BHARATHIDASAN UNIVERSITY

TIRUCHIRAPPALLI – 620 024

CENTRE FOR DISTANCE EDUCATION

B.Com-BANK MANAGEMENT
II-YEAR MAJOR PAPER-III

CO-OPERATIVE BANKING

Dr. S.ELANGO
M.Com., M.Phil., M.B.A., PGDCSA., D.Cop., Ph.D.
Associate Professor in Commerce,
PG & Research Department of Commerce,
Urumu Dhanalakshmi College,
Tiruchirappalli-620019.
SYLLABUS
CO-OPERATIVE BANKING
Objectives:
To understand the basic principles of Co-operation and its application in Banking
UNIT – I
Banking system in India – Co-operative Banking – Meanings – Definitions –
Objectives and Functions – Growth of Co-operative Credit in India – Structure of Co-
operative Credit – Limitations and Problems
UNIT – II
Types of Co-operative Banks – Primary Agricultural Co-operative Credit Society –
Organisation, Functions and Working – Lending Policies – Programmers – Recovery and
Overdue Problems – Viability of Primary Co-operatives
UNIT – III
District Co-operative Banks – Organisations – Functions and Workings – Lending
Policy and Procedure - Funds Positions in Co-operative Banks – Recovery and Overdue
Problems - State Co-operative Banks – Constitution and Working
UNIT – IV
Co-operative Land Development Bank – SLDB – PLDB – Constitution, Objects,
Working – Source of Funds Lending and Overdue Problems – Urban Co-operative Banks –
Employee Co-operative Credit Societies – Objects - Functions and Working
UNIT – V
Role of NABARD and Co-operative Development – Objectives – Functions –
Organisational Structure – Direct and Indirect Finance by NABARD – Operational
Performance of NABARD

TEXT AND REFERENCE BOOKS

1. Co-operative Banking in India – Dr.S.Nakkiran., Rainbow Publication, Coimbatore.
2. Co-operative Banking – C.D.Indule, Continental Prakashan, Pune.
3. Principles and Practice of Co-operative Banking in India – B.N.Chobey., Asia
Publishing House, London.
LESSON - 1
BANKING SYSTEM IN INDIA
The objectives of this lesson are:
1. To study the definition and concepts of the banking system in India
2. To understand the meaning, objectives and functions of Cooperative Banks.
3. To know the origin and growth of co-operative banks and credit societies in India.
4. To differentiate between the co-operative banking and commercial banking.
5. To understand the structure of Indian banking systems and co-operative credit society
6. To provide various important review committees on co-operative credit banking.
7. To analyze the problems of co-operative credit
Introduction
A bank is a financial institution that provides banking and other financial services to
their customers. A bank is generally understood as an institution which provides fundamental
banking services such as accepting deposits and providing loans. There are also non- banking
institutions that provide certain banking services without meeting the legal definition of a
bank. Banks are a subset of the financial services industry.
A banking system also referred as a system provided by the bank which offers cash
management services for customers, reporting the transactions of their accounts and
portfolios, throughout the day. The banking system in India should not only be hassle free but
it should be able to meet the new challenges posed by the technology and any other external
and internal factors. For the past three decades, India’s banking system has several
outstanding achievements to its credit. The Banks are the main participants of the financial
system in India. The Banking sector offers several facilities and opportunities to their
customers. All the banks safeguards the money and valuables and provide loans, credit, and
payment services, such as checking accounts, money orders, and cashier’s cheques. The
banks also offer investment and insurance products. As a variety of models for cooperation
and integration among finance industries have emerged, some of the traditional distinctions
between banks, insurance companies, and securities firms have diminished. In spite of these
changes, banks continue to maintain and perform their primary role—accepting deposits and
lending funds from these deposits.
Definition
i) According to Sec.5(b) of the Banking Regulation Act, 1949, the term “Banking
means accepting for the purpose of lending or investment of deposits of money received from
the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”.

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ii) According to the Banking Regulation Act, 1949, a “Banker” is the one who is
engaged in the business of accepting deposits from the public and utilizing such deposits
either for the purpose of lending or for the purpose of investment.
iii) According to David Ricardo, “Bank” is a dealer or transaction of money. They are
the financial intermediaries collecting “deposits” and lending “loans”.
Need for the Banks
Before the establishment of banks, the financial activities were handled by money
lenders and individuals. At that time the interest rates were very high. Again there were no
security of public savings and no uniformity regarding loans. So as to overcome such
problems the organized banking sector was established, which was fully regulated by the
government. The organized banking sector works within the financial system to provide
loans, accept deposits and provide other services to their customers. The following functions
of the bank explain the need of the bank and its importance:
 To provide the security to the savings of customers.
 To control the supply of money and credit
 To encourage public confidence in the working of the financial system, increase
savings speedily and efficiently.
 To avoid focus of financial powers in the hands of a few individuals and institutions.
 To set equal norms and conditions (i.e. rate of interest, period of lending etc) to all
types of customers
History of Indian Banking System
The first bank in India, called The General Bank of India was established in the year
1786. The East India Company established The Bank of Bengal/Calcutta (1809), Bank of
Bombay (1840) and Bank of Madras (1843). The next bank was Bank of Hindustan which
was established in 1870. These three individual units (Bank of Calcutta, Bank of Bombay,
and Bank of Madras) were called as Presidency Banks. Allahabad Bank which was
established in 1865, was for the first time completely run by Indians. Punjab National Bank
Ltd. was set up in 1894 with head quarters at Lahore. Between 1906 and 1913, Bank of India,
Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore
were set up. In 1921, all presidency banks were amalgamated to form the Imperial Bank of
India which was run by European Shareholders. After that the Reserve Bank of India was
established in April 1935.

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At the time of first phase the growth of banking sector was very slow. Between 1913
and 1948 there were approximately 1100 small banks in India. To streamline the functioning
and activities of commercial banks, the Government of India came up with the Banking
Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per
amending Act of 1965 (Act No.23 of 1965). Reserve Bank of India was vested with extensive
powers for the supervision of banking in India as a Central Banking Authority. After
independence, Government has taken most important steps in regard of Indian Banking
Sector reforms. In 1955, the Imperial Bank of India was nationalized and was given the name
"State Bank of India", to act as the principal agent of RBI and to handle banking transactions
all over the country. It was established under State Bank of India Act, 1955. Seven banks
forming subsidiary of State Bank of India was nationalized in 1960. On 19th July, 1969,
major process of nationalization was carried out. At the same time 14 major Indian
commercial banks of the country were nationalized. In 1980, another six banks were
nationalized, and thus raising the number of nationalized banks to 27 more banks were
nationalized with deposits over 200 Crores. Till the year 1980 approximately 80% of the
banking segment in India was under government’s ownership. On the suggestions of
Narsimhan Committee, the Banking Regulation Act was amended in 1993 and thus the gates
for the new private sector banks were opened. The following are the major steps taken by the
Government of India to Regulate Banking institutions in the country:-
1949 : Enactment of Banking Regulation Act.
1955 : Nationalisation of State Bank of India.
1959 : Nationalization of SBI subsidiaries.
1961 : Insurance cover extended to deposits.
1969 : Nationalisation of 14 major Banks.
1971 : Creation of credit guarantee corporation.
1975 : Creation of regional rural banks.
1980 : Nationalisation of seven banks with deposits over 200 Crores.
Nationalisation of the Banks
By the 1960s, the Indian banking industry has become an important tool to facilitate
the development of the Indian economy. At the same time, it has emerged as a large
employer, and a debate has ensured about the possibility to nationalise the banking industry.
Indira Gandhi, the-then Prime Minister of India expressed the intention of the Government of
India (GOI) in the annual conference of the All India Congress Meeting in a paper entitled
"Stray thoughts on Bank Nationalisation". The paper was received with positive enthusiasm.

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Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised
the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash
Narayan, a national leader of India, described the step as a "Masterstroke of political
sagacity" Within two weeks of the issue of the ordinance, the Parliament passed the Banking
Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential
approval on 9 August, 1969.
A second step of nationalisation of 6 more commercial banks followed in 1980. The
stated reason for the nationalisation was to give the government more control of credit
delivery. With the second step of nationalisation, the GOI controlled around 91% of the
banking business in India. Later on, in the year 1993, the government merged New Bank of
India with Punjab National Bank. It was the only merger between nationalised banks and
resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until
the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth
rate of the Indian economy. The nationalised banks were credited by some; including Home
minister P. Chidambaram, to have helped the Indian economy withstand the global financial
crisis of 2007-2009.
Liberalisation of the Banks
In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalisation, licensing a small number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust Bank (the first of such new
generation banks to be set up), which later amalgamated with Oriental Bank of Commerce,
Axis Bank (earlier as UTI Bank), ICICI Bank and HDFC Bank. This move along with the
rapid growth in the economy of India revolutionized the banking sector in India which has
seen rapid growth with strong contribution from all the three sectors of banks, namely,
government banks, private banks and foreign banks. The next stage for the Indian banking
has been setup with the proposed relaxation in the norms for Foreign Direct Investment,
where all Foreign Investors in banks may be given voting rights which could exceed the
present cap of 10%, at present it has gone up to 49% with some restrictions.
The new policy shook the banking sector in India completely. Bankers, till this time,
were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning.
The new wave ushered in a modern outlook and tech-savvy methods of working for the
traditional banks. All this led to the retail boom in India. People not just demanded more from
their banks but also received more. Currently (2007), banking in India is generally fairly
mature in terms of supply, product range and reach-even though reach in rural India still

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remains a challenge for the private sector and foreign banks. In terms of quality of assets and
capital adequacy, Indian banks are considered to have clean, strong and transparent balance
sheets as compared to other banks in comparable economies in its region. The Reserve Bank
of India is an autonomous body, with minimal pressure from the government. The stated
policy of the Bank on the Indian Rupee is to manage volatility but without any fixed
exchange rate-and this has mostly been true. With the growth in the Indian economy expected
to be strong for quite some time-especially in its services sector-the demand for banking
services, especially retail banking, mortgages and investment services are expected to be
strong.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its
stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an
investor has been allowed to hold more than 5% in a private sector bank since the RBI
announced norms in 2005 that any stake exceeding 5% in the private sector banks would
need to be voted by them. In recent years critics have charged that the non-government
owned banks are too aggressive in their loan recovery efforts in connection with housing,
vehicle and personal loans. There are press reports that the banks' loan recovery efforts have
driven defaulting borrowers to suicide.
Government policy on banking industry (Source:-The federal Reserve Act 1913 and
The Banking Act 1933)
Banks operating in most of the countries must contend with heavy regulations, rules
enforced by Federal and State agencies to govern their operations, service offerings, and the
manner in which they grow and expand their facilities to better serve the public. A banker
works within the financial system to provide loans, accept deposits, and provide other
services to their customers. They must do so within a climate of extensive regulation,
designed primarily to protect the public interests.
The main reasons why the banks are heavily regulated are as follows:
 To protect the safety of the public’s savings.
 To control the supply of money and credit in order to achieve a nation’s broad
economic goal.
 To ensure equal opportunity and fairness in the public’s access to credit and
other vital financial services.
 To promote public confidence in the financial system, so that savings are
made speedily and efficiently.

