Co-operative Banks and its Features

Introduction:

We live in a country where one or the other day we come across news of dacoity, robbery, trespass, etc. So the matter of concern here is that how can our money remain safe and can get our money back whenever we require that. In the old era, there was no such institution where we could safely deposit our money and could also seek a loan if required. But, we now live in a privileged society and we have financial institutions called Banks. So in this article we are going to cover what are co-operative banks, history of co-operative banks, objective, principles, position of co-operative banks in India, are co-operative banks safe?, and features of Co-operative banks.

Firstly we should know what a bank is? A bank is an institution that accepts deposits. They are licensed to receive deposits and make loans. Banks are important tools for the development of an economy. And now we will talk about Co-Operative Bank. Before getting into the details of the co-operative banks, let’s learn about co-operatives. Co-operatives are organized groups of people who work to provide benefits and services to their members. In the same way, Co-operative banks are the banks whose main objective is to prove financial support and assistance to weaker sections of the society. The co-operative banks are registered under cooperative societies act. The principle of co-operative is – “one person, one vote” therefore the members of co-operative banks have equal voting rights.

History

Co-operative banks in India are an important tool for the development of the economy. So it is quite important to know its history. Co-operative banks have completed 100 years of its existence in India. In 1904 the co-operative credit society act was enacted and that Act encouraged Co-operative movement in India. But from 1904- 1951 the development of co-operative banks was the most disappointing one. But after that co-operative banks touched a great height in India and played a very important role in the financial system.  In 1912, the Co-operative societies Act was formulated and that recognized the need for the establishment of new organizations for supervision, control, auditing of cooperative credit. The first attempt has been made for the establishment of the cooperative societies and for extending cooperative credit. But the pre-independence era was quite unsatisfactory in the field of cooperative Banks.

Position of Co-operative Banks in India

The scheduled bank listed in the RBI Act 1934 comprises commercial, Rural, Urban Co-operative, and State Co-operative Banks. There are more than 2741 urban co-operative banks and 41 state co-operative banks operating in India. A Co-operative Bank’s failure in the last few years has been high, but those failures were somewhat a unique experience. The position is good because the main interest of co-operative banks is to serve the needs of the rural sector in general and particularly the agricultural sector.

Principles of Co-operative Bank

1. Voluntary and Open Membership: People can voluntarily become members of Co-operative society. They are voluntary organizations; everyone can use their services without any discrimination based on religion, caste, sex, and can accept the responsibilities of membership.
2. Democratic Member Control: Cooperatives are vote based associations constrained by their individuals, who effectively take an interest in setting arrangements and deciding. The chosen agents are responsible for enrollment. In essential cooperatives, individuals have equivalent democratic rights (one member, one vote) and cooperatives at different levels are composed in a just way.
3. Individuals’ Economic Participation: Members contribute impartially to, and justly control, the capital of their agreeable. At any rate, some portion of that capital is generally the basic property of the helpful. Individuals, as a rule, get restricted pay, assuming any, on capital brought in as a state of enrollment. Individuals assign surpluses for any or the entirety of the accompanying purposes: building up the helpful, conceivably by setting up saves, some portion of which at any rate would be resolute; profiting individuals in relation to their exchanges with the agreeable; and supporting different exercises affirmed by the participation.
4. Self-governance and Independence: Cooperatives are independent, self-improvement associations constrained by their individuals. If they go into concurrences with different associations, including governments, or raise capital from outside sources, they do as such on terms that guarantee law based control by their individuals.
5. Knowledge, Training, and Information: Cooperatives give training and preparation to their individuals, choose delegates, administrators, and representatives so they can contribute successfully to the advancement of their cooperatives. They educate the overall population, especially youngsters and assessment pioneers, about the nature and advantages of participation.
6. Collaboration among Co-operatives: Cooperatives serve their individuals most viably and help in the development by cooperating through local, national, provincial, and international structures.
7. Think for Community: While concentrating on part needs, cooperatives work for the maintainable improvement of their networks through approaches acknowledged by their individuals.

Features of Co-operative Bank

1. One Man One Vote: The co-operative banks works on the principle of Cooperation, self-help, and mutual help. All the members usually have equal voting rights. The word cooperation very simply means work together and help each other. So Cooperative banks also follow this.
2. No profit no loss: Cooperative banks work on no profit no loss basis because they aim to help masses and not Profit maximization.
3. RBI’s partial control: Co-operative banks are the first banks which are government-sponsored. The Reserve bank of India has partial control over cooperative banks because the borrowings which State co-operative banks take are usually from the Reserve Bank of India. RBI provides capital to cooperative banks.
4. Registration: Co-operative banks are registered under the cooperative society Act.  The registration process in co-operative banks is quite easy and less time consuming as compared to other banks.
5. Loans: Co-operative banks perform all the banking functions that also include granting of loans, the supply of credit. Co-operative banks also provide housing loans, and Urban co-operative banks provide working capital loans and term loans to customers as well.
6. Other Features: The co-operative bank has access to limited areas that means they can operate their activities in limited areas and they cannot open their branches in any foreign land or foreign country.

Types of Co-operative Bank

Their are following four kinda of co-operative banks:

State Co-operative Bank

The State cooperative banks are at State level, they function at State, and Reserve Bank of India provides loans to State cooperative banks on 2% lower interest rate as compared to Bank Rate. It is only through State cooperatives that RBI provides credits to co-operative Banks. The SCBs provide housing loans up to Rs 1 lakh to an individual. The State co-operative banks act as a Steward to the entire Cooperative banking system in State. 

Central Co-operative Banks

On the other hand, the Central co-operative banks work at the district level. It is also called District Co-operative Central Bank. The main purpose of the establishment of DCCB is to provide banking to the rural people for the agricultural sector. The Central Co-operative bank usually raises its capital from its funds, deposits, and borrowings. The deposits come from cooperative societies, local bodies, and individuals. Whereas the borrowings are from Banks like RBI and Apex banks.

Primary Co-operative Banks

The Primary cooperative banks are at many places known as urban Cooperative Banks (UCBs) they are registered as cooperative societies. They are registered under the State Cooperative Societies Act or Multi-State Cooperative Act, 2002. The overall supervision of UCBs is done by the registrar of Co-operative Societies (RCS). The Reserve Bank carries out all inspections and Surveillance( close examination) of Primary Co-operative banks. The word Primary Co-operative banks are not defined anywhere but it refers to primary cooperative banks located in urban areas and semi-urban areas.

Land Development Banks

Land development banks are special kinds of banks in India, they perform quasi-commercial functions. To provide long term credit (5 years to 20 years) to Indian Farmers land development banks came into existence. After 1966-67 the name of Land mortgage banks was renamed as land development banks. The Land Development Banks (LDBs) are co-operative institutions and registered under the Co-operative Societies Act. The capital of Land Development Banks is raised from deposits, debentures, share capital, and borrowings from banks. There are Central and primary development banks at Central and the district level. The main object of LDB is to promote an increase in agricultural production.

Conclusion

The Co-operative banks help in strengthening the development of the economy. Cooperative banks are a great help to rural masses who are engaged in agricultural activities. But currently, these banks are under great pressure because of low productivity, low efficiency and therefore the necessary profit is unable to generate. The Co-operative banks have great scope because India is an agricultural-based country and Co-operative banks mainly work for masses engaged in agricultural processes. There are some suggestions which would help in the effective functioning of Co-operative banks such as, Willful defaults should be made an offense, financial stability of the money borrower should be checked and evaluated. New and Innovative technologies should be adopted.