Committee in 1939 which defined on Urban Co-operative Bank .

Provisions of Section 5 (CCV) of Banking Regulation Act, 1949 (as applicable to Co-

operative Societies) defined an Urban Co-operative Bank as a Primary Co-operative

Bank other than a Primary Co-operative Society were made applicable in 1966.

With gradual growth and also given philip with the economic boom, urban banking sector

received tremendous boost and started diversifying its credit portfolio. Besides giving

traditional lending activity meeting the credit requirements of their customers they started

catering to various sorts of customers viz.self-employed, small businessmen / industries,

house finance, consumer finance, personal finance etc.

5.2 Brief History of Urban Cooperative Banks in India

The term Urban Co-operative Banks (UCBs), though not formally defined, refers

to primary cooperative banks located in urban and semi-urban areas. These banks, till

1996, were allowed to lend money only for non-agricultural purposes. This distinction

does not hold today. These banks were traditionally centred around communities,

localities work place groups. They essentially lent to small borrowers and businesses.

Today, their scope of operations has widened considerably.

The origins of the urban cooperative banking movement in India can be traced to the

close of nineteenth century when, inspired by the success of the experiments related to

the cooperative movement in Britain and the cooperative credit movement in Germany

such societies were set up in India. Cooperative societies are based on the principles of

cooperation, - mutual help, democratic decision making and open membership.

Cooperatives represented a new and alternative approach to organisaton as against

proprietary firms, partnership firms and joint stock companies which represent the

dominant form of commercial organisation.

1. The Beginnings

The first known mutual aid society in India was probably the "Anyonya

Sahakari Mandali" organised in the erstwhile princely State of Baroda in 1889 under the

guidance of Vithal Laxman also known as Bhausaheb Kavthekar. Urban co-operative

credit societies, in their formative phase came to be organised on a community basis to

meet the consumption oriented credit needs of their members. Salary earners" societies

inculcating habits of thrift and self help played a significant role in popularising the

movement, especially amongst the middle class as well as organized labour. From its

origins then to today, the thrust of UCBs, historically, has been to mobilise savings from

the middle and low income urban groups and purvey credit to their members - many of

which belonged to weaker sections.

The enactment of Cooperative Credit Societies Act, 1904, however, gave the real impetus

to the movement. The first urban cooperative credit society was registered in

Canjeevaram (Kanjivaram) in the erstwhile Madras province in October, 1904. Amongst

the prominent credit societies were the Pioneer Urban in Bombay (November 11, 1905),

the No.1 Military Accounts Mutual Help Co-operative Credit Society in Poona (January

9, 1906). Cosmos in Poona (January 18, 1906), Gokak Urban (February 15, 1906) and

Belgaum Pioneer (February 23, 1906) in the Belgaum district, the Kanakavli-Math Co-

operative Credit Society and the Varavade Weavers" Urban Credit Society (March 13,

1906) in the South Ratnagiri (now Sindhudurg) district. The most prominent amongst the

early credit societies was the Bombay Urban Co-operative Credit Society, sponsored by

Vithaldas Thackersey and Lallubhai Samaldas established on January 23, 1906.

The Cooperative Credit Societies Act, 1904 was amended in 1912, with a view to broad

basing it to enable organisation of non-credit societies. The Maclagan Committee of 1915

was appointed to review their performance and suggest measures for strengthening them.

The committee observed that such institutions were eminently suited to cater to the needs

of the lower and middle income strata of society and would inculcate the principles of

banking amongst the middle classes. The committee also felt that the urban cooperative

credit movement was more viable than agricultural credit societies. The

recommendations of the Committee went a long way in establishing the urban

cooperative credit movement in its own right.

In the present day context, it is of interest to recall that during the banking crisis of 1913-

14, when no fewer than 57 joint stock banks collapsed, there was a there was a flight of

deposits from joint stock banks to cooperative urban banks. Maclagan Committee

chronicled this event thus:

"As a matter of fact, the crisis had a contrary effect, and in most provinces, there was a

movement to withdraw deposits from non-cooperatives and place them in cooperative

institutions, the distinction between two classes of security being well appreciated and a

preference being given to the latter owing partly to the local character and publicity of

cooperative institutions but mainly, we think, to the connection of Government with

Cooperative movement".

2. Under State Purview

The constitutional reforms which led to the passing of the Government

of India Act in 1919 transferred the subject of "Cooperation" from Government of India

to the Provincial Governments. The Government of Bombay passed the first State

Cooperative Societies Act in 1925 "which not only gave the movement its size and shape

but was a pace setter of cooperative activities and stressed the basic concept of thrift, self

help and mutual aid." Other States followed. This marked the beginning of the second

phase in the history of Cooperative Credit Institutions.

There was the general realization that urban banks have an important role to play in

economic construction. This was asserted by a host of committees. The Indian Central

Banking Enquiry Committee (1931) felt that urban banks have a duty to help the small

business and middle class people. The Mehta-Bhansali Committee (1939), recommended

that those societies which had fulfilled the criteria of banking should be allowed to work

as banks and recommended an Association for these banks. The Co-operative Planning

Committee (1946) went on record to say that urban banks have been the best agencies for

small people in whom Joint stock banks are not generally interested. The Rural Banking

Enquiry Committee (1950), impressed by the low cost of establishment and operations

recommended the establishment of such banks even in places smaller than taluka towns.

The first study of Urban Co-operative Banks was taken up by RBI in the year 1958-59.

The Report published in 1961 acknowledged the widespread and financially sound

framework of urban co-operative banks; emphasized the need to establish primary urban

cooperative banks in new centers and suggested that State Governments lend active

support to their development. In 1963, Varde Committee recommended that such banks

should be organised at all Urban Centres with a population of 1 lakh or more and not by

any single community or caste. The committee introduced the concept of minimum

capital requirement and the criteria of population for defining the urban centre where

UCBs were incorporated.