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 To avoid concentrations of financial power in the hands of a few individuals
and institutions.
 Provide the Government with credit, tax revenues and other services.
Law of banking
Banking law is based on a contractual analysis of the relationship between the bank
and customer—defined as any entity for which the bank agrees to conduct an account. The
law implies rights and obligations into this relationship as follows:
 The bank account balance is the financial position between the bank and the
customer: when the account is in credit, the bank owes the balance to the customer;
when the account is overdrawn, the customer owes the balance to the bank.
 The bank agrees to pay the customer's cheques up to the amount standing to the credit
of the customer's account, plus any agreed overdraft limit.
 The bank may not pay from the customer's account without a mandate from the
customer, e.g. cheques drawn by the customer.
 The bank agrees to promptly collect the cheques deposited to the customer's account
as the customer's agent, and to credit the proceeds to the customer's account.
 The bank has a right to combine the customer's accounts, since each account is just an
aspect of the same credit relationship.
 The bank has a lien on cheques deposited to the customer's account, to the extent that
the customer is indebted to the bank.
 The bank must not disclose details of transactions through the customer's account—
unless the customer consents, there is a public duty to disclose, the bank's interests
require it, or the law demands it.
 The bank must not close a customer's account without reasonable notice, since
cheques are outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the
customer and the bank. The statutes and regulations in force within a particular jurisdiction
may also modify the above terms and/or create new rights, obligations or limitations relevant
to the bank-customer relationship.
Regulations for Indian banks
Currently in most jurisdictions commercial banks are regulated by government
entities and require a special bank license to operate. Usually the definition of the business of
banking for the purposes of regulation is extended to include acceptance of deposits, even if
they are not repayable to the customer's order—although money lending, by itself, is

8
generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in
the market, i.e. a government-owned (central) bank. Central banks also typically have a
monopoly on the business of issuing banknotes. However, in some countries this is not the
case. In UK, for example, the Financial Services Authority licenses banks, and some
commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to
those issued by the Bank of England, the UK government's central bank.
Some types of financial institutions, such as building societies and credit unions, may
be partly or wholly exempted from bank license requirements, and therefore regulated under
separate rules. The requirements for the issue of a bank license vary between jurisdictions but
typically include:
 Minimum capital
 Minimum capital ratio
 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or
senior officers
 Approval of the bank's business plan as being sufficiently prudent and plausible.
Classification of Banking Industry in India
Indian banking industry has been divided into two parts, organized and unorganized
sectors. The organized sector consists of Reserve Bank of India, Commercial Banks and Co-
operative Banks, and Specialized Financial Institutions (IDBI, ICICI, IFC etc). The
unorganized sector, which is not homogeneous, is largely made up of money lenders and
indigenous bankers.
An outline of the Indian Banking structure may be presented as follows:-
1. Reserve banks of India.
2. Indian Scheduled Commercial Banks.
a. State Bank of India and its associate banks.
b. Twenty nationalized banks.
c. Regional rural banks.
d. Other scheduled commercial banks.
3. Foreign Banks
4. Non-scheduled banks.
5. Co-operative banks.

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Reserve bank of India
The reserve bank of India is a central bank and was established in April 1, 1935 in
accordance with the provisions of reserve bank of India act 1934. The central office of RBI is
located at Mumbai since inception. Though originally the reserve bank of India was privately
owned, since nationalization in 1949, RBI is fully owned by the Government of India. It was
inaugurated with share capital of Rs. 5 Crores divided into shares of Rs. 100 each fully paid
up.
RBI is governed by a central board (headed by a governor) appointed by the central
government of India. RBI has 22 regional offices across India. The reserve bank of India was
nationalized in the year 1949. The general superintendence and direction of the bank is
entrusted to central board of directors of 20 members, the Governor and four deputy
Governors, one Governmental official from the ministry of Finance, ten nominated directors
by the government to give representation to important elements in the economic life of the
country, and the four nominated director by the Central Government to represent the four
local boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Board
consists of five members each central government appointed for a term of four years to
represent territorial and economic interests and the interests of co- operative and indigenous
banks.
The RBI Act 1934 was commenced on April 1, 1935. The Act, 1934 provides the
statutory basis of the functioning of the bank. The bank was constituted for the need of
following:
 To regulate the issues of bank notes.
 To maintain reserves with a view to securing monetary stability
 To operate the credit and currency system of the country to its
advantage. Functions of RBI as a central bank of India are explained briefly as
follows: Bank of Issue:
The RBI formulates, implements, and monitors the monitory policy. Its main
objective is maintaining price stability and ensuring adequate flow of credit to productive
sector.
Regulator-Supervisor of the financial system:
RBI prescribes broad parameters of banking operations within which the country’s
banking and financial system functions. Their main objective is to maintain public confidence
in the system, protect depositor’s interest and provide cost effective banking services to the
public.

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Manager of exchange control:
The manager of exchange control department manages the foreign exchange,
according to the foreign exchange management act, 1999. The manager’s main objective is to
facilitate external trade and payment and promote orderly development and maintenance of
foreign exchange market in India.
Issuer of currency:
A person who works as an issuer, issues and exchanges or destroys the currency and
coins that are not fit for circulation. His main objective is to give the public adequate quantity
of supplies of currency notes and coins and in good quality.
Developmental role:
The RBI performs the wide range of promotional functions to support national
objectives such as contests, coupons maintaining good public relations and many more.
Related functions:
There are also some of the related functions to the above mentioned main functions.
They are such as, banker to the government, banker to banks etc….
 Banker to government performs merchant banking function for the central and the
state governments; also acts as their banker.
 Banker to banks maintains banking accounts to all scheduled banks.
Controller of Credit:
RBI performs the following tasks:
 It holds the cash reserves of all the scheduled banks.
 It controls the credit operations of banks through quantitative and qualitative
controls.
 It controls the banking system through the system of licensing, inspection and
calling for information.
 It acts as the lender of the last resort by providing rediscount facilities to
scheduled banks.
Supervisory Functions: In addition to its traditional central banking functions, the
Reserve Bank performs certain non-monetary functions of the nature of supervision of banks
and promotion of sound banking in India. The Reserve Bank Act 1934 and the banking
regulation act 1949 have given the RBI wide powers of supervision and control over
commercial and co-operative banks, relating to licensing and establishments, branch
expansion, liquidity of their assets, management and methods of working, amalgamation,
reconstruction and liquidation. The RBI is authorized to carry out periodical inspections of

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the banks and to call for returns and necessary information from them. The nationalisation of
14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI
for directing the growth of banking and credit policies towards more rapid development of
the economy and realisation of certain desired social objectives. The supervisory functions of
the RBI have helped a great deal in improving the standard of banking in India to develop on
sound lines and to improve the methods of their operation.
Promotional Functions: With economic growth assuming a new urgency since
independence, the range of the Reserve Bank’s functions has steadily widened. The bank now
performs a variety of developmental and promotional functions, which, at one time, were
regarded as outside the normal scope of central banking. The Reserve bank was asked to
promote banking habit, extend banking facilities to rural and semi-urban areas, and establish
and promote new specialized financing agencies.
Indian Scheduled Commercial Banks
The commercial banking structure in India consists of scheduled commercial banks,
and unscheduled banks.
Scheduled Banks: Scheduled Banks in India constitute those banks which have been
included in the second schedule of RBI act 1934. RBI in turn includes only those banks in
this schedule which satisfy the criteria laid down vide section 42(6a) of the Act. “Scheduled
banks in India” means the State Bank of India constituted under the State Bank of India Act,
1955 (23 of 1955), a subsidiary bank as defined in the s State Bank of India (subsidiary
banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the
Banking companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or
any other bank being a bank included in the Second Schedule to the Reserve bank of India
Act, 1934 (2 of 1934), but does not include a co-operative bank”. For the purpose of
assessment of performance of banks, the Reserve Bank of India categories those banks as
public sector banks, old private sector banks, new private sector banks and foreign banks, i.e.
private sector, public sector, and foreign banks come under the umbrella of scheduled
commercial banks.
Regional Rural Bank: The government of India set up Regional Rural Banks (RRBs)
on October 2, 1975. The banks provide credit to the weaker sections of the rural areas,
particularly the small and marginal farmers, agricultural labourers, and small enterpreneurs.
Initially, five RRBs were set up on October 2, 1975 which was sponsored by Syndicate Bank,
State Bank of India, Punjab National Bank, United Commercial Bank and United Bank of
India. The total authorized capital was fixed at Rs. 1 Crore which has since been raised to Rs.

12
5 Crores. There are several concessions enjoyed by the RRBs by Reserve Bank of India such
as lower interest rates and refinancing facilities from NABARD like lower cash ratio, lower
statutory liquidity ratio, lower rate of interest on loans taken from sponsoring banks,
managerial and staff assistance from the sponsoring bank and reimbursement of the expenses
on staff training. The RRBs are under the control of NABARD. NABARD has the
responsibility of laying down the policies for the RRBs, to oversee their operations, provide
refinance facilities, to monitor their performance and to attend their problems.
Unscheduled Banks: “Unscheduled Bank in India” means a banking company as
defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is
not a scheduled bank”.
NABARD
NABARD is an apex development bank with an authorization for facilitating credit
flow for promotion and development of agriculture, small-scale industries, cottage and
village industries, handicrafts and other rural crafts. It also has the mandate to support all
other allied economic activities in rural areas, promote integrated and sustainable rural
development and secure prosperity of rural areas. In discharging its role as a facilitator for
rural prosperity, NABARD is entrusted with:
1. Providing refinance to lending institutions in rural areas
2. Bringing about or promoting institutions development and
3. Evaluating, monitoring and inspecting the client
banks Besides this fundamental role, NABARD also:
 Act as a coordinator in the operations of rural credit institutions
 To help sectors of the economy that they have special credit needs for eg.
Housing, small business and agricultural loans etc.
Services provided by banking organizations
Banking Regulation Act in India, 1949 defines banking as “Accepting” for the
purpose of lending or investment of deposits of money from the public, repayable on demand
and withdrawable by cheques, drafts, orders etc. as per the above definition a bank essentially
performs the following functions:-
 Accepting Deposits or savings functions from customers or public by providing bank
account, current account, fixed deposit account, recurring accounts etc.
 The payment transactions like lending money to the public. Bank provides an
effective credit delivery system for loanable transactions.

