Final Cooperative Banking

8/8/2019 Final Cooperative Banking

1/72

Meaning of Bank

Bank is a lawful organisation, which accepts deposits that can be withdrawn on

demand. It also lends money to individuals and business houses that need it.

Role of Banking

Banks provide funds for business as well as personal needs of

individuals. They play a significant role in the economy of a

nation.

It encourages savings habit amongst people and thereby makes

funds available for productive use.

It acts as an intermediary between people having surplus money and those

requiring money for various business activities.

It facilitates business transactions through receipts and

payments by cheques instead of currency.

It provides loans and advances to businessmen for short term

and long-term purposes.

It also facilitates import export transactions.

It helps in national development by providing credit to farmers, small-scale

industries and self-employed people as well as to large business houses which lead

to balanced economic development in the country.

It helps in raising the standard of living of people in general by providing loans for

purchase of consumer durable goods houses, automobiles, etc


2/72

Types of Banks

There are various types of banks which operate in our country to meet the financial requirements of

different categories of people engaged in agriculture, business, profession, etc. On the basis of functions,

the banking institutions in India may be divided into the following types:


3/72

Types of Banks

Central Bank Development Bank Specialised Banks(RBI, in India) (EXIM Bank

SIDBI, NABARD)

Commercial Banks Co-operative Banks

(i) Public Sector Banks (i) Primary Credit Societies

(ii) Private Sector Banks (ii) Central Co-operative Banks

(iii ) Foreign Banks (iii) State Co-operative Banks


4/72

CENTRAL BANK

A bank which is entrusted with the functions of guiding and regulating the banking system of a country

is known as its Central bank. Such a bank does not deal with the general public. It acts essentially as

Government's banker, maintain deposit accounts of all other banks and advances money to other

banks, when needed. The Central Bank provides guidance to other banks whenever they face any

problem. It is therefore known as the banker's bank. The Reserve Bank of India is the central bank of

our country.

The Central Bank maintains record of Government revenue and expenditure under various heads.

It also advises the Government on monetary and credit policies and decides on the interest rates for

bank deposits and bank loans. In addition, foreign exchange rates are also determined by the central

bank. Another important function of the Central Bank is the issuance of currency notes, regulating their


5/72

circulation in the country by different methods. No other bank than the Central Bank can issue

currency.

Commercial Banks

Commercial Banks are banking institutions that accept deposits and grant short-term loans and

advances to their customers. In addition to giving short-term loans, commercial banks also give

medium-term and long-term loan to business enterprises. Now-a-days some of the commercial banks

are also providing housing loan on a long-term basis to individuals. There are also many other

functions of commercial banks, which are discussed later in this lesson.

Types of Commercial banks: Commercial banks are of three types i.e., Public sector banks, Private

sector banks and Foreign banks.

Public Sector Banks: These are banks where majority stake is held by the Government of

India or Reserve Bank of India. Examples of public sector banks are: State Bank of India, CorporationBank, Bank of Boroda and Dena Bank, etc.


6/72

Private Sectors Banks: In case of private sector banks majority of share capital of the

bank is held by private individuals. These banks are registered as companies with limited liability.

For example: The Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd., Development Credit

Bank Ltd, Lord Krishna Bank Ltd., Bharat Overseas Bank Ltd., Global Trust Bank, Vysya Bank,

etc.

Foreign Banks: These banks are registered and have their headquarters in a foreign country but

operate their branches in our country. Some of the foreign banks operating in our country are Hong

Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard &

Chartered Bank, Grindlay's Bank, etc. The number of foreign banks operating in our country has


7/72

increased since the financial sector reforms of 1991.

c) Development Banks

Business often requires medium and long-term capital for purchase of machinery and equipment, for

using latest technology, or for expansion and modernization. Such financial assistance is provided

by Development Banks. They also undertake other development measures like subscribing to the

shares and debentures issued by companies, in case of under subscription of the issue by the public. Industrial Finance

Corporation of India (IFCI) and State Financial Corporations (SFCs) are examples of development banks in India

Co-operative Banks

People who come together to jointly serve their common interest often form a co-operative society

under the Co-operative Societies Act. When a co-operative society engages itself in banking

business it is called a Co-operative Bank. The society has to obtain a licence from the Reserve Bank

of India before starting banking business. Any co-operative bank as a society is to function under the


8/72

overall supervision of the Registrar, Co-operative Societies of the State. As regards banking business,

the society must follow the guidelines set and issued by the Reserve Bank of India.

Specialised Banks

There are some banks, which cater to the requirements and provide overall support for setting

up business in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of such banks. They engage

themselves in some specific area or activity and thus, are called specialised banks. Let us know about them

Export Import Bank of India (EXIM Bank): If you want to set up a business for exporting


9/72

products abroad or importing products from foreign countries for sale in our country, EXIM bank can provide you the

required support and assistance. The bank grants loans to exporters and importers and also provides information

about the international market. It gives guidance about the opportunities for export or import, the risks involved in it and

the competition to be faced, etc.

Small Industries Development Bank of India (SIDBI): If you want to establish a small-scale business

unit or industry, loan on easy terms can be available through SIDBI. It also finances modernisation of small-scale

industrial units, use of new technology and market activities. The aim and focus of SIDBI is to promote, finance

and develop small-scale industries

National Bank for Agricultural and Rural Development (NABARD): It is a central

or apex institution for financing agricultural and rural sectors. If a person is engaged in agriculture or other activities

like handloom weaving, fishing, etc. NABARD can provide credit, both short-term and long-term, through regional rural

banks. It provides financial assistance, especially, to co-operative credit, in the field of agriculture, small-scale industries,

cottage and village industries handicrafts and allied economic activities in rural areas.


10/72

VARIOUS DEFINITIONS OF COOPERATIVE BANK.

