Unit 2 co-operative banking in india

Assistant rofessor em SDJ International College Vesu Surat
28 de Aug de 2017

Mais conteúdo relacionado


Unit 2 co-operative banking in india

  1. Elements of Banking & Insurance F.Y. B.Com
  2. Meaning 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).  They are registered under the Cooperative Societies Act, 1912, and governed by the Banking Regulations Act 1949 and Banking Laws (co-operative societies) Act, 1965.
  3.  They are organized and managed on the principal of cooperation, self-help, and mutual help. They function with the rule of one member, one vote.  Function on "no profit, no loss" basis. Co-operative banks, as a principle, do not pursue the goal of profit maximization.  Co-operative bank performs all the main banking functions of deposit mobilization, 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.
  4. Structure of Co-operative Banks in India State Co-operative Bank (SCB) Central Co-operative Bank (CCB) Primary Credit Societies (PCS) PCS (in villages) UB and NACS (in cities)  Co-operative banking in India is federal in its structure.  At the lower rung, there are primary credit societies in villages and urban banks (UB) and other non-agricultural credit societies (NACS) in cities, then there are the central co-operative banks at the district level and at the top there are Provincial or State Co-operative banks in each state are known as “Apex” Banks.
  5.  Co-operative banks form another component of the Indian banking organisation, originated in India with the enactment of co-operative Credit Societies Act of 1904. Under this act a number of co-operative credit societies were started.  Owing to the demand of co-operative credit, a new act was resolved in 1912, which provided for the establishment of co- operative central banks by a union of primary credit societies and individuals.  In 1914, the Maclagan Committee was appointed to examine co-operative movement and to make recommendations regarding improvement of the movement.  It recommended the establishment of State Co-operative Apex Bank.
  6. Primary Credit Societies (PCS)  Primary credit society is at the bottom of the three-tier structure of co-operative banks.  The society normally comes in contact with the farmers and makes only a few members living within the area of the society.  Here individuals of a particular area meet together inspired by sentiment of co-operation.  Every member has to pay his share in the share capital. The price of a share is nominal.  The main aim of forming this organisation is to make the farmers free from the fatal grip of local lenders and releasing them from their exploitation and providing the credit at cheaper rates of interest.
  7. The society is managed by elected persons: Honorary secretary and members of working committee. Financial sources: Admission fees to become a member, share capital, deposits from the people. Finance from Central co- operative banks or State co-operative banks if needed. Field of Action: As per the act of co-operative credit society 1904, 10 or more individuals who are not from the same family and they are belonging to the same village or town can establish the primary credit society . As per the co-operative society Act, 1912 as per the regulation of the state, each such society is required to be registered. The field of jurisdiction is limited only upto the field of area of a particular village or a town where it has been established.
  8. Membership: Any person above the age of 18 years can become a member of the society. For this membership he has to pay the membership subscription as well as he has to purchase shares as per the rule. A person who is immature or having unsteady mind or declared insolvent or having loose character or has not paid government loans is not liable to be a member of the society. Management: The society is managed by the managing committee. It is the elected body, usually the secretary and the other members run the routine process of the society. Only the Secretary-cum treasurer is full time paid member and other are honorary members.
  9. Functions: 1) Provide short and medium term loans and advances to needy members mainly out of the deposits. 2) Supply all necessities required for agriculture, such as agricultural tools, seeds, fertilizers and insecticides. 3) Market the agricultural products and crops. 4) Supply certain consumable goods like food-grains, sugar, kerosene and other essential commodities. 5) Encourage the habits of saving among its members. 6) Arrange the programmes regarding the economic welfare of its members.
  10. Limitations: 1) Co-operative credit still forms a small portion of the total borrowings of the farmers which means that the farmers are still in the clutches of money-lenders. 2) Tenants and small farmers find it difficult to satisfy their needs fully. 3) Most primary credit societies are unable to meet fully the production-oriented credit needs of farmers. 4) Overdues at all levels are increasing alarmingly indicating the failure of co-operative credit institutions. 5) They have not been able to ensure adequate and timely credit for the borrowing farmers. 6) Society is found to have lack of business skills.
  11. Central (District) Co-operative Banks The central co-operative bank is a link joining state co-operative bank with the primary credit society. For making the provision of the monetary aid to primary credit societies and through them to the needy farmers the district co-operative banks were established at the district level. The central co-operative banks are of two types: 1) Pure type district banks 2) Mixed type district banks Pure type district banks: If the membership of the banks is of co- operative organizations only are called pure district types. Mixed type district banks: If the membership of the banks open To co-operative organisations as well as to individuals is called mixed type district banks.
