Co-Operative Credit Institutions in INDIA

Rural credit cooperatives in India were originally envisaged as a mechanism for pooling the resources of people with small means and providing them with access to different financial services. Democratic in features, the movement was also an effective instrument for development of degraded waste lands, increasing productivity, providing food security, generating employment opportunities in rural areas and ensuring social and economic justice to the poor and vulnerable.

The short-term cooperative credit structure consists of 31 State Cooperative Banks (SCBs),  District Central Cooperative Banks (DCCBs) and 1,05,735 Primary Agriculture Credit Societies (PACS) as on 31 March 2004. 16 States are having a three-tier structure, 13 States have a two-tier structure and two States have a mixed structure. Jharkhand SCB is yet to become operational.

Co-operation means voluntary association on the basis of equality and for some common purpose. The basic principle of co-operation is ‘each for all and all for each’.

A co-operative bank is an institution established on co-operative basis and deals in ordinary banking business. They are different from commercial banks. Commercial banks have been constituted by an Act passed by parliament while cooperative banks have been constituted by different states under various Acts related to cooperative societies of various states. Cooperative banks are generally concerned with the rural and development credit and provide financial assistance for agricultural and rural activities.

A commercial bank can establish its branches in any district / state of the country, while cooperative bank can operate its activities only within limited area. Cooperative banks cannot open their branches in foreign countries while commercial banks can operate in foreign countries.

In India, the cooperative bank organization has a three tier set up. State Co-operative Bank is the apex co-operative bank at the state level. Central or District Cooperative Bank functions at district level. Primary Agricultural Co-operative Credit Society is at the village level.

1. Primary Agricultural Cooperative Credit Society (PACCS):

It is a village level institution which directly deals with rural people. It provides short term credit facilities to the agriculture sector. Minimum 10 persons of a village can form a primary credit society. The management of the society is under the control of an elected body. The working capital of the primary credit societies, comes from their own funds, deposits, borrowings and other sources. 

Borrowings are mainly from central cooperative banks. Borrowings form the chief source of working capital of the societies. Only the members of the societies are entitled to get loans from them. Low interest rates are charged on the loans. The various reconstruction and revival programmes for PACCSs adopted by Indian government and RBI have considerably reduced the number of primary credit societies over the past three decades. There were 1,61,000 societies in 1970-71. But as on March 31, 2001 there are about 1 lakh primary agricultural credit societies in India with approximately 10 crore members. A large number of societies face severe financial problems due to low recovery rates.

2. Central Cooperative Banks (CCBs):

The working area of these banks is limited to one district only.CCBs are of two types:

(a) Cooperative Banking Unions whose membership is open only to cooperative societies. This exists in Punjab, Haryana, Rajasthan, Orissa and Kerala.

(b) Mixed Central Cooperative Banks whose membership is open to both individuals and cooperative societies. CCBs get loans from the state cooperative banks and give loans to primary credit societies. The duration of such loans vary from one year to three years. In this way CCB plays a bridge role between the state cooperative banks and primary credit societies.

At the end of March 2004 there were 366 CCBs in India. The most distressing feature of the functions of the central cooperative banks is the heavy and increasing burden of overdue loans. The main causes of these overdue are (i) natural calamities such as floods, droughts, etc. affecting the repaying capacity of the borrowers and (ii) inadequate and inefficient supervision exercised by the banks.

3. State Cooperative Banks (SCBs): SCBs are the apex institutions in the three-tier cooperative credit structure, operating at the state level. Every state has a state cooperative bank. SCB grants loans to central cooperative banks and regulates their activities. SCB gets loans from RBI. SCB acts as a link between RBI and Central Cooperative Banks. Borrowings of SCBs are mainly from the Reserve Bank of India and the rest from state governments.

Advantages of co-operative credit institutions:

1. It provides an effective alternative to the traditional defective credit system of the village money-lender.

2. Co-operative societies charge comparatively low interest rates vis-a-vis the money-lenders.

3. Earlier, the cultivators used to borrow for consumption and other unproductive purposes. But now, they mostly borrow for productive purposes. Co-operative societies discourage unproductive borrowing.

4. Co-operatives help develop the habits of thrift among the agriculturists by encouraging savings and investments.

5. Co-operative credit is available for purchasing improved seeds, chemical fertilizers, modern implements, etc. This has helped in the introduction of better agricultural methods.