Unit 2EnglishCoopertiveCreditM.a. I

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Cooperative Credit
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M.A.-I Shivaji University
Unit No. - 2
Co-operative Credit
Index
2.0 Objectives
2.1 Introduction
2.2 Subject Description
2.3 History of Indian Co-operative Credit
2.4 Primary agricultural Co-operative Societies
2.5 District Central Co-operative Banks
2.6 State Co-operative Banks
2.7 Urban Co-operative Banks
2.8 Summary
2.9 Glossary
2.10 Questions for Self Study
2.11 Field Work
References
2.0 Objectives
After going through the unit you are able to:
1. You can understand the structure of Indian co-operative credit system
2. You can explain the nature, organization, progress and problems of PACS
3. You can explain the nature, organization, progress and problems of DCC Banks
4. You can explain the nature, organization, progress and problems of State Co-operative banks
5. You can explain the nature, organization, progress and problems of Urban Co-operative Banks
6. You can know the measures to solve problems of co-operative credit system
2.1 Introduction
In the previous unit we have studied meaning and principles of cooperative institutions. In this unit we
will discuss on the organization, progress and problems of cooperative credit system in India. It is essential to
know about important segment of the Indian financial system. Today the cooperative credit system is becomes
main financial stream of the rural finance in India. However, there is lots of problems occurred in the
development and expansion of cooperative credit facilities. Hence, in this unit we will discuss the organizational
aspects, development of various cooperative credit societies and their problems.
2.2 Subject Description
Indian cooperatives credit system has played a significant role in the development of economy and more
specifically development of agriculture and rural development. We can classify the cooperative credit societies in
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the three categories i.e. short term and long term credit cooperative societies, rural and urban cooperative credit
societies and agriculture and non-agriculture credit societies. Basically non-agriculture cooperative credit societies
are working in urban areas. However, some non-agricultural cooperative credit societies are entered in the rural
financial market also since last 10 years. In India, short term agricultural credit cooperatives are responsible for
production credit in rural India and long term credit cooperatives are responsible for investment credit especially
agriculture and rural industries. While Urban Cooperative Banks (UCBs) are responsible for delivery of non-
agricultural credit and consumable loans in urban and semi urban areas.
2.3 History of Indian Co-operative Credit
In the first unit you studied the history of Indian cooperative movement. It indicates that the history of the
cooperatives is the history of cooperative credit system in India. In end of the 19th century, the problems of rural
indebtedness and the consequent conditions of farmers created an environment for the chit funds and cooperative
credit societies. The farmers generally found the cooperative movement an attractive mechanism for solving
common problems relating to credit.
According to the available information the first Co-op. Credit Society was established in February 1889 at
Baroda by Shri. V.L. Kavthekar. The idea of the starting cooperative societies in India for combating rural
indebtedness and supplying rural credit on a cheaper rate was first given by Frederick Nicholson in 1895. The
Madras Government was appointed Frederick Nicholson in 1895 to enquire into the possibilities of staring
agriculture banks in the Madras Sate. After enquiry about possibilities of agriculture banking Frederick Nicholson
advocated the introduction of cooperative credit societies in the state. The Famine Commission (1898), Mr.
Dupernex (1900) and Edward Law Commission (1901) appointed by Lord Curzon also recommended cooperative
credit societies for farmers in India. On the recommendations of the Edward Law commission the British
Government was passed the First „Cooperative Credit Societies Act‟ in 1904, this Act allows to credit cooperative
societies only. The Government realized this shortcoming of the 1904 Act and, therefore, passed a more
comprehensive Act, known as the „Cooperative Societies Act‟ of 1912, this Act recognized non-credit societies
also. The establishment of cooperative credit societies in rural and urban areas in India are based on the patterns
of Raiffeisen and Schulze Delitzch pattern of Germany. The Cooperative Societies Act of 1912 recognized the
formation of non-credit societies and the central cooperative organizations/federations. In 1942, the British
Government enacted the Multi-Unit Cooperative Societies Act, 1942 with an object to cover societies whose
operations are extended to more than one state. The state patronage to the cooperative movement continued even
after 1947, the year in which India attained freedom. The history realized that the significant expansion of
cooperative credit societies after independence of India. Undoubtedly, considerable progress has been made since
Independence in the cooperative credit. The cooperative credit movement in modern India, curiously, is a state
initiated movement. The state partnership is, perhaps, the unique feature of the Indian cooperative movement.
2.3.1 Structure of Indian Rural Cooperative Credit System
The institutional rural cooperative credit system for agriculture comprises of short term and long term
credit cooperatives. In India three tier structures have been accepted in short term cooperative credit system. In
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the three tier structure The Primary Agricultural Credit Societies (PACS) are providing short term finance at grass
rout level, District Central Cooperative Banks (DCCBs) are district level central cooperative credit institutes of
cooperatives in the particular district. DCCBs providing finance to PACS and the agriculture as well as allied
activities in the district and State Cooperative Banks (SCBs) are state level cooperative banks providing finance to
DCCBs and other non-credit cooperative institutes in the particular state. However, in the North-Eastern States
and smaller States, there are no DCCBs there is two tire cooperative credit structures. In the North-Eastern States
the SCB purveys credit through its affiliated PACS.
The rural cooperative credit system, in existence for more than a century and consisting of 94,942 PACS
outlets purveys 53 percent of the total agricultural and rural credit network system. At the central district level
District Central Cooperative Banks (DCCB) function as a link between primary societies and State Cooperative
Apex Banks (SCB). It may be mentioned that DCCB and SCB are the federal cooperatives and thus the objective
is to serve the member cooperatives. Indeed, the rural cooperative credit institutions comprising 372 DCCBs with
13,151 branches and 31 SCBs with 986 branches. State Cooperative Apex Banks and District Central Cooperative
Banks qualified to be called as banks in the cooperative sector as per Banking Regulation Act-1949. While PACS
are not qualified as bank it is known as cooperative credit institute or societies in India. In other words, only
DCCBs and SCBs banks are licensed to conduct full-fledged banking business. Co operative Banks in India are
registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are
governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
2.4 Primary agricultural Co-operative Societies
The Primary Agricultural Credit Societies (PACS) are the kernel of the cooperative movement in India.
They are foundation stone of the cooperative credit structure and constitute by for the largest numbers of
cooperative institutes in India. It‟s known by different names viz. PCAS, Service Cooperative Banks, Farmers
Service Societies (FSS), Large Sized Adivashi Multipurpose Societies (LAMPS), and Multi Purpose Service
Cooperatives Societies (MPSCS) etc. while these organisations generally known as PACS in India. The main
functions of credit societies are to provide short and medium term credit to share holders, supply of agricultural
and other requisites and the marketing of agricultural produce. The whole concept of credit societies advancing
only Loans in cash, has now given place to the concept of a service cooperative society which is expected to
provide not only cash loans but also the necessary supplies like seeds, fertilizers and insecticides, the distribution
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of essential consumer commodities, storage facilities etc. In the some of the states PACS are providing non-
financial services to their members, it is known as Multi Purpose Cooperative Societies (MPCS). In the
Maharashtra it is known as ‘Vividh Karyakari Seva Sahakari Societies’ VIKAS Societies. In some parts of the
country efforts are now being made to transform many of the credit societies, which historically have been the
most important co-operative organizations, into multi-purpose societies.
2.4.1 The objectives and Functions of PACS:
1. To raise capital for the purpose of giving loans and supporting the essential activities of the members.
2. To lend adequately, that is to lend adequate amount to all producers especially agricultural producers
3. To collect deposits from members with the objective of improving their savings habit.
4. To supply agricultural inputs and services to members at remunerative prices.
5. To arrange for supply and development of improved breeds of livestock for the members.
6. To make all necessary arrangements for improving irrigation on land owned by members.
7. To encourage various income-augmenting activities such as horticulture, animal husbandry, poultry and
cottage industries among the members through supply of necessary inputs and services.
8. To distribute fertilizers, seeds, agricultural implements, either on its own behalf or as agent.
9. To collect or purchase produce, where necessary on behalf of a consumer society, marketing society or
government.
10. To protect farmers and rural peoples from money lenders by providing easy and optimum lending
facilities.
2.4.2 Organization of PACS
1. Members: there are minimum 10 members required for registration of PACS in India. The membership of
PACS is voluntary and available without any restrictions or discrimination on the basis of gender or social,
political or religious affiliations. All the members can make use of the services of their cooperative and
willingly accept the responsibilities of membership.
2. Working Capital: working capital primary agricultural credit societies generally collected by share capital,
entry fee, deposits from members, deposits from non members, loans from district co-operative banks, loans
from government, reserve fund, loans from commercial banks and others.
3. Area of Operation: As per the Raiffeisen rule there should be ‘one village one society’ the All Indian
Rural Credit Review Committee (1954) also accepted and recommended this principle. This committee
recommended that there should not area of operation more that 5-6 K.M. and population more than 3000.
