Cooperative Banking in India Bcom Notes
Cooperative Banking in India Bcom Notes:- In this post, you will get the notes of B.com 3rd year money and financial system, by reading this post you can score well in the exam, hope that this post has helped you with this post to all your friends and all groups right now I must share it so that every student can read this post and it can also be helped in this post. Cooperative Banking in India
CO-OPERATIVE BANKING IN INDIA
Meaning of Co-operative Banking
Co-operative banks are financial institutions founded on principle of co-operation and each member has one vote irrespective of amount of capital contributed by a member to the co-operative bank. In India, the co-operative movement was initiated in 1904 through the establishment of co-operative credit societies. These societies were organised to relieve the indebtedness of rural people and promote thrift.
A credit co-operative is a voluntary association of members for self-help, catering to the financial needs on a mutual basis. The co-operatives play an important role in the Indian financial system, especially at the rural level. In rural finance, as a means of reaching the last man in the last village, co-operative credit has no rival except the traditional money-lender.
Advantages of Co-operative Banking System
Many advantages of co-operative credit/banking system have been summarised as follows:
- Co-operatives, like money-lenders, can possess intimate knowledge of the character and financial position of their members, of and the local production possibilities and chances of growth.
- Co-operatives have lower administrative costs on account of voluntary services rendered by their members.
- They instil among their members a strong felling of responsibility for prompt payment of interest and repayment of loans.
- They promote thrift and savings among their members and mobilise their small savings for productive or useful purposes.
- The procedure of deposit and withdrawal of a co-operative credit society or bank is far less complicated, since personal identification and such other problems do not exist.
- Co-operatives may provide loans to their members at lower rates of interest and save them from the clutches of Shylock-type money-lenders.
- They make their members financially more secure.
- They are suitable to help people of small means.
Difference Between Co-operative Banks And Commercial Banks
In the organised sector of the Indian money market, co-operative banks and commercial banks are parallel financial institutions. Both render almost identical banking functions of deposit mobilisation, provision of remittance facilities, and advancing of loans. Nevertheless, both institutions are distinct in nature, scope and operations.
We may distinguish between co-operative banks and commercial banks on the following counts:
- Commercial banks, are joint-stock banks, whereas Co-operative banks, are co-operative organisations.
- Commercial banks are governed by the Banking Regulation Act, but Co-operative banks are governed by the Co-operative Societies Act of 1904.
- Commercial banks are subject to the control of the Reserve Bank of India directly, while Co-operative banks are subject to the rules laid down by the Registrar of Co-operative Societies.
- Co-operative banks have lesser scope in offering a variety of banking services than commercial banks. 5. Commercial Banks in India are on a larger scale. They have adopted the system of branch banking, so they have countrywide operations. Whereas Co-operative banks are relatively on a much smaller scale. Many co-operative banks follow only unit-bank system, though they are co-operative banks with a number of branches but their coverage is not countrywide.
- Commercial banks in India are of two type:
(i) public sector banks and
(ii) private sector banks, whereas Co-operative banks are only private sector banks.
- Commercial banks mostly provide short-term finance to industry trade and commerce, including priority sector like exports, etc. On the other hand Co-operative banks usually cater to the credit needs of agriculturists.
- Co-operative banks offer a slightly higher rate of interest to their depositors than commercial banks.
- In co-operative banks, borrowers are member-shareholders, so they have some influence on the lending policy of the banks, on account of their voting power. But the borrowers of commercial banks are only account-holders and have no voting power as such, so they cannot have any influence on the lending policy of these banks.
- Co-operative banks have no much scope of flexibility on account of the rigidities of the bye-laws of the Co-operative Societies. On the other hand, Commercial banks, are free from such rigidities.
Structure of Co-operative Banking System in India
The co-operative banking system in India is federal in structure. It has a pyramid type of three-tier structure constituted by:
- Primary Credit Societies (PCSs);
- Central Co-operative Banks (CCBs);
- State Co-operative Banks (SCBS).
In each state, there is a State Co-operative Bank at the apex level. In each district, there is a Central Co-operative Bank and at the base level, there are primary credit societies. It may be depicted as follows:
These co-operatives provide short-term and medium-term credit. There are agricultural and non-agricultural credit societies. There are primary agricultural credit societies functioning in villages. There are urban banks and other non-agricultural credit societies functioning in towns and cities. In addition, there are farmers’ service societies and grain banks. For providing long-term agricultural credit there are primary and central land development banks.
