Cooperative bank is an institution established on the cooperative basis and dealing in ordinary banking business. Like other banks, the cooperative banks are founded by collecting funds through shares, accept deposits and grant loans. A Cooperative Bank is a cooperative society engaged in the business of banking. The co-operative banks, functioning in one state only are registered under the state laws on co-operative societies. The co-operative banks operating in more than one state are registered under the multi-state Co-operative Societies Act. The Banking Regulation Act is applicable to co-operative banks as provided in Section 56 of that Act with certain modifications. For this purpose, a co-operative bank means a state co-operative bank, Central co-operative bank and a primary co-operative bank. While, the constitution of the bank is governed by the cooperative laws, the business of banking undertaken by them is regulated by the Reserve Bank under the BR Act.
- If a cooperative bank operates in only one state the state law applies and in case cooperative banks operates in more than one state then the Central Act applies.
- A cooperative bank means a state cooperative bank, central cooperative bank and a primary cooperative bank.
A cooperative bank shall not grant any loans and advances as under:
- Loans and advances against its own shares.
- Unsecured loans or advances to any of its directors
- Directors interest
- Unsecured loans and advances in which the Chairman managing agent etc.
Cooperative Banks and Joint stock Banks:
The cooperative banks, however, differ from joint stock banks in the following manner:
(i) Cooperative banks issue shares of unlimited liability, while the joint stock banks issue shares of limited liability.
(ii) In a cooperative bank, one shareholder has one vote whatever the number of shares he may hold. In a joint stock bank, the voting right of a shareholder is determined by the number of shares he possesses.
(iii) Cooperative banks are generally concerned with the rural credit and provide financial assistance for agricultural and rural activities. Joint stock companies are primarily concerned with the credit requirements of trade and industry.
(iv) Cooperative banking in India is federal in structure. Primary credit societies are at the lowest rung. Then, there are central cooperative banks at the district level and state cooperative banks at the state level. Joint stock banks do not have such a federal structure.
(v) Cooperative credit societies are located in the villages spread over entire country. Joint stock banks and their branches mainly concentrate in the urban areas, particularly in the big cities
History of Cooperative Banking in India:
Cooperative movement in India was started primarily for dealing with the problem of rural credit. The history of Indian cooperative banking started with the passing of Cooperative Societies Act in 1904. The objective of this Act was to establish cooperative credit societies “to encourage thrift, self-help and cooperation among agriculturists, artisans and persons of limited means.”
Many cooperative credit societies were set up under this Act. The Cooperative Societies Act, 1912 recognized the need for establishing new organizations for supervision, auditing and supply of cooperative credit. These organizations were- (a) A union, consisting of primary societies; (b) the central banks; and (c) provincial banks.
Although beginning has been made in the direction of establishing cooperative societies and extending cooperative credit, but the progress remained unsatisfactory in the pre-independence period. Even after being in operation for half a century, the cooperative credit formed only 3.1 per cent of the total rural credit in 1951-52.