Objective and Function of Cooperative Banks


This article focuses on the Objective and Function of Cooperative Banks. I am going to share the information about Objective and Function of Cooperative Banks in a simple way. Today, I will also share the information about cooperative banks, types of cooperative banks, advantages, and disadvantages of cooperative banks, three Pillars structure of cooperative banks, State Cooperative banks, District Central Cooperative Bank difference between cooperative banks and commercial banks

Objective and Function of Cooperative Banks:

Cooperative Bank:

  • The cooperative banking structure is the oldest segment of the Indian banking system.
  • Cooperative Bank is the district feature of the co-operative credit structure in the Indian banking system
  • Cooperative banks CATER to the financial needs of agriculture, retail tree, small industries, self-employed, urban, semi-urban, rural areas.

Cooperative Banks fall under the Cooperative Societies Act which is regulated by the RBI and are governed by the Banking Regulations Act 1949 and Banking Laws (Cooperative Societies) Act, 1965. It is originated in India with the enactment of the Co-operative Credit Societies Act of 1904. The Anyoya Cooperative Bank was the first Co-operative Bank in Asia.

Structure of cooperative banks in India:

It is 3-Pillars structure (Pyramid Structure)

  • SCB – State Cooperative Bank
  • DCCB – District Central Cooperative Bank
  • PACS – Primary Agriculture credit services (There should be 10 members in PACS)

State Cooperative banks:

It is a federation of central Co-operative bank and acts as a watchdog. They obtain their funds from share capital, deposits, loans and overdrafts from the Reserve Bank of India and can lend money to central co-operative banks and primary societies and not directly to the farmers.

District Central Cooperative Bank

These are the federations of primary credit societies in a district and are of two types-those having a membership of primary societies only and those having a membership of societies as well as individuals. The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks. These banks provide finance to member societies within the limits of the borrowing capacity of societies. They also conduct all the business of a joint stock bank

Primary Agriculture credit services

The primary cooperative credit society is an association of borrowers and non-borrowers residing in a locality. The funds of the society are derived from the share capital and deposits of members and loans from central cooperative banks. The borrowing powers of the members as well as of the society are fixed. The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, etc

The members of the cooperative bank:

  1. Are of similar occupation or profession
  2. Must have common membership
  3. Must reside within the same geographical area

Objectives of Cooperative banks:

  1. Engage in rural financing and micro-financing
  2. To remove the dominance of the common man by the middleman and money lenders
  3. Ensure credit services to farmers at the low rate of interest providing the socioeconomic condition to the people
  4. Provide financial support for the needy people and farmers in the rural areas
  5. Provides personal financial services for those engaged in small-scale industries and self-employment driven activities for people in both rural and urban areas

Difference between Co-operative banks & Commercial banks:

Cooperative Bank

Commercial Bank

Federal Structure in nature,
i.e. at the top level
State Co-operative Banks and
at the village level primary
Co-operative Credit Societies.
They are functioning on the branch
banking & the branches are located in all
areas of rural, urban, etc., the head
office contain branches through
Zonal Office.
They are generally concentrating
on rural credit & provide credit
facilities to agricultural &
rural activities.
They are mainly concentrating
on the requirements of
trade & industry.
In co-operative Bank the borrowers
are usually their members.
Borrowers can be any
including individual institutions.
The Co-operative Banks provide
a little higher rate of interest
on deposits as compared to
commercial banks.
The Commercial Banks provide
a lesser rate of interest as compared
to co-operative banks.

Functions of Cooperative Banks in India: cooperative banks functions

  1. They function with the rule of “one member, one vote” and function on “no profit, no loss” basis
  2. It performs all the main banking functions of deposit mobilization, the supply of credit and provision of remittance facilities
  3. It provides financial assistance to the people with small means to protect them from the debt trap of the moneylenders
  4. It is engaged in tasks of production, processing, marketing, distribution, servicing and banking in India
  5. It supervises and guides affiliated societies
  6. Mobilization of funds from their members
  7. Advance loans to the members
  8. Rural financing for farming, cattle, milk, hatchery, personal finance, etc.
  9. Urban financing for Self – employment, Industries Small scale units, Home finance, Consumer finance, Personal finance

List of Advantages of Cooperative Banks in India:

  • Easy to form
  • No obstruction for membership
  • Limited liability
  • Service motive
  • Democratic management
  • Stability and Continuity
  • Economic operations
  • State patronage

The weakness of Cooperative Banks in India:

  1. They are too small to be economical and viable; besides too many of them are dormant, existing only on paper
  2. Co-operative banks are not doing well in all the states; only a few accounts for a major part of their business
  3. These banks still rely very heavily on refinancing facilities from the government, the RBI, and NABARD
  4. They suffer from dangerously low or weak quality of loan assets, and from the highly unsatisfactory recovery of loans.
  5. They do not look like banks and do not inspire confidence in the potential members, depositors, and borrowers.
  6. Most of the Co-operative banks are suffering from a lack of professional management.
  7. Except for some Co-operative banks, technological development in Information Technology or computerized data management is conspicuously absent.
  8. As there is no formal system of corporate governance in co-operative banks, many banks have become the hotbed of political patronage, unscrupulous financial practice, and gross mismanagement.
  9. Another problem arises out of the duality of control over them i.e. these banks are organized under the dual control of RBI and as well as respective state government.
  10. They unduly depend on government capital rather than member capital.



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