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 Provide the facility of transferring of money from one place to another place. For
performing this operation, bank issues demand drafts, banker’s cheques, money
orders etc. for transferring the money. Bank also provides the facility of Telegraphic
transfer or tele- cash orders for quick transfer of money.
 A bank performs a trustworthy business for various purposes.
 A bank also provides the safe custody facility to the money and valuables of the
general public. Bank offers various types of deposit schemes for security of money.
For keeping valuables bank provides locker facility. The lockers are small
compartments with dual locking system built into strong cupboards. These are stored
in the bank’s strong room and are fully secured.
Banks act on behalf of the Govt. to accept its tax and non-tax receipt. Most of the
government disbursements like pension payments and tax refunds also take place through
banks.
There are several types of banks, which differ in the number of services they provide
and the clientele (Customers) they serve. Although some of the differences between these
types of banks have lessened as they have begun to expand the range of products and services
they offer, there are still key distinguishing traits. These banks are as follows:
Commercial banks, which dominate this industry, offer a full range of services for
individuals, businesses, and governments. These banks come in a wide range of sizes, from
large global banks to regional and community banks.
Global banks are involved in international lending and foreign currency trading, in
addition to the more typical banking services.
Regional banks have numerous branches and automated teller machine (ATM)
locations throughout a multi-state area that provide banking services to individuals. Banks
have become more oriented toward marketing and sales. As a result, employees need to know
about all types of products and services offered by banks.
Community banks are based locally and offer more personal attention, which many
individuals and small businesses prefer. In recent years, online banks—which provide all
services entirely over the Internet—have entered the market, with some success. However,
many traditional banks have also expanded to offer online banking, and some formerly
Internet-only banks are opting to open branches.
Savings banks and savings and loan associations, sometimes called thrift institutions,
are the second largest group of depository institutions. They were first established as
community-based institutions to finance mortgages for people to buy homes and still cater

14
mostly to the savings and lending needs of individuals.
Credit unions are another kind of depository institution. Most credit unions are
formed by people with a common bond, such as those who work for the same company or
belong to the same labour union or church. Members pool their savings and, when they need
money, they may borrow from the credit union, often at a lower interest rate than that
demanded by other financial institutions.
Federal Reserve banks are Government agencies that perform many financial
services for the Government. Their chief responsibilities are to regulate the banking industry
and to help implement our Nation’s monetary policy so our economy can run more efficiently
by controlling the Nation’s money supply—the total quantity of money in the country,
including cash and bank deposits. For example, during slower periods of economic activity,
the Federal Reserve may purchase government securities from commercial banks, giving
them more money to lend, thus expanding the economy. Federal Reserve banks also perform
a variety of services for other banks. For example, they may make emergency loans to banks
that are short of cash, and clear checks that are drawn and paid out by different banks.
The money banks lend, comes primarily from deposits in checking and savings
accounts, certificates of deposit, money market accounts, and other deposit accounts that
consumers and businesses set up with the bank. These deposits often earn interest for their
owners, and accounts that offer checking, provide owners with an easy method for making
payments safely without using cash. Deposits in many banks are insured by the Federal
Deposit Insurance Corporation, which guarantees that depositors will get their money back,
up to a stated limit, if a bank should fail.
BANKING REGULATION ACT, 1949 (AACS)
Banks are expected to provide helping hand to the needy people and to protect the
interest of the depositors. In order to regulate the banking system and to make the banks to
render their services effectively, the banks were originally brought under the control of Indian
Companies Act. However, due to the increase of bank failures -and lack of proper
concentration towards the banking sector, a separate legislation known as Banking
Companies Act, came into force on 6.3.1949. Later the Act was renamed as Banking
Regulation Act. But the cooperative banks were not brought under the control of this Act till
1966. The development that took place in the working of cooperative banks between 1951-52
and 1962-63 necessitated the need for inclusion of cooperative banks also under the purview
of Banking Regulation Act. The annual report of RBI 1964-65, revealed that the increasing

15
dimensions of the cooperative banks' financial operations, the growing quantum of their
deposits, diversification of their responsibilities and the role expected to be played by them in
financing of increased agricultural production, made it imperative to bring them under a
common discipline with the rest of the banking system.
Accordingly Banking Laws (as applicable to cooperative societies) Bill 1964 was
passed to extend the operations of certain provisions of RBI Act, 1934 and Banking
Companies Act, 1949 to the cooperative banks. Thus, the inclusion of cooperative banks
under the purview of Banking Regulation Act came into force from 1st March, 1966 and has
vested the RBI with various statutory powers of control and supervision over the cooperative
banks. The Banking Laws (Amendment) Bill 2011 was introduced in order to amend the
Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970. The said Bill has been passed by both the Houses of Parliament.
The Bill strengthens the regulatory powers of RBI would pave the way for new bank licenses
by RBI resulting in opening of new banks and branches keeping the goal of achieving
financial inclusion.
The objectives of Banking Regulation Act are:
a) To safeguard the interest of the depositors
b) To develop banking institutions on sound lines and
c) To attune the monetary and credit system to the larger interest and priorities of the
nation
Important Definitions
Section 5(b) defines Banking as "accepting for the purpose of lending or investment
of deposits of money from the public, repayable on demand or otherwise, and withdrawable
by cheque, draft, order or otherwise".
Section 5 (cci) refers to Cooperative Bank as "a State Cooperative Bank, a Central
Cooperative Bank and a Primary Urban Cooperative Bank".
Section 5 (cciv) defines "Primary Agricultural credit Society" as a cooperative society
- (1) the primary object or principal business of which is to provide financial accommodation
to its members for agricultural purposes or for purposes connected with agricultural activities
(including the marketing of crops); and (2) the bye-laws of which do not permit admission of
any other cooperative society as a member.
Section 5 (ccv) defines "Urban Cooperative bank" as a cooperative society registered
either under the Cooperative Societies Act of a State or under the Multi State Cooperative
Societies Act:

16
(1) The primary object or principal business of which is the transaction of banking
business,
(2) The paid up share capital and reserves of which are not less than such amount as
prescribed by Reserve Bank,
(3) The by-laws of which do not permit admission of any cooperative credit society or
any cooperative bank as a member,
(4) The registered office of which is located in a semi urban/ urban centre/ metro.
Section 5 (ccvi) defines a 'Primary Credit Society means as a cooperative society, the
primary object or principal business of which is to provide financial accommodation to its
members alone.
Explanation: If any dispute arises as to the primary object or principal business of
any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination
thereof by the Reserve Bank shall be final.
According to Section 5 (ccvii), a Central Cooperative Bank and a State Cooperative
Bank shall have the meanings respectively assigned to them in the NABARD Act, 1981.
Important Provisions of the Act
Section 3 of Act provides that "Nothing in this Act shall apply to - (a) a primary
agricultural credit society; (b) a co-operative land mortgage bank; and (c) any other co-
operative society, except in the manner and to the extent specified in Part V.
Section 7 deals with the use of words bank, banker and banking. A cooperative bank
shall use as part of its name or in connection with its business, any of the words 'bank' or
'banker' or 'banking'.
Section 8: Prohibition of Trading:
In terms of Section 8 of the Act, a cooperative bank is prohibited from undertaking
trading activities as combination of trading with banking. In other words a cooperative bank
should not buy and sell goods or property as per this section. This business has been
prohibited in order to protect the interest of the depositors.
Section 9: Disposal of Non-banking Assets:
As per Section 9 of the Act, a cooperative bank holding non banking assets especially
immovable property acquired in satisfaction of a debt should be disposed of within a period
of 7 years from the date of acquisition. If a bank cannot dispose-off the property within the
stipulated period, it has to seek extension of time from RBI.

17
Section 11: Requirement of minimum capital and reserves:
According to Section 11, no Co-operative Bank shall commence or carry on the
business of banking in India unless the aggregate value of its paid-up capital and reserves is
not less than Rs.l lakh. This provision shall not apply to a primary credit society which
becomes a primary Co-operative Bank after such commencement, for a period of two years
from the date it so becomes a Primary Co-operative Bank or further extendable to one year as
per the discretion of the RBI.
Section 18 and 24: Maintenance of CRR and SLR
Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are the primary tools
in the economy, which reduces the bank's lending capacity and exchanges the money flow in
the country. Under CRR, a certain percentage of t-Total bank deposits have to be kept in the
current account with RBI which means banks do not have access to that much amount for any
economic activity and commercial activity. SLR is a reserve requirement, a bank required to
maintain in the form of gold, government approved securities before providing (edit to the
customers. The SLR is determined by a percentage of total demand time liabilities.
Difference between Cash Reserve Ratio and Statutory Liquidity Ratio
Point of
Cash Reserve Ratio Statutory Liquidity Ratio
Distinction
CRR is the percentage of money The bank has to keep a certain
which the bank has to keep with percentage of their Net Time and
Meaning
the Central Bank of India in the Demand Liabilities in the form of
form of cash. liquid assets as specified by RBI.
Cash and other assets like gold and
Form Cash government securities viz. Central
and State government securities.
It helps in meeting out the
It controls excess money flow in
Effect unexpected demand of any depositor
the economy.
by selling the bonds.
Maintenance RBI or SBI or SCB or banks
Bank itself
with notified by Central Government
Regulates Liquidity in the economy Credit growth in the economy

According to Section 18, every non scheduled cooperative bank is required so

maintain in India, cash reserve with itself or in current account opened with the Reserve Bank
or State Bank of India or State Cooperative Bank of the State concerned or with any other
bank notified by the Central Government, not less than 4% of Demand and Time Liabilities
(DTL) and shall submit a return to the Reserve Bank before 15th of every month showing the
positions on last Friday of second preceding fortnight, in Form No.1 showing the amount so
held on alternate Fridays closing a month, with particulars of demand and time liabilities.

