Cooperative Banks

Cooperative Banks

Cooperative banks are banking institutions set up on a cooperative basis that do normal banking activities.

Cooperative banks in India (like elsewhere in the world) are institutions that are set up on cooperative banks that do normal banking activities. Like the normal banks, these banks also collect funds in the form of shares, accept deposits, and give out loans.

The cooperative banking system was set up in India with the aim of promoting saving and investment habits, especially in rural areas. These banks play an important role in rural financing. They usually fund most rural activities like agriculture, livestock, self-employment, personal finance, milk, setting up of small-scale industries among other things.  These aspects are the areas of focus for cooperative banks in both urban and rural areas. 

One of the important challenges that cooperative banks solve is they help people come out from the clutches of the local money lenders. It is common knowledge that the people in rural areas often fall prey to the local money lenders and find it immensely difficult to come out of these traps.

Cooperative banks are of two types – urban cooperative banks and rural cooperative banks. 

Cooperative banks are owned by their members. This implies that the customers of the cooperative banks are also its owners! Cooperative banks provide regular banking and other financial services in their areas of operations. 

The rural cooperative banks are of different types – Short-term credit and long-term credit institutions. Short-term credit banks include the State cooperative banks, District central cooperative banks, and primary agricultural credit societies. The long-term credit institutions typically are State cooperative agricultural and rural development banks. 

The urban cooperative banks are either scheduled or non-scheduled. Non-scheduled urban cooperative banks could be those running in multiple states or a single state.

What Regulates the Cooperative Banks?

The cooperative banks in India are registered under the State Cooperative Societies Act. They are also under the regulatory oversight of the Reserve Bank of India under two specific laws:

The Banking Regulation Act 1945 and 

The Banking Laws (cooperative societies) Act 1955. 

The cooperative banks were brought under the oversight of the Reserve Bank of India in 1966. 

History of Cooperative Banks in India

These banks were set up to bring solutions to rural credit needs. This was the key reason for the beginning of the cooperative movement in India. The cooperative movement had its beginning with the passage of the Cooperative Societies Act 1904. The purpose with which this law was passed was to set up Cooperative Societies in India. The stated purpose of cooperative societies was to encourage saving habits, self-help, and cooperation between themselves. This was specifically meant for persons with limited means. Several credit societies came up under this law. 

The next important law that governs and controls them is the Cooperative Societies Act 1912. This was a law that arose from the need for creating organizations that could supervise the credit societies, audit them, and also supply the credit that they would need. These organizations were identified as Central and Provincial banks. 

Despite an early beginning, there was not much progress till the country’s independence. 

There are two important types of cooperative credit institutions that are running in India – agricultural and non-agricultural. Agricultural credit institutions handle the complete structure of cooperative credit. Again, agricultural credit institutions are of two types long-term and short-term as mentioned earlier. 

The short-term agricultural credit institutions catering to the short-term monetary needs of farmers have a three-tier structure. Long-term agricultural credit is provided by the land development banks.


(These numbers are given as of March 2013.)

There were 31 state cooperative banks and 370 central cooperative banks. 

The loans advanced by the State Cooperative Banks were Rupees 75,600 crores.

The Loans advanced by the Central Cooperative Banks were Rupees 14,400 crores.

The loans advanced by the primary agricultural credit societies were Rupees 91,200 crores. 

State Cooperative Banks

State Cooperative Banks are the Apex banks at the level of the individual states. Every state has one. 

The State Cooperative Banks are important because:

They form the link between the Reserve Bank of India and also extend the credit lines that are needed for the cooperatives in the state.

The central cooperative banks are not allowed to borrow or lend between themselves. The State Cooperative banks become the balancing centers for it.

They finance, control, and supervise cooperative societies.

Central Cooperative Banks

These are in the middle tier of the three-tier structure in India. These are of two types – Cooperative Banking Unions (members are only cooperative societies) and cooperative banks that have cooperative societies and individuals as members. 

Overdues are a serious issue

A recent study found that there are almost 34% overdues in the cooperative structure in India. These overdues are caused due to:

Natural calamities

Inefficient supervision 

Lack of efficient management

No coercive measures were taken for recovery


The cooperative banks are set up in India with the primary purpose of promoting savings and extending credit in the rural areas of the country. They also have a few branches in the urban areas. They are three-tiered in nature. They work under the oversight of the Reserve Bank of India. They function in a three-tiered structure of State Cooperative Banks, Central Cooperative Banks, and Primary Agriculture Credit Societies. They have short-term and long-term facilities extended by different institutions under the credit cooperative banks structure.