Co-operative bank movement EXECUTIVE SUMMARY “I know of no other instrument so potentially powerful and full of social purpose as the co-operative movement” -Smt. Indira Gandhi Since India is agriculture oriented country, the importance of co-operative movement in India is more than any other countries. The development of co- operative movement in India is on the process but still it is not fully developed. The Co-operative banks in India was started in 1904.Co-operative movement in India is the result of a deliberate policy of the state and is vigorously pursued through formation of an elaborate governing infrastructure. The successive Five-year plans looked upon the co-operation movement as the balancing sector between public sector and the private sector. In India we find that the states of Maharashtra and Gujarat are well developed. Whereas the states of Andhra Pradesh, Rajasthan and Karnataka have shown Page | 1
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Co-operative bank movement
EXECUTIVE SUMMARY
“I know of no other instrument so potentially powerful and full of social purpose as the co-operative movement”
-Smt. Indira Gandhi
Since India is agriculture oriented country, the importance of co-operative
movement in India is more than any other countries. The development of co-
operative movement in India is on the process but still it is not fully developed.
The Co-operative banks in India was started in 1904.Co-operative movement in
India is the result of a deliberate policy of the state and is vigorously pursued
through formation of an elaborate governing infrastructure. The successive Five-
year plans looked upon the co-operation movement as the balancing sector
between public sector and the private sector.
In India we find that the states of Maharashtra and Gujarat are well developed.
Whereas the states of Andhra Pradesh, Rajasthan and Karnataka have shown
remarkable progress in the co-operative movement and there is a vast potential for
th e development of co-operative in the remaining states.
This project is mainly focusing on the importance of co-operative bank movement
in the regional rural areas of our country. The NABARD role in the building of the
co-operative credit structure was that of an active collaborator in drawing up
schemes of development with the government of India and the State Governments,
and the provider of finance, first to the State Governments for contribution to the
share capital of co-operative credit institutions at various levels.
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INDEX
SR.
NO.
TOPICS PAGE
NO.
1. INTRODUCTION TO CO-OPERATIVE BANK MOVEMENT.
1.1 What is ‘co-operative’
1.2 Definition of co-operative movement.
1.3 History of co-operative movement.
1.4 Co-operative bank movement in the world.
8-13
2. CO-OPERATIVE MOVEMENT IN INDIA.
2.1 The principle of co-operative bank movement.
2.2 The objective of co-operative bank movement.
14-20
3. DEVELOPMENT OF CO-OPERATIVE BANK MOVEMENT.
21-25
4. ROLES OF BANKS IN THE DEVELOPMENT OF CO-OPERATIVE MOVEMENT.
26-31
5. CAUSES OF SLOW PROGRESS. 32-33
6 TYPES OF CO-OPERATIVES. 34-36
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7 THE LEADING BANKS WHO HELPS IN CO-
OPERATIVE BANK MOVEMENT.
6.1 Introduction of co-operative banks.
6.2 Features of co-operative bank.
6.3 Categories of co-operative bank.
6.4 Structure of co-operative bank.
6.5 Credit structure of co-operative bank.
6.6 Introduction of rural c-operative banks.
6.7 The schemes of rural co-operative banks and its Progress.
6.8 Difference between rural co-operative banks and RRBs.
37-56
8. RBI’s POLICIES IN RELATION TO CO-OPERATIVE CREDIT.
57-59
9. WEAKNESS OF CO-OPERATIVES IN RURAL CREDIT. 60-61
10. DIFFICULTIES FACED BY CO-OPERATIVE BANK IN RURAL AREA.
62-63
11. MAIN PROVISIONS OF THE ACT AS APPLICABLE TO CO-OPERATIVE BANKS.
64
12. EMERGING ISSUES AND CHALLENGES 65-75
13. CONCLUSION. 76
14 REFRENCES.
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CO-OPERATIVE
BANK
MOVEMENT
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1. INTRODUCTION TO CO-OPERATIVE BANK MOVEMENT.
1.1 WHAT IS ‘CO-OPERATIVE’?
Co-operatives represent the basic qualities of our people: honesty, democratic consensus,
mutual concern and self-reliance. Throughout our land, there are co-operatives-large and small
which have succeeded. Our day starts with the consumption of milk, the sugar we use in the
preparation of sweets, the ration that we purchase from a fair price shop, the papad and pickles
which add taste to our lunch, the education our children are imparted, the fish and poultry
products that we consume for dinner; the betel nut that we chew after dinner and chocolates
given to kids put them to sleep, all have some contribution of the co-operative movement.
Indeed, co-operatives have touched our lives in more ways than one.
“India is the ‘land of co-operatives’. The largest numbers of co-operatives are in our nation.”
According to ICA, "a cooperative is an autonomous association of persons united
voluntarily to meet their common, economic, social and cultural/needs and aspirations through a
jointly owned and democratically -controlled enterprise"
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1.2 DEFINITION OF CO-OPERATIVE MOVEMENT
Co-operative movement can be define as a “Voluntary movement
of the people, carried out democratically by pooling together their
resources or carrying on the given activity, with the purpose of
achieving or securing certain benefits or advantage which given to
people cannot get individually and with the purpose of promoting certain
virtue and values such as self help, mutual help, self reliance and general
goods of all.”