3. Duality of Control

However, concerns regarding the professionalism of urban cooperative

banks gave rise to the view that they should be better regulated. Large cooperative banks

with paid-up share capital and reserves of Rs.1 lakh were brought under the perview of

the Banking Regulation Act 1949 with effect from 1st March, 1966 and within the ambit

of the Reserve Bank"s supervision. This marked the beginning of an era of duality of

control over these banks. Banking related functions (viz. licensing, area of operations,

interest rates etc.) were to be governed by RBI and registration, management, audit and

liquidation, etc. governed by State Governments as per the provisions of respective State

Acts. In 1968, UCBS were extended the benefits of Deposit Insurance.

Towards the late 1960s there was much debate regarding the promotion of the small scale

industries. UCBs came to be seen as important players in this context. The Working

Group on Industrial Financing through Co-operative Banks, (1968 known as Damry

Group) attempted to broaden the scope of activities of urban co-operative banks by

recommending that these banks should finance the small and cottage industries. This was

reiterated by the Banking Commisssion (1969).

The Madhavdas Committee (1979) evaluated the role played by urban co-operative banks

in greater details and drew a roadmap for their future role recommending support from

RBI and Government in the establishment of such banks in backward areas and

prescribing viability standards.

The Hate Working Group (1981) desired better utilisation of banks' surplus funds and

that the percentage of the Cash Reserve Ratio (CRR) & the Statutory Liquidity Ratio

(SLR) of these banks should be brought at par with commercial banks, in a phased

manner. While the Marathe Committee (1992) redefined the viability norms and ushered

in the era of liberalization, the Madhava Rao Committee (1999) focused on consolidation,

control of sickness, better professional standards in urban co-operative banks and sought

to align the urban banking movement with commercial banks.

A feature of the urban banking movement has been its heterogeneous character and its

uneven geographical spread with most banks concentrated in the states of Gujarat,

Karnataka, Maharashtra, and Tamil Nadu. While most banks are unit banks without any

branch network, some of the large banks have established their presence in many states

when at their behest multi-state banking was allowed in 1985. Some of these banks are

also Authorised Dealers in Foreign Exchange

4. Recent Developments

Over the years, primary (urban) cooperative banks have registered a

significant growth in number, size and volume of business handled. As on 31st March,

2003 there were 2,104 UCBs of which 56 were scheduled banks. About 79 percent of

these are located in five states, - Andhra Pradesh, Gujarat, Karnataka, Maharashtra and

Tamil Nadu. Recently the problems faced by a few large UCBs have highlighted some of

the difficulties these banks face and policy endeavours are geared to consolidating and

strengthening this sector and improving

CHAPTER-6

TYPES OF CO-OPERATIVE BANKS

6.1 TYPES OF CO-OPERATIVE BANKS CLASSIFICATION OF CO-

PERATIVE BANKS

The Co-operative banking structure in India comprises of:

1. Urban Co-operative Banks

2. Rural Co-operatives

Some co-operative banks are scheduled banks, while others are nonscheduled

banks. For instance, State Co-operative banks and some Urban Co-operative banks are

scheduled banks but other co-operative banks are non-scheduled banks.

Scheduled banks are those banks which have been included in the second schedule of the

Reserve bank of India act of 1934.

The banks included in this schedule list should fulfill two conditions.

1. The paid capital and collected funds of bank should not be less than Rs. 5 lac.

2.Any activity of the bank will not adversely affect the interests of depositors.

Every Scheduled bank enjoys the following facilities.

1. Such bank becomes eligible for debts/loans on bank rate from the RBI

2. Such bank automatically acquire the membership of clearing house.

1. Urban Co-operative Banks:

Urban Co-operative Banks is also referred as Primary Co-operative banks by the

Reserve Bank of India. Among the non-agricultural credit societies urban co-operative

banks occupy an important place. This bank is started in India with the object of catering

to the banking and credit requirements of the urban middle classes.

The RBI defines Urban Co-operative banks as “small sized cooperatively organized

banking units which operate in metropolitan, urban and semi-urban centers to cater

mainly to the needs of small borrowers, viz. owners of small scale industrial units, retail

traders, professional and salaries classes.”

Urban Co-operative banks mobilize savings from the middle and lower income groups

and purvey credit to small borrowers, including weaker sections of the society. These

banks organize on a limited liability basis, generally extend their area of operation over a

town. The main functions of these banks are to promote thrift by attracting deposits from

members and non-members and to advance loans to the members. It is registered under

Co-operatives Societies Act of the respective state Governments. Prior to

1966, Urban Co-operative banks were exclusively under the purview of

State Government. From March 1, 1966 certain provisions of Banking Regulation Act

have been made applicable to these banks. Consequently, the RBI became the regulatory

an supervisory authority of Urban Co-operative Banks for their related operations.

Managerial aspects of such banks continue to remain with State Governments under the

respective Cooperative Societies Act. These banks with multi-presence are regulated by

the Central Governments and registered under Multi-State Co-operative Societies Act.

The RBI extends refinance to Urban Co-operative Banks at bank ate against their

advances to tiny and cottage industrial units. These banks grants sizeable loans and

advances under priority sector for lending to small business enterprises, retail trade, road

and water transport operators and professional and self-employed persons. Urban Co-

operative banks are mostly located in towns and cities and cater to the credit requirement

of the urban clientele.

The objectives and functions of the Urban Co-operative banks:

Primarily, to raise funds for lending money to its members.

To attract deposits from members as well as non-members.

To encourage thrift, self-help ad mutual aid among members.

To draw, make, accept, discount, buy, sell, collect and deal in bills of

exchange, drafts, certificates and other securities.