- Primary Agricultural Credit Societies: Primary agricultural credit societies lie at the root of the co-operative credit structure of the country. They are at the local or base level. In rural areas, there are Primary Agricultural Credit Societies (PACS), which cater to the short and medium-term credit needs of the farmers. They directly deal with the farmers.
These societies have been set up on the principle of cooperation in rural areas with the objective to (1) provide short-term and medium term credit to agriculture at grass root level, and (2) foster the habit of savings by depositing their savings in these societies. The PACS are generally organised on the Raiffeisen model. Their members have unlimited liabilities. The members contribute to their share capital. The members elect president or chairman, secretary and other members of the Managing Committee, all of whom work on an honorary basis.
The PACS raise their funds by way of share capital, membership fees, deposits of members and non-members, and loans from the District Central Co-operative Bank and the government.
The PACS grant short-term and medium-term loans only to their members against the personal security and mortgage-security. The rates of interest charged by them vary from state to state. They deposits their reserve funds with the District Central Co-operative Banks (DCCB).
Weaknesses Of Primary Agricultural Credit Societies
(i) The mobilization of deposits is very low, nearly one-third of their resources.
(ii) The recovery of loans has been disappointing and many loans have become bad causing heavy loss to these societies.
(iii) Part of the loans have been given for unproductive purposes for which no limit has been fixed. As a result large amount has been given to meet personal needs which often become bad debts.
(iv) The majority of societies are unviable because of low capital base, low amount of deposits in relation to advances.
(v) There is no proper control and supervision and management committee grant considerable percentage of loans on political or personal considerations which are not creditworthy.
(vi) The share capital of most of these societies is very low because of small number of members of these societies and low membership fee.
(vii) Many of these societies are working in losses.
(viii) These societies are not being run on sound professional management policies and principles because they are managed by untrained and unpaid staff.
(ix) Large number of these societies have failed to meet the demand of small and marginal cultivators. Funds have been cornered by big and influential persons.
- Central Co-Operative Banks: The Central Co-operative Banks are federations of primary credit society belonging to a specific district. The Central Co-operative Banks (CCB) are of two types: (i) pure, and (ii) mixed. A pure CCB confines its membership to co-operative organisations only. It is called the ‘Banking Union’. A mixed CCB keeps its membership open to co-operatives as well as individuals. Mixed CCBs are found in the states of Assam, Andhra Pradesh, Tamil Nadu, Mysore and others.
The CCBs manage their funds from sources like share capital, deposits, loans from State Co-operative Banks and other commercial banks.
The major functions of the CCBS are:
- They finance the primary credit societies. By furnishing credit to the primary societies, CCBs serve as an important link between these societies at the base level and money market of the country.
- They accept deposits from the public.
- They grant credit to their customers on the security of first-class giltedged securities, gold, etc.
- They provide remittance facilities.
- They act as ‘balancing centres’ by shifting the excess funds of a ‘surplus’ primary society to the deficit’ ones.
- They keep watch on their debtor primary societies’ working and progress of recovery of loans.
- State Co-operative Banks: The State Co-operative Banks (SCBS) are formed by federating all district central co-operative banks in a particular State. The SCB is the apex bank of co-operative sector in the state.
The SCB raise its funds by way of share capital (subscribed to by the affiliated CCBS), deposits from the public, surplus funds of the affiliated CCBs reserve funds, loans from the State Bank of India, other commercial banks, and inter-bank borrowings. They are also supported by the Reserve Bank. Anywhere between 50-90 per cent of the working capital of the SCBS are contributed by the Reserve Bank.
The following are the major functions of the SCBS:
(i) State cooperative banks coordinate the activities of primary credit societies and district cooperative banks in a state.
(ii) They arrange finances for cooperative system in the state.
(iii) They control and supervise the functioning of district banks within a state.
(iv) They help in maintaining balance among various district banks by transferring funds from surplus district to deficit district.
(v) State cooperative banks provide credit directly to primary credit cooperative societies in the district where district bank does not exist.
(vi) They are important link between money market and cooperative banking sector and thus lends liquidity to the system.
Cooperative Banking in India