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1.3 HISTORY OF CO-OPERATIVE BANK MOVEMENT
Around the world modern cooperatives have developed for over 200 years. Cooperative
institutions exist all over the world providing essential services which would otherwise be
unattainable. In many Third World countries, cooperatives such as credit unions and agricultural
organizations have been very successful in helping people to provide for themselves where
private and other corporate capitals do not see high profitability. In 90 countries of the world,
over 700 million individuals are members of Co-operative institutions. Globally, cooperatives
have been able to elevate its position as a powerful economic model. In some countries they are a
sizeable force within the national economy.
During the British rule, Nicholson a British Officer in India suggested to introduce
Raiffersen model of German agricultural credit Cooperatives in India. As a follow-up of that
recommendation, the first Cooperative Society Act of 1904 was enacted to enable formation of
"agricultural credit cooperatives" in villages in India under Government sponsorship. With the
enactment of 1904 Act, Cooperatives were to get a direct legal identity as every agricultural
Cooperative was to be registered under that Act only. The 1904 Cooperative Societies Act was
repealed by 1912 Cooperative Societies which provided formation of Cooperative societies other
than credit. Under 1919 Administrative Reforms act, Cooperatives was made a provincial subject
making each province responsible for Cooperative development. The impulses of the Indian
freedom movement gave birth to many initiatives and institutions in the post independence era in
India and armed with an experience of 42 years in the working of Multi Unit Cooperative
Societies and the Multi-Unit Cooperative Societies Act, 1942, the Central Government enacted a
comprehensive Act known as Multi State Cooperative Societies Act, 1984, repealing the Act of
1942.
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The Co-operative banks are an important constituent of the Indian Financial System,
judging by the role assigned to them, the expectations they are supposed to fulfill, their number,
and the number of offices they operate. The co-operative movement originated in the West, but
the importance that such banks have assumed in India is rarely paralleled anywhere else in the
world. Their role in rural financing continues to be important even today, and their business in
the urban areas also has increased phenomenally in recent years mainly due to the sharp increase
in the number of primary co-operative banks.
Cooperative banks in India finance rural areas under:
Farming Cattle Milk Hatchery Personal finance
Cooperative banks in India finance urban areas under:
Self-employment Small scale units Home finance Consumer finance Industries.
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1.4 CO-OPERATIVE MOVEMENT IN THE WORLD
The earliest co-operatives were set-up among the weavers, in other words workers in
cottage industries, who were the first and the hardest hit by the development of the mercantile
economy and the industrial revolution. So the weavers, in order to gain access to the market in
the tools of their trade or to the market in foodstuffs set up the first co-operative in Scotland
(Fenwick, 1761; Govan, 1777 ; Darvel, 1840 ), in France (Lyons, 1835 ), in England (Rochdale,
1844 ) and in Germany ( Chemnitz, 1845 ).
Though co-operation and mutual enterprise has been an essence of human-society ever since
it evolved, the real co-operative movement can be credited to the Rochdale Pioneers who
established a co-operative consumer store in North England. This store can be called as the first
in the co-operative consumer movement.
The "Rochdale Pioneers", made their first aim to establish co-operatives where the members
would not only be their own merchants but also their own producers and their own employers.
Around this time the co-operative movement was more at an utilitarian level. The concept
though old, was just being implemented and was growing slowly. Many great thinkers, far-
sighted men and visionaries were applying their minds to find practical solutions to the new
problems and to work out better systems of social organization.
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In Great Britain Robert Owen (1771-1858) conceived and set up self-contained semi-
agricultural, semi-industrial communities. Dr. William King (1758-1865) helped to spread
Owen’s doctrine; his ideas were more reasonable than Owen’s and achieved more results. In France
Charles Fourier (1722-1837), a commercial clerk, published in 1822 his main work, a Treatise on
Domestic Agricultural Association. This could be one of the first works on co-operation. Though all
these visionaries had articulated the philosophy of co-operation it was not until the World-War II
that an Authoritative Commission was appointed by the International Co-operative Alliance.
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2.CO-OPERATIVE MOVEMENT IN INDIA
In India the Co-operatives officially appeared through a Cooperative Society’s Act in 1904
during the British rule and subsequently it took a great shape after the independence in 1947.
Since the independence the Indian Government led by Pt. Jawaharlal Nehru saw the social,
economic and egalitarian potential of co-operation in moulding Indian society. While addressing
the Indian Cooperative Congress in April, 1958 Pt. Nehru said “the whole idea behind the
cooperative movement has appealed to me for a large number of years even though I was not
personally connected with it, I was attracted by the philosophy underlined it. If we value,
individual freedom, as many of us do, how are we to find a great balance between the individual
freedom and at the same time get away from the clutches of an acquisitive society. The
cooperative movement seems to offer a philosophy, a method of approach, which would aim at
this kind of social pattern.” In April, 1959 while addressing the Parliament he said “I should like
to place a certain aspect before the House.