To provide safe-deposit vaults.

Area of Operation :

The area of operation of these banks are usually restricted by its byelaws to a

municipal area or a town. In some occasions it exceeds this limit. The study group on

Credit Co-operatives in Non-Agricultural Sectors has recommended that normally, it

would be advisable for an urban cooperative bank to restrict its area of operation to the

municipality or the taluka town where it operates.

2. Rural Co-operatives:

Rural Cooperative Banking plays an important role in meeting the growing credit

needs of rural population of India. It provides institutional credit to the agricultural and

rural sector. The inadequacy of rural credit engaged the attention of RBI and

Government throughout the 1950s and 1960s. One important feature of providing

agriculture credit in India has been the existence of a widespread network of rural

financial institutions. The rural credit structure consists of many types of financial

institutions as large scale branch expansion was undertaken to create a strong institution

based in rural area. It has served as an important instrument of credit delivery in rural and

agricultural areas. The separate structure of rural Cooperative sector for long-term and

short-term loans has enabled these institutions to develop a specialized institution for

rural credit delivery. The volume of credit flowing through these institution has

increased. The Rural Co-operative structure has traditionally been bifurcated into two

parallel wings, i.e.

I. Short-term Rural Co-operatives, II. Long-term Rural Co-operatives.

There is a larger network of co-operative banks in the rural sector, consisting of 29

State Co-operative Banks and 367 District Central Cooperative Banks, with 13,025

branches. In addition, there are 92,000 Primary Agricultural Co-operative Credit

Societies , 19 State Land Development Banks and 745 Primary Land Development

Banks, along with 1,847 branches, which are not strictly banks as they are not covered

under the Banking Regulation Act, 1949. The RBI Governor's proposals should,

therefore, encompass the entire Co-operative banking system. I. Short-term Rural Co-

operatives:

The short-term rural co-operatives provide crop and other working capital loans to

farmers and rural artisans primarily for short-term purpose.

These institutions have federal three-tier structure.

At the Apex of the system is a State Co-operative bank in each state.

At the middle (or district) level, there are Central Co-operative Banks also known as

District Co-operative banks.

At the lowest (or village) level, are the Primary Agricultural Credit Societies.

i. State Co-operative Banks:

State Co-operative Banks are the apex of the three-tier Co-operative structure

dispensing mainly short/medium term credit. It is the principal society in a State which is

registered or deemed to be registered under the Government Societies Act, 1912, or any

other law for the time being in force in India relating to co-operative societies and the

primary object of which is the financing of the other societies in the State which are

registered or deemed to be registered. The State Co-operative Banks receive current and

fixed deposits from its constituent banks as well as savings, current and fixed deposits

from the general public and from local boards, other local authorities, etc. Further, they

receive loans from the RBI and NABARD. NABARD is the supervisory authority for

State Co-operative Banks. The state government contributes the certain portion of their

working capital. The principal function of State Co-operative Banks is to assist the

Central Co-operative Banks and to balance excesses and deficiencies in the resources of

Central Co-operative Banks. It also act as the “balancing centre” for Central Co-operative

Banks in the sense that surplus fund of some of these banks are made available to other

needy banks. It also serves the link between RBI and the Central Co-operative Banks and

Primary Agriculture Credit Societies. But the connection between the State Cooperative

Banks and Primary Co-operative Societies is not direct. The Central Co-operative Banks

are acting as intermediaries between the State Co-operative Banks and Primary societies.

ii. Central Co-operative Banks:

Central Co-operative Banks form the middle tier of Co-

operative credit institutions. These are the independent units in as much as the State Co-

operative Banks have control to control or supervise their affairs. They are of two kinds

i.e. ‘pure’ and ‘mixed’. Those banks are the membership of which is confined to co-

operative organizations only are included in ‘pure’ type, while those banks the

membership of which is open to co-operative organizations as well as to the individuals

are included in ‘mixed’ type. The pure type of Central Banks can be seen in Kerala,

Bombay, Orissa, etc., while the mixed type can be seen in Andhra Pradesh, Assam, Tamil

Nadu, etc. The pure type of banks is based on strict cooperative principles. However, the

mixed type has an advantage over the pure type in so far as they can draw their funds

from the non-agricultural sector too.

The Central Co-operative Banks draw their funds from share

capital, deposits, loans from the State C-operative Banks and where State Banks do not

exist from the RBI, NABARD and commercial banks. NABARD is the supervisory

authority for Central Co-operative Banks. Deposits constitute the major component of

sources of funds, followed by borrowings. The main function of Central Co-operative

Banks is to finance the primary credit societies. In addition they carry on Commercial

banking activities like acceptance of deposits, granting of loans and advances on the

security of first class guilt-edged securities, fixed deposit receipts, gold, bullion, goods

and documents of title to goods, collection of bills, cheques, etc., safe custody of

valuables and agency services. They are expected to attract deposits from the general

public. They also act as ‘balancing centres’, making available access funds of one

primary to another which is in need of them.

The central co-operative banks are located at the district headquarters or some prominent

town of the district. These banks have a few private individuals also who provide both

finance and management. The central cooperative banks have three sources of funds,

• Their own share capital and reserves

• Deposits from the public and

• Loans from the state co-operative banks

iii. Primary Agriculture Credit Societies:

Primary Agricultural Credit Societies is the foundation of the co-operative credit system

on which the superstructure of the shortterm co-operative credit system rests. It deals

directly with individual farmers, provide short and medium term credit, supply

agricultural inputs, distribute consume articles and also arrange for the marketing of

products of its members through a c-operative marketing societies. These societies form

the basic unit of co-operative credit system in India. These voluntary societies based on

principle of one man one vote has posed challenge to exploitative practices of the village

moneylenders. The farmers and other small-time borrowers come in direct contact with

these societies. The success of the co-operative credit movement depend largely on the

strength of these village level societies.

