About Co-operative banks
- Co-operative banks are financial entities established on a co-operative basis and belonging to their members. This means that the customers of a co-operative bank are also its owners.
- These banks provide a wide range of regular banking and financial services.
Cooperative movement in India
- By definition, cooperatives are organisations formed at the grassroots level by people to harness the power of collective bargaining towards a common goal. The aim of the co-operative movement was to help farmers overcome the burden of debt and help them sell their products easily to get maximum profit.
- In agriculture, cooperative dairies, sugar mills, spinning mills etc are formed with the pooled resources of farmers who wish to process their produce.
- Cooperative sugar mills account for 35% of the sugar produced in the country.
- In banking and finance, cooperative institutions are spread across rural and urban areas. Village-level primary agricultural credit societies (PACSs) formed by farmer associations are the best example of grassroots-level credit flow. These societies anticipate the credit demand of a village and make the demand to the district central cooperative banks (DCCBs).
- Given that PACSs are a collective of farmers, they have much more bargaining powers than an individual farmer pleading his case at a commercial bank.
Structure of co-operative banks in India
- Broadly, co-operative banks in India are divided into two categories – urban and rural.
- The rural co-operative credit system in India is primarily mandated to ensure flow of credit to the agriculture sector. It comprises short-term and long-term co-operative credit structures.
- The short-term co-operative credit structure operates with a three-tier system – Primary Agricultural Credit Societies (PACS) at the village level, Central Cooperative Banks (CCBs) at the district level and State Cooperative Banks (StCBs) at the State level.
- Meanwhile, the long-term institutions are either State Cooperative Agriculture and Rural Development Banks (SCARDBs) or Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).
- Primary Cooperative Banks (PCBs), also referred to as Urban Cooperative Banks (UCBs), cater to the financial needs of customers in urban and semi-urban areas. UCBs are of two kinds- multi-state and those operating in a single state.
What laws govern cooperative societies?
- The functioning of Cooperative Banks is guided by the Cooperative Societies Act of the respective states.
- While the administrative control of the cooperatives are with the states, its banking functions are regulated by the Reserve Bank of India under the Banking Regulation Act, 1949.
- In 2002, the Centre passed a MultiState Cooperative Societies Act that allowed for registration of societies with operations in more than one state.
- Last year, the Banking Regulation (Amendment) Act, 2020 was passed to bring all urban cooperative banks and multi-state cooperative banks under the direct supervision of the RBI, following public scandals in certain banks and claims of mismanagement.
- The National Cooperative Development Corporation (NCDC), a statutory Corporation under the Ministry of Agriculture & Farmers Welfare, works for the promotion of the cooperative movement in India. It is tasked with planning, promoting, coordinating and financing cooperative development programmes at the national level.
Why in News?
- The Government of India has started an initiative to establish two lakh multipurpose Primary Agricultural Credit Society (PACS), viable dairy cooperatives and fisheries cooperatives in each uncovered Panchayat.
- These PACS, Dairy and Fishery Cooperatives will be established in the next five years. The