However, there facts are very deferent some states have average 5 to 7 villages per PACS.
4. Liability: in India most of PACS are established on the bases of limited liability of the members or share
holders. Initially some PACS were established on the bases of unlimited liability of the share holders but now
most of them converted as limited liability based cooperatives.
5. Democratic Management: the management of cooperatives credit societies is democratic and members of
managing council have been selected from members of particular PACS by voting system. The primary
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members of cooperative societies enjoy equal rights of voting i.e. one member one vote and participation each
member of the PACS gives only single vote. The PACS are fully controlled and managed by democratic
rules.
2.4.3 Progress of PACS
Since 1904, the cooperative movement has made significant progress. The Cooperative Societies Act
(1904) and provides good platform for cooperative credit societies in India. Cooperatives have extended
across the entire country and there are currently an estimated 230 million members nationwide. The
cooperative credit system of India has now largest network in the world and cooperatives have advanced
more credit in the Indian agricultural sector than commercial banks.
Table no-1 Progress of PACS in India (Amount in Rs. Crore)
1999 2002 2003 2004 2005 2006 2007 2008
Numbers 95,156 98,000 1,12,000 1,05,735 1,08,779 106,384 97,224 94,942
Members (000) 89,568 1,02,140 1,23,552 1,35,411 1,27,406 1,25,197 1,25,792 1,31,530
Paid up capital 2805 4,390 4,953 5,166 5,571 5,644 6,138 6,597
Reserve 2094 2,466 3,245 3,231 3,626 3,648 4900 4387
Deposits 7061 14,846 19,120 18,143 18,976 19,561 23,484 25,449
Barrowers (000) 51,653 55,545 63,880 51,265 45,070 46,081 47,910 79,408
Short Term
15452 27,666 29,107 30,808, 32,481 34,140 37,764 43,696
Loans
Medium Term
5849 13,113 13,305 13,065 16,304 17,639 20,856 21,970
Loans
Employees 171,550 206,505 261,463 3,47,176 3,88,118 241,609 229,007 278,842
Source - NAFSCB
1. Numbers of PACS: After enactment of the cooperative credit society act 1904 numbers of PACS are
increased fast in India. However, most of unviable PACS are winded up from 2003 to 2008 above table
shows that numbers of PACS are decreased from 112000 to 94942 in the same year. The western states like
Maharashtra and Gujarat accounted for 28% of the total PACS in the country, with Maharashtra alone
accounting for about 21% of the total PACS in the country.
2. Membership: The membership of PACS has been increasing during the last three years; there was only
895658 thousand members in 1999 now it increased 131530 thousands as on 31 March 2008. According to
NFSCOB after 2001 the membership of PACS are increased drastically in India it has reached to 131530
thousands from 102140 thousands.
3. Paid Up Capital: the paid up capital is important source of funds in cooperative organisation. The PACS are
trying to increase in paid up capital to their development. It increased from Rs. 2805 crore to 6,597 crore
since 1999 to 2008. Increased capital indicates that the members of PACS are attracting towards cooperative
credit system in India.
4. Deposits: Deposits are always considered as an ideal method of raising funds. It is expected that PACS
should generate their own funds via share capital and deposits of members and non-members. In order to this
objective PACS are trying to increase their deposit collection. Their total deposits were only Rs. 7061 core in
1999 now it is increased to Rs. 25,449 core in 2008. While at present PACS have succeeded to a very small
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degree in obtaining deposits. While it is important to note it is clear that for deposits mobilisation by the
PACS, members and non-members' confidence in these societies should be enhanced.
5. Reserve Funds: The reserve fund is meant to meet unforeseen losses and also to serve as an important asses
and security. The table no-1 shows that the PACS have collected reserve of Rs. 4387 till 2008.
6. Numbers of Barrowers: the PACS are providing convenient credit facilities to their members. Due to the
easy loan and numbers of barrowers has been increased continually since 1904. According to available
information it is observed that the stipulated proportion of shareholdings s to barrowers also increased. The
PACS were provided lending facilities to 51,653 thousand members in 1999 now it is increased to 79,408
thousand members in 2008. It is indicates that the numbers of beneficiaries are increased in 1999 to 2008.
7. Credit Supply: In India, not only numbers of barrowers are increased their credit delivery also increased
after independence. PCAS has been supplied short term loans of Rs. 21,970 core in 1999 and Rs. 43,696 in
2008 and supplied medium term loans of Rs. 5849 core and Rs. 15452 Core in same period.
8. Employees: PACS also providing direct employment to rural peoples than indirect employments. According
to data published by the National Federation of State Cooperative Banks (NFSCB) in 1999 only 171,550
employees working in the PACS but as on March 2008 total 278,842 employees are working in PACS all
over India.
2.4.4 Problems of PACS
In India, PACS are enjoying growth and progress since independence. While there are some problems in
the PACSs policy, loan delivering system, viability and other. It has adversely affecting on their development.
Their some problems and lacunas are as below.
1. Delay in Loan Distribution
The farmers needs timely loan supply in the harvesting session. During the session, a cultivator wants to
meet the cost of seed, fertilizers, weeding, harvesting etc. But it is observed that PACS are do not
providing loans and advances timely to cultivator. There is also inordinate delay on the part of the lending
in actual disbursement of loans. The delay in loan disbursement force to go money lenders.
2. Inadequate Credit Supply
The loan requirement of cultivator from PACS is very high because PACS are working at grass rout level.
But there quantum of loan supplied by them is not only inadequate, but in some states is woefully for
below even the absolute minimum credit requirements of cultivators.
3. Inappropriate Monitoring System
Main purpose of the financing by PACS to members is providing productive credit and it should be used
in cultivation and farm related activities. A sample survey conducted by Programme Evaluation
Organisation of the planning commission reveled that nearly 28 percent of loans are used to unproductive
purpose and other than agro related activities. In the most of state PACS have not appropriate supervision
system over the utilization of loans.
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4. Overdues
The repayments of loans distributed by PACS are very low. In India it shows that punctuality in the
repayment of loans has been conspicuous by its absence. The overdues of PACS have been rising steadily
over the last ten years in India. The gross amount of overdues was Rs 7317 core in 1999 now it is
increased to Rs 24003 core in 2008. These Overdues have clogged the process of credit recycling since
they have substantially reduced the capacity of Co-operatives to grant loans.
5. Unsatisfactory Management
In the PACS most of directors and employees are not trained about cooperative rules and regulation as
well as they dose not having appropriate knowledge about banking business. Due to the lack of
appropriate knowledge they do not manage their organization good according to the rules and regulations.
6. Lack of Cooperative Education
The cooperative credit societies work for spread of cooperative education also. It is noticed that this
organisation does not seriously working for this motive. The cooperative education and training can
develop abilities of co-operators and members for management of cooperative societies. But
unfortunately there is very poor efforts done by the PACS for it.
7. Political Interference
Political interference is one of the most important problems in whole cooperative movement in India. In
some of the state political leaders are using cooperative credit societies for building vote bank. Some time
they protect defaulters for the intension of votes. The All India Rural Credit Review Committee has stated
that, political interference may helps to development of PACS but unfortunately in India their interference
becomes obstacle in it.
8. Non-Viable PACS
One of the most important weakness of the PACS is most of unites and important link in rural credit.
However most of them are too small in size to be economical and viable. Several of them are dormant
while some are defunct. Most PACS have poor members, low capital and funds etc. There was out of the
105735 PACS reported to be in existence as on 31 March 2004, 65057 (62%) were viable, 30950 (29.3%)
were potentially viable, 4683 (4.4%) were dormant and 2194 (2.1%) were defunct. At present out of
94942 PACS only 58472 units are viable but remaining are non-viable units in India.
9. Uneven Growth
The agriculture credit cooperative in India has not developed on a uniform basis. There is marked
regional disparities and unevenness in its development. According to the information published by
NAFSCOB there is 31% of PACS are in Maharashtra, Goa, Gujarat and Daman-Div, while only 16% of
PACS in Assam, Arunachal Pradesh, Manipur, Meghalaya, Tripura, Mizoram, Nagaland and Sikkim as
on 2008.
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10. Dependency of DCCBs

The cooperative organization should becomes independent in some years and provide appropriate
facilities to the members. Although, in India it is observed that PACS are continually depending on
DCCBs as and commercial banks for funding. PACS failed miserably in mobilizing rural savings and
their won funds. Some time PACS depends upon the government also for the financial packages to
meeting losses.
Other than above problems absence of thrifts, inadequate audit system, inadequate monitoring
and supervision system, Negligence about small farmers, Low skilled staff, Lack of professionalism, Lack of
diversification in business , Inconvenient repayment schedule and lack of appropriate funds also major
problems in PACS.