The major objective of Primary agricultural Credit Societies is to serve the need of

weaker sections of these society. For this purpose, the people with limited means,

particularly with schedules castes and scheduled tribes, are encouraged to become

members of these societies. So, they must function effectively as well-managed and

multi-purpose institutions mobilizing the savings of the rural people and providing the

package of services including credit, supply of agricultural inputs and implements,

consumer goods, marketing services and technical guidance with focus on weaker

sections. Government has promoted multi-purpose societies in tribal areas for the benefit

of people living there.

Challenges faced by this societies, apart from improving resources mobilization, are the

following:

Improving volume of business

Reducing cost of management.

Correcting imbalances in loan outstanding.

Improving skill of the staff and imparting proffesionalisation

Strenghtening Management Information System (MIS).

II. Long-term Rural Co-operatives:

The long-term rural co-operative provide typically medium and

long-term loans for making investments in agriculture, rural industries and, in the recent

period, housing. Generally, these co-operatives have two tiers, i.e. State Co-operative

Agriculture and Development Banks (SCARBDs) at the state level and Primary Co-

operative Agriculture and Rural Development Banks (PCARDBs) at the taluka or tehsil

level. However, some States have a unitary structure with the state level banks operating

through their own branches.

i. State Co-operative Agriculture and Development Banks ( SCARBDs ):

State Co-operative Agriculture and Development Banks

constitute the upper-tier of long term co-operative credit structure. Though long term

credit co-operatives have been allowed to access public deposits under certain conditions,

such deposits constitute a relatively small proportion of their total liabilities. They are

mostly dependent on borrowings for on-lending.

The main objective of the Co-operative State Agriculture and Rural Development bank is

to finance primary agriculture and rural development banks. The bank undertakes the

following functions to achieve the above objectives:-

(a) Floatation of Debentures,

(b) Receiving Deposits;

(c) Grant of loans to primary cooperative agriculture and rural development banks for

purposes approved by the National Bank for Agricultural and Rural Development and

Registrar of Cooperative Societies;

(d) To function as the agent of any cooperative bank subject to such conditions as the

Registrar may specify;

(e) To develop, assist and coordinate the work of affiliated primary cooperative

agriculture and rural development banks.

The bank issues long term and medium term loans towards agricultural and allied

activities like construction of godowns, cattle shed, farm house, purchase of lands etc.,

and for minor irrigation purposes like construction of new wells, deepening of existing

wells etc., In addition, long term loans are also sanctioned for animal husbandry,

fisheries, plantation, farm mechanization, non-farm sector and other non-minor irrigation

schemes. ii. Primary Co-operative Agriculture and Rural Development Banks

( PCARDBs ):

Primary Co-operative Agriculture and Rural

Development Banks are the lowest layer of long term credit co-operatives. It is primarily

dependent on the borrowings for their lending business.

They provide credit for developmental purposes like minor irrigation, cultivation of

plantation crops and for diversified purposes like poultry, dairying and sericulture on

schematic basis. They get requisite financial assistance from the Cooperative State

Agriculture and Rural Development Bank.

In order to widen their scope of lending to compete with other financial agencies, the

primary cooperative agriculture and rural development banks have been permitted to

finance artisans, craftmen and small scale entrepreneurs. They have also been permitted

to issue loans to small road transport operators in rural areas for purchase of goods

carriers and passenger vehicles.

As a result, during 2007-08, the Primary Cooperative Agriculture and Rural Development

Banks have again started lending for the Non-Farm Sector including Jewel Loans.

CHAPTER-7

REGULATORY BODIES OF CO-OPERATIVE BANKS

7.1 CO-OPERATIVE BANKS AND NABARD

As an apex bank involved in refinancing credit needs of major financial

institutions in the country engaged in offering financial assistance to agriculture and rural

development operations and programmes, NABARD has been sharing with the Reserve

Bank of India certain supervisory functions in respect of co-operative banks and Regional

Rural Banks (RRBs).

As part of these functions, it

Undertakes inspection of Regional Rural Banks (RRBs) and cooperative banks

(other than urban/primary co-operative banks) under the provisions of Banking

Regulation Act, 1949.

Undertakes inspection of State Co-operative Agriculture and Rural Development

Banks (SCARDBs) and apex non-credit co-operative societies on a voluntary

basis

Undertakes portfolio inspections, systems study, besides off-site surveillance of

co-operative banks.

Provides recommendations to Reserve Bank of India on opening of new branches

by State Co-operative Banks.

Administering the Credit Monitoring Arrangements in Co-operative banks.

Core Functions of NABARD for Co-operative Banks:

NABARD has been entrusted with the statutory responsibility of

conducting inspections of State Co-operative Banks (SCBs), District Central Co-

operative Banks (DCCBs) and Regional Rural Banks (RRBs) under the

provision of the Banking Regulation Act, 1949. In addition, NABARD has also

been conducting periodic inspections of state level co-operative institutions such

as State Co-operative Agriculture and Rural Development Banks (SCARDBs),

on a voluntary basis.

