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Introduction
The cooperative financial system was established with the goal of encouraging individuals to save and invest, particularly in rural areas of the country. In India, cooperative banks have become an important component of the country’s financial inclusion story. The Indian financial system includes the cooperative banking system, which is divided into two segments: urban and rural cooperatives. These organizations have played an essential developmental role in widening the scope of formal credit by instilling banking habits amongst the poor and those living in distant places, thanks to their large network and coverage. Cooperative banks have attempted to improve credit delivery in recent years by implementing financial innovations.
Co-operative Banks
A cooperative bank is an institution of finance that is owned and operated by its members, who are also the bank’s customers. It is frequently founded by persons who share a mutual interest and belong to the very same regional or professional group. It was established to promote the development of economically deprived members of the community and to keep them from the claws of lenders who supply needy people with loans at unnecessarily high-interest rates. Cooperation, mutual aid, democratic decision-making, and open membership are the guiding principles of the cooperative structure. It operates on the ‘one shareholder, one vote’ and ‘no profit, no loss’ principles. Organization, governance, interest rates, the scope of operations, objectives, and values distinguish cooperative banks from commercial banks.
Features of Co-operative Banks
Entities owned by customers
Cooperative banks have members who are both the bank’s owners and customers. As a result, the cooperative bank’s goal is to provide the finest quality services to its members, not to maximize profits. Non-members are admitted to some cooperative banks in order to offer them financial services.
Members of the Democratic Party are in charge
Members own and govern cooperative banks, and the supervisory board is democratically elected. The primary concept of co-operatives “one man, one vote” is upheld, ensuring that no person has arbitrary control over other members.
Profit Distribution
A part of the profit is transferred to the Statutory Reserve as well as other reserves, and afterwards, the members’ capital is paid a reasonable rate of interest. In most situations, a portion of this profit can be transferred to co-operative members, subject to legal and regulatory constraints.
Inclusion of the rural population
It is crucial to the financial intermediation of the unbanked rural masses.
Types of Co-operative Banks in India
Central Co-operative Banks: These banks are organized and run at the regional level and come in two varieties Co-operative banking Union and Controls are mixed. Bank of the Cooperatives. In the first, the bank’s only members are co-operative societies. In the second, however, members might be both co-operative societies and individuals. The associated primary societies are mostly financed by the central cooperative banks, with average loan terms ranging from one to three years.
- State Co-operative Banks: These banks are formed and run at the district level, and they are at the top of the cooperative credit ladder. The RBI funds co-operative institutions through State Co-operative Banks (SCBs). These banks also receive loans with interest rates ranging from 1 per cent to 2 per cent lower than the typical bank rate.
- Primary Co-operative Banks: These institutions provide loans in urban and semi-urban areas. As a result, they aren’t classified as agricultural credit societies. RBI and IDBI provide concessional refinance services to Primary Co-Operative Banks on a regular basis, allowing them to offer home loans and other forms of loans to small enterprises.
- Area Development Banks: There are three types of land development banks: primary, provincial, and central. These organizations provide finance to farmers for development goals. They were previously regulated by both the RBI and state governments. However, the National Bank for Agricultural and Rural Development was recently given this role (NABARD).
- Urban cooperative bank: Primary cooperative banks in metropolitan and semi-urban areas are referred to as this. Previously, the reach of such banks was limited, but it has recently been greatly expanded. They help small borrowers and businesses with loans and services.
Conclusion
Cooperative banks are essential to the smooth running of India’s banking sector and play a major role in the process of development goals. In India, cooperative banks have become an important component of the country’s financial inclusion story. Since their inception, they have set numerous milestones and assisted ordinary rural Indians in feeling empowered and secure. The plot has had its own share of procedural flaws and difficulties, with diverse areas of procedural flaws and woes.
