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

(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

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 CoOperative Bank

9.

Case Study

10.

Conclusion

Pg.No

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, Indias 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 cashiers
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 roleaccepting 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 governments 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 publics savings.
To control the supply of money and credit in order to achieve a nations broad economic
goal.
To ensure equal opportunity and fairness in the publics 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 customerdefined 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 orderalthough 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 countrys banking and financial system functions.
Their main objective is to maintain public confidence in the system, protect depositors
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
managers 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 Banks 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, bankers 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 banks 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 bankswhich provide all
services entirely over the Internethave 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 Nations monetary policy so our economy can run more efficientlyby
controlling the Nations money supplythe 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 cooperative 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. Cooperative 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. Cooperative 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, selfhelp, 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, governmentsupported, 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 cooperative 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 cooperative 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 cooperative 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 cooperative 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 Cooperative 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 Cooperative 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 Cooperative 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 191314, 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 COPERATIVE BANKS

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 Cooperative 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 Cooperatives:
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 Cooperative 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 cooperative 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 Cooperative 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 Cooperative 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 Cooperative 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.

Institution

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
banks
Primary Coop Agri and Rural Dev
banks
B. Urban Co-operative Banks:

Number
of
Institute

Number Asset Share

of Branch ( % )

107497

112895

67

106781
31
369
97224

111090
938
12928
97224

58
15
29
14

716

1800

8.3

20

1104

4.4

696

696
56600

3.9
33

49805

Structure of Co-operative Banking (March 2007)

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 cooperative society)-it has no regulatory functions.
3. Co-operative development bank (set up by NABARD ).
4. Allowing all PCBs 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 NPAs.

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 womens savings, childrens 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 Cooperative 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 1 year to

to 1 Year
540 days

541 days to

2 years to

3 years to

2 years

3 years

5 years

6.50%

7.00%

7.25%

7.50%

7.75%

8.00 %

5.50%

6.75%

7.25%

7.25%

7.00%

7.00 %

5.25%

6.00%

6.50%

7.25%

7.25%

7.25 %

5.50%

6.00%

7.00 %

7.00%

7.00%

7.00 %

4.75%

5.25%

6.00%

6.00%

6.50%

6.50 %

6.25%

6.25%

7.00%

7.50 %

Abhyudaya Cooperative Bank

THE BHARAT
Co-operative
Bank
(MUMBAI)
LTD
Saraswat Cooperative Bank
Ahmedabad
Mercantile
Coop Bank
State Bank of
India (SBI)
ICICI Bank

5.25% 6.00%

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 cooperative 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 RBIs
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 banks 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 Banks 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

VSofts 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.