A cooperative (also co-operative; often referred to as a co-op) is a businessorganization owned and operated by a group of individuals for their mutual benefit.

Cooperatives are defined by the International Co-operative Alliance'sStatement onthe Co-operative Identity as autonomous associations of persons united voluntarilyto meet their common economic, social, and cultural needs and aspirations through

jointly owned and democratically controlled enterprises.A cooperative may also bedefined as a business owned and controlled equally by the people who use itsservices or by the people who work there. Cooperative enterprises are the focus ofstudy in the field ofcooperative economics.
http://en.wikipedia.org/wiki/International_Co-operative_Alliancehttp://en.wikipedia.org/wiki/Statement_on_the_Co-operative_Identityhttp://en.wikipedia.org/wiki/Statement_on_the_Co-operative_Identityhttp://en.wikipedia.org/wiki/Autonomyhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Co-operative_economicshttp://en.wikipedia.org/wiki/Statement_on_the_Co-operative_Identityhttp://en.wikipedia.org/wiki/Statement_on_the_Co-operative_Identityhttp://en.wikipedia.org/wiki/Autonomyhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Co-operative_economicshttp://en.wikipedia.org/wiki/International_Co-operative_Alliance


11/72

Cooperative banking is retail and commercial banking organized on a cooperativebasis. Cooperativebanking institutions take deposits and lend money in most partsof the world.

Cooperative banking (for the purposes of this article), includes retail banking, ascarried out by credit unions, mutual savings and loan associations, buildingsocieties and cooperatives, as well as commercial banking services provided bymutual organizations (such as cooperative federations) to cooperative businesses.

Definition of a cooperative bank

A co-operative bank is a financial entity which belongs to its members, who are at

the same time the owners and the customers of their bank. Co-operative banks areoften created by persons belonging to the same local or professional community orsharing a common interest. Co-operative banks generally provide their memberswith a wide range of banking and financial services (loans, deposits, bankingaccounts). Co-operative banks differ from banks by their organization, theirgoals, their values and their governance. In most countries, they are supervised andcontrolled by banking authorities and have to respect prudential bankingregulations, which put them at a level playing field with stockholder banks.
http://en.wikipedia.org/wiki/Cooperativehttp://en.wikipedia.org/wiki/Banking_institutionhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Cooperative_federationhttp://en.wikipedia.org/wiki/Cooperativehttp://en.wikipedia.org/wiki/Banking_institutionhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Cooperative_federation


12/72

Depending on countries, this control and supervision can be implemented directlyby state entities or to a co-operative federation or central body.

Co-operative banks are deeply rooted inside local areas and communities. They are

involved in local development and contribute to the sustainable development of

their communities, as their members and management board usually belong to the

communities in which they exercise their activities. By increasing banking access

in areas or markets where other banks are less present SMEs, farmers in rural

areas, middle or low income households in urban areas - co-operative banks reduce

banking exclusion and foster the economic ability of millions of people. They play

an influential role on the economic growth in the countries in which they work in

and increase the efficiency of the international financial system. Their specific

form of enterprise, relying on the above-mentioned principles of organization, has

proven successful both in developed and developing countries

Cooperative banks


13/72

Larger institutions are often called cooperative banks. Some of these banks aretightly integrated federations of credit unions, though those member credit unionsmay not subscribe to all nine of the strict principles of the World Council of CreditUnions (WOCCU).

Like credit unions, cooperative banks are owned by their customers and follow thecooperative principle of one person, one vote. Unlike credit unions, however,cooperative banks are often regulated under both banking and cooperativelegislation. They provide services such as savings and loans to non-members aswell as to members, and some participate in the wholesale markets for bonds,money and even equities.[2] Many cooperative banks are traded on public stockmarkets, with the result that they are partly owned by non-members. Membercontrol is diluted by these outside stakes, so they may be regarded as semi-cooperative.

Cooperative banking systems are also usually no more integrated than credit unionsystems. Local branches of cooperative banks elect their own boards of directorsand manage their own operations, but most strategic decisions require approvalfrom a central office. Credit unions usually retain strategic decision-making at a
http://en.wikipedia.org/wiki/World_Council_of_Credit_Unionshttp://en.wikipedia.org/wiki/World_Council_of_Credit_Unionshttp://en.wikipedia.org/wiki/Rochdale_Principleshttp://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/World_Council_of_Credit_Unionshttp://en.wikipedia.org/wiki/World_Council_of_Credit_Unionshttp://en.wikipedia.org/wiki/Rochdale_Principleshttp://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/Stock_markets


14/72

local level, though they share back-office functions, such as access to the globalpayments system, by federating.

Some cooperative banks are criticized for dilution of cooperative principles. Acooperative bank that raises capital on public stock markets creates a second classof shareholders who compete with the members for control. In somecircumstances, the members may lose control. This effectively means that the bankceases to be a cooperative. Accepting deposits from non-members may also lead toa dilution of member control.


15/72

Features of Cooperative Banks:

Customer-owned entities : in a co-operative bank, the needs of the customersmeet the needs of the owners, as co-operative bank members are both. As aconsequence, the first aim of a co-operativebank is not to maximise profit but to

provide the best possible products and services to its members. Some co-operativebanks only operate with their members but most of them also admit non-member

clients to benefit from their banking and financial services.

Democratic member control : co-operative banks are owned and controlled bytheir members, who democratically elect the board of directors. Members usuallyhave equal voting rights, according to the co-operative principle of one person,one vote.

Profit allocation : in a co-operative bank, a significant part of the yearly profit,benefits or surplus is usually allocated to constitute reserves. A part of this profit


16/72

can also be distributed to the co-operative members, with legal or statutorylimitations in most cases. Profit is usually allocated to , which is related to the useof the co-operatives products and services by each member, or through an interestor a dividend, which is related to the number of shares subscribed by each member.