We talk about the cooperative movement. But I should like this matter to be considered
from an even broader point of view, of reorganizing our vast rural areas, of building of a new
social structure. Hither to, the Community development movement has sought to make people
living in the rural areas self reliant, working together, cooperating, building of their villages and
generally advancing more specially on the agricultural front.
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Now the cooperative comes and gives these aims an institutional character. This has to be
an attempt on a magnificent scale.” In pursuant to the above theme given by Pt. Nehru, the
cooperative movement in India underwent several phases in consolidating the poor, the rural, the
artisans, and the farmers etc. to join together in forming their respective cooperative societies and
made the umbrella bigger and bigger to attain the objectives laid down by Pt. Nehru for the poor
country like India. The National Cooperative Union of India (NCUI) was established in 1929 as
an apex promotional organization for promoting and strengthening of cooperative sector,
providing education and training in cooperative, propagation of cooperative ideology and
research in cooperatives, international cooperative relations, cooperative planning and
information services. Similarly, a National Cooperative Development and Warehousing Board
were set up in 1956, in pursuance to the recommendations of the All India Rural Credit Survey
Committee (1954) under the aegis of the Reserve Bank of India. The National Cooperative
Development Corporation (NCDC) was established in March, 1963 by the Government of India
under NCDC Act 1962 as a successor organization to the above Board, with an objective of
“planning and promoting programs for production, processing, marketing, storage, export and
import of agricultural produce, foodstuffs and certain other notified commodities and collection,
processing, marketing, storage and export of minor forest produced on cooperative principles.”
NCDC since then have been playing a very crucial role in promoting the cooperatives on the
above said objective.
India unlike the developed countries started the cooperative movement with the poor people
so as to share the benefit with the poor in improving their quality of life. In some countries, we
come across very small community based cooperatives and large industrial cooperative
establishment which are sometimes difficult to distinguish from other industrial enterprises but
their service to members is unique. In India the industrial cooperatives in the fertilizer sector,
milk sector, sugar sector which have come up a long way to compete with the big industries have
maintained their structure of primarily serving to the poors
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2.1 PRINCIPLES OF CO-OPERATIVE MOVEMENT
There have been also other principles like the principles of political neutrality, correct
weight and measures, purity of goods and thrift which were also taken into consideration.
These principles have been reformulated recently by the Manchester Congress in 1995 and
now the principles of co-operation are as follows:
I Principle: Voluntary and Open Membership:
Co-operatives are voluntary organizations; open to all persons who use their services and
willing to accept the responsibilities of membership, without gender, social, racial, political or
religious discrimination.
II Principle: Democratic Member Control:
Co-operatives are democratic organizations controlled by their members, who actively
participate in setting their policies and making decisions. Men and women serving as elected
representatives are accountable to the membership. In Primary co-operatives members have
equal voting rights (one member, one vote) and co-operatives at other levels are also organized
in a democratic manner.
III Principle: Autonomy and Independence:
Co-operatives are autonomous, self-help organizations controlled by their members. If they
enter into agreements with other organizations, including governments or raise capital from
external sources they do so on terms that ensure democratic control by their members and
maintain their co-operative autonomy.
IV Principle: Education, Training and Information:
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Co-operatives provide education and training for their members, elected representatives,
managers and employees so that they can contribute effectively to the development of their co-
operatives. They inform the general public particularly young people and opinion leaders about
the nature and benefits of co-operation.
V Principle: Co-operation among Co-operatives:
Co-operatives serve their members most effectively and strengthen the co-operative
movement by working together through local, regional, national and international structures.
VI Principle: Concern for Community:
Co-operatives work for the sustainable development of their communities through policies
approved by their members. The seventh Principle was added at the Manchester Congress of
1995.
2.2 OBJECTIVES OF CO-OPERATIVE MOVEMENT
1) Service to the people:-
The primary objective of the co-operative body is to take care of its members and the
community as a whole. Their primary aim is to serve the people, without becoming too
commercial like the private sector.
2) Equal distribution of Income and Wealth:-Page | 14
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The main objective of co-operatives is to share the income and wealth amongst its
members. The members will reap the fruits of success in the form of wealth and share the same
fruit in times of crisis.
3) Monopoly in Control:-
One of the main roles of co-operatives is to arrest the monopolistic situation of the market.
In many countries, the MNC’s create a monopoly of some products. In such areas, the co-
operatives enter and curb the monopolistic status earned by the MNC’s
4) To increase the income of the people , thereby improving their economic
conditions :-
Co-operatives play a pivotal role in bringing about a change in the standards of living for
many rural people. They provide employment opportunities and serve the needs of the members
financially as well as help in upgrading social development.
5) Reduction in cost of production:-
Co-operatives follow the strategy of backward integration. They make their own raw
materials and hence, reduce the cost of production. As members themselves play a major part in
running the co-operative, the labour cost is considerably reduced. The Co-operatives pass on the
benefits of low cost to the customers by pricing their goods at the reasonable rates.
6) Protection of consumers:-
The ultimate aim of a co-operative organization is to protect the interest of its consumers.
