Cooperative Banks in India have become an integral part of the success of Indian Financial Inclusion story. They have achieved many landmarks since their creation and have helped a normal rural Indian to feel empowered and secure. The story has not been smooth and has its share of procedural glitches and woes placed at various pockets.
History of Cooperative Banking in India
The historical roots of the Cooperative Movement in the world days back to days of misery and distress in Europe faced by common people who had little or no access to credit to fund their basic needs, in uncertain times. The idea spread when the continent was faced with economic turmoil which led large populations to live at subsistence level without any economic security. People were forced to poverty and deprivation. It was the idea of Hermann Schulze (1808-83) and Friedrich Wilhelm Raiffeisen (1818-88) which took shape as cooperative banks of today across the world. They started to promote the idea of easy availability of credit to small businesses and for the poor segment of society. It was similar to the many microfinance institutions which have become highly popular in developing economies of today. Although this helped spread cooperative movement in many parts of Europe, in British Isles it is came from the revivalist Christian movement and found high acceptance with working class and lower middle class segments of society. However, UK and Irish credit unions in 20th century were inspired by US credit unions which in-turn owe their emergence to Canadian adaptations of the German cooperative banking concept. These movements were supported by governments of the respective countries. This success was achieved due to the failure of the commercial banks to fund and support the needs of small business owners and ordinary people who were outside the formal banking net. Cooperative banks helped overcome the vital market imperfections and serviced the poorer layers of society.
Indian Cooperative Banks was also born out of distress prevalent in Indian society.
The cooperative movement and banking structures soon spread and resonated with the unexpressed needs of the rural Indian and small scale businesses. Since, 1950s, they have come a long way to support and provide assistance in activities like credit, banking, production, processing, distribution/marketing, housing, warehousing, irrigation, transport, textiles, dairy, sugar etc. to households.
Extent of Cooperative Banking
Indian cooperative structures are one of the largest such networks in the world with more than 200 million members. It has about 67% penetration in villages and fund 46% of the total rural credit. It also stands for 36% of the total distribution of rural fertilizers and 28% of rural fair price shops.
Structure of Cooperative Banking in India
The structure of cooperative network in India can be divided into 2 broad segments-
Urban Cooperatives can be further divided into scheduled and non-scheduled. Both the categories are further divided into multi-state and single-state. Majority of these banks fall in the non-scheduled and single-state category.
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. These are-
Likewise, the long-term structures are further divided into –
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.
Cooperative Banks-Irritants and Future Trends
A cooperative bank is an institution which is owned by its members. They are the culmination of efforts of people of same professional or other community which have common and shared interests, problems and aspirations. They cater to a services like loans, banking, deposits etc. like commercial banks but widely differ in their values and governance structures. They are usually democratic set-ups where the board of members are democratically elected with each member entitled to one vote each. In India, they are supervised and controlled by the official banking authorities and thus have to abide by the banking regulations prevalent in the country. The basic rules, regulations and values may differ amongst nations but they have certain common features:
These banks are small financial institutions which are governed by regulations like Banking Regulations Act, 1949 and Banking Laws Cooperative Societies Act, 1965. They operate both in urban and rural areas under different structural organisations. Their functions are decided by the level at which they operate and the type of people they cater to. They greatly differ from the commercial banking entities.
Major irritants in the functioning of the Cooperative Banks
The government needs to have a serious look into the issues as they did not show an impressive growth in the last 100 years.