HISTROY


17/72

The origins of the cooperative banking movement in India can be traced to theclose of nineteenth century when, inspired by the success of the experimentsrelated to the cooperative movement in Britain and the cooperative creditmovement in Germany, such societies were set up in India. Cooperative banks arean important constituent of the Indian financial system. They are the primaryfinanciers of agricultural activities, some small-scale industries and self-employedworkers. The Anyonya Co-operative Bankin India is considered to have been thefirst cooperative bank in Asia.

The Co operative banks in India started functioning almost 100 years ago. TheCooperative bank is an important constituent of the Indian Financial System,

judging by the role assigned to co operative, the expectations the co operative issupposed to fulfil, their number, and the number of offices the cooperative bankoperate. Though the co operative movement originated in the West, but theimportance of such banks have assumed in India is rarely paralleled anywhere elsein the world. The cooperative banks in India plays an important role even today inrural financing. The businessess of cooperativebank in the urban areas also hasincreased phenomenally in recent years due to the sharp increase in the number of
http://en.wikipedia.org/wiki/Anyonya_Co-operative_Bank_Limitedhttp://finance.indiamart.com/investment_in_india/cooperative_banks_india.htmlhttp://finance.indiamart.com/investment_in_india/cooperative_banks_india.htmlhttp://en.wikipedia.org/wiki/Anyonya_Co-operative_Bank_Limitedhttp://finance.indiamart.com/investment_in_india/cooperative_banks_india.htmlhttp://finance.indiamart.com/investment_in_india/cooperative_banks_india.html


18/72


19/72

new member of the Committee of London Clearing Banksfor 40 years, and thus able to issue its own cheques.Since 1974 the Co-operative Bank has consistentlyoffered free banking for personal customers who remainin credit. It was also the first Clearing Bank to offer an interest bearing chequeaccount called Cheque & Save,in 1982. In 1991 the Bank shook the credit card marketwhen it introduced a guaranteed "free for life" Gold Visacard.

The Co-operative banks in INDIA have a history of

almost 100 years. The Co-operative banks are animportant constituent of the Indian Financial System,

judging by the role assigned to them, the expectationsthey are supposed to fulfil, their number, and thenumber of offices they operate. The co-operativemovement originated in the West, but the importancethat such banks have assumed in India is rarely

paralleled anywhere else in the world. Their role in rural


20/72

financing continues to be important even today, andtheir business in the urban areas also has increased

phenomenally in recent years mainly due to the sharp increase in the number ofprimary co-operative banks.Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. Theyare governed by the BankingRegulations Act 1949 and Banking Laws (Co-operativeSocieties) Act, 1965.

Establishment of Cooperative Banks in India

INTRODUCTION

The Co-operative Bank plc is a commercialbankin the United Kingdom andGuernsey, with its headquartersin Manchester.
http://en.wikipedia.org/wiki/Commercehttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Guernseyhttp://en.wikipedia.org/wiki/Guernseyhttp://en.wikipedia.org/wiki/Manchesterhttp://en.wikipedia.org/wiki/Manchesterhttp://en.wikipedia.org/wiki/Commercehttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Guernseyhttp://en.wikipedia.org/wiki/Manchester


21/72

The bank markets itself as an ethical bank, and refuses to invest in companies involved in the arms trade,global climate change, genetic engineering, animal testing and use ofsweated labouras stated in its ethicalpolicy. The ethical policy was introduced in 1992.[2] In 2002, Co-operative Group Limited brought the bankandCo-operative Insurance Societyunder the control of a newly incorporated holding society, Co-operativeFinancial Services.

The Bank was formed in 1872 as the Loan and Deposit Department of Manchester's Co-operative WholesaleSociety, becoming the CWS Bank four years later. However, the bank did not become a registered companyuntil 1971.[3] In 1975, the bank became the first new member of the Committee of London Clearing Banks for40 years.[4] and thus able to issue its own cheques.

In 1974 the Co-operative Bank has offered free banking for personal customers who remain in credit. It wasalso the first Clearing Bank to offer an interest-bearing cheque account, in 1982.