18
According to Section 24, every cooperative bank (both scheduled and non scheduled)
is required to maintain in India in cash or unencumbered approved securities an amount
which shall not at the close of business on any day be less than 20.50% (as on March 2017)
of the total of its Demand and Time Liabilities (DTL) in India. "Net Balance in Current
Accounts" maintained by a cooperative bank in the Reserve Bank of India, State Bank of
India. State Associated -Banks and Nationalized Banks or deposits maintained by the Central
Cooperative Banks with the State Cooperative Bank of the State concerned and any balances
or deposits maintained by a Primary Cooperative Bank in the Central Cooperative Bank
concerned or with the State Cooperative Bank of the State concerned, shall be eligible for
being computed as liquid assets under this section.
Pursuant to the Banking Laws (Amendment) Act 2012, CRR to be maintained by non-
scheduled SCBs and DCCBs and SLR to be maintained by all SCBs and DCCBs were
brought on par with commercial banks from the fortnight beginning July 12, 2014. Therefore,
all SCBs, DCCBs and UCBs are brought under a common CRR/SLR rates. At present
(March 2017), the CRR and SLR to be maintained by all cooperative banks is 4% and
20.oO^t respectively. Eligible assets for SLR were also brought on par. With a view enabling
the banks to meet the revised requirements, a roadmap was provided to phase out the existing
SLR term deposits by March 31, 2017.
Section 20: Restrictions on loans and advances: The Act prohibits the Cooperative
Bank to sanction loans or advances on the security of its own shares; or grant unsecured loans
to any of its Directors; or grant unsecured loans to firms or private companies in which any of
its past or present Directors is interested as Partner or Managing Agent or Guarantor or to
individuals it cases where any of its Directors is a guarantor. However, the grant of unsecured
loans or advances made by a Co-operative Bank against bills for services rendered to
Government or bills of exchange arising out of bona fide commercial transactions, or in
respect whereof trust-receipts are furnished to the C operative Bank would not fall under the
ambit of this section. Further, in case of Primary Co-operative Bank, the issue of unsecured
loans to any of Directors is subject to terms and conditions as may be prescribed by the
Reserve Bank.
Section 21: RBI's power to control Advances: The Act empowers the RBI xo
determine the policy in relation to advances to be followed by the cooperative ranks generally
or by any cooperative bank in particular. Under this section, the RBI may issue directives to
cooperative banks in the following issues:
a. The purpose for which advances may or may not be made

19
b. Margin to be maintained in respect of secured advance
c. The maximum amount of advances or other financial accommodation which may be
made by a cooperative bank to any one party
d. The maximum amount up to which guarantees may be given by a cooperative bank on
behalf of any one party and
e. The rate of interest and other terms and conditions on which advances or other
financial accommodation may be made.
Section 22: Licensing
As per Section 22, no cooperative society shall carry on banking business unless it
holds a license issued by the Reserve Bank. Every cooperative society before commencing
banking business shall apply in writing to the Reserve Bank for a license. RBI conducts
inspection and satisfies the following conditions before granting any license:
 That the institution is or will be in a position to pay its present or future depositors in
full as their claims accrue;
 That the affairs of the institution are not being, or are not likely to be, conducted in a
manner detrimental to the interests of its present or future depositors;
 That the general character of the proposed management of the institution will not be
prejudicial to the public interest or the interest of its depositors;
 That the institution has adequate capital structure and earning prospects;
 That the public interest will be served by the grant of a license to the institution to
carry on banking business in India;
 That having regard to the banking facilities available in the proposed principal area of
operations of the institution, the potential scope for expansion of banks already in
existence in the area and other relevant factors the grant of the license would not be
prejudicial to the and consolidation of the banking system consistent with stability and
economic growth.
Section 23: Opening of new places of business
Section 23 provides that no Co-operative Bank shall open a new place o business or
change otherwise than within the same city, town or village, the location of an existing place
of business without obtaining the prior permission of the Reserve Bank. However, this
provision shall not apply to:

(a) The opening for a period not exceeding one month of a temporary place of
business within a city, town or village or the environs thereof with which the Co-
operative Bank already has a place of business, for the purpose of affording banking
20
facilities to the public on the occasion: an exhibition, a conference or a mela or any other
like occasion;
(b) Opening or changing the location of branches by a Central Co-operative Bank within
the area of its operation

Any Co-operative Bank other than a UCB requiring the permission: the Reserve Bank
under this section shall forward its application to the Reserve Bank though the NAB ARD
which shall give its comments on the merits of this application and send it to the Reserve
Bank.
Section 26: Return of Unclaimed Deposits
In terms of Section 26, every cooperative bank shall within 30 days after the close of
each calendar year, submit a return in Form VIII to the RBI as a the end of such calendar year
of all accounts in India which have not operated upon for ten years, provided that in the case
of money deposited a fixed period, the said term of ten years shall be reopened from the date
3 expiry of such fixed period. Every cooperative bank except primary cooperative bank shall
also furnish a copy of the above return to the NABARD.
Section 27: Monthly Returns
As per Section 27 of the Act, every UCB should prepare a monthly return in Form
No.IX in the manner showing its assets and liabilities (financial statement) as at the close of
business on the last Friday of every month. Every Co-operative Bank, other than a UCB shall
submit a copy of the return which it submits to the Reserve Bank, also to the NABARD. In
this regard, those powers exercisable by the Reserve Bank may also be exercised by the
NABARD m relation to Co-operative Banks, other than Primary Co-operative Bank.
Section 29: Accounts and Balance Sheet
In terms of Section 29, every Cooperative Bank is required to close its accounts and
prepare a balance sheet and profit and loss account, at the expiration of each year ending with
the 30th day of June or at the expiration: a period of twelve months ending with such date as
the Central Government may, by notification in the Official Gazette, in the Forms set out in
the Third Schedule. The balance-sheet and profit and loss account shall be signed by the
manager or the principal officer of the bank and at least three of the Directors.
Section 30: Audit
The balance sheet and profit and loss account shall be audited by a person duly
qualified under any law for the time being in force. Every cooperative bank shall, before
appointing, re-appointing or removing any auditor or auditors, obtain the previous approval

21
of the Reserve Bank. When the Reserve Bank is opinion that it is necessary in the interest of
public or depositors, direct to undertake a special audit of the bank. The audit examines
whether or not the Transactions of the bank which have come to auditor's notice have been
within the powers of the bank; whether or not the returns received from branch offices: the
bank have been found adequate for the purposes of his audit; whether me profit and loss
account shows a true balance of profit or loss for the period covered by such account; any
other matter which he considers should be brought the notice of the members of the bank.
Section 31: Submission of Return and Publication
As per Section 31, every cooperative bank has to furnish three copies of return with
profit and loss account and balance sheet referred in Section 29, whether with audit report, to
RBI and publish such a return in a newspaper n circulation, at the place where the bank has
its principal office each year, the last date for filing the return is 30th September.
Section 35: Inspection
Normally inspection is conducted under section 35 to ensure that objectives n
licensing under section 22 are fulfilled and continue to be fulfilled. The three core assessment
areas under RBI inspection are:
A. Financial condition and performance
B. Management, systems and controls
C. Regulatory and other guidelines compliance
RBI undertakes inspection on the basis of On-Site Inspection i.e. Periodical
inspection, Off-Site inspection by seeking fortnightly, quarterly, monthly return, statements
etc. and by a special scrutiny, in case of need.
Sections 45ZA to 45ZF: Nominations
Section 45 deals with nomination facilities in respect of deposits, site custody and safe
deposits. Nomination facilities are extended to minimized inconvenience or difficulties faced
by the claimants of the deceased customer and also to minimize the settlement of claims. The
nominations made by customer should be registered in the books of the bank and an
acknowledged for registration of the nomination should be given to the depositors. The
purpose of this Section is:
1. To enable a cooperative bank to make payment to the nominee deceased depositor, of
the amount standing to the credit of the depositors.
2. To enable a cooperative bank to return the articles left by a deices person in its safe
custody to his nominee, after making an invention the articles in the manner directed
by the RBI

22
To enable a cooperative bank to release the contents of a safety to the nominee, of the
hirer of such locker, in the event of the deal the hirer after making an inventory of the
contents of the safety in the manner directed by the RBI
Cooperative Banks (Nomination) Rules, 1985 provide that:
1. Where a deposit is held by a cooperative bank, all the deposit together may nominate,
one person to whom (in case of minor, to guardian), the amount may be returned by
the bank, in the even death of the sole depositor or the death of all the depositors. Pay
by the bank in accordance with this provision shall constitute discharge to the
cooperative bank of its liability. Nominations cancelled or changed or re-nominated at
any time during the per deposit.
2. If any of the joint account holders die without giving any nomination, surviving
depositors can make a valid nomination.
3. Where the nominee is a minor, the depositor or, as the case may be, all the depositors
together, may, while making the nomination, appoint another individual not being a
minor, to receive the amount of the deposit on behalf of the nominee in the event of
the death of the depositor or as the case may be, all the depositors during the minority
of the nominee.
4. Any person leaving any article in safe custody may nominate one person to whom, in
the event of death, the article may be returned. The nomination facilities in respect of
safe custody articles are available only in the case of the sole depositors.
5. An individual who is sole hirer of a locker may nominate one person. Where such
locker is hired by two or more individuals jointly and the locker is to be operated
jointly by two or more hirers, such hirers may nominate one or more persons to
whom, in the event of the death of such joint hirer or joint hirers, the cooperative bank
may give, jointly with the surviving joint hirer or joint hirers, access to the locker.
Section 46: Penalties
Section 46 provides that if any bank willfully makes false information or Bm.: to
make a material statement, in the return or balance sheet or other document required under
the provision of this Act, shall be punishable with imprisonment for a term which may extend
to three years and shall also be punishable to fine. If any deposits are received in
contravention of this Act, every director or other officer of the bank shall be punishable with
a fine which may extend to twice the amount of the deposits so received.
If any other provision of this Act is contravened by any person, such person shall be
punishable with fine which may extend to fifty thousand rupees or twice the amount involved

