Structure of Cooperative Credit Institutions in India

The distinctive feature of the cooperative credit structure in India is its

heterogeneity. The structure differs across rural and urban areas as well
as across States and tenures of loans . The urban areas are served by
Urban Cooperative Banks (UCBs), which are further sub-divided into
scheduled and non-scheduled UCBs. Scheduled UCBs form a small
proportion of the total number of UCBs. The operations of both scheduled
and non-scheduled UCBs are limited to either one State (single-State) or
stretch across States (multi-State). Most of the non-scheduled UCBs are
primarily single State UCBs having a single tier structure.
 Urban Co-operative Banks
UCBs are graded into four categories on the basis of their financial
performance. This financial performance is determined by various
parameters including capital adequacy, level of NPAs and history
of profit/loss. While UCBs from Grades I and II can be considered
as relatively stronger banks, the banks belonging to Grades III and
IV can be classified as sick or weak banks.

The Reserve Bank adopted a multi-layered regulatory and

supervisory strategy aimed at the merger/amalgamation of viable
UCBs and the exit of unviable ones for the revival of this sector.
This initiative led to a gradual reduction in the number of UCBs .
As a result, the total number of UCBs at end-March 2013 stood at
1,606 as against 1,618 at end-March 2012.

.
 SCHEDULED AND NON SCHEDULED UCBs
Scheduled UCBs are banks included in the Second Schedule of the
RBI Act, 1934 and include banks that have paid-up capital and
reserves of not less than`0.5 million and which carry out their
businesses in the interest of depositors to the satisfaction of the
Reserve Bank. There was a marginal decline in the share of
scheduled UCBs in 2012-13. At end-March 2013, there were 51
scheduled UCBs accounting for 3.2 per cent of all UCBs, which had a
share of nearly half of the total assets of UCBs

TIER I AND TIER II

There was a stable growth in the balance sheets of UCBs during the
year. UCBs were classified into Tier-I and Tier-II categories based on
their deposit base, and a differentiated regulatory treatment was laid
down for these two categories. In recent years, Tier-II banks, which
have a larger deposit base and wider geographical presence, have
grown in terms of both number and asset size
The Reserve Bank discontinued the erstwhile classification of
UCBs into different grades for regulatory and supervisory
purposes with the introduction of CAMELS (capital adequacy,
asset quality, management, earnings, liquidity and systems
and control) rating model to gauge the financial soundness of
UCBs IN 2013.

Banking activities of Urban Cooperative Banks are monitored

by RBI. Registration and Management activities are managed
by Registrar of Cooperative Societies (RCS). These RCS
operate in single-state and Central RCS (CRCS) operate in
multiple state.
 Rural cooperatives
The rural cooperatives are further divided into short-term and long-term
structures.

The short-term cooperative banks are three tiered operating in

different states.
1.State Cooperative Banks- They operate at the apex level in states
2. District Central Cooperative Banks-They operate at the district levels
3.Primary Agricultural Credit Societies-They operate at the village or
grass-root level.

Likewise, the long-term structures are further divided into State

Cooperative Agriculture and Rural Development Banks (SCARDS)- These
operate at state-level. Primary Cooperative Agriculture and Rural
Development Banks (PCARDBS)-They operate at district/block level.

The rural banking cooperatives have a complex monitoring structure as

they have a dual control which has led to many problems. A Forum called
State Level Task Force on Cooperative Urban Banks (TAFCUB) has been
set-up to look into issues related to duality in control. All banking
activities are regulated by a shared arrangement between RBI and
NABARD. All management and registration activities are managed by RCS.
 QUE. THE THREE TIRE COOPERATIVE STRUCTURE
The Co-operative Credit Institutions in India can be classified as under:
From the chart, it can be seen that the organization of the Co-operative
Credit Societies is pyramidal in nature. It has a three-tier structure.
(i)Primary Credit Societies at the bottom.
(ii)Central or district Co-operative Bank at the middle,
(iii) State Co-operative Bank at the top.

That is, the primary societies are functioning in the various towns and
villages, the Central Banks at the district headquarters and the State
Co-operative Banks at the state capitals forming the apex of the
system.
The Reserve Bank of India assist the co-operative structure by
providing concessional finance through NABARD in the form of General
Lines of Credit for lending to agricultural activities. Thus, the whole
system is integrated with the Banking structure of the country.
Let us discuss about these institutions one by one.
 Primary Agricultural Credit Societies:

A primary society is an association of borrowers and non-

borrowers residing in a particular locality and taking interest in
the business affairs of one another.