Membership

The Co-operative Membership logo

Unlike otherco-operative banks, such as the Dutch Rabobank, the Co-operative Bank does not have a federalstructure of local banks, instead being a single national bank. Nor is the bank directly owned by its ownmembers or account holders, unless they are also Co-operative Group members. In this instance, the Co-
http://en.wikipedia.org/wiki/Ethical_bankhttp://en.wikipedia.org/wiki/Arms_tradehttp://en.wikipedia.org/wiki/Global_climate_changehttp://en.wikipedia.org/wiki/Genetic_engineeringhttp://en.wikipedia.org/wiki/Genetic_engineeringhttp://en.wikipedia.org/wiki/Genetic_engineeringhttp://en.wikipedia.org/wiki/Animal_testinghttp://en.wikipedia.org/wiki/Animal_testinghttp://en.wikipedia.org/wiki/Sweatshophttp://en.wikipedia.org/wiki/Sweatshophttp://en.wikipedia.org/wiki/Sweatshophttp://en.wikipedia.org/wiki/Co-operative_Grouphttp://en.wikipedia.org/wiki/Co-operative_Insurance_Societyhttp://en.wikipedia.org/wiki/Co-operative_Insurance_Societyhttp://en.wikipedia.org/wiki/Co-operative_Insurance_Societyhttp://en.wikipedia.org/wiki/Co-operative_Financial_Serviceshttp://en.wikipedia.org/wiki/Co-operative_Financial_Serviceshttp://en.wikipedia.org/wiki/Co-operative_Financial_Serviceshttp://en.wikipedia.org/wiki/Co-operative_Wholesale_Societyhttp://en.wikipedia.org/wiki/Co-operative_Wholesale_Societyhttp://en.wikipedia.org/wiki/Limited_companyhttp://en.wikipedia.org/w/index.php?title=Committee_of_London_Clearing_Banks&action=edit&redlink=1http://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Co-operative_bankhttp://en.wikipedia.org/wiki/Co-operative_bankhttp://en.wikipedia.org/wiki/Rabobankhttp://en.wikipedia.org/wiki/Co-operative_Grouphttp://en.wikipedia.org/wiki/File:Membership.jpghttp://en.wikipedia.org/wiki/File:Membership.jpghttp://en.wikipedia.org/wiki/Ethical_bankhttp://en.wikipedia.org/wiki/Arms_tradehttp://en.wikipedia.org/wiki/Global_climate_changehttp://en.wikipedia.org/wiki/Genetic_engineeringhttp://en.wikipedia.org/wiki/Animal_testinghttp://en.wikipedia.org/wiki/Sweatshophttp://en.wikipedia.org/wiki/Co-operative_Grouphttp://en.wikipedia.org/wiki/Co-operative_Insurance_Societyhttp://en.wikipedia.org/wiki/Co-operative_Financial_Serviceshttp://en.wikipedia.org/wiki/Co-operative_Financial_Serviceshttp://en.wikipedia.org/wiki/Co-operative_Wholesale_Societyhttp://en.wikipedia.org/wiki/Co-operative_Wholesale_Societyhttp://en.wikipedia.org/wiki/Limited_companyhttp://en.wikipedia.org/w/index.php?title=Committee_of_London_Clearing_Banks&action=edit&redlink=1http://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Co-operative_bankhttp://en.wikipedia.org/wiki/Rabobankhttp://en.wikipedia.org/wiki/Co-operative_Group


22/72

operative Bank is wholly owned by Co-operative Financial Services, whose sole shareholder is the (member-owned) Co-operative Group. Members of the Co-operative Group are also entitled to earn dividend on theiraccount holdings and borrowing with the Bank.

SmileThe Bank launched a separate internet-only operation known as Smile in 1999, which, according to surveys,has the highest satisfaction ratings among UK banks and has received many awards in recent years forcustomer service and online banking. It has around half-a-million customers. Smile has its call centre based ata unique pyramid building

The Co-operative Bank offers whole of market independent financial advice (IFA) through Co-operativeIndependent Financial Advisers (CIFA). CIFA are based about 500 metres from the Co-operative Bank

"Pyramid" in Regent House, Stockport. CIFA offers independent advice mainly on investment, retirement andInheritance Tax planning. CIFA has over 100 advisers across the UK, incorporating specialists in ComplexPensions and Corporate Financial Planning. CIFA currently has around 70,000 clients across the UK made upof clients with links to the bank, and through their extensive seminar programme held at venues up and downthe country.

Co-operative movement is quite well established inIndia. The first legislation on co-operation was passed in1904. In 1914 the Maclagen committee envisaged a
http://en.wikipedia.org/wiki/Co-operative_Financial_Serviceshttp://en.wikipedia.org/wiki/Co-operative_Grouphttp://en.wikipedia.org/wiki/Smile_(bank)http://en.wikipedia.org/wiki/Co-operative_Financial_Serviceshttp://en.wikipedia.org/wiki/Co-operative_Grouphttp://en.wikipedia.org/wiki/Smile_(bank)


23/72

three tier structure for co-operative banking viz. PrimaryAgricultural Credit Societies (PACs) at the grass rootlevel, Central Co-operative Banks at the district level andState Co-operative Banks at state level or Apex Level.The first urban co-operative bank in India was formednearly 100 years back in Baroda.

The Co-operative banks arrived in India in thebeginning of 20th Century as an official effort to create anew type of institution based on the principles of co-

operative organisation and management, suitable for problems peculiar to Indianconditions. These bankswere conceived as substitutes for money lenders, to

provide timely and adequate short-term and long-terminstitutional credit at reasonable rates of interest.


24/72

In the formative stage Co-operative Banks wereUrban Co-operative Societies run on community basisand their lending activities were restricted to meetingthe credit requirements of their members. The concept of Urban Co-operative Bankwas first spelt out by MehtaBhansali Committee in 1939 which defined on Urban Co-operative Bank. Provisions of Section 5 (CCV) of BankingRegulation Act, 1949 (as applicable to Co-operativeSocieties) defined an Urban Co-operative Bank as aPrimary Co-operative Bank other than a Primary Co-

operative Society was made applicable in 1966.


25/72


26/72

Facts about Cooperative banks

Some cooperative banks in India are more forward than many of the state andprivate sector banks.

According to NAFCUB the total deposits & lendings of Cooperative Banksin India is much more than Old Private Sector Banks & also the New PrivateSector Banks.

This exponential growth of Co operative Banks in India is attributed mainlyto their much better local reach, personal interaction with customers, their

ability to catch the nerve of the local clientele


27/72

MAIN FUNCTIONS OF COOPERATIVE BANKS

1. Co-operative Banks are organised and managed on the


28/72


29/72

commercial banks, from urban to rural. Co-operativeBanks belong to the money market as well as to thecapital market. Primary agricultural credit societies

provide short term and medium term loans.

3. Cooperative banks in India finance rural areas under:Farming

Cattle

MilkHatchery

Personal finance


30/72

4. Cooperative banks in India finance urban areas under:Self-employmentIndustriesSmall scale unitsHome finance

Consumer financePersonal finance


31/72

Co-operative Banks Types:

There are two types of co-operative banks in INDIA


32/72

1. The first is the short term lending oriented Co-operative Banks. In this category there are again threesub categories of banks which are the State Co-operative banks, District Co-operative banks and thePrimary Agricultural Co-operative societies.