23
in such contravention where such amount is quantifiable, whichever is more, and where a
contravention is a continuing one, with a further fine which may extend to two thousand and
five hundred rupees for every day, during which the contravention continues.
RESERVE BANK OF INDIA ACT, 1934 (APPLICABLE TO COOPERATIVES)
The Reserve Bank of India shall be constituted for the purposes of taking over the
management of the currency from the Central Government and of carrying on the business of
banking in accordance with the provisions of Res- Bank of India Act, 1934.
Provisions of the Act applicable to cooperatives
Section 2 (1): of the RBI Act defines a Scheduled Bank as a included in the Second
Schedule.
Section 18 (3): Making of loans and advances The Act provides that the RBI may
make loans or advances to - (a SCB, or (b) on the recommendation of a SCB, to a cooperative
society registered within the area in which the SCB operates, or (c) any other person,
repayable on demand or on the expiry of fixed periods, not exceeding ninety such terms and
conditions as the RBI may consider to be sufficient.
Section 18A: Validity of loan or advance not to be question-: The validity of any
loan or advance granted by the Bank in pursuance of the provisions of this Act shall not be
called in question merely on the of non-compliance with the requirements of such other law
as aforesaid or of any resolution, contract, memorandum, articles of association m
instrument: Provided, that nothing in this clause shall render valid any loan or advance
obtained by any company or co-operative society where M company or co-operative society
is not empowered by its memorandum ~ loans or advances.
Section-42(1) : Cash Reserves of Scheduled Banks to be kept with RBI: Every bank
included’ in the Second Schedule shall maintain with the RBI an average daily balance the
amount of which shall not be less than three percent of the DTL in India of such bank in
order to secure the monetary stability in the country. RBI may by notification, increase the
rate which shall not be more than twenty percent of the DTL.
Whenever money is in excess in the market / monetary systems in the country it may
increase the inflation. So the excess money needs to be squeezed from the systems. At such
time RBI prescribes higher rate of CRR and money is taken out from circulation in the
market. In reverse case when the markets need the money the CRR rate is lowered and
money is allowed to come and circulate in the market.
Explanation: For the purposes of this section,

24
Section-42(1) (a) "average daily balance" shall mean the average of the balances held
at the close of business on each day [of a fortnight];
Section-42(1) (b) "fortnight" shall mean the period from Saturday to the second
following Friday, both days inclusive;
Section-42(1) (c) Liabilities payable by the bank are in the form of demand or time
deposits or borrowings or other miscellaneous items of liabilities. Demand liabilities include
all liabilities which are payable on demand, mainly the balances in savings and current
account come under these categories. Time liabilities are those which are payable otherwise
on demand. Mainly deposits of different maturity duration come under this category.
According to the Section 42, "liabilities" shall not include -
(i) The paid-up capital or the reserves or any credit balance in the profit and loss account
of the bank;
(ii) The amount of any loan taken from the Bank [or from the Exim Bank] [or from the
Reconstruction Bank] [or from the National Housing ’Bank] or from the [National
Bank] or [from the Small Industries Bank],
(iii) In the case of a SCB, also any loan taken by such bank from a State Government [or
from the National Cooperative Development Corporation established under the
National Cooperative Development Corporation Act, 1962] and any deposit of money
with such bank representing the reserve fund or any part thereof maintained with it by
any co-operative society within its area of operation;]
(iv) In the case of a State co-operative bank, which has granted an advance against any
balance maintained with it, such balance to the extent of the amount outstanding in
respect of such advance;]
Liabilities include deposits, borrowings from banks such as call money and notice
deposits, interest accrued on deposits and any other liability Similarly, amounts received by
the bank for remittance purpose is a liabilities till the beneficiary of the remittance receive the
amount from the bank that paying the amount. Example of this is draft purchased by the
customer is still unpaid.
Section-42(1) (d) the aggregate of the "liabilities" of a scheduled bank which is not a
State co-operative bank, to,-
i. The State Bank;
ii. A subsidiary bank as defined in section 2 of the SBI (Subsidiary Banks Act, 1959;
iii. A corresponding new bank constituted by section 3 of the Banking Companies
Acquisition and Transfer of Undertakings) Act, 1970: (iiia) a corresponding new bank
constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings)
25
Act, 1980;
iv. A banking company as defined in clause (c) of section 5 of the BR Ac: 1949;
v. A co-operative bank; or
vi. Any other financial institution notified by the Central Government m this behalf, shall
be reduced by the aggregate of the liabilities of all such banks and institutions to the
scheduled bank;
Section-42(1) (e) the aggregate of the "liabilities" of a scheduled bank which is a SCB
to, -
a) The SBI;
b) A subsidiary bank as defined in section 2 of the SBI (Subsidiary Banks Act, 1959;
c) A corresponding new bank constituted by section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970;
d) A corresponding new bank constituted by section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980;
e) A banking company as defined in clause (c) of section 5 of the BR Act, 1949; or
f) Any other financial institution notified by the Central Government in this behalf, shall
be reduced by the aggregate of the liabilities of all such banks and institutions to the
SCB.
Section 42(2): Every scheduled bank shall send to the RBI a return -med by two
responsible officials showing the following details:
a) The amount of its demand and time liabilities and the amount of its borrowings from
banks in India,
b) The total amount of legal tender notes and coins held by it in India,
c) The balance held by it at the Banks in India,
d) The balances held by it at other banks in current account and the money at call and
short notice in India,
e) The investments (at book value) in Central and State Government securities including
treasury bills and treasury deposit receipts,
f) The amount of advances in India,
g) The inland bills and foreign bills purchased and discounted in India, [at the close of
business on each alternate Friday, and-every such return shall be sent not later than
seven days after the date to which it relates:

26
Provided that where such alternate Friday is a public holiday under the Negotiable
Instruments Act, 1881, for one or more offices of a scheduled bank, the return shall give the
preceding working day's figures in respect of such office or offices, but shall nevertheless be
deemed to relate to that Friday:
Provided also that where the RBI is satisfied that the furnishing of a fortnightly return
under this sub-section is impracticable in the case of any scheduled bank by reason of the
geographical position of the bank and its branches, the RBI may allow such bank –
(i) To furnish a provisional return for the fortnight within the period aforesaid to be
followed by a final return not later than twenty days after the date to which it relates,
or
(ii) To furnish in lieu of a fortnightly return a monthly return to be sent not later than
twenty days after the end of the month to which it relates giving the details specified
in this sub-section in respect of such bank at the close of business for the month.
Section 42(3): If the average daily balance held at the RBI by a scheduled bank during
any fortnight is below the minimum prescribed, such bank shall be liable to pay to RBI penal
interest at the rate of three percent above bank rate on the amount of shortfall from the
prescribed minimum. For default during next succeeding fortnight, penal interest shall be
increased to five per cent above bank rate.
Section 42(3A) When under the provisions of sub-section (3) penal interest at the
increased rate of five per cent, above the bank rate has become payable by a scheduled bank,
[if thereafter the average daily balance held at the Bank during the next succeeding [fortnight]
is still below the prescribe; minimum:
(a) Every director, manager or secretary of the scheduled bank, who knowingly and
willfully a party to the default, shall be punishable with fine which may extend to
Rs.500 and with a further fine which may extend to Rs.500 for each subsequent
fortnight during which the default continues, and
(b) The RBI may prohibit the scheduled bank from receiving after the said fortnight any
fresh deposit.
Section 42 (6) (a) (i) and (ii) lays down the conditions which a bank mu- fulfill to
qualify for inclusion in the second schedule.
1. The bank must have a paid up share capital and reserve of an aggregate value of not
less than Rs. 5 lakh.
2. It must satisfy the RBI that its affairs are not being conducted in manner detrimental to
the interest of its depositors

27
3. It must be a company as defined in the Companies Act, 1956 or a SCB or an
institution notified by the Government of India in behalf or a Corporation or Company
incorporated by or under any law in force in any place 'outside India. The RBI should
satisfy the above by way of conducting the inspection of the books and accounts of the
concerned banks.
Section 42(6) (a): Inclusion in the Second Schedule: Any bank included in the
second scheduled of RBI Act is generally known as scheduled bank. In 1966 when BR Act
was made applicable to cooperative banks, RBI k a policy decision to include the then
existing SCBs to include in the second schedule. However these banks were required to apply
for license to RBI. There are some SCBs which are not considered eligible for issue of
license. These Bs are thus scheduled banks but not licensed.
Section 42(6) (b): RBI shall direct exclusion of any scheduled bank from second
schedule provided:
i. The aggregate value of whose paid- up capital and reserves becomes at any time less
than Rs.5 lakh, or
ii. Which is in the opinion of the RBI after making an inspection under section 35 of the
BR Act, 1949 conducting its affairs to the detriment of the interest of its depositors, or
iii. Which goes into liquidation or otherwise ceases to carry on banking business:
Provided that the RBI may, on application of the scheduled bank concerned defer the
making of a direction under sub- clause (i) or sub- clause (ii) of clause (b) for such
period as it considers reasonable to give the scheduled bank an opportunity of
increasing the aggregate value of its paid- up capital and reserves to not less than Rs.
5 lakh or, as the case may be, of removing the defects in the conduct of its affairs;
Section 42(7): RBI may grant to any scheduled bank such exemptions n the
provisions as it may deem fit.
Comparison between Cooperative Banks and Commercial Bank
The main objective behind cooperative business is to serve their own members who
often belong to the weaker sections of the community. On the contrary, private sector banks
are formed with profit motive. The cooperative banks working are subjected to dual control
by the Registrar of Cooperative Societies and Reserve Bank of India while private and public
sector banks are under RBI's control.

