The banking business has undoubtedly done wonders for the economic world by
following the simple method of accepting money deposits from one person and then
lending the same money to the one who is in need. Banking activity encourages
the flow of money to productive use and productive investments.
If the banking system did not exist then the savings of the people would sit
idle in their homes, the entrepreneurs would not be in a position to raise the
money and ordinary people who dream to purchase a new car or house or not be
able to purchase as they would be no one to lend the money.
The Government of
India decided to develop the cooperative as the institutional agency as to solve
the problem of ruler indebtedness which by the time had become a curse for the
population of India and in 1904 the Government of India had successfully started
the corporative movement as in such situation's cooperative banks act like a
These banks have made significant contributions to the various sectors of the
national economy and have achieved a huge growth over the years and mean not to
mention these banks also contribute the major part in India's banking and
financial system. We can say that the cooperative banks have to act as a friend
philosopher and guide us to the entire cooperative structure.
The role of
cooperative banks in rural and urban areas has been increasing with a huge graph
day by day however as the coins have two sides this growth has shown some
weaknesses in safeguarding the interest of the members and full film and of
objects for which these institutions are organized. Paper is an attempt to
address some of the problems being faced by the cooperative sector in India and
solutions for them and how important it is for the bank to adopt latest
technology of the banking system like online banking credit cards and as to
bring the bank at Par with the private banking sector Introduction
Cooperative Bank is a financial entity which basically belongs to the members
who are at that time the owners are the customers of the bank. These banks often
created by persons who belong to the same local or professional community or a
person who shares the same common interest. Cooperative banks generally provide
their members with a wide range of facilities that includes banking and
The cooperative banks are well known to provide services
such as saving accounts current accounts saved deposit locals granting loan or
mortgages to the private customers and customers with business. Parts from this
these bags are mostly used by middle class users for whom a bank is a place
where they can technically save the money and interest on the same all though
these banks, I am not better than private banks in terms of providing facilities
but the interest rates and definitely competitive. However, the documentation
process is very lengthy and getting a loan approved is quite a task.
The term urban cooperative banks are not formally defined but generally they
refer to the primary cooperative banks which are located in urban and semi urban
areas. Corporative banks in rural areas mainly finance agriculturally based
activities including farming, cattle etc. along with some small-scale industry
and self employment driven activities where as cooperative banks in urban areas
mainly finance various categories of people for self employment, industries,
small scale unit and home finance.
Hence, we can say that the corporative credit system of India has the largest
network in the world and cooperative banks have advanced more credit in the
Indian agriculture sector then commercial banks corporation in a vast country
like India is a great significance because:
Characteristics of cooperative banks
- This organizations after the poor and unskilled people.
- It acts as an institution of mutual help.
- It helps to soften the conflicts between the different classes as a
middle-class lower class and high class.
Principles of cooperative banks
- Customer owned entities.
The corporate banks have two kinds of owners that is the owners of the bank and
the customers of the bank thus we can say that the corporative bank is not there
to maximum profits as commercial banks but to provide the best possible services
to its members however some cooperative banks also try to admit non members so
that they could provide them with the banking services.
- Democratic member control
Needless to mention, cooperative banks are owned and controlled by the members
who among themselves democratically elect the board of directors. The
cooperative Bank runs with the basic principle of one man one vote. This
principle is followed irrespective of the number of shares owned by a single
member thus ensuring that there is no partiality between the members and no
member enjoys any arbitrary power.
- Allocation of profits
This characteristics simply states that minimum portion of the profits at
transfer to Statutory reserves or some other reserves and then the rate of
interest which is fair is paid on such capital subscribe by the members. A part
of this profit can also be distributed to the corporative member but with
certain limitations. D) Inclusion of rural masses.
A significant role is played by cooperative banks in the inclusion of the
financial sector of unbanked rural masses.
Structure of cooperative banks
- Voluntary and open membership.
These banks are voluntarily organizations that means that these are open to
all persons who are willing to use their services and who are ready to
accept certain responsibilities related to the membership without any sort
of discrimination be it gender, social, political, or religious.
- Democratic member control
These banks are also democratic organizations as these are controlled by the
members who actively participate in making certain policies or decisions.
- Independence and autonomy
Creative bags are self-help organizations these are autonomous that means if
they enter into any agreement with other organizations be it government or they
try to raise the capital from any other external sources then they do it on the
terms that ensure democratic control by the members and maintain autonomy.
