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 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.
(i) The 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.
Their deposit base is very poor at Rs. 13,481 crore as at end March 2001. Total outstanding loans of all PACs are totally dependent on CCBs for their financial needs. NABARD has also been extending funds to develop the infrastructure of PACs.
The primary society derives its funds from entrance fees, share capital, reserve funds deposit or loans from non-members, from central and provincial co-operative banks and from the Government. The deposits of the society may be either fixed, savings or recurring.
Unfortunately, the deposits of primary societies are not sufficiently large. The society provides short-term credit to its members ordinarily on the personal security of the borrower with the personal surety or sureties of other members. It may also lend on mortgages.
(ii) Central Co-operative Banks:
A Central Co-operative Bank is a federation of primary societies in a specified area. Where membership of a Central Co-operative Bank is restricted to primary societies only, it is known as a 'banking union'. Nowadays, individuals are also admitted as members of almost all Central 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.
As at March 2001 there were 367 district central co-operative Banks with 12580 branches in various states in India. The total deposits of CCBs as at end March 2001 amounted to Rs. 61,786 crore as compared to Rs. 54,248 crore in March 2000.
The CCBs also borrow money from NABARD for their operations. The recovery performance of CCBs in March 2001,245 made profits while 112 CCBs made losses during 2000-2001.
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.
Operation of the Bank
The primary business of Central Co-operative Banks consists of financing primary societies. In some cases, they attract the surplus funds of certain primary societies, to supply the same to others. Thus, Central Co-operative Banks Act as balancing centres to the primary societies.
Again, the deposits of urban areas are made available to the rural areas through the agency of these banks. Although normally Central Co-operative Banks do not transact many a banking business as such, they do it in Mumbai and Chennai.
The deposits with Central Banks have recently grown so great in volume that Central Banks are not able to employ them within the co-operative movement.
They do not, as a rule, lend for commercial purposes and therefore are compelled to invest their funds in Government Securities. However, with the growth of other types of co-operative movement these funds may be absorbed by the various types of co-operative societies.
(iii) 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.
There are at present 30 such banks. The constitution of these banks differs from one another, but generally speaking, their membership comprises representatives of Central Banks as well as individual shareholders. A logical development of these banks would have been the establishment of all-India Co-operative bank.
But there is no such 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.
The total deposits of all SCBs as at end March 2001 aggregated to Rs. 32626 crore as compared to Rs. 29557 crore in March 2000.
Among the states, Maharashtra mobilized maximum deposits of Rs. 9136/- crore, followed by Tamil Nadu at Rs. 2745 crore. Tamil Nadu came third with Rs. 1635 crore of deposits in March 1997 of the 30 SCBs in 2001,23 made profits while 6 made losses during 2000-01.
Capital and Operation of the Bank
The State Co-operative Banks attract deposits from the richer urban classes and grant financial accommodation to Central Co-operative Banks and through them to primary societies. They form the only link between the co-operative organizations on the one hand and the money market and joint stock banks on the other.
They are the balancing factors as between Central Co-operative Banks; for the transfer the surplus funds available with some Central Banks to the needy ones.
The State Co-operative Banks derive their funds from share capital, reserve fund, deposit from the public, loans from the State Bank, joint stock banks and deposits of surplus funds from some of the Central Banks affiliated to them.
Generally speaking, it may be stated that the organization of the State Co-operative Banks is very efficient and, in spite of competition from joint stock banks, they do very good business.
They are prohibited from transacting all types of commercial banking business and so their funds are not at present being fully employed. With the growth of Co-operative movement these funds may in due course be more effectively and efficiently employed within the movement.
Many a time's students get confused about the banking business and the principal reason for establishment of different banking institutions at base level. Let us see the basic distinguishing features of these banking institutions in the Co-operative Sector in India.
Banks established under the co-operative system are called Co-operative Banks. These are State Co-operative Banks, Central Co-operative Banks and Primary Co-operative Banks. SCB is an apex level bank for a state. CCBs are apex level banks for each district. Primary Cooperative Banks are rural or Semi-Urban Level Co-operative Banks.
These are financial institutions whose primary objects are to provide credit facilities, i.e., loans and advances to its member only. These societies are formed in large organizations or Government Departments or at certain regions. The members are those working in the particular organization/region. They collect subscriptions, deposits, etc., from members and loans from co-operative banks and extend credit facilities to its members only.
Primary Agricultural Credit Society
These are similar to credit societies explained above, but these credit societies can extend loans to its members only for the purpose of agriculture connected activities.
Credit societies are not permitted to undertake all banking business. In other words, they cannot provide cheque book facility to members and they cannot deal with persons other than their members.
While the RBI has overall control on all financial institutions, operational guidelines and control over co-operative banks are exercised by NABARD. The cooperative banks need to have a minimum paid-up capital of Rs. 1 lakh only.