28
The basic characteristics, which distinguish cooperative banks from private and public
sector banks, are:
Cooperative Banking Commercial Banking
Safety, liquidity and the profitability
Service is the main motto of
1 1 are the important guidelines of
cooperative bank
commercial banks
Small farmers, marginal farmers,
scheduled caste and scheduled tribes,
Big farmers, wholesale traders and
weaker sections of the community are
2 2 large-scale industries are taken 1 care
given priority. Lending to small scale
of.
industries, cottage and village
industries is considered.
Both members and customers are in
Customers are only in commercial
3 cooperative banks. Members enjoy 3
banks
equal rights.
Honorary and democratic management
4 4 Management is paid
is adopted
Cooperative banks consist of three-tier
Commercial banks do not have such
5 federal structure viz., state, central and 5
structure
the primary cooperative banks
State participation is available. i.e.,
There is no share capital participation
6 contribution of share capital by the 6
from the Government
government to cooperative banks
Both state Cooperative Societies Act,
Banking Regulation Act control the
7 and Banking Regulation Act control 7
commercial banks
cooperative bank
Main objective of cooperative banks to
lend for agricultural operations. Urban Commercial banks mainly lend for
8 8
cooperative banks finance for SSI and trade, industry and commerce
the people of small means.
More emphasis on personal character
Security is very much considered
9 and repaying capacity of the borrower, 9
while lending
while lending
Few loans like deposit loan, consumer
loan and gold loan are sanctioned by
10 managers of cooperative banks and 10 All loans are sanctioned by officers
majority of the loan are sanctioned by
the board of management
Audit is done by cooperative
11 department or Directorate of 11 Banks arrange their own audit
Cooperative Audit
Inspection is conducted both by
cooperative department officers,
12 12 RBI conduct inspection
RBI/NABARD in case of cooperative
banks
Limited dividend on share capital and
distribution of net profit as per
13 13 Very high dividend is paid
Cooperative Societies Act, Rural and
Byelaws

29
COOPERATIVE BANK OF INDIA (COBI)
Introduction
The Cooperative Bank of India was registered on 5th August 1993 under the Multi-
State Cooperative Societies Act, 1984. The bank was established pursuant to the
recommendation of the Agricultural Credit Review Committee (Khusro Committee), which
envisaged the organization of National Cooperative Bank to exclusively take care of the
much needed economic viability and functional solidarity of the cooperative banking system.
This bank is expected to be a national balancing center of the State-level apex cooperative
banks and to meet the banking and other needs of the cooperative movement in general and
cooperative banking system in particular. It will be a consortium leader for channelizing the
surpluses to finance the larger cooperative organizations and other cooperatives. It is also
expected to finance international Trade transactions of cooperatives, deal with foreign
exchange and conduct other international banking operations.
The registered office and administrative office of the bank are at New Delhi and
Mumbai respectively. This bank is brought under the administrative control of the Central
Registrar and the operational control of RBI/NABARD. With the authorized capital of Rs.
100 crore and share capital of Rs.50 crore, the RBI will take further action for proposed bank
as scheduled or nonscheduled bank.
Meaning of Co-operative Banks
Cooperative bank is an institution established on the basis of cooperative principles
and dealing in ordinary banking business. Like other banks, the cooperative banks are
founded by collecting funds through shares, accept deposits from the members and grant
loans to them.
Definition of Co-operative Banks
Devine defined a cooperative bank as "a mutual society formed, composed and
governed by working people themselves for encouraging regular savings and granting small
loans on easy terms of interest and repayment."
Objectives of Co-operative Banks
The objects of the co-operative bank are as follows:
1. To take steps for removal of regional imbalances in the growth of cooperative credit
and banking
2. To raise resources from various sources e.g. market borrowing and from financing
institutions as well as international banking and financial institutions

30
History of Co-operative Banks in India
For the co-operative banks in India, co-operatives are organized groups of people and
jointly managed and democratically controlled enterprises. They exist to serve their members
and depositors and produce better benefits and services for them. Professionalism in co-
operative banks reflects the co-existence of high level of skills and standards in performing,
duties entrusted to an individual. Co-operative bank needs current and future development in
information technology. It is indeed necessary for cooperative banks to devote adequate
attention for maximizing their returns on every unit of resources through effective services.
Co-operative banks have completed 100 years of existence in India. They play a very
important role in the financial system. The cooperative banks in India form an integral part of
our money market today. Therefore, a brief resume of their development should be taken into
account. The history of cooperative banks goes back to the year 1904.
In 1904, the co-operative credit society act was enacted to encourage co-operative
movement in India. But the development of cooperative banks from 1904 to 1951 was the
most disappointing one. (Kutmba Rao, 1985)
The first phase of co-operative bank development was the formation and regulation of
cooperative society. The constitutional reforms which led to the passing of the Government
of India Act in 1919 transferred the subject of “Cooperation” from Government of India to
the Provincial Governments. The Government of Bombay passed the first State Cooperative
Societies Act in 1925 “which not only gave the movement, its size and shape but was a pace
setter of co-operative activities and stressed the basic concept of thrift, self help and mutual
aid”. This marked the beginning of the second phase in the history of Co-operative Credit
Institutions.
There was the general realization that urban banks have an important role to play in
economic construction. This was asserted by a host of committees. The Indian Central
Banking Enquiry Committee (1931) felt that urban banks have a duty to help the
small business and middle class people. The Mehta-Bhansali Committee (1939)
recommended that those societies which had fulfilled the criteria of banking should be
allowed to work as banks and recommended an Association for these banks. The Co-
operative Planning Committee (1946) went on record to say that urban banks have been the
best agencies for small people in whom Joint stock banks are not generally interested. The
Rural Banking Enquiry Committee (1950), impressed by the low cost of establishment and
operations recommended the establishment of such banks even in places smaller than taluka
towns.

31
The real development of co-operative banks took place only after the
recommendations of All India Rural Credit Survey Committee (AIRCSC), which were made
with the view to fasten the growth of co-operative banks. (Deonath Ram, 1985)
The co-operative banks are expected to perform some duties, namely, extend all types
of credit facilities to customers in cash and kind, advance consumption loans, extend banking
facilities in rural areas, mobilize deposits, supervise the use of loans etc. The needs of co-
operative bank are different. They have faced a lot of problems, which has affected the
development of co-operative banks. Therefore it was necessary to study this matter.
The first study of Urban Co-operative Banks was taken up by RBI in the year 1958–
59. The Report published in 1961 acknowledged the widespread and financially sound
framework of urban co-operative banks; emphasized the need to establish primary urban
cooperative banks in new centres and suggested that State Governments lend active support
to their development. In 1963, Varde Committee recommended that such banks should be
organised at all Urban Centres with a population of 1 lakh or more and not by any single
community or caste. The committee introduced the concept of minimum capital requirement
and the criteria of population for defining the urban centre where UCBs were incorporated.
Membership
The membership of the Bank is open to State Cooperative Banks, Urban Cooperative
Banks, State Cooperative Federations, Associations of State Cooperative Banks, State
Cooperative Agricultural and Rural Development Banks and National Cooperative Societies.
Each member-society shall subscribe a minimum of 100 shares.
Funds
The Bank may raise funds from Admission fee, Share capital, Debentures and bonds,
Deposits, loans and advances, Grants-in-aid and donation, and Profit. As per the byelaws,
COBI is eligible to raise deposits or borrow loans up to a limit of 50 times of its own funds.
Management
The General Body shall be the supreme authority of COBI. The delegates/ nominees
shall continue to be members of the General Body for a period of five years or till such time
as they continue to be nominees/delegates of the concerned member-societies. The
management of the Bank shall vest in a Board of Directors consisting of 28 members from
SCBs, SCARDBs, UCBs, NAFSCOB, NAFCUB, NCUI and National Federation of
SCARDBs. The Managing Director of the COBI will be appointed by the Board. He will be
professional and experienced banker preferably in cooperative banking and also the chief
executive officer responsible for the day-to-day management of the business of the bank.

32
During September 2015, a seminar on recent trends in banking sector was organized
at Hanoi, Vietnam. Even after its incorporation in 1993, COBI could not undertake its
banking operations in the absence of banking license from RBI.
Types of Co-operative Banks
The co-operative banks are small-sized units which operate both in urban and non-
urban centers. They finance small borrowers in industrial and trade sectors besides
professional and salary classes. Regulated by the Reserve Bank of India, they are governed
by the Banking Regulations Act 1949 and banking laws (co-operative societies) act, 1965.
The co-operative banking structure in India is divided into following 5 categories:
1. Primary Co-operative Credit Society
The primary co-operative credit society is an association of borrowers and non-
borrowers residing in a particular locality. The funds of the society are derived from the share
capital and deposits of members and loans from central co-operative 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 and pesticides.
2. Central Co-operative Banks
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.
3. State Co-operative Banks
The state co-operative bank is a federation of central co-operative bank and acts as a
watchdog of the co-operative banking structure in the state. Its funds are obtained from share
capital, deposits, loans and overdrafts from the Reserve Bank of India. The state co-operative
banks lend money to central co-operative banks and primary societies and not directly to the
farmers.
4. Land Development Banks
The Land development banks are organized in 3 tiers namely; state, central, and
primary level and they meet the long term credit requirements of the farmers for
developmental purposes. The state land development banks oversee, the primary land
development banks situated in the districts and tensile areas in the state. They are governed
both by the state government and Reserve Bank of India. Recently, the supervision of land

33
development banks has been assumed by National Bank for Agriculture and Rural
development (NABARD). The sources of funds for these banks are the debentures subscribed
by both central and state government. These banks do not accept deposits from the general
public.
5. Urban Co-operative Banks
The term Urban Co-operative Banks (UCBs), though not formally defined, refers to
primary co-operative banks located in urban and semi urban areas. These banks, till 1996,
were allowed to lend money only for non-agricultural purposes. This distinction does not
hold today. These banks were traditionally centered on communities, localities, work place
groups. They essentially lend to small borrowers and businesses. Today, their scope of
operations has widened considerably.
The origins of the urban co-operative banking movement in India can be traced to the
close of nineteenth century. Inspired by the success of the experiments related to the co-
operative movement in Britain and the cooperative credit movement in Germany, such
societies were set up in India.
Co-operative societies are based on the principles of cooperation, mutual help,
democratic decision making, and open membership. Co-operatives represented a new and
alternative approach to organization as against proprietary firms, partnership firms, and joint
stock companies which represent the dominant form of commercial organization. They
mainly rely upon deposits from members and non-members and in case of need, they get
finance from either the District central co-operative bank to which they are affiliated or from
the Apex co-operative bank if they work in big cities where the apex bank has its Head
Office. They provide credit to small scale industrialists, salaried employees, and other urban
and semi-urban residents.
Functions of Co-operative Banks
Co-operative banks also perform the basic banking functions of banking but they
differ from commercial banks in the following respects
1) Commercial banks are joint-stock companies under the companies’ act of 1956, or
public sector bank under a separate act of a parliament whereas co-operative banks were
established under the co-operative societies acts of different states.
2) Commercial bank structure is branch banking structure whereas Cooperative banks
have a three tupe setup, with State Co-operative Bank at Apex level, Central / District Co-
operative Bank at district level, and Primary Co-operative Societies at rural level.