2.4.5 Suggestions or Measures
It is fact PACS are facing various problems recently in India. However, there is strong need to revive
them for enhance rural credit facilities in India. We can revival them by followings measure:
1. The PCAS should join with the DCCBs as branches of DCCBs. This measure can be solving problem of
funding and high interest margin as well as reduce fund management cost.
2. Financial assistance is made available by the government for wiping out accumulated losses, covering
unpaid guarantee, increasing capital to minimum level and technical assistance.
3. Relax the area of operation and permit them to expand their business out of village. Present restriction of
5 to 6 K.M. is too low for efficient PACS.
4. The government should undertake the project for revival cooperative education and training. Present
education and training system should need to lot of changes according to changing technology and
economic environment.
5. PACS should accurately implement the credit policy and cooperative rules and regulation to increase the
believability of members on PACS.
6. The members of PACS also should aware about their rights and obligations about society. The NGOs and
other social organization can be undertakes such movement for member awareness.
7. Serious and sustained efforts should be made to reduce overdues and credit monitoring system should be
improved for better loan recovery.
8. The members of the PACS should be made serious efforts to remove political interference in the
management and decision making in PACS.
9. PACS can appoint trained manger or secretary to enhance professional management and remove lacunas
in management.
10. PACS should give equal treatment for big and small farmers. It will be helpful to increase membership
and their deposits in PACS.
11. By the adopting easy loan process PACS can increase efficiency in loan disbursement and provide quick
loans to the members.
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Check your progress -1

A) Fill in the blanks with appropriate options given below the questions
1. In the north eastern states cooperative credit structure is ………………tire
a) Three b) Four c) Two d) Six
2. PACS are providing loans for …………………
a) Industrialists b) Traders c) Businessman d) Farmers
3. After year 2003 numbers of PACS in India has been……………………
a) decreased b) increased c) stagnant d) going up and down
4. ………………..is source of fund of PACS
a) Loan from member b) Commission c) Tax d) Share capital
5. PACS are proving …………… loans to their members
a) short term b) long term c) consumption d) housing
B) Write answers in one sentence of the followings questions
1. How many members are required for establishment of PACS?
2. What is the prescribed jurisdiction of PACS in India?
3. Which are the main sources of funds for PACS?
4. What is full form of VIKAS societies working in Maharashtra?
5. Who are selected the directors of PACS?
Answers of check your progress question -1
A) 1.- c) two 2. -d) Farmers 3. –a) decreased 4.-d) share capital 5.- a) short term
B) Answers
1. Minimum 10 members are required for establishment of PACS.
2. 5 to 6 k.m. or about 3000 population is the prescribed as jurisdiction of PACS in India.
3. Share capital, reserve, deposits, loans and overdrafts from district central co-operative banks are main
sources of funds for PACS.
4. Full form of VIKAS societies working in Maharashtra is Vividh Karyakari Seva Sahakari Societies.
5. The directors of PACS are selected by share holders of PACS.
2.5 District Central Co-operative Banks
The district central cooperative banks occupy intermediary place in the three tire credit structure in
India. Central co-operative banks are the federations of primary credit societies in a district, it is known as District
Central Cooperative Banks (DCCBs). When the cooperative Society Act was passed in 1904 there was no
prevision for the federation of central banks. The sponsors of cooperative movement expected that the rural there
is need of such federations. Therefore, the cooperative societies Act was amended in 1912 with a view to
permitting of central cooperative societies. However, the first central cooperative was registered in Uttar Pradesh
in 1906 as per primary society. After 1912, numbers of DCCBs have been increased significantly, as on 2009
there are 372 DCCBs are operating in India.
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2.5.1Organisation of DCCBs
1. Membership- There was two types of membership pattern -membership of primary societies only and those
having a membership of societies as well as individuals. While the DCCBs in india have classified under three
heads i.e. i) Banks whose membership confined to individuals, ii) Banks whose membership confined to societies
and iii) Banks whose membership confined to individuals and societies. The Maclagan Committee (1915) and the
Mehata Committee on Cooperative Credit was of opinion that banks whose membership confined to individuals
should not be registered under Cooperative Society Act. However, now individual membership has been stoped
by all DCCBs.
2. Area of Operation - The area of operation and jurisdiction of DCCBs is generally confined with a district.
Standing advisory committee on Agricultural Credit of the Reserve Bank of India suggested that there should
only-one DCCBs in the one district and there area of operation should not extend more than one district. . While
in the some district there are no District Central Cooperative Banks, in these state State Cooperative Banks are
acting as federation of the PACS. The DCCBs can open the branches in their jurisdiction to provide banking
services and it can be helps to supervision over PACS.
3. Sources of Fund – The sources of working capital of DCCBs consist of the share capital, reserve, deposits
from members and non-members, loans and overdrafts from state co-operative banks, Reserve Bank of India and
the government etc. The share capital of the DCCBs is fundamental capital source and it has been collected from
shareholders of the DCCBs. Now RBI has suggested that the DCCBs should 10 percent collect share capital from
their barrowers.
2.5.2 Management of DCCBs
The management of DCCBs generally vests in a board of directors consisting 10 to 15 members other
than chairman and vice chairman. The members of the board of directors are elected by the members of DCCBs
by democratic method. There is followings are members of board of director:
 One Chairman and one Vice chairman
 Members of PACS (one from each Tehasil)
 Member of Urban Cooperative Banks
 Members of cooperative processing societies
 Member of Cooperative marketing societies
 Other members i.e. from other type of cooperative societies, experts of banking, cooperative movement,
account, law etc.
In the above seats some are reserved for women member, member of financial weaker, Scheduled Cast
and Scheduled Tribes according to the governments‟ reservation strategy. Other than officers (General Manger,
Manger and Assistant Managers) and employees of the DCCBs are also helps in the administration of the DCCBs.
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2.5.3 Functions and objectives of DCCBs

Mainly DCCBs are established to act as link between the PACS and State Cooperative Banks (SCB).
They act as banking institution for members, non-members in India. There core function can be described as
followings:
1. Act as intermediary between PACS and State Cooperative Banks.
2. To encourage thrift and mobilise savings of members and non-members.
3. Rise funds form SCBs and government to provide loans to members and PACS.
4. To supervise and inspect the PACS and other cooperative credit societies in the jurisdiction.
5. To provide loans and funds to PCAS and other cooperative societies in the jurisdiction.
6. To provide short term and medium term loans and advances for agricultural operations like purchase
inputs, processing, produce etc.
7. To provide short term loans for agro processing and agro related firms / organisations in the district.
8. To undertake usual banking operations and extent banking facilities in rural areas like acceptance of
deposits, provide remittance and collection facilities, safe deposit lockers etc.
9. Act as representative of SCBs in the districts of the particular sate
10. To develop the cooperative movement in the district on sound lines and to act as philosopher and guide
for it.
2.5.4 Progress of DCCBs in India
The DCCBs historically have played a pivotal role in the cooperative credit structure in India. After
1912 amendment in Cooperative Societies Act 1904, their numbers of DCCBs and there credit to agriculture and
rural areas has been increased significantly in India. Following table shows that details of progress of DCCBs in
India.
Table no-2 Progress of DCCBs in India (Amount in Rs. Crore)
Year 2003 2004 2005 2006 2007 2008
Numbers 365 367 368 370 371 372
Branches 12865 12866 12858 12991 12928 13208
Paid Up Capital 3546.78 3,897 4,342 4511.47 5098.13 5845.34
Reserve Fund 9620.14 11165.55 12672.86 14082.47 15505.12 16435.73
Total Deposits 72017.97 76796.38 80476.36 86652.22 92081.36 106792.82
Deposits of PACS 27014.57 27626.70 28264.17 28838.07 29696.01 3616.67
Individual Deposits 40450.92 43850.92 46284.19 51008.48 55120.75 61772.96
Deposits of Local 4552.92 5318.76 5928.00 6805.67 7264.60 8058.09
Govt. Bodies
Investment 31,114 35,180 35,937 36,628 41.006 44,419
Total Loan supply 62050.49 63619.84 72089.61 76737.38 76737.38 95974.23
Short Term Loans 36513.95 38885.38 40840.11 43411.91 43411.91 59229.24
Medium Term Loans 16107.37 15885.45 20714.72 21974.65 21974.65 24807.41
Interest Income 11,291 11,024 11,427 10,687 10,597 10,793
Non-Interest Income 795 888 1,310 1,000 1,055 909
Total Profit - 2,522 3,098 2,769 2,314 1,869
Net Profit -268 108 974 207 31 -65
Source: NAFSCOB (www.nafscob.org)
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Table shows that numbers of DCCBs are increased from 365 to 372 in year 2003 to 2008 inclining their
branches from 12865 to 13208 in same period. The aggregate paid-up share capital of the DCCBs increased from
Rs.3546 crore as on 31 March 2003 to Rs.5845 crore as on 31 March 2008. It is indicates that DCCBs are
succeeded in collecting share capital and to increase their reserve funds. In period of 2003 to 2008, deposits
collected by DCCBs increased from Rs. 72017 crore to Rs. 106792 crore and they have invested Rs. 44419 crore
till March 2008. In same period land and advanced provided by DCCBs are increased continuously from Rs.