Co-operatives also follow fair means of running the institution. No exploitation in the product,
price etc is done by the co-operatives.
7) Self- help and mutual help:-
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Co-operatives follow the principle of ‘EACH FOR ALL, ALL FOR EACH.’ A member
of a co-operative develops himself, and also develops the members of co-operative and the
society as a whole.
8) Development of certain economic activities:-
The main role of co-operatives is to develop the economy in rural areas. Co-operatives
have played a multifaceted role in developing the sectors, especially in areas of forest produce,
honey, silkworms, fruit processing etc.
9) Prevention of exploitation of working class:-
Co-operatives help protect the working class from the exploitation by the owners. In some
countries, co-operatives have developed as an offshoot to capitalism. As workers form their own
co-operative body, they help each other and stand united for a common cause.
10) To develop the backward classes and poor:-
Co-operatives have been formed to counteract the problems faced by the backward classes
and the upper classes in villages. Many co-operatives have also begun to overcome the problems
of poverty.
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3. DEVELOPMENT OF CO-OPERATIVE MOVEMENT IN INDIA
In 1904 the co-operative act was passes as a part of co-operative movement in India. The act can be studied as under:-
1] Beginning Period of Co-operative Movement in India (1904-1912): –
The Indian co-operative movement started on 25 March 1904 with the passing of an act.
The objectives are as under:
1. Establishment of co-operative societies.
2. Legal existence.
3. Control of Registrar.
4. Free audit of accounts by the registrars.
5. Classification of rural and urban societies.
6. Responsibilities of members.
7. Limits on the distribution of dividend.
8. Loans to members.
9. Interest of members in society.
This stage has been termed as the primary stage in the development of co-operative
societies because the promoters had no idea of cooperation and had very less experience about
it.
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2] Period of Harried Expansion: (1912 to 1918): –
As the government doubtful about the act passed in 1904, as it was not sufficient to cop
up with the needs of societies, govt. passed another act in 1912 to curtail the deficiencies in the
act of 1904.
The main features of the act were as follows:
1. Permission to start non credit supplying societies.
2. Classification of societies as per their responsibilities.
3. Utilization of profit.
4. Special rights to societies.
5. Concessions to co-operative societies.
6. Restrictions in using co-operative in name.
7. Permission to establish central societies.
8. Shares of society.
The shortcomings of 1904 act were overcome by 1912 act. Permission was granted to
start co-operative societies in other fields. Co-operative Movement was shooted for expansion.
3] Unplanned Rapid Development: (1919-1929):–
The matter of cooperation was entrusted to the provincial govt. due to passing of reforms
act in 1919. The co-operative movement flourished thereafter in many provinces. Provincial
govt. appointed committees to study the co-operative movement. Depending upon the situation
of the province various acts were passed by the respective provincial govt. to develop the co-
operative movements in their provinces. Due to the passing of co-operative act in 1919the co-
operative movement boosted up and there was a tremendous development in the no. of societies
providing credit. At the outset govt. of Bombay first passed the act in 1925. In 1932, 1935 and
1941 the acts were passed by the govt. of Madras, Bihar, Orissa and Bengal respectively. During
1919- 1929 only quantitative growth of societies would be seen. No proper attention was given
to qualitative growth. Therefore this cooperative movement was defined as “Unplanned
Development.”
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4] Period of Consolidation and Re-organization (1929- 1939): –
There was vigorous blow to the Indian co-operative movement because of the worldwide
financial depression in 1929 and so the development of co-operative movement stopped. The
existing societies have to face various problems. The co-operative credit societies had invested
their capital in agricultural activities. The price of agricultural produce went down thus the
arrears increase and the existence of co-operative societies was in danger. It affected the co-
operative movement in Punjab, Haryana, Bihar and Bengal. The ratio of loans to arrears was
20% in 1927-28 which increased to 40% in 1932-32. The percentage of arrears went up to 93%
in Bombay in 1938-39. During this period about 50% of co-operative societies went into
liquidation. In 1935 Reserve Bank of India was established. A separate section for providing
agricultural credit was opened. In 1937 this section studied various problems of Indian co-
operative movement and submitted its report stating that development of co-operative societies
should be given priority.
5] Period of Recovery (1939-1947): -
During this period the financial depression of Indian co-operative movement had been
removed and this movement was again on the path of its development. The atmosphere of world
war proved to be beneficial for the co-operative movement. The price of the agricultural produce
started increasing thereby there was an increase in the income of the agriculturists and their
repayment capacity went to a higher level. The consumer co-operative stores prospered due to
the restriction imposed during war time. The industrial co-operative societies came into existence
for the purpose of providing war materials. Non-profit supplying societies and multipurpose
societies had developed. The development of co-operative movement during 1929 to 1947 can be
seen from the following table:
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Due to the bifurcation in 1947 some of the co-operative societies had been shifted to
Pakistan thereby reducing the number of societies, its membership and capital. During 1939-
1946 the field of co-operative movement was spread over a large scale.