As membership is practically open to all inhabitants of a locality,

people of different status are brought together into the common
organization.
The affairs of those organisation are managed by honorary
secretaries and presidents assisted by boards of directors, all
these officials being elected from amongst the shareholders on
the principle 'of one man, one vote'.

Most of the societies are organised and working on the principle

of unlimited liability.The society may be started with ten or more
persons of a village. In March 2001, nearly 1, 00,000 PACs were
operating in various states in India. They had a total membership
of nearly 10, 00, 00,000 (Ten Crore) as on that date.
 Central or District Co-operative Banks
Central Co-operative Banks are generally situated at the headquarters
of district and have on their boards of management, individuals of
sufficient influence and business capacity in addition to
representatives of primary societies. The CCBs form an important part
in the short-term structure of Co-operative Credit Institutions.

The CCBs also borrow money from NABARD for their operations. A
Central Co-operative Bank obtains its funds from share capital, reserve
funds, deposits (current, fixed, savings, recurring) and loans from the
State Co-operative Bank or other joint stock banks.
Sometimes primary societies deposit their surplus funds with the
Central Co-operative Banks to which they are affiliated and this forms
another source of funds for the Central Co-operative Banks
 State Co-operative Banks:
At the top of the co-operative banking, there are State Cooperative
Banks, organized with the object of attracting deposits from the rich
urban classes. These Banks are also more suitably equipped to serve
as channel between the co-operative movement and the joint stock
banks.

But there is no such federal institution, although the Indian State Co-
operative Banks Association has been coordinating their activities and
performing certain services to all these Banks. NABARD maintains
contact with the State Co-operative Banks.
In addition to offering them rediscount facilities, collect and
disseminate useful information regarding co-operative movement. As
at end March 2002, there were 30 SCBs with 831 branches in India.
 Role and function of Co-operative Banks in India

The co-operative banks in India play an important role even

today in rural financing. The businesses of co-operative
banks in the urban areas also
have increased phenomenally in recent years due to the
sharp increase in the
number of primary co-operative banks. The co-operative
banks are expected
to perform some duties, namely, extend all types of credit
facilities to
customers in cash and kind, advance consumption loans,
extend banking
facilities in rural areas, mobilize deposits, supervise the use
of loans etc. The
needs of co-operative bank are different.
Co-operative banks in India finance rural areas under:
Farming
Cattle
Milk
Hatchery
Personal finance

Co-operative banks in India finance urban areas under:

Self-employment
Industries
Small scale units
Home finance
Consumer finance
Personal finance
Functions of Multi-Purpose Co-operative Society
The multipurpose co-operative society has large number of
functions to discharge. As the name indicates its responsibility
for different purpose for which it has been set up. It can work
for arranging credit, improved seeds, agricultural implements,
fertilizers, sanitation, health etc. for its members. Normally it
discharges the following functions.

1. Making Arrangement for Credit:

The main task of these co-operative societies is to arrange for
short term credit for its members in order to help them to
improve their agriculture and other trade and business.

2. Encouraging the Improved Method of Agriculture:

These societies arrange supply of to the members seeds,
fertilizers, agriculture implements etc. They also arrange for
irrigation facilities so that the members may be able to have
higher agricultural yields.
3. Marketing and Business:
These societies not only help the farmers to improve their agriculture but
also help them for marketing of the goods. Through such facilities they
get proper price for the agricultural products and other goods
produced by its members.

4. Set up of Subsidiary Cottage and Small Scale Industries:

These societies help their members to set up other trades and industries.
Though these cottage industries and small-scale industries, the
economic condition of the members is improved and they are able to
improve their standard of living.

5. Helping Members to Increase Their Standard of Living:

These co-operative societies by providing various types of facilities for
their members, improve their standard of living. They also carry out
the programme of health, education and social education. They make
arrangements for health and economic facilities, education and
recreation for their members.
6. Encouraging the Member for Saving:
These societies act as saving agencies and encourage their members to
save a part of their income for their future needs. Through these
savings, the members of such co-operative societies are able to get
loans and also solve their problems.

7. Other Functions:
The multi-purpose Co-operative societies apart from these functions
discharge the following functions:
a) Purchase various things for their members at a reasonable price and
supply them.
b) In order to convert the un-economic holding into economic these
societies take a consolidation of holdings and co-operative farming.
c) Try to solve the disputes between members through arbitration and
adjudication.
Thus multi-operative society discharge large number of functions for their
members. The functions depend upon the interest and the object of
the members. If the members are anxious to do more things, the
multi-purpose co-operative societies can take to other function also.