62050 crore to Rs. 95974 crore. DCCBs have proved themselves as good banker by earning interest and non-
interest income as well as profit. However, due to agricultural crisis and dues from agriculture loans profitability
of the DCCBs is reduced in 2003 to 2008. As per changing business environment DCCBs has using Information
and Communication Technology (ICT) in their business. As on March 2009, 2493 branches of the DCCBs have
fully computerised and 1189 are partially computerised. Today, most of DCCBs are providing e-banking facilities
to their shareholders and customers also.
2.5.5 Problems of DCCBs
Apart from their good progress of DCCBs in India they are facing various problems as mentioned
followings:
1. Low Share Capital: DCCBs have achieved good target of collecting share capital from shareholders in
India. However, collected share capital is too short according to their needs and requirements. Hence,
these banks are depending on the governments share capital to fulfil their needs.
2. Low Recovery Performance: DCCBs are disbursing most of loans to farmers and cooperative
institutions related to agriculture and allied activities. But recovery of these loans is very low due to
agricultural crises.
3. Increased NPA: NPA is biggest problem for DCCBs, in year 2001 to 2009 NPA has been increased
from Rs. 9371 crore to Rs. 18728 crore. It is near about 21 percent to total loans disbursed by all DCCBs
in India.
4. Loss: Because of low loan recovery and increased NPA many DCCBs are becomes loss making banks
since 2003. In year 2008 total loss of all DCCBs in India was Rs. 65 crore.
5. Political Interference: Political interference in the decision making process and distribution of loans
adversely affected believability and profitability as well as viability of the DCCBs in India. Political
persons are using DCCBs as tool for making vote bank in respected regions.
6. Uneven Development: It is realized that, DCCBs in Maharashtra, Karla, Karnataka and Madhya
Pradesh have achieved significant development. However, DCCBs in other states are not achieved good
performance.
7. Dependency on SCBs: Because of low share capital and collection of deposits most of DCCBs are
depends for funds on State Cooperative Banks (SCBs).
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8. Unskilled Employees: As per the business rules any bank should have skilled employees to run
banking business well. However, most of branches of DCCBs have not skilled employees; they have not
proper knowledge about cooperative banking business.
2.5.6 Measures for Improvement
DCCBS are very important cooperative institutes in the each district. They are plays significant role in the
development of the district but recently DCCBs have in problem; however we can solve these problems by
implementation of followings measures:
1. DCCBs should try to increase their share capital by adding new share holders and increase paid up
capital by existing share holders.
2. DCCBs should implement attractive schemes for deposits collection from rural peoples. There is need
to encourage shareholders to deposit in DCCBs than other commercial banks for increase funds of
DCCBs.
3. DCCBs should form efficient loan mongering system to observe utilisation of loans disbursed by
DCCBs, it will be helps to reduce problem of recovery.
4. DCCBs can provide easy alternatives to defaulters for repayments e.g. convenience instalments,
interest exemption, one time settlement etc.
5. To increase business efficiency and performance of DCCBs, bank should appoint skilled employees in
the banks or provide efficient training facilities to their employees.
6. DCCBs should build good relationship between all cooperative institutes in the district and other
organisation which can helpful for cooperative movement.
7. DCCBs should avoid political interference in the decision making process and its implementation.

The cooperative societies Act was amended in 1912 with a view to permitting of central cooperative
societies.
1. The area of operation and jurisdiction of DCCBs is generally confined with a …………….
a) State b) tree Tehasil c) two districts d) one district
2. The share capital of the DCCBs is collected from ………………….of the DCCBs.
a) Private Banks b) Nationalised banks c) shareholders d) Businessmen
3. All directors of DCCBs are elected by ………………..
a) State government b) Shareholders c) Ministry of Cooperative d) NABARD
4. DCCBs are established to act as link between the …………….and State Cooperative Banks.
a) State government b) Shareholders c) PACS d) RBI
5. There are ………………..DCCBs in India as on March 2009
a) 1345 b) 520 c) 327 d) 372
B) Write answer in one sentence of the question given below.
1. Which Act is provides legal base for establishment of DCCBs in India?
2. In which year the first central cooperative was registered in India?
3. In which state the first central cooperative was registered in India?
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4. Which are the main sources of funds for DCCBs?

5. What is the amount of NPA of all DCCBs in year 2008?
A) 1-d) one district 2- c) shareholders 3- b) Shareholders 4-c) PACS d) 372
B) Answers
1. The Cooperative Societies (amendment) act, 1912 provides legal base for establishment of DCCBs in
India.
2. In 1906 the first central cooperative was registered in India.
3. The first central cooperative was registered Uttar Pradesh.
4. share capital, reserve, deposits, loans and overdrafts from state co-operative banks, Reserve Bank of
India are the main sources of funds for DCCBs.
5. The amount of NPA of all DCCBs is Rs. 18728 crore in year 2008
2.6 State Co-operative Banks
State Co-operative Banks (SCBs) are a federation of central co-operative banks and act as a watchdog of
the co-operative banking structure in the state. The Edward Maclegan committee, 1914 has recommended the
need for state wise apex cooperative banks in India. As their recommendation state cooperative banks are
established in various states in India. However, first State Cooperative banks has been registered in 1911 as
“Mumbai Central Cooperative Bank” further it was renamed as “Bombay Provincial Cooperative Bank” Its funds
are obtained from share capital, deposits, loans and overdrafts from the Reserve Bank of India. State co-operative
banks lend money to central co-operative banks not directly to primary societies and farmers. In India, the
Reserve Bank of India provides status as Scheduled Bank for SCBs from their establishment.
2.6.1Organisation of SCBs
SCBs are Apex banks in the state which plays important role in the organizing and maintaining
cooperative movement in the particular states. Their membership pattern, Sources of fund and management given
as below:
1. Membership: There is no similarity in membership pattern of SCBs in India. In some states SCBs are
provides membership for only cooperative banks, credit cooperatives, non-credit cooperatives and in remaining
states membership provided to cooperative banks, credit cooperatives, non-credit cooperatives, individuals and
the state government also.
2. Sources of Funds: The sources of working capital of SCBs consist of the share capital, reserve, deposits, loans
and overdrafts from NABARD, Reserve Bank of India and the government etc. Minimum required share capital
for SCBs is increased from Rs. 5 crore to Rs. 20 crore and it has been divided in shares of Rs, 50 each.
3. Management: All decisions relating to management will be taken by Board of directors of the SCBs. The
Board of Directors is elected by General Body. The general business of the SCBs is conducted by the Board of
Directors. The constitution of this board is different in various states in India. There are near about 11 to 22
directors can be selected in the Board of Directors as per the size and areas. The chairman and vice-chairman of
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the SCBs has been chosen each year or continued by prior approval of General Body. However, their turn is
prescribed five years.
2.5.2 Functions and objectives of SCBs
Mainly SCBs are established to act as link between the NABARD and DCCBs in the particular state and
working as banking institution for members and non-members in the state. There core function can be described
as followings:
1. To mange resources according to need of the cooperative movement in the particular state.
2. To coordinate state cooperative policy for development of cooperative movement in the state
3. Act as intermediatories between NABARD and DCCBs in the State
4. To regulate, direct and guide for cooperative institutions in the state as Apex Bank.
5. Extent financial assistance by way of loans to DCCBs and other cooperative institutions in the state.
6. Act as intermediatories between Money market and DCCBs for rising money and mobilise resources.
7. To provide letter of credit to cooperative credit and non-credit institutions in the state
8. Conduct banking business through their branches and provide banking facilities to cooperative banks.
2.5.3 Progress of DCCBs in India
The SCBs have played a pivotal role in the cooperative credit structure in India as Apex Body in the
state cooperative credit movement. After independence it is noticed that SCBs performed better as regulating and
supervising authority for cooperative credit in India. Following table shows that details of progress of SCBs in
India.
Table no-3 Progress of SCBs in India (Amount in RS Crore)
Year 2003 2004 2005 2006 2007 2008
No. 30 30 30 30 31 31
Branches 931 929 953 962 938 986
Members 133688 150975 156623 153697 148771 150917
Capital 897 951 1,012 1,114 1,246 1,468
Reserve 7,081 7,569 8,483 9,431 9,303 9,250
Deposits 39,386 43,486 44,316 45,405 48,560 52,976
Investment 19,627 23,111 23,289 27,694 24,140 29,060
Loans 32798 35,105 37346 39684 47,354 48,228
Interest Income 5,581 5,314 5,039 5,320 4,974 5,657
Non- Interest
613 732 380 336 269 93
Income
Net Profit 470 373 291 378 275 185
Source: NAFSCOB (www.nafscob.org)
As on March 2009 there are 31 SCBs working in India, some are working under tree tire structure and
some are in two tire structure of cooperative credit. Table shows that 31 SCBs are providing banking and other
facilities through their 986 branches. There were 133688 members in 2003 but now it is increased to 150917 as on
March 2008. Paid up capital and reserve of the SCBs also increased from Rs. 897 core and Rs. 7081 crore to Rs.