7.2 REFORMS IN BANKING REGULATION ACT, 1949

Amendments to the BR Act would cover the following:

i. All cooperative banks would be on par with the commercial banks as far as

regulatory norms are concerned.

ii. RBI will prescribe fit and proper criteria for election to Boards of cooperative

banks. Such criteria would however not be at variance with the nature of membership of

primary cooperatives which constitute the membership of the District/ Central Co-

operative Banks and State Cooperative Banks.

iii. However, as financial institutions, these Boards would need minimum support at

the Board level. Thus, the RBI will prescribe certain criteria for professionals to be on the

Boards of cooperative banks. In case members with such professional qualifications or

experience do not get elected in the normal electoral process, then the Board will be

required to appoint such professionals in the Board and they would have full voting

rights.

iv. The CEOs of the cooperative banks would be appointed by the respective banks

themselves and not by the state. However, as these are banking institutions, RBI will

prescribe the minimum qualifications of the CEO to be appointed and the names

proposed by the cooperative banks for the position of CEO would have to be approved by

RBI.

v. Cooperatives other than cooperative banks as approved by the RBI would not

accept non-voting member deposits. Such cooperatives would also not use words like

“bank”, “banking”, “banker” or any other derivative of the word “bank” in their

registered name.

If a State Government and the CCS units in that state are enthusiastic in

implementing the package, fulfillment of all the above conditionalities and consequently

release of the entire financial assistance could be completed even within a year.

7.3 REFORMS IN CO-OPERATIVE SOCIETIES ACT:

As making legal amendments is time consuming process, the state governments may issue Executive Orders under the existing powers to bring in the desired reforms which will relate to:

i. Ensuring full voting membership rights on all users of financial services including

depositors in cooperatives other than cooperative banks.

ii. Removing state intervention in all financial and internal administrative matters in

cooperatives.

iii. Providing a cap of 25% on government equity in cooperatives and limiting

participation in the Boards of cooperative banks to only one nominee. Any state

government or a cooperative wishing to reduce the state equity further would be free

to do so and the cooperative will not be prevented from doing so.

iv. Allowing transition of cooperatives registered under the CSA to migrate under the

Parallel Act (wherever enacted)

v. Withdrawing restrictive orders on financial matters

vi. Permitting cooperatives in all the three tiers freedom to take loans from any

financial institution and not necessarily from only the upper tier and similarly

placing their deposits with any regulated financial institution of their choice.

vii. Permitting cooperatives under the parallel Acts (wherever enacted) to be members

of upper tiers under the existing cooperative societies Acts and vice-versa.

viii. Limiting powers of state governments to supersede Boards

ix. Ensuring timely elections before the expiry of the term of the existing Boards.

x. Facilitating regulatory powers for RBI in case of cooperative banks as mentioned

earlier.

7.4 ASSET STRUCTURE OF CO-OPERATIVE BANKS AS PER 2007

The cooperative banks/credit institutions constitutes the second segment of Indian

banking system, comprising of about 14% of the total banking sector asset (March

2007).

Bulk of the cooperative banks operate in the rural regions with rural coop banks

accounting for 67% of the total asset and 67% of the total branches of all

cooperative banks.

Share of rural cooperatives in total institutional credit was 62% in 1992-93, 34 %

in 2002-03 and 53% in 2006-07.

Cooperative banks have an impressive network of outlets for institutional credit in

India, particularly in rural India (1 PACS per 7 villages).

In March 2007, there were 97,224 PACS in rural India against 30,393 branches of

commercial banks (more than 3 times of outlet of coop banks).

In March 2007, there were 102 savings A/C and 113 cooperative bank members

per 1000 rural in India.

Cooperative banks (both rural and urban) cater to small and marginal clients.

Financial health of the cooperative credit institutions, particularly the rural cooperatives,

has been found to be poor by several Committees.

Structure of Co-operative Banking (March 2007)

Institution Number of Institute

Number of Branch

Asset Share ( % )

A. Rural Co-operative Credit Structure:

1. Short term:State Coop bank Central Coop bank Primary Agri Coop soc.

2. Long term:State Coop Agri and Rural Dev banksPrimary Coop Agri and Rural Dev banks

107497 106781 31 369 97224 716

20

696

112895

111090 938 12928 97224

1800

1104

696

67

58152914

8.3

4.4

3.9

B. Urban Co-operative Banks: 49805 56600 33

CHAPTER-8

STRENGTH AND WEAKNESS OF CO-OPERATIVE BANK

8.1 MAIN WEAKNESS OF CO-OPERATIVE BANKS

The main weaknesses of co-operative banks are as follows:

1. The vital link in the co-operative credit system namely, the Primary Agricultural

Co-operative Societies, themselves remain very weak. They are too small in size to be

economical and viable; besides too many of them are dormant, existing only on paper.

2. With the expanding credit needs of the rural sector, the commercial banks have

come in actively to meet the credit requirements of this sector, and this has aggravated

the difficulties of co-operative banks. The theory that cooperative banks would be

buoyed up by the competition from other financial institutions does not appear to have

worked.

3. Co-operative banks are not doing well in all the states; only a few account for a

major part of their business. For example, 75 per cent of total deposits mobilised by State

C-operative Banks was from only seven states in 1987Andhra Pradesh, Gujarat,

Karnataka, Madhya Pradesh, Maharashtra, Tamil Nadu, and Uttar Pradesh.

4. These banks still rely very heavily on refinancing facilities from the government,

the RBI, and NABARD. They have yet not been able to become self-reliant in respect of

resources through deposit mobilisation.

5. They suffer from dangerously low or weak quality of loan assets, and from highly

unsatisfactory recovery of loans. They suffer from infrastructural weaknesses and

structural flaws. They do not look like banks and do not inspire confidence in the

potential members, depositors and borrowers.

6. Poor resource base is main constraint of these banks. Relatively low per capita

base and less equity base due to non-participations of the members in the financial

activities and limited area of operation is becoming a permanent obstacle in the progress

of this sector.

7. Poor profit position and burden of huge accumulated losses of several cooperative

banks has threatened the very survival of these banks. The amount of cost of

management of this sector has adversely affected its profitability.

8. Most of the Co-operative banks are suffering from the lack of professional

management. In the deregulated environment and stiff competition in the banking sector,

do to lack of the professionalism in carrying out banking activities, the weakness of these

banks has become more prominent.