6] The Sixth Stage (1947-1970): -
After attaining independence the government felt that co-operatives should play an
important role in the development of rural areas. The late Prime ministers Jawaharlal Nehru and
Lal bahadur shastri stressed on the importance co-operatives. Co-operatives were included in 5
year plans.
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Year No.of societies
(in 000’s)
Membership
(in lakhs)
Capital
(in crores)
1939 122.00 53.07 106.47
1943 146.00 69.01 121.14
1946 172 91.6 104.00
1947 139.00 90.00 156.00
Co-operative bank movement
7] The Seventh Stage (1970- 2000): -
During this period the government laid more importance on the development of rural
banking sectors. Co-operatives were asked to develop rural banks. The formation of NABARD
as an apex bank was formed for monitoring the co-operative bank.The government also took the
initiative in replicating the Anand pattern Model for dairy cooperative across the country.
8] The Eighth Stage (2000 onwards): -
The rise of the new millennium has thrown many challenges to the cooperatives. The WTO
restrictions and the threat from global co-operation have grown. The co-operatives have to face
direct competition from multinationals. The government is providing adequate support and help
to the co-operatives by building brands, distribution network and also in exporting their products
to global market.
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4. ROLE OF BANKS IN DEVELOPMENT OF
CO-OPERATIVE MOVEMENT.
A) Role of Central Govt. in the Development of the Co-op. Movement :
a) The Central Govt. initiative started with the passing of the legal framework pertaining to
the co-op. movement in 1904 with the passing of the Co-op. Societies Act.
b) The Govt. amended the act in 1912.
c) Govt. provided protection to co-op. societies from the restrictive provision of certain laws
such as farmers debts relief act, etc.
d) Expert committees were appointed from time to time and policy changes were made
depending on the recommendation and suggestions by these committees.
e) Govt. provided financial assistance to the co-op. organization.
f) An independent co-op. department was established to deal with the problems of the co-op.
movement.
g) Govt. provides assistance in the form of contribution and guarantees for loans secured by
co- op. institution.
h) Govt. provides privileges in the form of special concessions and tax exemptions
w.r.t.income tax, registration fees, etc.
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B ) Role of the State Govt. in the Development of the Co-operative Movement :
a) The state provides direct assistance by subscribing to the share capital of co-op.organizations
such as co-op. banks, co-op. marketing federations, etc
b) Indirect assistance is also provided by the state to enable co-op. credit societies to purchase
shares of any other co-op. organization with limited liability.
c) The State Govt. gives guarantee in the following respect:
d) Repayment of loans
e) Repayment of share capital of the societies to their members
f) Payment of dividend, etc. at prescribed rate
g) The State provides assistance in the form of subsidies
h) The state provides concession w.r.t. stamp duty, sales tax, etc.
i) Training facilities are provided to personnel of co-operative organizations
j) The govt. also controls the working of the co-op. organization through periodical audit and
administrative measures so that the co-ops. Function according to law.
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C) Role of RBI and Co-op. Movement (1935-1982) :
a) From 1935 till 1982, the RBI provided finance and guidance for the development of the co-
op. movement. Section 54 of the RBI Act provides that the bank shall create a special
Agriculture Credit Development Fund and department to perform the following functions:
b) To maintain expert staff to study all questions of agricultural credit and to make the funds
available after consulting the central government, state co-op. bank and other banking
organizations.
c) To co-ordinate the operations of the bank with agricultural credit and its relations with the
state co-op. bank and other banking organizations.
1) Pre-Independence Period (1935-1947) :
a) The involvement of RBI with respect to the Co-op. Movement is divided into two phases.
The first phase is from 1935-1947 when the British ruled India.
b) During this stage RBI concentrated on finding a method on which the co-op. movement
should be organized.
c) The RBI could not make much of a contribution to co-operatives during this period as some
parts of India were controlled by the princely states which were not accountable to the RBI.
d) But in places where the RBI was able to implement its policies, the co-operative Movement
developed well.
e) The RBI policy led to low credit limits for state co-operative banks.
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f) In 942, the RBI formulated a more positive policy under which it began to provide
financial assistance also for other activities.
g) In 1944, RBI provided more financial assistance at concessional rates of interest for
agricultural development. The concession provided by the bank was in the form or rebate
on the rate of interest.
h) The total withdrawal of Co-op. Banks in 1946-47 was Rs. 1.50 lacs.
2) Post-Independence Period :
a) The Co-op. movement gained ground during this period with the RBI being instrumental
in bringing about changes and developments.
b) The RBI convened a conference of people connected with the Co-op. Movement in
1951.This conference considered various problems related to the movement. Following
recommendations were made:
c) RBI should play a more positive role in respect of Agricultural Development.
d) Procedure of providing assistance should be liberalized.
e) New framework for providing assistance to the Co-op. Movement should be prepared and
there should be coordination between different organizations engaged in the development
of this movement.
f) RBI took a few steps in view of these recommendations:
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g) Procedure for providing financial assistance was liberalized thus allowing cooperatives to
obtain assistance from RBI without much difficulty and formalities.
h) RBI agreed to provide loans for seasonal operation in states where Co-op.Banking
structure was weak.