2. The second is the long term lending oriented Co- operative banks. In this secondcategory there areland developments banks which are at three levels.First is the state level, the second is district level, and

the third is the village level.

It is very much clear that co-operative banks have very much importance innational development. Without the help of co-operative banks, millions of peoplein INDIA would be lacking the much needed financial support.


33/72

CLASSIFICATION OF COOPERATIVE BANKS

Some co-operative banks are scheduled banks, whileothers are non-scheduled banks. For instance, SCBs andsome UCBs are scheduled banks but other co-operative

banks are non-scheduled banks. At present, 28 SCBs and11 UCBs with Demand and Time Liabilities over Rs 50crore each included in the Second Schedule of the

Reserve Bank of India Act.Co-operative Banks are subject to CRR and liquidityrequirements as other scheduled and non-scheduled

banks are. However, their requirements are less thancommercial banks.

Recent Developments


34/72

Over the years, primary (urban) cooperative banks have

registered a significant growth in number, size and

volume of business handled. As on 31st March, 2003

there were 2,104 UCBs of which 56 were scheduled

banks. About 79 percent of these are located in five

states, - Andhra Pradesh, Gujarat, Karnataka,

Maharashtra and Tamil Nadu. Recently the problems

faced by a few large UCBs have highlighted some of the

difficulties these banks face and policy endeavours are geared to consolidating and

strengthening this sector and improving governance.

Features of Cooperative Banks

Co-operative Banks are organised and managed on the principal of co-operation,

self-help, and mutual help. They function with the rule of "one member, one vote".


35/72

function on "no profit, no loss" basis. Co-operative banks, as a principle, do not

pursue the goal of profit maximisation.

Co-operative bank performs all the main banking functions of deposit mobilisation,

supply of credit and provision of remittance facilities.

Co-operative Banks provide limited banking products and are functionally

specialists in agriculture related products. However, co-operative banks now

provide housing loans also.

UCBs provide working capital loans and term loan as well.

The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and

Urban Co-operative Banks (UCBs) can normally extend housing loans upto Rs 1

lakh to an individual. The scheduled UCBs, however, can lend upto Rs 3 lakh for


36/72

housing purposes. The UCBs can provide advances against shares and debentures

also.

Co-operative bank do banking business mainly in the agriculture and rural sector.

However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan

areas also. The urban and non-agricultural business of these banks has grown over

the years. The co-operative banks demonstrate a shift from rural to urban, while the

commercial banks, from urban to rural.

Co-operative banks are perhaps the first government sponsored, government-

supported, and government-subsidised financial agency in India. They get financial

and other help from the Reserve Bank of India NABARD, central government and

state governments. They constitute the "most favoured" banking sector with risk of

nationalisation. For commercial banks, the Reserve Bank of India is lender of last

resort, but co-operative banks it is the lender of first resort which provides financial


37/72

resources in the form of contribution to the initial capital (through state

government), working capital, refinance.

Co-operative Banks belong to the money market as well as to the capital market.

Primary agricultural credit societies provide short term and medium term loans.

Land Development Banks (LDBs) provide long-term loans. SCBs and CCBs also

provide both short term and term loans.

Co-operative banks are financial intermediaries only partially. The sources of their

funds (resources) are (a) central and state government, (b) the Reserve Bank of

India and NABARD, (c) other co-operative institutions, (d) ownership funds and,

(e) deposits or debenture issues. It is interesting to note that intra-sectoral flows of

funds are much greater in co-operative banking than in commercial banking. Inter-


38/72

bank deposits, borrowings, and credit from a significant part of assets and

liabilities of co-operative banks. This means that intra-sectoral competition is

absent and intra-sectoral integration is high for co-operative bank.

Some co-operative bank are scheduled banks, while others are non-scheduled

banks. For instance, SCBs and some UCBs are scheduled banks but other co-

operative bank are non-scheduled banks. At present, 28 SCBs and 11 UCBs with

Demand and Time Liabilities over Rs 50 crore each included in the Second

Schedule of the Reserve Bank of India Act.

Co-operative Banks are subject to CRR and liquidity requirements as other

scheduled and non-scheduled banks are. However, their requirements are less than

commercial banks.

Since 1966 the lending and deposit rate of commercial banks have been directly


39/72

regulated by the Reserve Bank of India.

Although the Reserve Bank of India had power to regulate the rate co-operative

bank but this have been exercised only after 1979 in respect of non-agricultural

advances they were free to charge any rates at their discretion. Although the main

aim of the co-operative bank is to provide cheaper credit to their members and not

to maximize profits, they may access the money market to improve their income so

as to remain viable.

Categories

There are two main categories of the co-operative banks.


40/72

(a) short term lending oriented co-operative Banks - within this category there

are three sub categories of banks viz state co-operative banks, District co-operative

banks and Primary Agricultural co-operative societies.

(b) long term lending oriented co-operative Banks - within the second category

there are land development banks at three levels state level, district level and

village level.

The co-operative banking structure in India is divided into following main 5

categories :

1. Primary Urban Co-op Banks:

2. Primary Agricultural Credit Societies:


41/72

3. District Central Co-op Banks:

4, State Co-operative Banks:

5. Land Development Banks.

Structure of co-operative banks in India

Credit cooperatives are the oldest and most numerous of all the types ofcooperatives in India. The cooperative credit institutions in the country may be

broadly classified into urban credit cooperatives and rural credit cooperatives.There are about 2090 urban credit cooperatives and these societies togetherconstitute for about 10 percent of the aggregate banking business and therefore


