Co-operative Banks

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Cooperative banks are financial institutions that operate on the principle of cooperation and are owned and controlled by their members. Cooperative banks are financial institutions that operate on cooperative principles, primarily serving the needs of their members. They are an integral part of the Indian banking system, particularly in rural areas, and cater to small industries, agriculture, and self-employed workers in urban regions.

Cooperative banks play a crucial role in the Indian economy, especially in rural areas, and cater to small industries and self-employed workers in urban regions. These banks are registered under the Cooperative Societies Act, 1912, and are regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949, and the Banking Laws (Application to Cooperative Societies) Act, 1965.

Historical Background

  • Earliest Cooperative Credit Union: Anyonya Sahakari Mandali, established in 1889 in the province of Baroda, is the earliest known cooperative credit union in India.
  • First Cooperative Credit Society: Established in 1904 at Thiroor in Tiruvallur District, Tamil Nadu.

Cooperative Credit System in India

The Cooperative Credit System in India is divided into Short Term and Long Term credit institutions.

Short-Term Credit Structure

The short-term credit structure caters to the short-term credit needs (1 to 5 years) of farmers and typically follows a three-tier structure in most states:

  1. Primary Agricultural Cooperative Societies (PACCS): Village level
  2. District Central Cooperative Banks (DCCBs): District level
  3. State Cooperative Banks (StCBs): State level

In some states, a two-tier structure is followed, consisting of State Cooperative Banks and PACCS.

Long-Term Credit Structure

The long-term credit structure addresses the long-term credit needs (up to 20 years) of farmers and follows a two-tier structure:

  1. Primary Agriculture and Rural Development Banks (PARDBs): Village level
  2. State Agriculture and Rural Development Banks: State level

Regulation and Support

  • Licensing and Regulation: The State Cooperative Banks and Central Cooperative Banks are licensed by the RBI under the Banking Regulation Act. While these banks function like normal banks, their primary focus is on agricultural credit.
  • NABARD’s Role: The National Bank for Agriculture and Rural Development (NABARD) provides refinance support and conducts inspections of State Cooperative Banks (StCBs) and District Central Cooperative Banks (DCCBs). The RBI is the primary regulatory authority.

Urban Cooperative Banks

  • Primary Cooperative Banks: Also known as Urban Cooperative Banks, these institutions are registered as Cooperative Societies under the Cooperative Societies Acts of the respective states or the Multi-State Cooperative Societies Act. They operate in urban areas and their business is similar to that of commercial banks.
  • Licensing and Regulation: The RBI licenses these banks to conduct banking business and serves as both the controlling and inspecting authority for Primary Cooperative Banks.