Indian banking system: Co-operative banks

Co-operative banks in this country are a part of vast and powerful structure of co-operative institutions which are engaged in tasks of production, processing, marketing, distribution, servicing and banking in India. The beginning co-operative banking in this country dates back to about 1904, when official efforts were made to create a new type of institution based on principles of co-operative organization & management, which were considered to be suitable for solving the problems peculiar to Indian conditions.

In rural areas, as far as the agricultural and related activities are concerned, the supply of credit was inadequate, and money lenders would exploit the poor people in rural areas providing them loans at higher rates.

Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.


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 are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services.

Initiatives towards development of co-operative banks:

  1. Reorganisation of PACS’s (a scheme by NABARD).
  2. Licensing of new USB’s liberalised.
  3. National Co-operative Bank of India (NCBI) was registered in 1993.(Multi-state co-operative society)-it has no regulatory functions.
  4. Co-operative development bank (set up by NABARD).
  5. Lending and borrowing rates of all co-operative have been more or less completely freed or deregulated.
  6. Allowing all PCB’s to undertake equipment leasing and hire-purchase financing.


  • Co-operative bank performs all the main banking functions of deposit mobilisation, supply of credit and provision of remittance facilities.
  • Co-operative Banks belong to the money market as well as to the capital market.
  • 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.


  • Co-operative Banks are organised and managed on the principal of co-operation, self-help, and mutual help. They work on the basis of “no profit no loss”. Profit maximization is not their goal.
  • Co-operative banks 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 State Co-operative Banks (SCBs), Central Cooperative Banks (CCBs) and Urban Co-operative Banks (UCBs) can normally extend housing loans up to Rs 1 lakh to an individual. The scheduled UCBs, however, can lend up to Rs 3 lakh for housing purposes. The UCBs can provide advances against shares and debentures

Cooperative banks in India finance rural areas under:

  • Farming
  • Cattle
  • Milk
  • Hatchery
  • Personal finance

Cooperative banks in India finance urban areas under:

  • Self-employment
  • Small scale units
  • Home finance
  • Consumer finance
  • Personal finance

Some facts about Cooperative banks in India

  • Some cooperative banks in India are more forward than many of the state and private sector banks.
  • According to NAFCUB the total deposits & lending of Cooperative Banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks.
  • This exponential growth of Co operative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local clientele.

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