1468 core and Rs. 9250 in 2003 to 2008. All SCBs has issued loans of Rs. 32798 core in 2003 and now it reached
to Rs. 48228 core. Investment of the SCBs in various financial instruments of capital market and money market
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also increased from Rs. 19627 core to Rs. 29060 core. However, the SCBs are not succeeded as banking
institutions in India because their Interest Income, Non- Interest Income and net profit is not increased significantly
in year 2003 to 2008.
2.5.4 Problems of SCBs
The SCBs in India are facing various problems as mentioned followings:
1. Problem of Funds: SCBs have trying to collect more and more funds by different sources. In recent
years demand for funds by DCCBs are increasing significantly. However, collected funds are very short
according to their needs and requirements.
2. Low Recovery Performance: SCBs are disbursing most of loans to DCCBs and non-credit
cooperative institutions in their respected states. But recovery of these loans is very low, increased NPA
of DCCBs adversely affected on recovery of SCBs.
3. Increased NPA: NPA is major problem for SCBs, in year 2001 to 2008 NPA of SCBs has been
increased from Rs. 3889 crore to Rs. 6169 crore. It is near about 12.8 percent to total loans disbursed by
all SCBs in India.
4. Loss: Because of poor loan recovery and increased NPA many SCBs are becomes loss making banks.
In year 2008 total loss of all SCBs in India was Rs. 185 crore. The SCBs in Assam, Manipur and
Arunachal Pradesh have loss of Rs.311 crore and Rs. 10.27 core in SCBs working in Andhra, Karnataka
and Kerala.
5. Political Interference: Political interference in the decision making process and distribution of loans
adversely affected viability of the SCBs in India. Political interference diverted focus of SCBs form
financial and economic development of the stakeholder to political benefits of individuals.
6. Doubtful Investment: The progress of the SCBs shows that the all SCBs have invested more than Rs.
29060 core in various instruments. However, Some SCBs has not followed rules of investment made by
RBI and invested their funds in doubtful instruments.
7. Dependency on NABARD and the State Govt.: Increased demand for loans from DCCBs and others
increased problem of funds having with SCBs. Hence, SCBs depending on NABARD and the state
government for collecting funds required to meet needs of funds.
8. Defective Loan Policy: In India it has found that the SCBs have following defective loan distribution
policy for lending DCCBs. These banks are not scrutinising appropriately the loan demanded by DCCBs
and actual need of that loans.
2.5.5 Measures for Improvement
To solve above mentioned problems relating to SCBs in India followings measures will helpful:
1. The SCBs should collect more funds from deposits of members and non-members. For collecting long term
funds SCBs should issue certificates of deposits.
2. To increase recovery performance SCBs should form joint recovery system with DCCBs in the respected
states.
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3. SCBs should follow strict rule for loan distribution and avoid exec funding for DCCBs and completive
institutions.
4. To reduce losses SCBs should open their branches in urban and metro cities to provide banking facilities for
increase non-interest income.
5. SCBs should avoid political interference in decision making process and follow the principals of
cooperative management and justice.
6. SCBs should appoint investment advisors or lease the investment consultancy service to reduce
doubtful investment.
7. To maintain cooperative movement in the state SCBs should adopt good policy and professional
planning for credit distribution.
1. The ......................1914 has recommended the need for state wise apex cooperative banks in India.
a) Mehata committee b) Mirdha Working Group c) RBI d) Edward Maclegan committee
2. First State Cooperative banks have been registered in …... as “Mumbai Central Cooperative Bank”
a)1912 b) 1946 c) 1960 d)1911
3. In India, the Reserve Bank of India provides status as ………… for SCBs from their establishment.
a) Scheduled Bank b) Nationalised Bank c) Foreign Bank d) Multi State Bank
4. SCBs works as ………….banks in the cooperative credit structure in the state
a) National b) Regional c) Apex d) Central Bank
5. The chairman and vice-chairman of the SCBs have been chosen by………………
a) Each two years b) Each year c) Each three years d) Each five years
1. How many SCBs are working in India?
2. How many branches of SCBs are providing banking facilities in year 2008?
3. What is the role of SCBs between NABARD and DCCBs in the State?
4. How much minimum share capital required for establishment of SCBs?
5. Whom to provide letter of credit by SCBs in India?
A) 1-d) Edward Maclegan committee 2- d)1911 3- a) Scheduled Bank 4 - c) Apex 5- b) Each year
B) Answers
1. There are 31 SCBs are working in India
2. Total 986 branches of SCBs are providing banking facilities in year 2008.
3. SCBs plays role as intermediatories between NABARD and DCCBs in the State
4. There is Rs. 20 core minimum share capital required for establishment of SCB
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5. SCBs can provide letter of credit to cooperative credit and non-credit organisations in the respected
state.
2.7 Urban Co-operative Banks
Urban cooperative banks also referred to as primary co-operative banks, play an important role in meeting
the growing credit needs of urban and semi urban areas of the country. The Urban Cooperative Banks (UCBs)
started in India with the main intension of catering to the banking and credit facilities for urban and semi-urban
peoples in India. The origins of the urban cooperative banking movement in India dates back to late nineteenth
century when, inspired by the success of the experiments related to the cooperative movement in Britain and the
cooperative credit movement in societies such as Germany were established in the India. The first Urban
Cooperative Bank in India known as “Mutual Aid Society of Baroda " this was mutual aid society organized in
the former Princely State of Baroda in 1889 under the direction of Vithal Laxman Kavthekar. While before 1889
Late. Mahedeo Govind Rande organised such cooperative credit society in „Saswad‟ and in Indore by Holkar in
1882, but it was not well organised banks. Hence, the Mutual Aid Society of Baroda has considered as first UCB
in India. Now in India, total 1721 UCBs are operating and out of them 55 banks have awarded as „Scheduled
Banks‟ as per Schedule –II of the Banking Regulation Act-1949 by the Reserve Bank of India. From the
beginning, then today, the UCBs push historically has been to mobilize the savings of middle and low income
urban groups and providing credit facility to them.
2.7.1 Definitions of Urban Cooperative Bank
Urban cooperative banks, referred to as primary co-operative banks, play an important role in meeting the
growing credit needs of urban and semi urban areas of the country. There was no well-defined concept of urban
cooperative bank till 1996. Before 1966 it was refers to the primary cooperative banks located in urban and semi-
urban areas. After amendment in the Banking Regulation Act 1949 in 1966 this act was made applicable to
cooperative banks and made definition of UCB. Although some committees also have tried to define UCB as
under:
 Mehta-Bhansali Committee (1939)- Defined UCBs as “it is cooperative credit society having paid up
capital not less Rs. 20,000 and accepting deposits on saving , current and time deposit account and
returning as per demand of depositors by cheque, draft etc”.
 Madhavdas Committee (1979) –Defined “Urban cooperative bank is a cooperative credit institute
operating in urban or semi urban areas and having share capital of Rs. 4 Lakhs in metro cities, Rs. 3
Lakhs in urban areas and Rs 1.5 Lakhs in semi urban areas”.
 Banking Regulation Act- 1949 (New Provision 1966) - An urban cooperative bank was defined as a
Primary Cooperative Bank other than a primary agricultural credit society; (i) the primary object of which
is the transaction of banking business, (ii) the paid up share capital and reserves of which are not less than
Rs.1 lakh and (iii) the by-laws of which do not permit admission of any other cooperative society as a
member.
(*Student should not that provision of minimum paid up capital can be change as per rules and regulations of
RBI)
2.7.2 Organisation and Structure of UCBs
In India there is no accurate similarity in the functions and regulations regarding urban cooperative credit
societies except fulfilled urban cooperative banks. Although, we can explain the followings common features of
UCBs working in India.
 Membership: - The membership of UCBs is composed of persons living in urban and semi urban areas.
There is open membership for all Indian adults in UCBs except salary earners societies. In India, it is
found that some UCBs are provided membership for rural peoples also by laid down their by-laws and
with the permission of the Registrar of cooperative societies. General urban cooperative banks and thrift
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and credit cooperative societies are offering membership to all peoples but salary earners societies are
offering membership to only specific salaried employee.
 Establishment:- For the establishment of urban cooperative credit society there is need minimum ten
members and should registered under the cooperative societies Act of the respective state governments.
