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Overview of Co-Operative Banking

Cooperative banks are financial institutions that are owned and controlled by their members. They operate using a three-tier structure with primary cooperative societies at the village level, central cooperative banks at the district level, and state cooperative banks at the apex level. Cooperative banks provide banking and financial services to their members but face challenges like dual control by state governments and RBI. The PMC Bank crisis highlighted issues like weak regulation and supervision of cooperative banks that led to losses for depositors. RBI is now implementing stronger rules to improve oversight and protect depositors from future bank failures.

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Dr. Meghna Dangi
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248 views14 pages

Overview of Co-Operative Banking

Cooperative banks are financial institutions that are owned and controlled by their members. They operate using a three-tier structure with primary cooperative societies at the village level, central cooperative banks at the district level, and state cooperative banks at the apex level. Cooperative banks provide banking and financial services to their members but face challenges like dual control by state governments and RBI. The PMC Bank crisis highlighted issues like weak regulation and supervision of cooperative banks that led to losses for depositors. RBI is now implementing stronger rules to improve oversight and protect depositors from future bank failures.

Uploaded by

Dr. Meghna Dangi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Cooperative Banks

• Cooperative Banks: features, types,


cooperative banking structure, problems faced
by cooperative banks in India,
• Recent development in Indian cooperative
banking sector
Introduction of
co-operative banks
• 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
(loans, deposits, banking accounts etc.).
Co-operative banking structure

• A State Co-operative Bank works at the apex


level (ie. works at state level). –
• The Central Co-operative Bank works at the
Intermediate Level. (ie. District Co-operative
Banks ltd. works at district level) –
• Primary co-operative credit societies at base
level (At village level)
Features
• Customer-owned entities: In a co-operative bank,
the needs of the customers meet the needs of the
owners, as co-operative bank members are both. As
a consequence, the first aim of a co-operative bank
is not to maximize profit but to provide the best
possible products and services to its members.
Some co-operative banks 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 by their
members, who democratically elect the board
of directors. Members usually have 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
can also be distributed to the co-operative members,
with legal or statutory limitations in most cases. Profit
is usually allocated to members either through a
patronage dividend, which is related to the use of the
co-operative’s products and services by each member,
or through an interest or a dividend, which is related
to the number of shares subscribed by each member.
History of co-operative banks in India

• The history of cooperative banks goes back to


the year 1904. In 1904, the co-operative credit
society act was enacted to encourage co-
operative movement in India.
RBI Policies for co-operative banks
• To preserve the co-operative character of UCBs • To protect the
depositors’ interest • To reduce financial risk • To put in place strong
regulatory norms at the entry level to sustain the operational efficiency
of UCBs in a competitive environment and evolve measures to
strengthen the existing UCB structure particularly in the context of ever
increasing number of weak banks • To align urban banking sector with
the other segments of banking sector in the context of application or
prudential norms in to and removing the irritants of dual control regime

• RBI has extended the Off-Site Surveillance System (OSS) to all non-
scheduled urban co-operative banks (UCBs) having deposit size of Rs.
100 Crores and above.
Types of Co-operative Banks
• Primary Co-operative Credit Society
• Central co-operative banks
• State co-operative banks
• Land development banks
• Urban Co-operative Banks
Functions of
co-operative banks
Co-operative banks also perform the basic banking functions of banking but they differ
from commercial banks in the following respects •

Commercial banks are joint-stock companies under the companies’ act of 1956, or public
sector bank under a separate act of a parliament whereas co-operative banks were
established under the co-operative society’s acts of different states.

Commercial bank structure is branch banking structure whereas co-operative banks have
a three tier setup, with state co-operative bank at apex level, central / district co-
operative bank at district level, and primary co-operative societies at rural level. •

Only some of the sections of banking regulation act of 1949 (fully applicable to
commercial banks), are applicable to co-operative banks, resulting only in partial control
by RBI of co-operative banks and •

Co-operative banks function on the principle of cooperation and not entirely on


commercial parameters.
Problems of Co-operative Banks

• Duality of control system of co-operative


banks
• PMC Bank Debacle
• Read the following:
• https://
economictimes.indiatimes.com/industry/banking/finance/banking/the-biggest-l
essons-for-india-from-the-pmc-bank-fiasco/articleshow/71557920.cms?from=m
dr
• https://
economictimes.indiatimes.com/news/et-explains/et-explains-inside-rbis-plan-to-
avert-pmc-bank-like-embarrassments/articleshow/72400105.cms?from=mdr
• https://
www.businesstoday.in/sectors/banks/pmc-bank-scam-only-10-percent-of-deposi
ts-withdrawn-as-rbi-clampdown-continues/story/393057.html
• http://www.businessworld.in/article/After-PMC-Debacle-RBI-To-Issue-Draft-Nor
ms-For-Cooperative-Banks-/05-12-2019-179894
/
• https://
www.thequint.com/news/business/what-to-do-about-deposits-if-your-bank-fails
•
Assignment for 1/8/2020
• What happened at the PMC Bank and what are
the results of the investigation so far?
• Why has RBI put PMC Bank under restriction?
What will happen as a result of these restrictions?
• What are the repercussions and how will it effect
the depositors?
• What is the main systemic failure that is
responsible for such debacle? What steps can be
taken by RBI to prevent it?

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