42/72

regarded as an important segment of the banking system. The urban creditcooperatives are also popularly known as Urban Cooperative Banks. The ruralcredit cooperatives may be further divided into short-term credit cooperatives andlong-term credit cooperatives. With regard to short-term credit cooperatives, at thegrass-root level there are around 92,000 Primary Agricultural Credit Societies(PACS) dealing directly with the individual borrowers. At the central level (districtlevel) District Central Cooperative Banks (DCCB) function as a link between

primary societies and State Cooperative Apex Banks (SCB). It may be mentionedthat DCCB and SCB are the federal cooperatives and thus the objective is to servethe member cooperatives. As against three-tier structure of short-term credit

cooperatives, the long-term cooperative credit structure has two tiers in many stateswith Primary Cooperative Agriculture and Rural Development Banks (PCARDB)at the primary level and State Cooperative Agriculture and Rural DevelopmentBank at the state level. However, some states in the country have unitary structurewith state level cooperative operating with through their own branches and in onestate an integrated structure prevails. The organizational structure of the creditcooperatives in India is illustrated in chart I. Interestingly, under the BankingRegulation Act 1949, only State Cooperative Apex Banks, District Central


43/72

Cooperative Banks and select Urban Credit Cooperatives are qualified to be calledas banks in the cooperative sector. In other words, only these banks are licensed toconduct full-fledged banking business.

The Co-operative Banks function in India on State Levels. Most of the Rural Co-operative banks function on Three-Tier and the Urban banks function on Two-Tier.At the National Level there is NABARD to organise the Agricultural Co-operatives. Also there is National Co-operative Union of India, as an apexinstituion at National Level.

The Reserve Bank of India controls the Co-operative Banks that falls under the

Banking Regulation Act of 1949.

More information about the bank.

What is Your Registered Address?


44/72

The Co-operative Bank p.l.c., P.O. Box 101, 1 Balloon Street, Manchester, M60 4EP. Registered in Englandand Wales No. 990937.

Who regulates you?The Co-operative Bank is authorised and regulated by the Financial Services Authority (No. 121885),subscribes to the Lending Code, is a member of the Financial Ombudsman Service and is licensed by theOffice of Fair Trading (No. 006110).

What are co-operative banks?Co-operative banks are small-sized units organised in the co-operative sectorwhich opreate both in urban and non-urban centres.

What is the role of co-operative banks in Indias banking structure?

In India, co-operative banks finance small borrowers in industrial and trade sectors,besides professional and salary classes.

What functions do co-operative banks perform?Co-operative banks perform the main banking functions of deposit mobilisation,supply of credit and provision of remittance facilities. They provide limited

banking products and are specialists in agriculture-related products.


45/72

Who acts as the regulator for co-operative banks?Co-operative banks are regulated by the Reserve Bank of India and governed bythe Banking Regulations Act, 1949, and Banking Laws (Co-operative Societies)Act, 1965. Rural co-operative banks are regulated by state registrar of co-operatives.

What is the minimum capital requirement and membership required for co-operative banks ?Urban co-operative banks should have a minimum capital of Rs 4 crore and amembership of at least 3,000 in a population of more than Rs 10 lakh. The figureof minimum membership keeps decreasing with a decrease in population.

What is the minimum Statuatory Liquidity Ratio (SLR) for co-operativebanks?Urban co-operative banks are required to maintain a SLR equivalent to 25% of netdemand and bank liabilities.

What are weak urban co-operative banks?Urban co-operative banks are divided into weak and urban banks, based on certain


46/72

parameters of their performance. India has a total of 261 weak banks at the end ofJune 2001.

When is a co-operative bank classified as a weak one?A co-operative bank is classifed as a weak bank if its own funds get eroded to theextent of 25% or more by doubtful debts or if its overdues exceed 50% ofoutstanding loans and advances. Or else, if the bank fails to comply with minimumshare capital norms.

How many cases of fraud by co-operative banks were registered with theRBI?

Between June 2000 and June 2001, 149 cases of fraud involving Rs 27 crore wereregistered with RBI.

What is the punishment for a defaulting co-operative bank?According to RBI, the punishment differs on a case-to-case basis and is mutuallyagreed by the apex bank and the Registrar of Co-operative Societies. Like in thecase of Ahmedebad-based Madhavpura Mercantile Bank scam in 2001, the RBImade it mandatory for scheduled urban co-operative banks to maintain SLR at 25%


47/72

of net demand and time liabilities from April 2003 and also seek creditenhancements from state governments for their deposits and bonds.

Define the co-operative banking structure in India.The co-operative banking structure in India is divided into four components:

primary co-operative credit society, central co-operative bank, state co-operativebanks and land development banks.

On what basis do these banks function?Co-operative banks function on the basis of "no-profit no-loss". Co-operative

banks, as a principle, do not pursue the goal of profit maximisation.

What are state co-operative banks?State co-operative banks are a federation of central co-operative banks and act as awatchdog of the co-operative banking structure in the state. Its funds are obtainedfrom share capital, deposits, loans and overdrafts from the Reserve Bank of India.State co-operative banks lend money to central co-operative banks and primarysocieties and not directly to farmers.


48/72

What are central co-operative banks?Central co-operative banks are the federations of primary credit societies in adistrict and are of two types those having a membership of primary societies onlyand those having a membership of societies as well as individuals. The funds of the

bank consists of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks. These banks finance member societies within thelimits of the borrowing capacity of societies.

Do co-operative banks have access to money market?Although the main aim of a co-operative bank is to provide cheaper credit to theirmembers and not to maximize profits, they may access the money market toimprove their income and remain viable.

What are the sources of funds for co-operative banks?The sources of funds for co-operative banks are: central and state government,Reserve Bank of India and NABARD, other co-operative institutions, ownershipfunds and deposits or debenture issues. Intra-sectoral flows of funds are muchgreater in co-operative banking than in commercial banking. Inter-bank deposits,


49/72

borrowings and credit also form a significant part of assets and liabilities of co-operative banks.