  12. Financial sources: Share capital, deposits from the people and PCS, loan from state co-operative banks and where the state banks do not exist, from the RBI and other commercial banks. Management: The bank constitutes a managing committee for managing the running of the bank. A general meeting of shareholders is held annually. In the managing committee there are usually 9 to 11 members which are elected in the general meeting. The managing committee meets usually once in a month. For regular day-to-day management a full time manager is appointed. The operations are carried out as per the guidelines of the committee.
  13. Functions: 1) Supplies money to primary credit society. 2) Collects deposits from rural areas and farmers and provides it to the PCS in the form of safe investment. Also accept deposits from the private credit societies at attracted rates. 3) Gives money to other co-operative institutes at a reasonable rate of interest. 4) Supervises the functioning of PCS and gives training, guidance and advices to the employees of credit society only. 5) Advances loan to the people against their first class guilt edged securities. 6) Accepts cheques, drafts and hundies etc. on behalf of the customers. 7) Purchase and sells the securities on behalf of customers. 8) Acts as an agent of the customers.
  14. Limitations: 1) Recovery of loan is tedious and serious and the process is also complex. 2) Development of DCCBs region wise is not equal. 3) Management is not efficient and effective. 4) Lack of farmer’s interest in co-operative activities. 5) Lack of business skills. 6) Ignorance and uneductance of the members. 7) Castism. 8) Interference of political parties. 9) Uneconomical units. 10) Lack of financial soundness.
  15. State Co-operative Banks State co-operative bank means the principal society in a state which is registered under the Government Societies Act, 1912 or any other law in force in India related to co-operative societies in the state. This bank especially co-ordinates the activities of district co- operative banks and controls them and give them required guidance. The state co-operative banks are of two types: 1) Pure state banks 2) Mixed state banks Pure State Banks: It is a federation of central co-operative banks only. Mixed State Banks: It is a federation of both central co-operative banks as well as individual members.
  16. Management: The ultimate authority of state co-operative bank lies with the general body and managing committee of the state co-operative bank. The general body elects the board of director as per the banking regulation act, rules and by laws. The state government is also party to the bank management and share capital and hence the state government nominates its own representatives. The number of such representatives should not exceed one-third of the total general body strength. The selected board of directors appoints a general manager known as managing director. Financial sources: Share capital, deposit collection from co- operative institutions, public and business, loan from RBI.
  17. Functions: 1) Assist the central banks and to balance excess and deficiencies in the resources of central banks. 2) Keep watch on all the district co-operative banks within the state. 3) Act as a chain between co-operative activities and country’s money market. 4) Directs the guidelines for the development of co-operative activities to the district banks situated in the state. 5) Helps district co-operative banks in the form of subsidies. 6) Create proper environment for the rapid growth of co-operative activity. 7) Plays the role of friend, philosopher and guide to all the co-operative institutions in the state. 8) Manage for imparting education and training of co-operative activities in the state. 9) Provides credit to the primary credit societies through the central co- operative banks. 10) Provides the facility of re-discounting of bills and clearing house.
  18. Limitations: 1) Policy of advancing the loan is not proper. The administrative authorities and political leaders interfere in this matter. 2) Banks are unable to attract the public for saving and hence the collection of deposits through the public is poor. On this regard they have to depend upon RBI. 3) Watch over the working of DCBs and PCS is not satisfactory. 4) Lending medium term advances is difficult. 5) Performance of their duty as supreme authority is not well.
  19. CO-OPERATIVE BANK COMMERCIAL BANK Only some sections of Banking Regulation Act, 1949 are applicable to co-operative banks. Commercial banks are governed by the Banking Regulation Act,1949. Co-operative banks have a three-tier structure having State co-operative banks at the top, DCBs at the district level and PCS at the village level. On the other hand, Commercial banks have organization of a unity base. They are generally concentrating on rural credit and provide credit facilities to agricultural and rural activities. They are mainly concentrating on the requirements of trade and industry. In Co-operative Banks the borrowers are usually their members. Borrowers can be any including individuals institutions. Co-operatives banks are co-operative organizations. On the other hand, Commercial banks are joint-stock banks.
