What is Co-operative Bank ? Co-operative bank(Objectives ,Features ,Functions & Types)
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 are owned and operated by the members for a common purpose i.e. to provide financial service to agriculturists and small businessmen. It relies on the on the principles of cooperation, such as open membership, democratic decision making, mutual help.
A co-operative bank is a financial entity owned by its members, who are both the owners and customers of their bank. It is frequently founded by members of the same local or professional community who share a common interest. It was formed to promote the upliftment of the financially weaker sections of society and to protect them from the clutches of money lenders who provide needy people with loans at unreasonably high interest rates. The cooperative structure is based on the principles of collaboration, mutual assistance, democratic decision making, and open membership. It adheres to the ‘one shareholder, one vote’ and ‘no profit, no loss’ principles.
The Cooperative Societies Act of 1912 governs cooperative banks. These are regulated by the Reserve Bank of India and National Bank for Agriculture and Rural Development (NABARD) under the Banking Regulation Act,1949 and Banking Laws (Application to Cooperative Societies) Act,1965.
Cooperative banks are financial institutions that are owned and run by their customers and operate on the one-person, one-vote principle. As a registered cooperative society under the Cooperative Society Act of 1965, the bank is governed by both banking and cooperative legislation and is regulated by the National Bank for Agriculture and Rural Development (NABARD) and the Reserve Bank of India (RBI). They provide credit to borrowers and businesses in both rural and urban areas.
Cooperative Banks offer a range of services like accepting deposits and granting loans to the members and even non-members. The members are the owners and customers of the bank at the same time. The bank offers services like deposit accounts such as savings and current account, safe keeping of valuables (locker facility), loan and mortgage facility to the customers.
Objectives of Cooperative Banks
- To provide rural financing as well as microfinance.
- To end the monopoly of money lenders and middlemen.
- To provide credit services at a lower cost to farmers and other vulnerable members of society.
- To provide financial assistance and personal financial services to small businesses, as well as housing financial assistance.
- To provide its members with basic banking services.
- To encourage rural development in general.
Features of Co-operative Bank.
- 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.
- No profit no loss: Cooperative banks work on no profit no loss basis because they aim to help masses and not Profit maximization.
- 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.
- 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.
- 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.
- Customer-owned entities :The members of cooperative banks are both the owners and the customers of the bank. Thus, the aim of the cooperative bank is not to maximize profits but to provide the best possible services to its members. Some of the cooperative banks also admit non-members so as to provide them with banking services.
- Profit allocation :A specified portion of the profits are transferred to Statutory Reserve and other reserves, and then a fair rate of interest is paid on the capital subscribed by the members. A part of this profit can also be distributed to the co-operative members, with legal and statutory limitations in most cases.
- 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.
Functions of Co-Operative Bank
The functions of Co-operative banks are:
- Provides Credit: it provides credit/loan at lower rate of interest
- Encourage saving: cooperative banks encourage the habit of saving among members/customers.
- Employment Generation: These cooperatives require different types of human resources like technicians, administrators, workers etc. So, they provide employment opportunities.
- Helps to develop rural areas: cooperatives are basically established in the rural areas to support the weaker section of the people. They help them to start their own business and provides various job opportunities. Which helps to develop the rural areas.
- Improves living standard: cooperatives provide credit facilities at low rate of interest to the people. It also provides job opportunities which improves the standard of living of the people.
- Agricultural Development: cooperative societies provide loans at low rate of interest to small farmers to buy improved seeds, chemical fertilizers, agricultural tools etc. to increase their production. This way cooperative banks play an important role in agricultural development.
Types of Co-operative Bank
Their are following four types 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.
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.