Module 2: Co-operative Banks

Written by kasadmin


  • Cooperative banking sector plays an important role by providing financial services to agricultural and allied activities, small scale industries and self employed workers.
  • Cooperative banks are key instrument of financial inclusion in reaching out to rural areas.
  • Regulated by the Reserve Bank of India, they are governed by the Banking Act of 1949 and Banking Laws (Application to Co-Operative Societies) Act, 1965.
  • Cooperative credit institutions can be broadly divided into Urban Cooperative banks (UCB) and Rural Cooperative Credit Institutions.
  • Urban Cooperative Banks cater to the financial need of customers in urban and semi-urban areas. Until 1996, these banks were authorized to lend money for non-agricultural purposes only, but not now.
  • Banking activities of Urban Cooperative Banks are monitored by RBI.
  • Rural Cooperative Credit Institutions are primarily mandated to ensure flow of credit to agricultural sector. It comprises short-term and long-term cooperative credit structures.

Short-term Credit

  • The short-term credit structure operates with a three-tier system
    • Primary Agricultural Credit Societies (PACS) – at village level
    • District Central Cooperative Banks (DCCB) – at district level
    • State Cooperative Banks (SCB) – at state level
  • PACS are outside the purview of Banking Regulation Act, 1949 and hence not regulated by Reserve Bank of India.
  • The PACS’s funds derive from the share capital and members’ deposits and loans from cooperative central banks. The debt powers of members and society are fixed. Loans are granted to members for the purchase of livestock, fodder, fertilizers and pesticides.
  • The District Central Cooperative Banks (DCCB) provides loans only to Primary societies within the limits of the company’s debt capacity. The Central Co-operative Banks raise funds by way of share capital, deposit from public, borrowings from the state cooperative banks, grants from the Government and loans. DCCBs acts as a balancing center to its member societies. By this process the surplus resources of PACS are pooled by the central bank and disbursed to the needy societies.
  • The State Cooperative Bank (SCB) is a federation of the central cooperative bank and acts as custodian of the cooperative banking structure in the State. Its funds are obtained from the social capital, deposits, loans and overdrafts of the Reserve Bank of India. State-owned cooperative banks lend money to cooperative central banks and to primary companies.
  • NABARD is the financing agency for cooperatives through State Co-operative Bank.
  • Some of the state governments already switched over to two tier structure doing away DCCBs. Kerala Government has recently decided to do away with DCCBs by merging with State Cooperative Bank to make Kerala Co-op Bank.

Long-term Credit

  • The long-term structure can be divided into
    • State Co-operative Agriculture and Rural Development Banks (SCARDBs) – at State level
    • Primary Co-operative Agriculture and Rural Development Banks (PCARDBs) – at Village level
  • The total No. of SCARDBs are 17; of which 8 have Federal Structure, 7 have Unitary Structure and 2 have Mixed Structure
  • Under federal structure, individual borrowers are members of primary units, or PCARDBs which, in turn, are federated into state level SCARDB in each given state.
  • Under unitary structure, there will be a single state level institution which operates through a branch network. Under mixed structure, there will be both PCARDBs and branches of SCARDBs.
  • National Cooperative Agriculture and Rural Development Banks Federation Ltd is the apex level organization of Agriculture & Rural Development Banks of the sector. The Federation was set up in 1960 and is administered under the Multi-State Cooperative Societies Act, 2002.


  • Robert Owen is considered as the father of Cooperative movement.
  • The Co-operative Credit Societies Act, 1904 led to the formation of Cooperative Credit Societies in both Urban and Rural areas.
  • The Act was based on the recommendations of Sir Frederic Nicholson , deputed by Government of Madras to probe into possibility of forming cooperation in India (1899)
  • Sir Frederic Nicholson is considered as the Father of Co-operative movement in India.
  • Farming Commission Report in 1901 also recommended the starting of cooperative credit societies
  • The Cooperative Societies Act of 1912, further gave recognition to the formation of non-credit societies and the central cooperative organizations.
  • The Constitutional Reforms in 1919 and the recommendations of various committees such as Royal Commission on Agriculture (1928), Committee on Cooperative Planning (1945), during the British regime contributed a lot in shaping the organizational structure of cooperatives.
  • In 1965, RN Mirdha Committee on Cooperation submitted its report and recommended to set up a National co-operative Bank and to give more Co-operative training and education to people.


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