i) RBI also agreed to provide assistance for agriculture production and marketing in order to
facilitate the supply of credit to co-op. organizations.
j) RBI established a Standing Advisory Committee on Agriculture Credit with the purpose of
bringing about close coordination between different co-op institutes so as to ensure policies
are implemented in an effective manner.
k) RBI re-designed its agricultural credit department in order to provide financial assistance to
the agricultural sector in a smooth manner.
l) RBI initiated steps to ensure that rural credit is channelized in a proper manner while it
made efforts to study the co-op movement in different states.
m) The role of the RBI increased after the publication of the All India Rural Credit Survey
Report in 1954. The suggestion that there should be an integrated scheme for rural
development was well accepted.
n) For the purpose of providing long term loans to state governments so that they could
subscribe to the share capital, a fund known as National Agricultural Credit Fund was
established.
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o) RBI established the Agricultural Credit Board to provide financial assistance and guidance
for agricultural and rural development.
p) In 1982, the RBI created a separate organization known as National Agricultural and Rural
Development Bank which has since been performing the functions of the RBI.
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5. CAUSES OF SLOW PROGRESS
Despite rapid growth the overall progress of cooperative movement during 100 years of its
existence is not very impressive. It is therefore necessary to know the causes of poor
Performance of the movement and on that basis take such steps as would promote a faster growth
of cooperative movement in India.
A. Government Interference:-
The cooperative movement in India was initiated in 1904 under the auspices of British
government. Right from the beginning the govt. has adopted an attitude of patronizing the
movement. Cooperative institutions were treated as if these were part and parcel of the
administrative set up of the government. The govt. interference thus became an essential element
in the working of these institutions. As a result people’s enthusiasm for the movement did not
grow.
B. Mismanagement and manipulation:-
The essence of the cooperative movement is that it gives the farmers the status of
shareholder and assures them agricultural, educational and medical facilities. Under the
Maharashtra State Co-operatives Act, a minimum of 11 farmers is required to form a Co-
operative. Today the shareholder membership averages between 15,000 and 25,000 farmers. The
relationship between the shareholder farmer and the cooperative is simple - the farmer is
committed to contributing a certain amount of cane per season and the mill is bound to take this
cane. The strength of the movement was the involvement of the farmers who were shareholders
in the sugar mill regardless of the size of their holdings. Over the years, this truly democratic
idea got corrupted and farmers with larger holdings grew more powerful.
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C. Lack of Awareness:-
People are not well informed about the objectives of the movement, the contributions it
can make in rebuilding the society and the rules and regulations of cooperative institutions.
Unfortunately, no special efforts have been made in this direction. People look upon these
institutions as means for obtaining facilities and concessions from the govt.
D. Restricted Coverage:-
The cooperative movement has also suffered on account of two important limitations on it
working. One is that the size of these societies has been very small. Two, the most of the
societies have been single purpose societies. For this reason these societies are unable to take a
total view of the persons seeking help, nor can they analyze and solve problems from different
angles. Under these circumstances it has not been possible for these societies to make much
progress.
E. Functional Weakness :-
The cooperative movement has suffered from inadequacy of trained personnel right from
its inception. Lack of trained personnel has been caused by two major factors. In the first place,
there has been a lack of institutions for this purpose of training personnel. Secondly because of it
unsatisfactory working of cooperative institutions, efficient personnel did not feel attracted or
motivated towards them.
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6. TYPES OF CO-OPERATIVES
The Co-operative Movement was introduced into India by the Government as the only
method by which the farmers could overcome their burden of debt and keep them away from the
clutches of the money-lenders. The Co-operative Credit Societies Act, 1904 was passed by the
Government of India and rural credit societies were formed.
Co-operative Go downs: The Warehousing Corporation 90% assistance for the construction of go down out of which 50% is loan and 40% is Government share capital.
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7.8 DIFFERENCE BETWEEN RURAL CO-OPERATIVE
BANKS AND RRBs.
RRBs are by nature co-operative banks but are different from the co-operative banks
1) Aim:
RRBs have been established to supplement the resources of the co-operative banks and not
to complete with them. The principle of co-operation is “all for each and each for all”. Its aim is
to provide an institutional framework to organized ‘self help’ among persons of small means. Its
basis is self-help through mutual help. It combines economic, social and political objectives. It
aims at bringing about socio-economic changes in the country. The RRBs aim at ‘providing
credit and other facilities especially to the small and marginal farmers, agricultural laborers,
artisans and small entrepreneurs in the rural areas.
2) Act applicable:
The RRBs are governed by the regional rural banks Act 1976, RBI Act, NABARD Act,
whereas the co-operative banks are governed by co-operative societies Act 1965.
3) Status:
The co-operative banks do not become scheduled banks automatically, whereas RRBs are
scheduled commercial banks. The scheduled status given automatically.
4) Area of operation:
Area of operation of the co-operative banks is restricted to only one district only. But the
area of operation of RRBs is extending up to one or more districts of a state.