  20. CO-OPERATIVE BANK COMMERCIAL BANK Co-operative banks have been established under Co-operative Societies Act of different states. Commercial banks have been established under the Companies Act, 2013 as joint stock companies or under separate acts passed in the Parliament. Co-operative banks are subject to the rules laid down by the Registrar of Co- operative Societies. Commercial banks are subject to the control of the Reserve Bank of India directly. Co-operative banks have lesser scope in offering a variety of banking services. Commercial banks have wider scope in offering a variety of banking services. Co-operative banks are functioning on the basis of co-operation. Commercial banks proceed on the strong business principles. Co-operative banks are private sector banks. Commercial banks in India are of two types: (i) public sector banks and (ii) private sector banks.
  21. CO-OPERATIVE BANK COMMERCIAL BANK 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. 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 are relatively on a much smaller scale. Many co-operative banks follow only unit-bank system, though there are cooperative banks with a number of branches but their coverage is not countrywide. Commercial banks in India are on a larger scale. They have adopted the system of branch banking, so they have countrywide operations. Only state co-operative banks can obtain refinance from RBI. Commercial banks can avail refinance from RBI. The Co-operative Banks provide a little higher rate of interest on deposits as compared to commercial banks. The Commercial Banks provide a lesser rate of interest as compared to co-operative banks. Audit and inspection of co-operative banks are done by the SCBs. Whereas the audit of commercial banks is done by external auditors.
  22. Nagarik/ People’s/ Urban Co-operative Bank Nagarik Co-operative Bank means a co-operative society which has been registered in a city area. Its paid-up share capital is at least Rs. 50,000. The Maclegan Committee, 1955 and Central Banking Inspection Committee, 1931 had recommended strongly on the importance of development of Nagarik Co-operative Banks. The first Nagarik Co- operative Bank was started in 1989 at Baroda by the leading citizens of Baroda. These banks function on the same track similar to the tracks of commercial banks.
  23. Functions: 1) Performs financial transaction. 2) Paid up capital reserve should not be less that one lakh. 3) Function starts only after getting the license from the RBI. 4) Progress reports, P&L Account and Annual Account must be send to RBI in prescribed manner. 5) RBI shall have essential power to inspect the working of a bank. 6) Develop the habit of thrift in the middle class people of the society staying in the urban or semi urban region. 7) Facilitate middle class with the investment and credit services for the merchants, workers, craftsmen, journalist etc. 8) Gives medium and short term credit to its members. 9) Nagarik co-operative banks also performs usual commercial banking activities. 10) Nagarik Co-operative bank has to keep 25% of the total properties and 3% of the cash assets as reserved fund.
  24. Limitations: 1) Limited working area. 2) Uneven development in different states. 3) Scarcity of skilled and trained staff. 4) Insufficient use of deposits. 5) Inefficiency in management. 6) Difficulty in returning the loans. 7) Banks are not fully developed because of strict rules of RBI.
  25. Land Development Bank  All the co-operative banks at different levels and Nagarik Co operative Banks generally provide only short-term and medium term loans to the farmers.  The agriculturists sometimes require long-term finances for affecting permanent improvement in land, for liquidating old debts, for purchasing costly machineries, etc.  Hence, to fulfill such long term financial requirements Land Development Banks as the special financial institution.  The first co-operative land mortgage bank was established in Punjab in 1920 at Jhang.  After independence, the importance of such banks was emphasized by All India Credit Survey Commission to increase agricultural production.  After 1951, these Land Mortgage banks are known as Land Development Banks.
  26. Structure of Land Development is of two tier: One at a state level, there are Central Land Development Banks and at district level, there are Primary Land Development Banks. 1) Federal Land Development Bank 2) Unitary Land Development Bank Federal Land Development Bank: In this pattern, the central institution has not direct contact with the borrowers. It is only through the medium of primary banks central institution finances the agriculturists. Central institution issues debentures and the funds are passed to primary banks and via them to borrowers. Unitary Land Development Bank: Under this unitary structure, there are Apex Land Development Banks which operate directly through branches at district level. The farmers who own land have been granted the loans of 50 to 60% of total value of their land.
  27. Monetary sources: The Central land development banks raise their resources by floating debentures in the market. These debentures carry of the state government and are subscribed by the central and state governments, commercial banks, LIC and others LDBs as a measure of mutual support. Limitations: 1) Banks render financial help to the farmer who own the land. 2) Farm laborers or the tenants of land do not get advantage from these banks. 3) Where the land is divided into small pieces or if it is dry or unproductive these banks cannot serve here so successfully. 4) Poor farmers do not use advances for productive purpose but they utilize it in paying their debts. So financial help to such farmers is not useful.