Role of Co-Operative Banks in Financial Inclusion

As per the Committee on Financial Inclusion (Dr. Rangarajan Committee), the

short term cooperative credit structure has nearly 1.25 lakh outlets spread

throughout the length and breadth of the country. Located in rural areas, these unitshave a better knowledge of their existing and potential clients. Further, Know of

Your Customer (KYC), guidelines will be easier to comply with.

As per the recommendations of Rangarajan Committee report, Reserve Bank of

India has issued instructions that Primary Agricultural Credit Societies (PACS) can

be appointed as Business Correspondents by banks for promoting financial


50/72

inclusion. Besides, Cooperatives can adopt group approach for financing excluded

groups in which community based organisations such as joint liability groups will

provide some degree of mutual guarantee to enable its members to access credit.

National Bankfor Agriculture and Rural Development (NABARD) has already

circulated the guidelines on Self Help Groups to the Cooperatives.

Based on the recommendations of the report of the Committee on Financial

Inclusion, Government of India created the Financial Inclusion Fund and Financial

Inclusion Technology Fund in NABARD. The Cooperative Banks have been

advised that they are eligible institutions to access these funds for financial

inclusion.


51/72


52/72

The Co-operative banks has a history of almost 100 years. The Co-operative banks are an importantconstituent of the Indian Financial System, judging by the role assigned to them, the expectations they aresupposed to fulfil, their number, and the number of offices they operate. The co-operative movementoriginated in the West, but the importance that such banks have assumed in India is rarely paralleledanywhere else in the world. Their role in rural financing continues to be important even today, and theirbusiness in the urban areas also has increased phenomenally in recent years mainly due to the sharpincrease in the number of primary co-operative banks.

While the co-operative banks in rural areas mainly finance agricultural based activities including farming,cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employmentdriven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer

Some of the co-operative banks are quite forward looking and have developed sufficient core competencies to challenge

state and private sector banks.

According to NAFCUB the total deposits & lendings of Co-operative Banks is much more than Old Private Sector Banks& also the New Private Sector Banks. This exponential growth of Co-operative Banks is attributed mainly to their muchbetter local reach, personal interaction with customers, their ability to catch the nerve of the local clientele.

Though registered under the Co-operative Societies Act of the Respective States (where formed originally) the bankingrelated activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed by theBanking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.


53/72

Overview


54/72

Co-operative movement is quite well established in India. The first legislation on co-operation was passed in 1904. In 1914 the Maclagen committee envisaged a three tierstructure for co-operative banking viz. Primary Agricultural Credit Societies (PACs) at thegrass root level, Central Co-operative Banks at the district level and State Co-operativeBanks at state level or Apex Level. The first urban co-operative bank in India was formednearly 100 years back in Baroda.

Co-operative Institutions are engaged in all kinds of activities namely production,processing, marketing, distribution, servicing, and banking in India and have vast andpowerful superstructure. Co-operative Banks are important cogs in this structure.

In the beginning of 20th century, availability of credit in India, more particularly in rural areas,was almost absent. Agricultural and related activities were starved of organised, institutionalcredit. The rural folk had to depend entirely on the money lenders, who lent often at usurious

rates of interest.

The co-operative banks arrived in India in the beginning of 20th Century as an official effortto create a new type of institution based on the principles of co-operative organisation andmanagement, suitable for problems peculiar to Indian conditions. These banks wereconceived as substitutes for money lenders, to provide timely and adequate short-term andlong-term institutional credit at reasonable rates of interest.


55/72

In the formative stage Co-operative Banks were Urban Co-operative Societies run on community basis and their lendingactivities were restricted to meeting the credit requirements of their members. The concept of Urban Co-operative Bankwas first spelt out by Mehta Bhansali Committee in 1939 which defined on Urban Co-operative Bank . Provisions ofSection 5 (CCV) of Banking Regulation Act, 1949 (as applicable to Co-operative Societies) defined an Urban Co-operative Bank as a Primary Co-operative Bank other than a Primary Co-operative Society were made applicable in1966.

With gradual growth and also given philip with the economic boom, urban banking sector received tremendous boost andstarted diversifying its credit portfolio. Besides giving traditional lending activity meeting the credit requirements of theircustomers they started catering to various sorts of customers viz.self-employed, small businessmen / industries, housefinance, consumer finance, personal finance etc.

Where did cooperative banking originate?


56/72

Close

Link to this answer

Share this credible answer with others. Simply paste this code into your blog or Web page:

Where did

cooperative banking originate?

Cooperative banking originated in Germany in the middle of the 19th cent.; it was developed by Hermann Schulze-

Delitzsch and later was particularly adapted to rural communities by F. W. Raiffeisen.

Slogan for cooperative bank

Good with Money (previously Customer led, ethically guided)""Customer led, ethically guided / Good with Money
http://tmp/svkef.tmp/javascript:linktopageflyclose();http://tmp/svkef.tmp/javascript:linktopageflyclose();http://tmp/svkef.tmp/javascript:linktopageflyclose();http://tmp/svkef.tmp/javascript:linktopageflyclose();


57/72


58/72

Co-operative Banks and the

Role of Supervision


59/72

Co-operative Banks and the Role of Supervision

I. Co-operative Banks1. Banks

2. Executive Bodies3. Auditing by Associations of Co-operative Societies

II. The most important Supervisory Structural Standards1. Solvency2. Liquidity3. Large Loans Regulations4. Overall Banking Management5. Managing Board Member Qualification

III. The Process of Supervision

1. Federal Financial Supervisory Authority's Sources ofInformation2. Measures and Sanctions

IV. Current Problems Relating to the Supervision1. Large Number of Mergers2. Observation of Disclosure Requirements3. Outsourcing of Certain Areas to Other Companies

| Page 2


60/72


| Page 3


61/72


| Page 4


62/72


The most important difference between co-operative banks and

private banks is that co-operative banks' annual accounts are notinspected by a private auditing company, but by a regional

auditing association, to which all co-operative banks must belong.