9. Many co-operative banks even now continue to follow age-old system and

procedures, which are not conductive in the present technologically driven banking

environment. Except some Co-operative banks, technological development in

Information Technology or computerized data management is conspicuously Absent.

10. There is a lack of proper governance. Corporate Governance has great relevance

in the present environment. As there is no formal system of corporate governance in co-

operative banks, many banks have become the hot bed of political patronage,

unscrupulous financial practice and gross mismanagement.

11. Another problem arises out of the duality of control over them i.e. these banks are

organized under dual control of RBI and as well as respective state government. Apart

from the intervention of the apex bodies, the Government is also found to exercise

control in various ways on these banks. Government intervention in the management,

administration and business operation of co-operative banks has made the institution lose

his own distinct character.

12. They suffer from too much officialisation and politicisation. Undue governmental

interventions have prevented them from developing steadily as a self-reliant and resilient

credit system. Most of them are headed by politicians.

13. They unduly depend on government capital rather than member capital. There is

no active participation of their members in their working, which can come about if they

work with members' money rather than government largesse.

8.2 GOVERNMENT INITIATIVES TO STRENGTHEN THE

DEVELOPMENT OF CO-OPERATIVE BANKS

Even before the submission of the Khusro Committee Report, the government and the

RBI had initiated certain measures to strengthen the development of co-operative banks.

Some of these policy initiatives were as follows:

(i) The NABARD had formulated a scheme for the reorganisation of Primary

Agricultural Co-operative Societies and the implementation of this scheme had started in

those states which have accepted it.

(ii) The programme for development of selected Primary Agricultural Cooperative

Societies into truly multi-purpose co-operative societies has been implemented in many

states and Unionterritories.

(iii) In addition to such programmes, certain state governments like Andhra Pradesh,

Madhya Pradesh West Bengal had also initiated development programmes to strengthen

the working of the co-operative credit institutions at the base level.

(iv) On the basis of their financial position as on 30 June 1987, 175 Central Co-

operative Banks and 7 State Co-operative Banks in the country were identified as 'weak'

banks and brought under the programme of rehabilitation which, however, did not really

work quite well.

(v) With a view to enabling weak banks which were either ineligible or were on the

verge of becoming ineligible for refinance SUPP011, a 12-Point Action Programme had

been formulated and circulated by NABARD to all the state governments.

8.3 INITIATIVES TOWARDS DEVELOPMENT OF CO-OPERATIVE

BANKS:

1. Reorganisation of Primary Agricultural credit Societies.

(a scheme by NABARD)

2. National Co-operative Bank of India (NCBI) was registered in 1993.( Multi-state co-

operative society)-it has no regulatory functions.

3. Co-operative development bank (set up by NABARD ).

4. Allowing all PCB’s to undertake equipment leasing and hire- purchase financing.

5. Licensing of new banks.

8.4 SUGGESTIONS FOR EFFECTIVE OPERATION IN

COOPERATIVE BANKING:

The following suggestions can be made for improving the effectiveness in operation

of Co-operative banking:

1. It is apparent that the mountain overdue has become a major problem of most of the

co-operative banks and their performance in managing Non Performing Assets is not

satisfactory. Firm measure should be followed to make credit appraisal, documentation,

disbursement, monitoring, etc. The following strategies may help the banks in avoiding

or reducing NPA’s.

Pre-sanction strategies: Before sanctioning a loan, a bank has to go for detailed

inquiry about borrower and his loan proposal.

Post-sanction strategies: After the loan is disbursed, proper supervision of loan

utilization is to be ensured. Bank has to maintain proper relationship with the

borrower and ensure that first installment id deposited timely.

Persuasion or Follow-up: As a step, bank has to pursue with borrower and if required,

rescheduling of installments be made.

The bank should adopt he system of computerized monitoring of loans.

2. These banks can also go for such schemes for opening of saving bank and other

accounts treated as low cost deposit base as well as clientele base of the banks will take

remarkable shape. In this respect, banks can introduce effectively various innovative

deposit schemes like women’s savings, children’s savings, savings scheme for youth,

daily collection etc.

3. With limited area of operation for so many decades together, Urban Cooperative

banks cold not expand their business in other area in general. At this juncture, it should

have governmental support and the government should liberalize this area of operation,

so that they could incrase their business at their will.

4. All Co-operative banks should come in one umbrella i.e. CORE BANKING.

5. Co-operative banks, with their newly formed emphasis on prudential norms, need

a high degree of professionalism in management.

6. Some Co-operative banks particularly which are small banks not having sufficient

branch network are suggested to enter into tie-up arrangements with commercial banks

like ICICI Bank, HDFC Bank, etc and in this way these banks could expand their

business.

8.5 Co-operative banks v/s other banks

If we look at the return provided by various co-operative banks, we immediately

find that they are higher than returns provided by the various nationalized and private

banks. For amount less than 15 lakhs, The returns provided by various co-operatives

banks, SBI and ICICI are as follows:

So, the first question which comes to our mind is why should not put our money in Co-operative banks rather than nationalized or private banks. But then there is a risk factor which comes in. In India 19 Co-operative banks have closed down in 2009! So, is it safe to park your valuable money in Co-operative banks?

While Co-operative banks were closing down, the Reserve Bank of

India (RBI) tried to bring them under tighter control. Till a few years ago, Urban Commercial Banks were not strictly monitored with two regulators in the RBI and the Registrar of Co-operative Societies. But now the RBI has taken various measures to bring them under control.

It has signed MoUs with 11 states to set up task forces on Urban Cooperative Banks to work with the registrars on remedial action and take the tough decisions on the structure. It has also put a limit of “15 per cent of the own funds of the bank” for loans to one borrower group, making it difficult for the banks to give a huge loan to one entity and compromise its stability, as was happening earlier. According to the RBI, Co-operative banks are intended primarily for members and all financial information pertaining to the bank is required to be made available to them.

