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What is a Co-operative Bank?

by Uddipana Gogoi

Co-operative bank is financial institutions established on a co-operative basis. Customers are both owners and members of the such banks. State Co-operative Societies registers co-operative banks in India. The 97th amendment of the constitution of India deals with establishment and registration of cooperative societies. Moreover, the Reserve Bank of India regulates the co-operative societies. The Banking Regulations Act, 1949 and Banking Law (Co-operative Societies) Act, 1955 governs the co-operative banking system in India. Some examples of cooperative banks are Punjab and Maharastra Cooperative bank, Bharat Cooperative Bank, Janta Cooperative Bank etc.

Features of Co-operative Bank

  1. Customers are both owners and members of cooperative banks.
  2. It follows co-operative principles and believes in a “one member, one vote” system.
  3. Fair distribution of profit among members is another important feature of cooperative banks.
  4. It performs normal banking functions and also implements financial inclusion schemes for rural development. 

Advantages of Cooperative Bank

  1. Co-operative banks ensures formal banking in non-banked areas of rural economy of India and makes access to rural population.
  2. It replaces the traditional informal credit system of money lenders, indegeneous bankers, larlords etc.
  3. Cooperative banking institutions helps the government to implement financial inclusion schemes for financially vulnerable people as it deals with this group of people.
  4. It encourages savings and investment among rural people through micro finance.
  5. It promotes entrepreneurship and MSME through financial support and other necessary support.
  6. 6. It also promotes co-operative societies, group borrowing, SHGs etc.

Disadvantages of cooperative banks

  1. It suffers from mismanagement of human resources, financial resources etc.
  2. There is a high amount of non performing assets (NPAs) in the co-operative banking sector.
  3. Most of the benefits from the cooperatives absorbs by the big land owners because of their strong socio-economic position.
  4. Long-term credit extended by such banks is declining significantly.
  5. There is an imbalance in growth in the cooperative banking system in India.  cooperatives in northeast states and in states like West Bengal, Bihar, Odisha are at par with the ones in Maharashtra and Gujarat. 
  6. Politicians use them to increase their vote bank and usually get their representatives elected over the board of directors in order to gain undue advantages.
Structure of co-operative banks

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