This obligatory membership of regional auditing associations was

introduced in 1934 for all co-operatives for reasons that were not

specific to banks. The regional auditing associations are not only

responsible for the co-operative banks, but also for all other co-

operatives. The associations of co-operative societies also have

further duties, such as offering advice to and providing super-vision for their member co-operatives as well as representing their

interests in the public domain, in particular with respect to

government agencies.

| Page 5


63/72


Besides the solvency regulations, which are based on

the standards of the Basel Committee and which inGermany are summarized in what is known as Principle

I, weighted risk assets are to be covered with 8 %

liable equity capital. Risk assets are essentially all

balance sheet assets, i.e. in particular loans that have

been issued.

| Page 6


64/72


Like all banks, co-operative banks must also show

sufficient liquidity. A liquid asset ratio must becalculated every month as well as observation ratios for

the next 3, 6 and 12 months. This involves comparing

the payment commitments with the funds available for

payment for each particular period. This procedure is

relatively new in Germany and was first adopted by the

banks in the mid of 2000.

| Page 7


65/72


The regulations regarding large loans serve to spread

the risks. In Germany the classification large-scalelending is defined depending on liable equity capital. A

large-scale loan is a loan that amounts to 10 % of the

liable equity capital. No single large-scale loan may

exceed 25 % of the liable equity capital, and all large-

scale loans together must not exceed eight times the

value of the liable equity capital.

| Page 8


66/72


Since 1998 banks have - in accordance with the German Banking Law -

been obliged to have suitable instruments in place for management,

monitoring and control of risks, as well as suitable instruments with which to

determine the financial position of the institution with sufficient accuracy

at any time. These organizational obligations were adopted in German

Banking Law in order to implement EC directives concerning the

harmonization of regulations in the laws governing banking and securities

supervision. Of course, prior to that co-operative banks already had -

depending on their business activities - a risk management and a risk

control systems, as well as an accounting and a management informationsystem. However, these management instruments were all clearly

improved after the introduction of statutory organizational obligations.

Worthy of particular mention here are the new instruments for measuring

interest rate fluctuation risks and address loss risks.

| Page 9


67/72


Every bank and therefore every co-operative bank

must have at least two members of its board ofdirectors, who are not just active for the bank in an

honorary capacity. (This is known as the Four Eyes

Principle.) This principle is in the interest of mutual

control and allows for representation in case of

absence.

| Page 10


68/72


Besides the annual accounts that are submitted, the main sources of

information for the Federal Financial Supervisory Authority are theauditors' report on the annual accounts, which the associations of co-

operative societies produce each year. The Federal Financial

Supervisory Authority does not receive these audit reports auto-

matically, but only when requested. The Federal Supervisory

Authority aims to request the auditors' reports for all co-operative

banks, but is unable to meet this goal because of the current size of

its staff. The auditors' reports for all larger co-operative banks are

always requested, as are those for problem banks, while the othersare requested on an alternating basis. The evaluation of the auditors'

reports is generally carried out by the Deutsche Bundes- bank; that is

a valuable service to the Federal Financial Super- visory Authority.

| Page 11


69/72


| Page 12


70/72

Co-operative Banks and the Role

of SupervisionAccording to the German Banking Law, a

credit institution can only make a loan totaling

more than 750,000 Euros if the borrower has

disclosed its financial position, in particular

by presenting its annual accounts. In thepractice of bank supervision, great atten-

tion is given to the observation of this

requirement, since from our experience in the

past loans have been made too often without

sufficient checks on the borrower's financial

circumstances. This has led to banks having

to make large valuation adjustments. It is an

important goal in bank supervision to

cultivate and maintain a high level of risk

awareness in the banks when they make

loans. I should point out that banks are notprevented from making loans that do have a

risk attached to them. However, the banks

must be quite clear about this and have the

necessary resources to cover the risk.

ROLE OF THE COOPERATIVE BANKS IN REALIZATION


71/72

1 INTRODUCTION

Cooperative banks belong to the oldest forms of the collective action in Poland playing essen-

tial role in the realization of the agricultural and in local development. They serve both rural

and urban population, and are main banks in Poland supporting development of agriculture

and rural areas. Their key role is to give credits financing various rural based enterpreneur-

ships.

Agricultural credits play a number of significant functions of which the primary include theintensification and growth of the agricultural production. Moreover, they are supposed to en-

courage the introduction of technical, biological and social progresses in agriculture-related

activities. Credits are regarded as the most flexible tool for governing agriculture industry.

They affect farming in spatial-structural dimension, sectoral and subject dimensions related to

the level, orientation and structure of agricultural production.


72/72

CONCLUSIONS

1. Cooperative banks are the most important actors on financial markets in Poland with re-

spect to channeling funds which support agriculture and rural areas in the framework of

agricultural and rural development policies.

2. Polish farmers rely primarily on cooperative banks for agricultural credit. These banks are

main financial institutions taking into consideration the provision of preferential loans with

interest rates subsidized by Agency for Restructuring and Modernization of Agricul- ture to

support agricultural sector and the rural community.

3. The majority of current accounts in which direct farm payments from the EU funds and

national budget are putted are with the cooperative banks. In other words, those banks are the

main intermediaries in direct payments' flow between Agency for Restructuring and

Modernization of Agriculture (paying agency) and farmers being their final beneficiaries.

4. Over 1996-2006, the level of agricultural loans granted by the cooperative banks was gen-

erally positively and statistically significantly associated with development of Polish agri-

culture as measured by composite indicator. However, only in two of sixteen voivodships

they had positive statistically significant impact on this development.

Final Cooperative Banking

Documents

Transcript of Final Cooperative Banking