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5) Coverage of population:
The co-operative banks are voluntary organization for masses. But the beneficiaries of the
RRBs are specially class of rural area. It includes small and marginal farmers, agricultural
laborers, artisans and small entrepreneurs in the rural areas.
6) Organization:
The organizational set up of the co-operative banks is pyramidal. At the apex level, state co-
operative banks functions as apex body, at district level Central co-operative banks and village
level Primary agricultural credit societies. It has federal set up and each unit is partially
autonomous managed by depositors and borrowers on the basis of one men one vote. The RRBs
are bureaucratic institutions whereas co-operatives are democratic institutions.
7) Beneficiaries:
The Beneficiaries of the co-operative banks are mainly rural masses. Whereas the
Beneficiaries of the RRBs includes special class of people i.e., the weaker section of societies.
8) Resources:
The RRBs have owned funds which include share capital and reserve funds as well as
procured funds which include deposits and borrowings/ refinance. But the co-operative banks
depend on the RBI and deposits from members.
9) Lending operations:
The Co-operative banks lend mainly to the farmers.
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10) Monitoring and control:
The RRBs are controlled by the Central Government, RBI, State Government and
Sponsor Banks, whereas the co-operative banks are controlled by RBI and Registrar of co-
operatives.
11) Staff:
The co-operative banks get talented staff. Whereas RRBs attract less talented staff.
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Co-operative bank movement
8. RBI’s POLICIES IN RELATION TO CO-OPERATIVE CREDIT
The RBI since its inception has been concerned with the problems of agriculture credit. It
has been conducting studies to identify the problems of agricultural credit. It was found in the
studies conducted in 1930’s that almost entire finance required by agriculturists in India was
supplied by money lenders the part played by co-operative and other agencies being negligible.
In 1951, the RBI appointed an All-India Rural credit survey committee to conduct a
comprehensive rural credit survey. It was found that only 3.1 per cent (of Rs.750 crores worth of
borrowings of the cultivators) was owed to co- operative societies.
It was found that co-operative credit fell short of the right quantity was not of the right
type ,did not serve the right purpose and often Failed to go to the right people . The committee
concluded that thought co-operation has failed but it must succeed. It was realized that only the
co-operative credit system can play the prime role in the provision of rural finance. This was
rightly thought so since there is the existence of vast network of village level primary credit
societies through- out the country. further , these societies have intimate knowledge of local
problems .A require structure was already available for an effective credit delivery system for
rural areas, therefore, RBI has made all possible efforts to strengthen and improve the co-
operative credit structure.
The RBI was assigned a crucial role on three main items:
The development of co-operative credit,
Expansion of co-operative economic activity and
Training of co-operative personnel.
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The RBIs role in the building of the co-operative credit structure was that of an active
collaborator in drawing up schemes of development with the government of India and the State
Governments, and the provider of finance, first to the State Governments for contribution to the
share capital of co-operative credit institutions at various levels, and secondly, to the co-
operative credit structure itself to meet its requirements of short- term, and long-term, finance.
The details are given as below:
PROVISION OF FINANCE
The RBI extends finance under two
A) Agriculture finance:
The RBI extends finance to agriculturists indirectly through co-operative sector. The credit
extended is of three types i.e. short term, medium term and long term.
To meet its aforementioned financial obligation, the RBI had established in 1956 two national
funds
1) The national a Agriculture credit fund (long term operations)
2) The national Agriculture credit (Stabilization) fund, the first und is used for:
a. Advancing to state co-operative banks- medium term loans for agriculture
And allied purposes,
b. Making loans to state land development banks etc,
c. Purchasing the debentures of state land development banks, and
d. Making loans and advances to NABARD, started with an initial contribution Of Rs.
10 crores in 1956, the total outstanding under this fund had grown to Rs. 3,315 crores
by the end of June 1990 through annual subscription from the profits of the RBI.
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Co-operative bank movement
The second fund, viz. NAC (stabilization) fund, is used For converting the RBI’s
short term loans and advances to state co-operativeBanks into medium term loans
whenever they are unable to pay their dues in time owing to drought. Famine or other
natural calamities. This fund was set up in 1956 with an initial contribution o Rs. 1 crore.
The total outstanding under this fund stood at Rs. 660 crore at June end 1990.
B) Non Agricultural finance:
The RBI also provides short- term finance for
a. The production marketing activity of cottage and small-scale industries, and
b. The purchase and distribution of fertilizers, these loans are generally provided through
state co-operative bank against guarantees of the state governments. However, all such
finances have constituted a small property (less than %) of the total RBI short-term finance
to co-operatives. The bulk of it goes to Agricultural co-operatives.
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9. WEAKNESS OF CO-OPERATIVES IN RURAL CREDIT
There is a three-tire wide network of co-operative credit structure meeting the rural credit
requirement. Though the co-operative credit movement in India developed in numbers but its
performance considered as poor due to reason more than one. So far as financial weakness of the
co-operative credit institutions is concerned, their low income and low credit worthiness is
mainly responsible for the affairs. As a result, large number of societies became dormant i.e.
societies which do not advance or collect loans for quite a few years. The administrative problem
was another major obstacle stood in the way of effective functioning of the co-operative credit
institution. While lack of sense of business management and administrative led to insolvency of
many primary credit societies, it also accounted for the poor recovery performance of many
credit societies particularly after 1981. The mounting over dues are another factor inhibiting
expansion of coverage and lending of these societies. Thus, overdue took the effect of choking of
the credit channel.