Banks

Name/ Period

91 days180 days

181 days to 1 Year

1 year to

540 days

541 days to

2 years

2 years to

3 years

3 years to

5 years

Abhyudaya Co-

operative Bank6.50% 7.00% 7.25% 7.50% 7.75% 8.00 %

THE BHARAT

Co-operative

Bank

(MUMBAI)

LTD

5.50% 6.75% 7.25% 7.25% 7.00% 7.00 %

Saraswat Co-

operative Bank5.25% 6.00% 6.50% 7.25% 7.25% 7.25 %

Ahmedabad

Mercantile

Coop Bank

5.50% 6.00% 7.00 % 7.00% 7.00% 7.00 %

State Bank of

India (SBI)4.75% 5.25% 6.00% 6.00% 6.50% 6.50 %

ICICI Bank 5.25% 6.00% 6.25% 6.25% 7.00% 7.50 %

In addition, according to the existing regulations, a bank is required to publish its balance sheet in a newspaper in circulation in the main area of operations of the bank. They are also required to place their annual accounts before the annual general meeting. Certain minimum disclosures have been prescribed by RBI. All this information can be used by public in making investment decision.

However, the bank customer has to make his or her own choice, depending on which the bank offers the most suitable product. While the RBI is doing its bit, it says you should also run the following checks to ensure that you have a nice experience.

• Check for deposit cover. Ask the bank to what extent your deposit will be covered

by DICGC insurance if you are not investing in the name of an individual but as a

business organization.( In the event of a bank failure, DICGC protects bank

deposits that are payable in India.)

• Scheduled banks. The 53 scheduled cooperatives banks are fairly safe.

• Size. For non-scheduled banks, there is safety in size. Decide in favor of bigger

urban co-operative banks.

• Non-performing assets. These should be within single digits. The higher the NPA,

the bigger the risk.

• Capital adequacy. This ratio should not be less than 9 per cent.

• Credit-deposit ratio. Ideally, the ratio should be 66 per cent. Anything more

shows that the bank is not in a position to lend and, hence, get new business to

pay back the depositors.

• Profits. Check whether the bank has been making profits for the last three years.

• RBI directive: Check out the current financial status of a bank operating under

RBI’s directive before dealing with it.

8.6 Some facts about Cooperative banks in India: Some cooperative banks in India are more forward than many of the state and private

sector banks.

The total deposits & lending of Cooperative Banks in India is much more than Old

Private Sector Banks & also the New Private Sector Banks.

This exponential growth of Co operative Banks in India is attributed mainly to their

much better local reach, personal interaction with customers, and their ability to catch

the nerve of the local clientele.

List of State Cooperative Banks in India

1. Andaman and Nicobar State Co-operative Bank

2. Andhra Pradesh State Co-operative Bank

3. Arunachal Pradesh State Co-operative Apex Bank

4. Assam Co-operative Apex Bank

5. Bihar State Co-operative Bank

6. Chandigarh State Co-operative Bank

7. Chhattisgarh Rajya Sahakari Bank Maryadit

8. Delhi State Co-operative Bank

9. Goa State Co-operative Bank

10.Gujarat State Co-operative Bank

11.Haryana State Co-opertive Apex Bank

12.Himachal Pradesh State Co-operative Bank

13.Jammu and Kashmir State Co-operative Bank

14.Jharkhand State Co-operative Bank

15.Karnataka State Co-operative Apex Bank

16.Kerala State Co-operative Bank

17.Madhya Pradesh Rajya Sahakari Bank Maryadit

18.Maharashtra State Co-operative Bank

19.Manipur State Co-operative Bank

20.Meghalaya Co-operative Apex Bank

21.Mizoram Co-operative Apex Bank

22.Nagaland State Co-operative Bank

23.Orissa State Co-operative Bank

24.Pondichery State Co-operative Bank

25.Punjab State Co-operative Bank

26.Rajasthan State Co-operative Bank

27.Sikkim State Co-operative Bank

28.Tamil Nadu State Apex Co-operative Bank

29.Telangana State Co-Operative Apex Bank Limited

30.Tripura State Co-operative Bank

31.Uttar Pradesh Co-operative Bank

32.Uttarakhand State Co-operative Bank

33.West Bengal State Co-operative Bank

34.Tumkur Grain Merchant's Co-operative Bank

List of Scheduled Urban Cooperative Banks in India

1. The Varachha co-operative Bank

2. Ahmedabad Mercantile Co-Op Bank

3. Kalupur Commercial Coop. Bank

4. Mehsana Urban Co-Op Bank

5. Nutan Nagarik Sahakari Bank

6. Rajkot Nagrik Sahakari Bank

7. Sardar Bhiladwala Pardi Peoples Coop Bank

8. Surat Peoples Coop Bank

9. Rajdhani Nagar Sahkari Bank

10.Andhra Pradesh Mahesh Co-Op Urban Bank

11.Indian Mercantile Co-operative Bank

12.Abhyudaya Co-operative Bank

13.Bassein Catholic Co-operative Bank

14.Bharat Co-operative Bank (Mumbai)