- Cooperation amongst cooperative
As all the members have to work with each other in a long-term corporation
within the members kind of strengthen the cooperative movement as a work
together through any structure be it National international regional or local
showcasing the most effective working environment.
- Concern for the community
Cooperative banks not only focus on the needs of their members but also
contribute towards sustainable development of their communities by ensuring that
there are certain policies which are accepted by the members.
- Education, training and information
These banks try and provide training and education related to certain topics for
the elected representatives, employees or managers for that matter so that they
can together contribute effectively for the development of the corporation and
help the general public or young people to be aware about the nature and the
benefit of the bank.
Are the structure your is divided into two types that is long term and
Speaking of this short-term structure it in itself has three levels:
Speaking of the long-term structure it in itself has two levels:
- the one which works at the apex level that is State cooperative Bank.
- the one that works at the intermediate level or the district level that
is Central cooperative Bank
- the one that works at base level or rather at village level that is
primary cooperative credit society.
Types of cooperative banks
- At the apex level they have State cooperative agriculture and rural
- And at the district level they have primary cooperative agriculture and
rural development banks.
There are basically five categories into which the corporators banking structure
in India is divided into.
Advantages of cooperative banks
- Primary cooperative banks
These are basically an associate of borrowers and non borrowers who decide in a
particular locality the primary cooperative credit society a well known to
derive funds from the share capital and deposits of members and the loans from
Central cooperative banks. In this case borrowing constitutes the most important
element of the working capital the boring powers of the members as well as that
of the society are fixed in a particular state but may differ from another
state. In this case the loans are given to the members to buy or rather purchase
cattle, fertilizers or pesticides for the farm.
- Central cooperative banks
These are the federations of primary credit society's but on a district level
and certainly are of two types namely: those who have a membership of primary
society's only and those who have a membership of society as well as of an
The fans of such bags consist of loans overdraft deposits from the State
cooperative Bank or the joint stocks. The main motive of such a bank is to
provide finance to all those members of the society who are well within the
limits of the borrowing capacity of the society.
- State cooperative banks
These banks can be called as a federation of Central cooperative Bank and
the banks which act as a watch dog of the entire cooperative banking
structure in a particular state. This banks for kids funds from the share
capitals deposits loans or over graphs from the reserve Bank of India that
is the apex Bank. The main motive of the State cooperative Bank is to lend
money to the Central cooperative Bank and primary society and these cannot
directly lend money to the farmers.
- Land development banks
These banks are organized in three tiers that are the state, Central and primary
the basic objective here is to meet the long-term credit requirements faced by
the farmers for the developmental purpose of their farm.
- Urban cooperative Bank
These basically refers to the primary corporative banks but located in urban and
semi urban areas speaking of the scope of the banks it was restricted earlier
but now it has considerably widened. Search banks provide funds and services to
the small bowlers and to the people who have small businesses.
Cooperative banks are easy to form that is it needs a base capital of 25 lakhs
only which is very less as compared to 100 crores a small business banks apart
from this it only takes a group of 10 adults to come together and form a
cooperative Bank. The registration and the legal requirements are also very easy
and something that can be done quickly.
One of the objectives of the corporate system is to provide easy funding to the
rural section of the country and to protect them from the greedy money lenders
who not only exploit the needy by providing credit facilities at higher interest
rates but also why manipulating your accounts. And for safeguarding the
agricultural people such banks provide cheap credit to rural masses along with a
high rate of interest to members for their investment and low lending interest
rates which protect the rural masses from any exploitation.
Such facilities encourage the people of rural areas that instead of hoarding
money or spending it unnecessarily, invest or rather save the money more. And
because of such practices of saving money the corporative Bank have helped
farmers in developing the farming as they also often provide assistance to buy a
cheap product or services and also help them to learn more about the modern
technology for better farming methods and to improve their output.
Problem faced by Indian cooperative banks
Punjab and Maharashtra co-operative bank (Case law)
- Small capital base
Generally, all the cooperative banks have a small capital base because it is
stated that a cooperative Bank can be started with the minimum base of 25 lakhs
which makes it difficult for the banks to bifurcate the amount of such capital
into as their working capital and raising working capital which has been major
hurdle for almost all the cooperative Banks in India
- Interference of politics.
Politicians in India use such cooperative banks to increase our vote bank
and also to get some representatives elected over the board of directors of
such banks as to gain some advantage over the sanctioning of loans and other
- Supervision of RBI
As per banking regulation act the supervision of RBI in cooperative Bank is not
as stringent as compared to the commercial bank but the RBI inspects the books
of the corporate of banks once in a year.