In India the co-operative credit structure is also victim of the problem of organizational
weaknesses. Lack of organizational skills in the co-operative credit structure was also
responsible for the fragmented approach of the co-operative towards finding solutions to rural
problems without trying to meet all the wants of activities. It was found that in many cases co-
ordination between the central co-operative banks and primary agricultural societies as also
between credit and non-credit societies was lacking. The necessity or the re-organization o large
number of societies has not been denied in government reports.
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Though the number of co-operative credit societies has increased but their scale of activities
and coverage is not satisfactory. In fact the size of credit societies accounted for a low volume of
loan transactions and this is supposed to have endangered the viability of the credit societies.
Further, the coverage of credit societies is not considered as satisfactory and it is reported that a
relatively small proportion of the total cultivators borrowed from the co-operatives. The status of
borrower, it will be clear that among the cultivators who obtain loans, were the relatively big
farmers more than relatively the poor and small cultivators.
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10. DIFFICULTIES FACED BY CO-OPERATIVE BANKS IN RURAL AREAS.
1) Slow progress:
The progress of co-operative banks is not up to the expectation and is slow when
comparing other type of banks because of many restrictions on their operations.
2) Limited scope of investment:
The main objective of co-operative banks is to provide credit facilities to the poor people
i.e., to small and marginal farmers and other weaker sections. They were originally having
limited scope to invest their surplus funds freely.
3) Delay in decision making:
The co-operative banks directly or indirectly by various agencies i.e., NABARD, RBI.
Thus it takes long time to take decision on some important issues. This, in turn affects the
progress of co-operative banks.
4) Lack of training facilities:
Generally the staff of co-operative banks is urban oriented and they may not know the
problems and conditions of rural areas. Lack of training facility concerning these areas also
affects the growth of co-operative banks.
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5) Poor recovery rate:
The recovery performance of the co-operative banks is not up to the mark. the reason for
poor recovery of loans and mounting overdue are; inadequate supervision and follow up action to
assess the end use of credit by co-operative banks due to inadequate staff in banks, poor
identification of beneficiaries, inadequate generation of output and income by the beneficiaries,
poor marketing facilities.
6) Lack of local participation:
Rural co-operative banks have not received sufficient local participation. The co-
operative banks have been thrust upon the rural people from above without involving local
people in its operation and management. In this connection, it is suggested that knowledgeable
persons in the rural areas need be associated with the management of co-operative banks.
7) Lack of co-ordination:
There is lack of proper co-ordination between co-operative banks and other institutional
financing agencies like commercial banks and RRBs. Also, there is inadequate co-ordination
between co-operative banks and other developmental agencies operating in rural areas. This has
hampered the progress of co-operative banks.
8) Poor development of rural areas :
In spite of several efforts made during the course o development plans to promote the
development of rural areas, it has not taken place in a significant way. The areas, at present lack
economic infra- structures like; facilities of marketing storage and distribution of inputs. Besides,
social infrastructure like; schools, medical facilities. As a result, co-operative banks find it
extremely difficult to operate in such areas.
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11. MAIN CO-OPERATIVES OF THE ACT AS APPLICABLE TO CO-OPERATIVE BANKS.
The Amending Act has added to the principle Act a new Part-Part V, which consists of
Section 56.
Section56 of the principle Act, added as above, provides to the effect that the provisions
of the Act as in force for the time being shall apply to, or in relation to, co-operative societies as
they apply to banking companies, but subject to the modifications laid down in the section and
that all references to a “banking company” or “the company” or “such company” in the Act
shall be construed as references to such co-operative banks to which the Act applies, as
specified in the preceding paragraphs.
Section 56 then proceeds to specify the modifications in several sections of the Act to
make them applicable to co-operative banks. Thus, when the Act is to be applied to those co-
operative banks to which it is made applicable, its sections are to be read a modified by Section
56.
The second amending Act 58 of 1968 while imposing social control over banks,
introduced some amendments to Section 56 of the Act, Section 56 has also been amended by
the National Bank for Agriculture and Rural Development Act, 1981(Act 61 of 1981) and the
Act 1 of 1984.
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12 EMERGING ISSUES AND CHALLENGES.
11.1CHALLENGES
Co-operative Movement in India was formally launched in 1904 when the first Co-op.
Societies Act was enacted . it would thus be appropriate to undertake an analytical review of its
achievement & failures and the problems and challenges which it has to face in the context of the
present economic situation and the policy framework within which it has to function .
At the outset it must be recorded with pride that the movement is the biggest in size in the
whole world in terms of its membership base, working capital and multi-dimensional expansion
to touch every aspect of economic and social life of the people. Presently, we have over 5 lakh
Co-op. societies of various types like credit co-ops; C0-op. banks, marketing societies and their