34
3) Only some of the sections of Banking Regulation Act of 1949 (fully applicable to
commercial banks), are applicable to co-operative banks, resulting only in partial control by
RBI of co-operative banks and
4) Co-operative banks function on the principle of cooperation and not entirely on
commercial parameters.
Features of Co-operative banks
As per the Cooperative Societies Act, cooperative banks have to follow open
membership, democratic member control, autonomy and independence ant concern for
community. The essential features of cooperative banking are follows:
1. Voluntarism: Voluntarism is an essential characteristic of the cooperative banking
system. Just like in other cooperatives, open membership is followed by giving full
freedom to members to join or leave the bank.
2. The affairs of the cooperative banks are managed on democratic basis and principle
of "one member one vote" is adopted strictly.
3. Cooperative bank is an autonomous institution. It has got its cooperative Acts, Rules
and Byelaws. Cooperative bank is an independent institution and managed by board
of directors elected by the General Body.
4. Values of Cooperation such as self-help, mutual-help, self-responsibility, honesty,
self-reliance, etc., are very important values identified for the smooth functioning of
cooperative banks
5. Dual Control: As per the State Cooperative Societies Act and Banking Regulation
Act, cooperative banks are controlled by both Government and RBI/NABARD. The
banking functions of cooperative banks such as licensing, opening of branch,
exposure norms, interest rate, etc., are governed by the RBI, while registration of
cooperative banks, audit, management, liquidation, winding up, amalgamation, etc.,
are governed by the State Governments as per the concerned State Cooperative
Societies Act.
GROWTH OF COOPERATIVE CREDIT BANKING SYSTEM
Introduction
Agriculture is the national key industry in India. About 70% of the rural households
depend on agriculture for their livelihood. Moreover, agriculture is considered as backbone of
Indian economy. But most of the agriculturists are poor, illiterate and ignorant. The
agriculture is very often affected by drought, flood, earthquake and other natural calamities.
Due to the failure of crop the farmers have to borrow necessarily to meet their cultivation and

35
other expenses. The Royal Commission on Agriculture said, "the Indian farmers born in debt,
live in debt and die in debt".
Nicholson observed that, "the lesson of universal agrarian history from Rome to
Scotland is that an essential of agriculture is credit. Neither the condition of the country, nor
the nature of the land tenures, nor the position of agriculture, affects the one great fact that
agriculturists must borrow". Agriculturists have to borrow for purchase of inputs, payment of
rent and wages, ploughing, leveling, bounding, weeding, purchase of cart, implements,
construction of cattle shed, repairing of machines, digging of wells, etc. They also have to
borrow loans for various non-agricultural purposes, such as, purchase of domestic
requirements, medical, educational, marriage and other family expenses.
CREDIT
Credit is an input for development. The word credit comes from the Latin word
"Credo" which means, "I believe". Hence credit is based upon "confidence". Credit is the
name usually given to money borrowed for business purpose. For example, the small,
marginal and middle level farmers require credit for short term, medium term and long-term
periods, for various agricultural purposes. People living in urban areas also require credit for
trade, commerce and industries.
Classification of Credit
I) Period-wise Classification of Credit
The All India Rural Credit Survey Committee (1951) made an attempt to classify the
agriculturist borrowers as big, medium and small farmers. On the basis of the length of the
credit, agriculturist credit is classified into (i) long term (ii) medium term and (iii) short term.
Types of credit, purpose for which loans are required, the period and security required
are given below:
II) Nature-wise classification of credit
Credit needs of the farmers under this category are classified into three groups:
Types Purpose Period Security
Seasonal agricultural operations, Up to 18 Surety and crops
Short term
marketing of crops, etc. months basis
Purchase of milch animals, Collateral or
Medium term bullock cart, poultry and sheep, 2 to 5 years pledge or
minor irrigation, etc. hypothecation
Purchase of land and tractor,
pipeline irrigation, pump set, 5 years to 20 Mortgage of
Long term
digging of well, orchard years property
schematic lending, etc

36
1. Production credit which includes all short-term loans relating to agricultural
production.
2. Investment credit is relating to expenditure incurred in making permanent
improvement in land, purchase of heavy machinery and land reclamation and all
medium and long term loans are covered under this category.
3. Consumption credit, which includes family expenditure, repayment of all debts,
expenditure on social and religious activities.
Ill) Agencies point of view
On the basis of agencies point of view, the credit is classified as private credit and
institutional credit. The private credit includes, the moneylenders, landlords, chit funds,
indigenous bankers, etc., who provide credit at exorbitant rate of interest. There may be a
possibility of exploitation in the case of these agencies. The indigenous bankers occupy an
important place in the unorganized sector of money market. On the other hand, the
institutional agencies like Government, commercial bank, cooperative banks and regional
rural banks issue various types of credit with service motive.
Credit Structure of Co-operative Banking in India
India's co-operative banking structure consists of two main segments, viz.,
agricultural and non-agricultural credit. There are two separate structures in the case of
agricultural credit - one for short and medium term credit and the other for long term credit.
The co-operative credit structure for short and medium terms is a three tier, one with primary
agricultural credit societies at the base level, the central co-operative bank at the district level
and state co-operative bank at the apex level. Over and above these institutions, grain banks
are actively functioning as primary societies in certain states. Though the organisation of
central and state co-operative banks was mainly for the benefit of the agricultural credit
sector, they serve non-agricultural societies too. The structure of organized and unorganized
banking is given in Chart No. 1.1.

37
Chart No: 1.1
Structure of Institutional and Private Credit
RESERVE BANK OF INDIA

Commercial Banks Cooperative Societies Other Institutions

Public Sector Private Sector Agriculture Credit Non Agriculture Credit Govt. Public Private
Sector Sector

State Coop. SCARDBs

National LIC - Chits
State Bank Nationalized Regional Rural Banks
Savings UTI - Nidhis
of India Bank Banks
DICGC - Corporate
District Post ECGC Bodies
Coop. Office Exim Bank - Hire Purchase
Banks Savings Companies
Bank ICICI
IDBI - Investment
PACS/FSS/ PCARDBs UCBsEmployees’
LAMPs Coops. IRBI Companies
Employees
Provided NABARD - Merchant Bank
Fund SIDBI Finance
SEBI - Companies

New Local Area Small Payment

Foreign Banks Old
Generation Banks Finance banks
Private Banks
Private banks
Banks

36
1. Primary Agricultural Credit Societies
Primary Agricultural Credit Societies (PACS) are the foundation of the co-operative
credit structure and form the largest number of co-operative institutions in India. Most of
these societies have been organised mainly to provide credit facilities and to inculcate the
habit of thrift and economy among their members.
The share capital of a society is divided into units, called shares, contributed by the
members. The most important source of finance of PACS is members' deposits. Borrowings
constitute the most important element of their working capital. The criteria for borrowings
differ from state to state according to their liability. Punctuality in the repayment of loans has
hardly been observed by the members with the result that there has been a steep rise in the
amount of overdues all over the country.
In India, PACS are passing through an era of crisis. Increasing incidence of non-
viability is one of the major setbacks. PACS have made little progress in attracting deposits.
In majority of the cases, the deposits were collected through book adjustments by carving
certain portion of loan amount. The repaying capacity of the PACS has been dwindled
considerably, resulting mounted overdues in the loan outstanding against members. Along
with the increasing volume of business the number of PACS running into loss and the amount
of loss has increased considerably over the years.
The important reasons for this situation are: existence of non-viable and dormant
societies, uneven growth of agricultural credit movement, inadequacy of the quantum of loan
supplied by them, defective loan policies, delay in loan disbursement, inadequate supervision
and defective audit, no linking of credit with marketing, high overdues, ineffective
management, neglect of small farmers and domination of vested interests
2. District Central Co-operative Banks
District Central Co-operative Banks (DCCBs) occupy the middle level position in the
three tier co-operative credit structure of the country. In the beginning of the formation of
PACSs, they could not function effectively without gaining financial support from an outside
agency. The formation of DCCBs was thus a felt need for mutual help. The Co-operative
Societies Act of 1912 permitted the registration of DCCBs. Even before the enactment of this
Act, some DCCBs were established to cater to the needs of primary societies. In 1906,
forerunner of the first DCCB was established as a primary society in Uttar Pradesh. At Ajmer
in Rajasthan the first DCCB was established in 1910. But the first full-fledged DCCB as per
the provisions of the Act of 1912 was started in Jabalpur District of the Central Province.

37
The DCCBs are formed mainly with the objective of meeting the credit requirements
of member societies. As an institution for helping the societies in times of need, they finance
agricultural credit societies for production purposes, marketing societies for marketing
operations, industrial societies for supply operations and other societies for working
expenses. In short, the major objectives of the DCCBs are to provide loans to affiliated
societies, to act as a balancing centre of finance for primary societies, to arrange for the
supervision and control of the affiliated societies, to raise deposits from members and non-
members, to convene conferences of the member societies and also prescribe uniform
procedure for the working of primary societies, to open branches of the bank at important
places with the permission of the Registrar of Co-operative Societies and to maintain and
utilise state partnership. Generally, the area of operation of a DCCB is limited to one district.
3. State Co-operative Banks in India
The State Co-operative Banks (SCBs) or the Apex Banks occupy a crucial position in
the three tier co-operative credit structure in India. These Apex Banks or State Co-operative
Banks are formed by federating DCCBs in each state. The Apex Banks assume a key-position
in the co-operative credit structure because the financial assistance from RBI and the
National Bank for Agriculture and Rural Development are invariably routed through them.
Need for institutional credit
The institutional arrangement for credit is expected:
 To facilitate and promote savings among the people
 To utilize the mobilization for productive and investment purposes
 To reduce the cost of credit management
 To avoid the risk of financing institutions
 To prevent borrowers from the exploitation of moneylenders and other private
agencies
 To increase competition among the non-institutional agencies and reduce their
monopoly
The history of agricultural development in all advanced countries shows that an
integrated system of institutional credit laid the foundation of rural development. The
objective of the institutional credit is to make breakthrough in vicious circle of poverty, usury
and debt and to stimulate the farmers to boost agricultural productivity.
The institutional rural credit system in India comprises of PACS, District Central
Cooperative Banks and State Cooperative Banks for short term and medium term loans and
Primary and State Agricultural Rural Development Banks for the issue of long-term loans.