15.Bharati Sahakari Bank

16.Bombay Mercantile Co-operative Bank

17.Citizen Credit Co-operative Bank

18.Cosmos Co-operative Urban Bank

19.Dombivli Nagari Sahakari Bank

20.Goa Urban Co-operative Bank

21.Gopinath Patil Parsik Janata Sahakari Bank

22.Greater Bombay Co-operative Bank

23.Jalgaon Janata Sahakari Bank

24.Janakalyan Sahakari Bank

25.Janalaxmi Co-operative Bank

26.Janata Sahakari Bank

27.Kallappanna Awade Ichalkaranji Janata Sahakari Bank

28.Kalyan Janata Sahakari Bank

29.Karad Urban Co-operative Bank

30.Mahanagar Co-operative Bank

31.Mapusa Urban Co-operative Bank of Goa

32.Nagar Urban Co-operative Bank

33.Nasik Merchant's Co-operative Bank

34.New India Co-operative Bank

35.NKGSB Co-operative Bank

36.Pravara Sahakari Bank

37.Punjab & Maharashtra Co-operative Bank

38.Rupee Co-operative Bank

39.Sangli Urban Co-operative Bank

40.Saraswat Co-operative Bank

41.Shamrao Vithal Co-operative Bank

42.Solapur Janata Sahakari Bank

43.Thane Bharat Sahakari Bank

44.The Kapole Co-operative Bank

45.TJSB Sahakari Bank

46.Zoroastrian Co-operative Bank

47.Nagpur Nagrik Sahakari Bank

48.Shikshak Sahakari Bank

49.Akola Janata Commercial Co-operative Bank

50.Akola Urban Co-operative Bank

51.Khamgaon Urban Co-operative Bank

52.MACO BANK

53.Rohit Kataria Co-operative Bank

CHAPTER-9

CASE STUDY

CASE STUDY

Vikas Souharda Co-operative Bank Ltd, Karnataka, India About Vikas

Souharda Co-operative Bank Ltd.

Vikas Souharda Co-operative Bank Ltd. has its main office located in Hospet, Karnataka

and has branches at Hospet Station Road, Hospet Market and Hubli. Established on 21

August 1997, the bank has an estimated deposit of 50 crores and has recorded profits to a

tune of 1.4 crores for the year ending March 2007. The bank offers financial services to

miners, carrier owners, traders, and small and medium entrepreneurs.

Latest Technologies

It is the first bank in the Indian co-operative banking sector to introduce Digital

Dispenser Technology and also the first bank in the state of Karnataka to provide

Telebanking facility to its customers. To protect its customers’ interests the bank has

provided Fake Currency Detectors and safe deposit lockers facility.

Being a techno-savvy bank, it is the first bank in Karnataka state to adopt Electronic Fund

Transfer (EFT) Scheme. It has been the first institution to respond to innovative concepts

and has been a role model to many other cooperative banks in the state. The bank was

quick in adapting to the changing banking scenario by maintaining not only the latest

infrastructure but also by designing the interiors of the bank to get a look and feel that is

at par with the multinational banks.

Goal of the Bank

Being a trendsetting bank in the co-operative sector that serves its customers 365 days a

year and 12 hours a day, the goal of the bank was to improve the quality of customer

service, the turn-around time, and accuracy of backoffice operations thereby reducing

costs and improving profits.

The bank’s goal is to provide customer satisfaction with accuracy and reliability of

service. The bank ensures safety and profitability of assets with due diligence by

adopting appropriate information technology and maintenance of sufficient backup of the

system and the data. The bank also aims to increase its customer base by introducing a

variety of innovative financial services and products.

The Bank’s Mission

• Improve quality of customer service levels

• Reduce cost of customer service

• The bank also aims at:

Providing a range of financial services to the customer

Maintaining transparency in customer relations

Fulfilling all commitments

Practicing judicious management of risks

Offering services to customers' satisfaction

Training employees to render professional and pleasing service to its customers

Giving fair return to its staff and contributing to their general welfare

VSoft’s SuVikas helped the bank achieve its goal

SuVikas, a user-friendly, cost effective, flexible and self-supporting application permits

easy performance, improves overall management efficiency, and enables the bank to

concentrate on the business of finance without much concern about the ever changing IT

trends.

Through this, bank and customer got many benefits like:

Quick customer service

The bank was able to substantially decrease the time a customer spends at the counter as

the software provides a single view of all accounts of the customer. Which made the bank

better as per their customers.

Reduced redundant tasks

Reducing redundant tasks meant more resources available for recovery. So, customer

were getting auick facilities.

New delivery channels

The bank was able to achieve business success because of the operational efficiency

made possible by technologies such as Internet Banking, TouchScreen Banking, and

Mobile Alerts to its customers. Due to which customer were very happy.

Funds transfer made easy

The bank was able to introduce EFT Scheme in urban c-operative banks to affect

remittances on behalf of their customers to various places in the country. Under this

service, funds are transferred from one place to another within a short time. This facility

was made available to the customers of cooperative banks recently. The scheme also

enabled better customer service to rural and semi urban customers.

Multiple delivery channels

The bank was able to provide Any Branch Banking service to its rural and semi urban

customers since 1997 by using high-end software and hardware equipment and network.

The people at SUCO Bank appreciate the value of time and energy of the customers. By

introducing Tele-banking facility, SUCO Bank has ensured that the customers can access

their account details through telephone lines without leaving the comfort of their home

and not having to travel long distances.

Extended Transaction Hours

SUCO Bank is the only bank to initiate transaction facilities beyond the regular banking

transaction hours. This amply displays the commitment of the bank to customer

service. 

CHAPTER-10

CONCLUSION

Conclusion:

Now, It is very much clear that co-operative banks have very much importance in

national development. Without the help of co-operative banks, millions of people in India

would be lacking the much needed financial support.

Co-operative banks take active part in local communities and local development with a

stronger commitment and social responsibilities. These banks are best vehicles for taking

banking to doorsteps of common men, unbanked people in urban and rural areas. Their

presence in the social, economic and democratic structure of the country is essential to

bring about harmonious development and that perhaps is the best justification for

nurturing them and strengthening their base. These banks are sure to win in the race

because they are from the people, by the people and of the people.