- Dual control
All the cooperative banks in India are controlled by the dual system that is it
is controlled not only by RBI but also by the respect state government which
results in a lot of problems in terms of coordination and management as a lot of
times both the RBI and the state government have different approach towards any
issue or have different opinions regarding the development of such banks.
- Advancement in technology and professional management
All the cooperative banks are usually reluctant to adopt any new changes in
technologies for example computerized data management. Hands professional
management in such banks is missing because there is a lack of not only training
of personnel but also there is a huge lack of funding.
- Dependence on finance
All the cooperative banks are very heavily dependent on RBI or NABARD and the
state government for the purpose of refinancing. However, it depends on the
state government for capital and not on its members.
- Overdue loans
Cooperative banks are well known for the loaning facility and hands the overdue
of loans in such banks are increasing day by day which is resulting in resting
the recycling of funds and it also has a negative impact on the landing and the
borrowing capacity of such Bank.
Indus well known case the Punjab and Maharashtra cooperative Bank had rupees
11617 crores as deposits loans is as on 2019 March 31.
The bank had London money to one of the real estate client who was the owner of
firm housing development and infrastructure which in itself was facing lack of
funds and was bankrupted, by landing loan to such a client the Bank has not only
violated the rules of the RBI also extended 73% of their acids to the housing
development and infrastructure limited firm.
The RBI had issued notices against the formal chiefs of bank and also the
promoters of HDIL for cheating.
This case basically shows that how the auditors of the bank and the state
government allow see and performing their jobs and full filling the
responsibility they were assigned for.
Action under section 35a sub section 1 of the banking regulation act 1949 which
is read along with the section 56 of the said act and which states that RBI has
the power to give certain directions to the cooperative banks under certain
circumstances and as a result of the case now the PMC Bank cannot grant any
loans nor it can renew any loans or advantages neither can make any investments
or accept any deposits from the customers without taking prior permission of the
RBI and this will continue for the next 6 months.
Measures to be taken
The above mentioned case of PMC Bank was not the first instance with showcased
the failures of the cooperative system in India before this in 2001 or 2002
there was a Madhavpura cooperative
Bank scam which indicated very clearly that it's high time to bring certain
changes in the working or rather the supervisory structure of such pants but
sadly there was no action taken and that time and since them all the urban
cooperative banks are alarming regularity and as a result of negligence the
numbers fell from 1926 to 1551 within 14 years as mentioned in the data provided
by the RBI. Address all the issues and to provide remedies if the state
government needs the public to invest their faith in the banking system of the
A panel was set up by the RBI in 2015 under our Gandhi who is former deputy
governors at the Central Bank and who had proposed certain reforms for the
cooperative banks and some of them are following:
- He is suggested there should be complete control and supervision of the
RBI on corporative banks as it is on other banks in India.
- He suggested that there should be certain changes made in the banking
regulation act 1949 in terms of increasing the Ambit of power of RBI to
either while the or to liquidate all the banks without actually involving
other regulators of the cooperative society's law.
- Suggest that we should create an umbrella organization so that the
supervising and the coordinating of all the activities in corporators are under
one roof and are not divided and such organization should be about all the board
of directors and it should directly report to the RBI so that there is smooth
management and the banks are under better control.
- He also suggested that all the banks and the financial institutions
should be managed professionally. It simply means that like the board of
directors in commercial banks tend to have certain delegates power the same
thing should be applied by the board of directors of the corporative banks.
Meaning the board of directors should have the power to conduct an
independent assessment or inspection and supervisors the banks functioning
without any hurdle and all the board of directors should be in a position to
question any of the stake holder's representation if they find anything
fishy in functioning of the bank.
Hence, we can say that the problems faced by the cooperative banks can come to
an end if all the cooperative banks come under the RBI as all the other banks in
India are in the recent amendment of the banking regulation act 2020 certain
powers were given to RBI in relation to the cooperative banks.
It is very clear that the cooperative banks play an integral part not only in
the implementation but also development plans of the country which are very
important for the smooth and effective functioning of the banking system in
India. If there is any failure of corporative banks then it would result in the
failures of the best hope that rural India has.
India is known as a and the bank
country for serve reasons some of them are related to these Scams happened with
a corporative bank hence it is the need of an hour to make the necessary changes
in the banking system and to take all those steps to improve the lucane and
boost up the confidence level and the faith of the public in the banking system.