Chapter – 8 Co-operative Banks in India


COOPERATIVE BANKING IN INDIA – EVOLUTION STRUCTURE & OPERATIONS

Co-operative Credit Sector

• Co-operatives as important form of doing business through mutual understanding and is said to have found mention in Indian history of third century B. C.

• The modern day co-operative movement in India is about 125 years old.

• Indian Co-operative Movement is perhaps the largest in the world in terms of membership with over 220 million members, representing one fifth of the Indian population and covering over 1,00,000 villages.

• Co-operatives have all along been playing very significant role in the rural economy.

• The rural co-operative credit sector that accounted for over 50% of the credit disbursed a few years back, now has less than 20% share.

• Co-operative Credit consists of Co-operative Credit Societies and Co-operative banks.

Objectives of Co-operative

• Not for profit

• Common good of the members and the society at large.

• No single ownership but ownership is spread over members.

• Non-political

• Cooperative Terms Defined

Normally there are three words commonly encountered by any reader regarding cooperative system in India. One should understand the meaning of:

(i) What is the meaning of co-operative?

(ii) What is a cooperative society? And

(iii) What is cooperative movement?

Following paragraphs explain the meaning of these words.

Working together for common goal through cooperation is called cooperative. While working together all goods and bad of the results are shared by a group. Cooperative or cooperation is based on principle of oneness, selflessness, democratic values, self help, understanding ones responsibility, equality among members and democratic way of working. Every member understands his/her responsibilities towards members and society.

Cooperative Society is a body or an association, formed by group of like minded people, having common cause, and common purpose. All the members formulate the policies and rules that they themselves follow.

Cooperative Movement means a movement that is based on the socio-economic aspect of the society. Such movement touches the lives of large number of people.

Principles of Cooperative Working

• Cooperatives are voluntary organization shaving membership open to all. There is a common purpose behind their actions.

• Second principle is democratic way of working and control system. All members work as a team and those elected in the executive body in various capacities are responsible and answering to the members.

• There is equality among all members irrespective of status, richness, caste and creed. Money or capital does not come in the way of working for common goal.

• Cooperatives work on the principle of one person one vote.

• Managing Committee is responsible and accountable to members of the society.

• Cooperative principle is also based on value of self help and autonomy.

Salient Features of Cooperative Banking in India

• The first Co-operative Societies Act was enacted as a Federal Act in 1904. However, later ‘co-operation’ subject was transferred to provincial Governments. After the enactment of this Act, many Cooperative Credit Societies were established in India.

• In India‘Co-operation’ or ‘cooperatives’ is now a provincial subject and the Constitution provides that every state to have its own Cooperative Act.

• Co-operatives operating in more than one state – governed by a Federal Act.

• States known to enact highly restrictive cooperative laws to retain control, resulting in politicization and bureaucratization of cooperatives.

• Anyonya Cooperative Bank is considered as the first cooperative bank in India.

• Except for Uttar Pradesh and Bihar, cooperative societies have unlimited liabilities in all other parts of the country.

• There are 31 State Cooperative Banks in our country as on 31.03.2012.

• Cooperative Banks in India run on three tier level system

Co-operatives–significant players are in following sectors

• Fertilizer production,

• Sugar production,

• Dairy sector,

• Agriculture Marketing, & Handlooms

• Banking & Finance

Rural Cooperative Banks for Short Term Loans

As shown in the chart above, three main cooperative organizations provide short term credit to rural sector. These are:

1. State Cooperative Banks (SCB)

2. District Central Cooperative Banks (DCCB)

3. Primary Agriculture Credit Societies (PACS)

Main features of these cooperative banks are:

Long Term Credit by Cooperative Societies

• All Primary Cooperative Agriculture and Rural Development Banks (PCARDB) and State Cooperative Agriculture and Rural Development Banks (SCARDB) provide long term credit to members of the cooperative bank. These banks are also named as Land Development Banks in many States.

• These banks provide short term, medium term and long term financial support to needed members.

• Mostly these loans are given against the security of immovable property, mainly land.

• Common activities for which loans are given are reclamation of saline and alkaline lands, sinking of wells, other development works etc.

• The repayment period is long, varying from 5 to 10 years or more in deserving cases.

• The main purpose of such banks was to avoid farmers etc. to go to private money lenders who used to charge exorbitant rate of interest.

URBAN CO-OPERATIVE BANKS (UCBS)

Important Features of UCBs

• The only self–reliant segment of Cooperative Credit Sector.

• Evolved organically over a century as self-help institutions for people of small means without any state support.

• Brought under the control of the Reserve Bank of India 1966 through Banking Regulation Act (AACS), section 5 (ccv), 1949.

• Urban banks contribute substantially to the growth of informal sector

60% of loans to the ‘priority sector’ of the economy.
200 urban banks out of 1850 account for 80% of the resources.
85% of the banks concentrated in 5 states.
• Concentrated in Western & Southern parts of the Country – 85% of the banks being in these regions.

Maharashtra State leading with 30% of total banks.
• Subjected to accounting & prudential exposure norms, just as commercial banks.

• Integral part of payment system of the Country.

• Recognized as better suited institutions to operate as credit delivery system for small scale business and entrepreneurs.

• Abide by the co-operative principles like self help,equality,philanthropist,common good of members and public at large,

• Follow principles of sound business for their sustainability.

Definition of Urban Cooperative Bank

Banking Regulation Act, section 5 (ccv), 1949 defines a urban cooperative bank as one:

Which is not a primary agriculture cooperative society
Is a primary cooperative bank doing the business of banking,
Having paid up capital at that point of time Rupees 1 lakh, amended from time to time.
Lending is done to members only who are shareholders.
• All Urban Cooperative Banks are dual controlled organizations. Reserve bank of India controls UCBs from the point of view of licensing, opening of branches, area of operations, all banking business norms like SLR, CRR, exposure norms, interest rate norms, business development norms etc. Another control is of State Registrar of Cooperatives which looks into the audit aspect, management aspect, dispute settlement, liquidation etc.

• All Urban Cooperative Banks are also called Primary Urban Cooperative Banks (PUCB).

• UCBs do all business as done by commercial banks except the ones that are restricted by RBI from time to time and to the extent directed.

• Urban Cooperative Banks are classified as scheduled cooperative urban banks and non-scheduled urban cooperative banks. Non- scheduled cooperative banks are normally weak banks unable to meet capital requirements of the RBI and are not included in the schedule of RBI.

• Non-scheduled Cooperative Banks (NSCB) are permitted to deposit money in scheduled cooperative banks (SCB) subject to the conditions that such SCB fulfill CRAR requirements as well as net NPAs are less than 5 per cent. Also the SLR and CRR limits have been achieved.

• ACB(Audit Committee at Board level) provide direction to the business operations of the bank and handle total audit related functions of the bank.

Multi-state Cooperative Act, 2002

• Multi State Cooperative Act is a Central Act passed in 2002. It covers whole of India as related to cooperative societies. This Act was enacted after amending the Act of 1984 in 2002

• As defined in the section 2 (p) of the Multi State Cooperative Act, 2002, a society means the one registered as per the provisions of the Act.

• In the Multi State Cooperative Act, it is laid down that disputes arising in the society shall be heard, arbitrated and decided by the Dispute Settlement Authority and NOT by the Registrar of Societies. RBI has the powers to decide for winding up of a multi state cooperative society and the Central Registrar has to follow the orders to wind up the society.