The urban cooperative banks should need to register under the banking regulation Act-1949 as take
license from RBI to doing banking business in urban and semi-urban.
 Capital and Fund: these banks and societies are allowed to collect capital from primary and nominal
share holders and reserve created out of profit earned. The share capital and reserve fund known as own
funds of UCBs. Other than share capital and reserve UCBs can collect funds by accepting deposits from
members and non-members, loans from DCCBs, Nationalised and other commercial banks.
 Management: - Like any other cooperative organisation the management of an UCBs are vests in a board
of directors who are elected by the general body consisting of all members (share holders). The tenure of
the board of directors is not same in the all states in India. In same sate tenure board of directors elected
each year, in some states once in three years and each year by rotation for one-third of the board. But now
most of UCBs accepted five year tenure of the board of directors. The RBI has made provision relating to
responsibility of board of directors for profit, loss, overdues, malpractice etc. in the bank.
 Area of Operation: - Initially the area of operation for UCBs was restricted to a one urban and semi
urban area. But now RBI allowed opening their branches in other cities and semi urban areas with
permission of RBI. UCBs allowed opening their branches out of state also only which are registered
under multi state cooperative society Act.
 Controlling and Supervision: - UCBs are governed by the Banking Regulations Act 1949 and Banking
Laws (Co-operative Societies) Act, 1966 as well as Cooperative Societies Act of the respective state
Governments. The Reserve Bank of India is the regulatory and supervisory authority for UCBs for their
banking related operations. In the case of UCBs which working in more than one state and registered
under Multi-state Cooperative Societies Act. The Union Government of India regulates those UCBs as
per multi-state cooperative society Act.
2.7.3 Types of UCBs
According to classification of Urban Cooperative Credit societies made by the Reserve Bank of India
there are followings three types of UCBs working in India.
a) Urban Bank:- Urban cooperative banks are that institutions which are established under cooperative low,
having paid up capital not less than Rs. 1 crore and accepting deposits from members and non-members
which usually repayable by cheque and carry normal banking business. Many urban cooperative banks,
which were organized initially, were essentially credit societies but later converted themselves into urban
cooperative banks. In the urban bank category some banks have statues of „Scheduled Urban Cooperative
Banks‟ which fulfilled norms and provisions as per second schedule of the Banking Regulation Act-1949.
i.e. The Karad Urban Cooperative Bank Ltd., Saraswat Co-operative Bank Ltd.,.
b) Salary Earners Societies: - it is the cooperative credit society established for mutual helps by particular
business of employees. Normally these societies are providing membership to employees working in
specific field, organization or business e.g. Govt. employees, industrial workers, teachers etc. These
members are depositing their surplus money and receiving loans and some banking facilities by this
societies. In India firstly, Late. Gopalkrishna Deodhar has organised Industrial Mill Labours Credit
Scoety in 1911 at „Badhoch‟ and in 1912 Sir Vitthaldas Thakrashi has established Mumbai West India
Girani Kamagar Patapedhi in Mumbai. In India, some salary earners cooperative credit societies obtained
statues of „Bank‟ other than credit society fulfilling the requirements of norms like paid up capital, profit,
deposits collection, asset quality etc. for example The Rayat Sevak Cooperative Bank Ltd. Satara,
20
Shikshak Sahakari Bank Ltd., Nagpur, Kolkata Police Co-operative Bank Ltd., The Bank Employees' Co-
op Bank Ltd. etc.
c) Thrift and Credit Societies: - it is third category of urban cooperative societies which having mixed
membership and registered under cooperative law also. In India there are many types of thrift and credit
societies are established by artisans, small traders, factory workers, salary earners and non-salary earners
to mutual aid. Its minimum required paid up capital is Rs. 20,000 this societies accept deposits and
providing loans to the member and non-members also. While RBI has not permitted to use word „Bank‟
in their name they can use word „Non-agriculture or Urban cooperative credit society‟ i.e. XYZ urban
cooperative credit society or XYZ non-agricultural cooperative credit society.
2.7.4 Objectives and Functions of UCBs
The mail intension of UCBs is providing mutual aid to urban and semi-urban peoples. As per this core
objective UCBs are working for as mentioned below:
1) To mobilise deposits from members and non-members in urban and semi-urban areas.
2) To made appropriate use of deposits mobilised from urban and semi-urban peoples.
3) To provide non-agricultural loans and advances to members and non-members in the operational area of
the particular UCB.
4) To provide consumer loans for purchasing good, vehicle, housing loans, educational loans etc.
5) To provide loans for craftsman, artisans, traders, small businessmen, self employed, unemployed persons
etc.
6) To provide loans for local project, developmental activities, social activities etc.
7) To undertake the general banking operations like deposit collection, fixed deposit and recurring deposit
facilities, bill payment, bill collection, cheque book etc.
8) To provide utility banking services to the peoples i.e. safe deposit custody, latter of credit, remittance
facilities, electricity bills, telephone bills collection facilities etc.
9) To made investment of excess funds in capital market government and corporate securities both.
10) To provide alternative and good banking services to urban and semi-urban peoples than
commercial banks.
2.7.5 Criteria for Gradation of Urban Co-operative Banks
To identify high performing and low performing UCBs RBI has made provision for gradation of UCBs in
following four grades:
Grade I- Sound banks having no supervisory concerns.
 Capital to risk-weighted asset ratio (CRAR) as prescribed norms
 Net non-performing assets (NPAs) of below 10 per cent
 Incurred net profit in the previous three financial year;
 Maintaining of cash reserve ratio (CRR)/ statutory liquidity ratio (SLR) as per guidelines
Grade II-Banks meeting any one of the following parameters:
 Capital to risk-weighted asset ratio (CRAR) one per cent below the prescribed norms; or
 Net non-performing assets (NPAs) of 10 per cent or more but below 15 per cent; or
 Incurred net loss in the previous financial year; or
 Defaulted in the maintenance of cash reserve ratio (CRR)/ statutory liquidity ratio (SLR) in the previous
financial year and/or there is more or less continuous default in maintenance of CRR/SLR during the
current year.
Grade III- Banks meeting any two of the following parameters:
 CRAR below 75 per cent of the minimum prescribed but 50 per cent or above the level required
 Net NPAs of 10 per cent or more but less than 15 per cent; or
 Incurred net losses for two years out of the last three years.
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Grade IV- Banks meeting the following conditions:

 CRAR less than 50 per cent of the prescribed limit; and
 Net NPAs of 15 per cent or more as on March 31 of the previous year.
Banks in Grade III and IV broadly correspond to weak and sick category under the earlier norms
Table no-4 Gradation of Urban Co-operative Banks
Year No. of UCBs Grade I Grade II Grade III Grade IV
2004 1919 880 307 529 203
2005 1872 807 340 497 228
2006 1853 716 460 407 270
2007 1813 652 598 295 268
2008 1770 748 526 258 238
2009 1721 845 484 219 173
Source- Trade and progress of Banking in India – 2009
Above table shows that there are total 845 UCBs are in grade-I, 484 UCBs are in Grade-II, 219 UCBs are
in Grade-III and 173 UCBs are in Grade-IV. It indicates that numbers of UCBS in Grade –I is declining from
2004 to 2008 and total 392 UCBs are weak and sick banks in 2008.
2.7.6 Progress of UCBs
There are about 1721 urban credit cooperative banks as on 2009 and these societies together constitute for
about 10 percent of the aggregate banking business and therefore regarded as an important segment of the India
banking system. The UCBs are not only important constituent of the Indian Financial System, Urban Cooperative
Banking sector has come to occupy a formidable place in the Indian Financial System. The facts and figures of
UCBs are evident that their progress over a period of time.
Table no-5 Progress of UCBS in India (amount in Rs. Crore)
Year 2004 2005 2006 2007 2008 2009
Numbers 1926 1872 1853 1813 1770 1721
Capital - 3221 3488 3884 4769 5261
Deposit Collection 110256 105021 114060 120983 139871 158733
Reserve Fund - 10383 10485 10864 45339 15591
Investment - 46872 50395 47316 56912 64171
Loans Distributed 67930 66874 71641 78660 90444 97918
Net Profit - - - 1173 1520 1746
Source – Statistical Tables Relating to Banks in India 2004 to 2009
1) Numbers of UCBs: - Over the years, urban cooperative banks have registered a significant growth in
number. There were only 304 UCBs in India in 1966 however efforts made by co-operators and support of
RBI as well as state governments in India now there are 1721 UCBs are working. Increased numbers of UCBs
creates competitive environment in the banking sector and it will be helps to urban peoples.
2) Scheduled UCBs: - Over the period of time RBI has realized performance of UCBs and awarded them
statues of scheduled urban cooperative banks under the second schedule of banking regulation Act-1949.
