Cooperative Bank

Cooperative Bank:

• Financial institutions which are democratic set-ups where the Board Members are democratically elected with each member entitled to one vote each. 
• Co-operative societies are based on the principles of cooperation, mutual help, democratic decision making, and open membership. 
• Cooperative Banks cater to a services like loans, banking, deposits etc. like commercial banks but widely differ in their values and governance structures.  
• The co-operative banking system, with two broad segments of urban and rural co-operatives, forms an integral part of the Indian financial system. 
•  With a wide network and extensive coverage, these institutions have played an important developmental role in enlarging the ambit of institutional credit by way of inculcating banking habits among the poor and those in remote areas.
• They provide credit to small scale industrialists, salaried employees, and other urban and semi-urban residents.

Regulations for Cooperative Banks:

1. In India, co-operative banks are registered under the States Cooperative Societies Act. 
2. They also come under the regulatory ambit of the Reserve Bank of India (RBI) under two laws, namely, the Banking Regulations Act, 1949, and the Banking Laws (Co-operative Societies) Act, 1955.

 Broadly, co-operative banks in India are divided into two categories -

1. Urban Co-operative Banks and
2. Rural Co-operative Banks

Rural cooperative credit institutions could either be:

1. Short-Term or 
2. Long-Term in nature. 

Long Term Rural Co-operative Banks credit system:

• It take care of needs for long term funding.
• In terms of RBI regulation, Long term cooperatives and PACS are out of purview of RBI, otherwise all other Cooperatives are under RBI regulation.

The Long-term Rural Co-operative credit system comprises of :

1. State Cooperative Agriculture and Rural Development Banks (SCARDBs) or
2. Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).

Long term Rural cooperative societies:

1. These are engaged in providing long term credit needs for production purposes.
2. These   have negligible resource base of their own, and mostly raise resources through borrowings. Their poor recovery performance has affected their ability particularly at the primary level to cater to the credit needs of new and non-defaulting members. 
3. This has also resulted in low paid-up share capital, which constrains their borrowing capacity, and the consequent limited resources have inevitably led to low business levels

Short-Term Rural Co-operative Banks credit system: 

These societies are designed essentially to provide for short-term credit needs for production purposes. 

The short-term rural co-operative credit system comprises of:

1. State co-operative banks (StCBs) 
2. Central co-operative banks (CCBs) 
3. Primary agricultural co-operative Societies (PACS) 

Primary Co-operative Credit Society (PACS):

• PACS are the grassroot level arm of short term co-operative credit, mediate directly with individual borrowers and  grant short-term to medium term loans and also undertake distribution and marketing functions.
• PACS are outside the purview of the Banking Regulation Act, 1949 and hence not regulated by the Reserve Bank of India (RBI website). 
• The funds of the society are derived from the share capital and deposits of members and loans from central co-operative banks. 
• The borrowing powers of the members as well as of the society are fixed. 
• The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, etc. 
• A large number of PACS, however, face severe financial problems primarily due to significant erosion of own funds, deposits, and low recovery rates. PACS hold more than 95 % of assets of rural cooperatives.
• These banks need not to maintain CRR and SLR.

Central co-operative banks:

• These are the federations of primary credit societies in a district and are of two types-those having a membership of primary societies only and those having a membership of societies as well as individuals. 
• The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks. 
• These banks provide finance to member societies within the limits of the borrowing capacity of societies. 
• These banks have to maintain CRR and SLR.

State Co-operative Banks:

• The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state. 
• Its funds are obtained from share capital, deposits, loans and overdrafts from the Reserve Bank of India. The state co-operative banks lend money to central co-operative banks and primary societies and not directly to the farmers. 
• These banks have to maintain CRR and SLR.
• All short term Cooperatives except PACS are regulated by RBI.

Urban Co-operative Banks (UBBs) are classified as:

1. Scheduled Urban Co-operative Banks or
2. Non-scheduled Urban Co-operative Banks