There were only 11 UCBs having status of scheduled bank in 1988-89 now it is increased to 53 as on March
2009. It indicates that UCBs also acting as good banking institutions and they proved themselves as
professional banker also. Some of them have also been permitted to undertake forex and merchant banking
activities.
3) Branch Expansion: - In India, not only numbers of UCBs are increased but also their numbers of branches
also increased after independence period. The RBI has allowed to efficient UCBs to opening their branches
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and extension counters other than their home town. Over a period of time, their areas have crossed the
frontiers of districts and in some cases the states of their registration. Even UCBs registered under multi state
cooperative society Act are opening their branches out of sate also. As on March 2009 there are 7500 ranches
of UCBs providing banking facilities in urban and semi urban areas.
4) Bankers for Middleclass: - According to The Maclagan Committee (1915) UCBs and urban credit societies
are eminently matched to cater to the needs of the lower and middle income strata of society and inculcate the
principles of banking amongst the middle classes. The committee also felt that the urban cooperative credit
movement was more viable than agricultural credit societies. Really it is found that UCBs are providing better
and affordable banking services to the urban peoples in India.
5) Deposits: - An analysis of market share of various bank groups indicates that the share of UCBs in total bank
deposits is relatively low but it is increasing day-by-day. Because of attractive schemes of deposits collection
and good interest rate offered by UCBs in India their market share grew steadily from 3.3% in 1990-91 to a
high of 10 % in 2008-09. Total collection of deposits of UCBs was Rs. 1,10,256 crore in 2004 but now it is
increased to Rs. 1,58,733 crore as on March 2009.
6) Reserve Fund: - The reserve funds of bank or any cooperative institution indicates their professional efficacy
and profitability. Because the reserve funds has been collected from the profit earned by the institution. The
provided by RBI shows that there is significant growth in collection of reserve fund by UCBs in India. In year
2004-05 there were Rs. 10,383 crore of total reserve funds of all scheduled and non-scheduled UCBs and it is
increased to Rs. 15,591 crore in 2008-09.
7) Loans and Advances: - The loans and advances of UCBs are becomes a significant alternative way to
obtaining credit facilities to productive and consumption purpose in urban areas. All UCBs of India were
distributed loans and advances of only Rs. 5,820 crore in 1988-89, Rs. 67,930 crore in 2003-04 and but it is
reached to Rs. 97,918 crore as on 2008-09.
8) Investment in corporate and Govt. Securities: -UCBs banks not only providing loans and advances to the
peoples but also investing their excess funds in the capital market and some of fund are investing as per the
provisions under the banking regulation Act-1949 for maintaining statutory liquidity ratio (SLR). In year
2004-05 all of scheduled and non-scheduled UCBs were invested total Rs. 46,872 crore in corporate and the
government securities. In 2008-09 this investment has increased to Rs. 64,171 crore. This investment
indirectly helps to private and the government enterprises to raise their funds for implementing projects and
their plans.
9) Consumer Loans: - UCBs are providing consumers loans to satisfy the wants of urban unbnked and common
peoples. The most of commercial banks are not providing such type of loans these banks providing only
productive loans to the peoples. However, UCBs has trying to facilitate such customers who wants
consumable loans for purchasing home appliances, two wheeler, four wheeler, commercial vehicles, old or
new house as well as providing loans for festival, emergency needs, educational loans etc.
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10) Net Profit: - Profit is one of the good professional indicators of successful banking organisation. However,
UCBs are not only concentrating on profit making business but also provide better banking and financial
facilities to urban and semi urban peoples. Because of their business expansion and increased volume of
transaction UCBs are earning good profit. Except some loss making UCBs there overall net profit were Rs.
1173 crore in 2006-07 it is increase to Rs. 1746 crore in 2008-09.
11) Other Roles and Achievements of UCBs:- Other than above UCBs have playing important role as
mentioned below:
 Providing loans and advances to priority sector segments viz. Small business establishments, SSIs,
retail traders, professional and self-employed persons etc.
 Implemented various welfare schemes for members and non-members like member welfare scheme,
pension scheme, monthly income scheme, regular income scheme, loan relief scheme for dead share
holder etc.
 They are providing intelligent and experience leadership in the cooperative movement in India.
 They are providing ownership to common urban peoples and enhancing their standard of living by
easy and chief financing, habits of banking, cooperative life style etc.
 Most of UCBs are providing computerised banking services like ATM, core banking, mobile
banking, SMS banking etc.
2.7.7 Difficulties and Problems of UCBs in India
There is no doubt UCBs has acquired important place in the urban cooperative credit system in India,
while there are some problems and difficulties found in their functions and the cooperative banking system in
India as mentioned below:
1. Problem of Dual control: - At present in India, urban cooperatives banks are subjected to duality of
control, meaning that the administration related aspects are being supervised and regulated by State
Government and the banking operations are supervised and regulated by the Reserve Bank of India. As
regards their regulation, which has become a subject of intense debate in the recent past, UCBs essentially
being co-operative societies are governed by their respective state governments out of the powers derived
from respective State Co-operative Societies Acts. Being banking institutions, they are also governed by
the Reserve Bank of India by virtue of powers conferred on it under the Banking Regulations Act.1949.
2. Unproductive Lending: - UCBs are providing productive as well as unproductive loans for urban
peoples. But unfortunately most of UCBs are concentrating on unproductive and consumable lending.
Consumable loans are diverting funds mobilized by UCBs to unproductive purpose. It is become one of
the causes of shortage in availability of capital for productive activities.
3. Mismanagement: - Mismanagement is one of the most important problems in Indian UCBs. Generally it
is seen that Non-Scheduled urban cooperative banks do not function efficiently due to lack of managerial
talent. The members and their elected representatives are not experienced enough to manage the society.
The board members and managers have an obligation to maintain interests of shareholders and depositors.
24
However, it found that the boards to take decisions that may not always be in the interest of the depositors
who constitute the most important stakeholders of a bank.
4. Unbalanced growth: - As on 31st March, 2009 there are 1721 UCBs. About 79 percent of these are
located in five states, - Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. Few states
such as Maharashtra, Gujarat, Karnataka, Andhra Pradesh and Tamil Nadu account for over 80% of urban
co-operative banks presence and 75% of their total deposits. The UCB sector is unique in that there is
significant degree of heterogeneity among the banks in this sector in terms of size, geographical
distribution, performance and financial strength.
5. Unsecured Investments: - the most of UCBs are investing their excess funds in corporate securities to
earn more interest income or returns on investment. However, such investment has high risk than
investment in the governments‟ securities. As per banking regulation amendment Act 1966, it is
compulsory to UCBs to follow guidelines but some UCBs are not following investment guidelines
provided by RBI.
6. Sick and Weak UCBs: - after 100 years of cooperative movement cooperative societies should become
sound and financial strong. But unfortunately it is evident that out of 1721 UCBs 392 are sick and weak
category in year 2009. Due to increased numbers of weak and sick UCBs RBI has implementing policy of
merger and amalgamation of Sick banks with financially strong banks or amalgamating two or more weak
banks in one bank.
7. Increasing NPA: - The repayments rate of loans distributed by UCBs is also low. Because of increased
unproductive and less secured lending by UCBs problem of Non-Performing Asset (NPA) becomes
serious in recent years. The overdues of UCBs have been rising steadily over the last ten years in India.
According to the reports of RBI there were 11.7% net NPA in 1999 now it is increased about 13% and
overall amount of overdues is Rs. 13043 crore in year 2009. Increased NPA has adversely affecting on
profitability and soundness of UCBs in India. 4. Overdues
8. Lack of Cooperative Education: - The cooperative credit societies should work for spread of
cooperative education also. It is noticed that UCBs are just concentrated on banking business than
progress of cooperative movement. There is need of cooperative education to employees, directors and
members of UCBs for better development of UCBs. The cooperative education and training can enhance
abilities of co-operators and members of management. But unfortunately there is very poor efforts done
by the UCBs for it.
9. Political Interference: - Unnecessary political interference is one of the most important barriers in whole
cooperative movement in India. Political leaders are using UCBs for personal interests. Political
interference and over-politisation have proved harmful to their growth.
10. Decline in Public Confidence: - Some of UCBs are not following rules and regulations of RBI and
providing unsecured loans and advances, it leads to overdues and less profitability in business. Depositors
of UCBs are not filling secured in such environment. Hence, they withdrawing their deposits from UCBs
25
and depositing in commercial banks. Major reasons for the decline in public confidence is the liquidity
crisis faced, mismanagement, winding up and mergers and acquisition of UCBs.
11. Absence of Apex Bank: - In Indian cooperative credit system, rural credit cooperatives have apex banks.
However, UCBs have not such apex banks to control and guide them. Absence of apex bank adversely
affecting progress of UCBs in India. At present as banking business RBI is acting as supervising authority
of UCBs but RBI is not sole authority there is Registrar of cooperative societies also interfering in the
supervisory activities.
2.7.8 Remedies
The urban co-operative banking sector being an integral part of financial system, RBI has brought in a
series of reforms in it.
1. The recent Mdhava Rao Committee (High Power Committee) on UCBs has dwelt extensively on certain
regulatory issues related to UCBs' licensing policy, future set up of weak and unlicensed banks,
application of capital adequacy norms, resolution of conflicts arising of dual control over UCBs, etc. RBI
has accepted these recommendations and implemented them.
2. RBI has been gradually attempting at regulatory convergence for both. To begin with, in 1993, RBI
introduced Income Recognition and Asset Classification Norms to UCBs. In 1995, the prudential
exposure norms to single/group borrowers were also made applicable to them.
3. New norms of Non- Performing Assets System have been introduced by RBI. The period of
classification NPAs of 180 days has been reduced 90 days for UCBs.
4. Implemented „CAMELS‟ based supervisory rating since 2003 for urban co-op. This includes Capital
Adequacy, Asset Quality Management, Earnings, Liquidity and System and Control.
5. New norms for identification of financially sound urban co-op. banks and „Weak' and' Sick‟ banks RBI
has introduced norms of CRAR, Net NPA, History of losses are the parameters. Now Reserve Bank has
India has introduced the gradation systems for urban co-op. banks i.e. Grade-I,II,III and IV bank.
6. To strengthening the audit systems RBI has advised to UCBs to adopt professionalization of audit and
mandatory concurrent audit.
7. RBI has implemented merger and amalgamation policy for weak and sick UCBs in India as per
recommendations of Mr. Shard Marathe Committee (1991).
8. To reduce level of NPA debt saucerisation Act made applicable to urban cooperative banks also and
Debt Recovery Tribunal (DRT) facilities provided to UCBs.
9. To enhance professional management and increase skilled employees in UCBs in India RBI has
providing training facilities to employees of UCBs through RBIs bankers training colleges at Pune,
Mumbai and Hyderabad.
10. Loans and Advances to Directors of urban banks co- op. banks and their relatives have been totally
banned.
26
11. RBI has adopted strict entry point rules and regulation for UCBs and providing licence to only sound
and strong banks.
2.7.9 Vision Document for UCBs
The Reserve Bank eventually formulated a draft vision document, placed it in the public domain in March 2005
and finalised it thereafter, with the following objectives:
(i) To rationalize the existing regulatory and supervisory approach keeping in view the heterogeneous
character of entities in the sector
(ii) To facilitate a focused and continuous system of supervision through enhanced use of technology.
(iii) To enhance professionalism and improve the quality of governance in UCBs by providing training
for skill up-gradation as also by including large depositors in the decision making process / management
of banks.
(iv) To put in place a mechanism that addresses the problems of dual control, given the present legal
framework, and the time consuming process in bringing requisite legislative changes
(v) To put in place a consultative arrangement for identifying weak but potentially viable entities in the
sector and provide a framework for their being nurtured back to health including, if necessary, through a
process of consolidation
(vi) To identify the unviable entities in the sector and provide an exit path for such entities.
1. Urban cooperative banks also referred to as ……………………….
a) Primary co-operative banks b) Nationalised bank c) Private Bank d) Agriculture Bank
2. The membership of UCBs is composed of persons living in ………..areas.
a) Rural b) urban and semi urban c) Backward d) Developed
3. The urban cooperative banks should need to register under the ……………..as bank
a) Company Act 1956 b) Banking Act 1967 c) Banking regulation Act-1949 d) Coop. Act 2005
4. Net non-performing assets (NPAs) of below …………. per cent of Grade-I UCBs
a) 21 b) 10 c) above 11 d) 7
5. The …………. Committee on UCBs has dwelt extensively on certain regulatory issues related to
UCBs' licensing policy,
a) Pramod Lata b) Narsimahan c) Mdhava Rao d) Mehata
1. How many UCBs are working in India as on 31st March, 2009?
2. Which is the first Urban Cooperative Bank in India?
3. What is initially area of operation for UCBs?
4. What are the salary erasers societies?
5. How many groups have been classified by the RBI for UCBs in India?
27

A) 1- a) Primary co-operative banks 2- b) urban and semi urban 3- c) Banking regulation Act-1949
4- b) 10 5-c) Mdhava Rao
B) Answers
1. There are 1721 UCBs working in India as on 31st March, 2009
2. The first Urban Cooperative Bank in India known as “Mutual Aid Society of Baroda”
3. Initially the area of operation for UCBs was restricted to a one urban and semi urban area.
4. The salary erasers societies the cooperative credit society established for mutual helps by particular
business of employees.
5. Four groups have been classified by the RBI for UCBs in India.
2.8 Summary
According to the available information the first Co-op. Credit Society was established in February 1889 at
Baroda by Shri. V.L. Kavthekar. The idea of the starting cooperative societies in India for combating rural
indebtedness and supplying rural credit on a cheaper rate was first given by Frederick Nicholson in 1895.
However, well organised cooperative movement has been started since 1904 by entitling legal provision.
There are Three tire structure has been accepted in Indian cooperative credit mechanism while some
states have following two tire structure. As present there is 94,942 PACS are providing credit facilities to
shareholders. Till March 2008 PACS have provided Rs. 43,696 core as short term loan and Rs. 21,970 crore as
medium term loans.
There is 372 DCCBs providing financial services with their 13208 branches in India. Till March 2008
they have provided loans of Rs. 95974 crore and invested Rs. 44,419 crore. DCCBs are playing very important
role at district level as intermediaries between SCBs and PACS.
In India, total 31 SCBs and their 986 branches providing funding facilities to DCCBs and non-credit
cooperatives. These banks are acting as Apex Bank for cooperative banks in respected state. All SCBs has issued
loans of Rs. 32798 core in 2003 and now it reached to Rs. 48228 core. Investment of the SCBs in various
financial instruments of capital market and money market also increased from Rs. 19627 core to Rs. 29060 core.
UCBs are one of the alternative banking institutions in the urban and semi-urban areas. As per the
information available the first Urban Cooperative Bank in India known as “Mutual Aid Society of Baroda”. Now
in India, 1721 UCBs are providing financial service to customers. The RBI has classified UCBs in four groups as
Groups-I, II, III and IV and as on March 2009 845 UCBs are in Group-I, 484 are in Group-II, 219 are in Group-
III and 173 are in Group-IV.
If we overlooked the problems of credit cooperatives we can realized that there are same problems e.g.
lack of funds, political interference, unskilled employees, NPA, poor recovery, mismanagement, dependency etc.
2.9 Glossary
 NPA- Nonperforming assets or dues of loans disbursed
 Apex Bank- higher authority in respected banking group
28
 Non-interest Income- Income earned by other than interest e.g. fee, charges, rent, commission etc.
 Net profit- Profit after all provisions made from gross profit
2.10 Questions for Self Study
A) Write answers of followings questions
1. Explain the progress and problems faced by Primary credit cooperative societies in India.
2. Explain objectives and progress of district central cooperative banks in India.
3. Discuss the progress and problems of State Cooperative Banks in India
4. Explain the progress of Urban Cooperative Banks in India.
5. Discuss about structure of credit cooperative movement in India
B) Write Short notes
1. Cooperative Credit System in India
2. PACS
3. Problems of DCCBs
4. Functions of SCBs
5. Problems of UCBs
6. Vision Document for UCBs
2.11 Field Work: Student can collect information about loans distribution of PACS, DCCBs, their NPA and
problems faced by PACS and DCCBs in their respected district/village. They can collect information about
human resources, membership pattern, management, loan policy of these institutions.
References:
1. Jain Pramod Lata (1990) Coopertive Credit In Rural India, Mittal Publication, New Delhi, ISBN-81-
7099-204-4
2. Madam G. R. (2007), Co-operative Movement in India, Mittal Publication, Delhi. ISBN – 81-8324-193-X
3. Mathur B. S. (2001), Sahitya Bhavan Publications & Distributors, Agra ISBN- 81-7618-143-9
4. Reserve Bank of India (1999): Report of the High Power Committee on Urban Cooperative Banks, RBI,
Mumbai
5. Ruddar Datt & KPM Sundharam, 'Indian Economy', S. Chand & Company Ltd., Ram Nagar, new Delhi
6. Sami Uddin and Mahfoozur Rahman, (2001) Cooperative Sector in India, S. Chand & Company Ltd,
Ram Nagr, New Delhi
7. Thirunarayana R. (1996), Co-opertive Banking in India, Mittal Publication, ISBN 81-7099-655-4.
8. Williams Richard (2007), The Co-operative Movement. Globalization frombelow, Ashgate Publishing
Ltd. England, ISBN-978-0-7546-7038-4.
9. Statistical Tables Relating to Banks in India 2004 to 2009
10. www.nafscob.org
11. www.nabard.org.
12. www.nafcub.org.
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