38
The institutional credit for urban area consists of Urban Cooperative Banks, Urban Credit
Societies and Commercial banks.
Essentials of Cooperative Credit
In most of the countries of the world, an attempt has been made to develop
institutional credit for agriculture on cooperative basis. The cooperative form of organizations
was considered as the best agencies for providing credit to the farmers.
Landlords, professional moneylenders, pawn brokers, etc., lend loans to agriculturists
by charging higher rate of interest. The farmers could not repay their loans due to their
inability in paying both principal with higher rate of interest. The Government could not
undertake this work of lending of loans to agriculturist regularly as it was concentrating in
many welfare activities. Taccavi loans issued by the Government became fruitless to the
farmers: to certain defects. The loan amount was very low and inadequate to meet the
purpose. It was also told that the record of Taccavi was the record of inadequacy.
Commercial banks were interested to give loans mainly to trade, industry and
commerce. Companies, rich people and larger farmers only were benefited by commercial
banks. Moreover, they were concentrating in safety, liquidity and profitability. The
cooperatives were considered as suitable agency to provide Short term, Medium-term as well
as Long-term loans due to the following reasons:
❖ Cooperatives are farmers' own organizations
❖ They follow the democratic principles of management
❖ Interest charged by the cooperatives is cheaper compared to the private
moneylenders and further service is the motto of the cooperatives. For instance,
profit earned by the societies goes to the statutory reserves and for common welfare.
Genesis of Cooperative Credit in India
The history of the cooperative credit movement in India can be divided in four phases.
In the First Phase (1900-30), the Cooperative Societies - was passed (1904) and
"cooperation" became a provincial subject by 1919.
The major development during the Second Phase (1930-50) was the pioneering role
played by RBI in guiding and supporting the cooperatives. However, even during this phase,
signs of sickness in the Indian rural cooperative movement were becoming evident. The 1945
Cooperative Planning Committee had discerned these signs in the movement, finding that a
large number of cooperatives were "saddled with the problem of frozen assets because of
heavy over dues in repayment."

39
In the Third Phase (1950-90) the All India Rural Credit Survey was set up which not
only recommended state partnership in terms of equity but partnership in terms of governance
and management. NABARD was created during this phase. With the emergence of
cooperatives having a membership from more than one state such as the Central Government
sponsored salary, earners credit societies, a need was felt for an enabling cooperative law for
such multiunit or multi-state cooperatives. Accordingly, the Multi-Unit Cooperative Societies
Act was passed in 1942, which delegated the power of the Central Registrar of Cooperatives
to the State Registrars for all practical purposes. The Multi-State Cooperative Societies
(MSCS) Act, enacted in 1984, was modified in 2002, in keeping with the spirit of the Model
Cooperatives Act.
In the fourth phase (since 1990), an Expert Committee, under the Chairmanship of
Choudhary Brahm Perkash, was appointed by the Planning Commission to make a rapid
review of the broad status of the cooperative movement, suggest future directions and finalize
a Model Cooperatives Act. A number of Committees were therefore set up to suggest reforms
in the sector.
IMPORTANT COMMITTEES AND COMMISSIONS ON COOPERATIVE CREDIT
AND BANKING
1) ALL INDIA RURAL CREDIT SURVEY COMMITTEE (1954)
In 1951, the Committee of Direction commonly known as, All India Rural Credit
Survey Committee, was set up by the Reserve Bank of India to know the status of rural
credit. The Committee is also known as Gorwala Committee which took about 3 years to
complete its work. The four members Committee under the Chairmanship of
Sri.A.D.Gorwala and Prof. D.R.Gadgil, Sri.B.Venkatappiah and Sri.N.S.R.Sastri being the
members, submitted its report in 1954. The Committee assessed the past performance of the
cooperative movement, worked out the causes for its slow progress and suggested the lines
for future development. The publication of the report of the All India Rural Credit Survey
Committee is an important landmark in the history of the cooperative movement in India. The
Committee revealed that, "Cooperation has failed" and identified the reasons for the failure of
the cooperative credit.
Findings of the Committee
The major findings of the Committee are given below:
1. Large parts of the country were not covered by the cooperatives.
2. Even in the areas where it had been covered by the cooperatives, a large section of the
agricultural population remained outside its membership.

40
3. Even in areas where the membership was there, the bulk of the credit requirements
were met from sources other than cooperative as given below.
Table No: 1.1
Pattern of Supply of Private Credit
Credit Agency % of credit
Government 3.3
Cooperatives 3.1
Relatives 14.2
Landlords 1.5
Agri.- money Lenders 24.9
Professional money lenders 44.8
Traders 5.5
Commission Agents 0.9
Commercial banks and others 1.8
Total 100

4. The Survey Committee pointed out that the multi-purpose society not made any
significant progress. The functional aspect referred by the Committee was the lack of
cooperation between central banks ant primary societies and between apex and central
banks.
5. It pointed out that better farming, better business, and better living seemed to be a
slogan but in fact that they are the fundamental statement of cooperative and
economic objective.
6. The Committee considered cooperation in India "as a plant held position of both
Government and Cooperatives but its roots refuse enter the soil". More than the roots
of cooperation it is the tentacles the private economy that have acquired grip in rural
India.
However, considering the importance of cooperation as suitable agency in India, the
Committee said, "Cooperation must succeed".
Recommendations:
I. Integrated Scheme of Rural Credit
There should be state partnership in all the important institutions such as central
banks, state cooperative banks, cooperative marketing, storage and warehousing and
processing cooperatives. Linking of credit with marketing and processing was also
recommended. Administration through trained and efficient personnel who are responsible to
the needs of the rural people.

41
II. Reserve Bank of India
1. The Reserve Bank should continue to make short-term accommodation through
SCBs.
2. The Reserve Bank should be enabled to give long-term accommodation to Land
Mortgage Banks by way of direct loans and by purchase of 'Special Development
Debentures'.
III. State Cooperative Banks
The membership of the State Cooperative Banks should be open to all central banks
and such other cooperative credit institutions having direct dealings with it. Strictly, a few
numbers of individuals might be allowed to become members. State Cooperative Banks
should continue to have 51% shares in the share capital of Central Banks.
IV. Central Cooperative Banks
The Committee recommendations for Central Banks are detailed below:
 Central Land Mortgage Banks and Central Banks, as far as possible, should be located
in the same building
 Ordinarily there should be one Central Bank in each district.
 Central Banks may be permitted to invest in the share capital of primary societies
 Agricultural credit societies should get first priority in matters of loans from Central
Banks
 Central Banks should not be permitted to engage themselves in trading activities
V. Primary Agricultural Credit Societies (PACS)
Size: The Survey Committee viewed that the formula "One society to one village and
one village to one society", has failed in India. Hence the committee recommended that
PACS should be established with limited liability so as to cover according to local conditions.
Member Deposits: The PACS should accept only fixed deposits. In selected instances,
however, a primary society may be permitted to operate savings accounts, and accept
deposits on behalf of the bank to which it is affiliated. It should be paid suitable
commission for its work as Agent.
Loan Operations: The Committee emphasized on crop loans. The amount of crop
loan should be so fixed, as to be so adequate proportion of the cash outlay per acre of crops.
The loans should be given in suitable installment instead of as a lump sum at the start. The
loans should be in kind to the maximum extent possible. The credit societies should finance
its members on the condition that their produce is sold through the marketing society.

42
VI. Central Land Mortgage Banks
The Committee recommended that each State should have a Central Land Mortgage
Bank (CLMB). The constitution of the CLMB should provide for the contribution of share
capital of Primary Land Mortgage Banks. The three organizational needs should be kept in
mind if the CLMBs are to orient their policies towards increasing production:
❖ Coordination of credit with planned development.
❖ Assessment of technical soundness of the project
❖ Verification of the utilization of credit.
VII. Primary Land Mortgage Banks
Primary Land Mortgage Banks can play a useful part in matters such as examination
of loan applications for improvement of land and in the supers of the use of such loans.
VIII. Urban Banks
In areas where central banks or branches of the apex bank are: functioning, urban
banks may be allowed to finance rural societies a transitional measure.
IX. Supervision and Audit
The committee's recommendations regarding audit were as follows:
1. Audit should continue to be in the hands of Government.
2. Cooperatives should be exempted from payment of audit fees for the first few years.
3. For societies having large turnover, there should be arrangements for concurrent audit
4. A cooperative audit manual should be drawn up for each State.
5. There should be uniform standards of audit classification on an all India basis in
respect of different types of cooperative organizations.
X. Other Recommendations
A Central Committee for Cooperative Training under the joint auspices for the
Reserve Bank and the Government of India should also be constituted which would be in
charge of all the cooperative education and training programmes in the country.
The Survey Committee viewed that the Registrar occupies a key position for the
administrative structure of the movement. It has been urged to keep the interest as low as
possible.
Conclusion
The Government of India and Planning Commission accepted the recommendations
and started implementing the schemes during the Second Five Year Plan. As envisaged, the
National Cooperative Development and Warehousing Board was set up in 1955, under which
two Funds (National Cooperative Development Fund and National Warehousing

43
Development Fund) were created. It was decided to organize Large-size Credit Societies. The
linking of credit with marketing was vigorously followed in cooperative movement. A
comprehensive scheme for Cooperative Education and Training was drawn up and
implemented. It is being said that the face of the cooperative movement in India was changed
beyond recognition after the coming up of the Survey Committee report.
2) COMMITTEE ON COOPERATIVE CREDIT (1960)
The Committee on Cooperative Credit headed by V.L.Mehta was appointed
September, 1959 as per the recommendations of the State Ministers in charge of cooperation
held at Mysore in July, 1959. The report was submitted in May, 1960.
Agricultural Production Programme
The Committee noted that there was no agricultural production plan for each village.
Where the numbers of dormant societies are in large number, one or more inspectors may be
posted in each district to attend to rectification. If the number of such societies exceeds 500,
one or more Assistant Registrars - be appointed for expediting the work.
Credit for cultivating member
The Committee pointed out that cooperatives should provide funds even to tenant
cultivators, provided they possess the necessary repaying capacity and produce sureties. A
large part of the loan should be supplied in kind so that misutilization of loans can be
minimized. The borrowings of an individual may not exceed eight to ten times his paid up
capital in the society.
Liability
For the type of viable units visualized, village societies are expected, undertake,
organization of societies on the basis of limited liability would more suitable. The owned
funds of a limited liability society and net assets of an unlimited liability society serve as a
margin of security for creditors.
Credit limits: Primary Credit Societies
The Committee mentioned that there is no need to increase the ere limits which is
eight times the owned funds for limited liability society a one eighth of net assets for
unlimited liability society.
Owned Funds
Owned funds for the purpose of determining the borrowing power of cooperative
bank, May apart from the paid-up capital and statutory reserve fund, include other funds of a
permanent nature created out of profits, such as building funds, stabilization fund and sinking
fund for debentures.

44
Augmenting Internal Resources: Share Capital and Deposits
There should be a link between share holding and borrowings in Central banks so that
their owned capital will increase automatically and proportionately with the increase in their
loan operations. Primary credit societies should be required to contribute for the share capital
of the Central Cooperative Bank at the rate of 1/20 of their borrowing. Conditions will have
to be created at primary level so that the primary credit societies may be in position to
mobilize savings in the rural areas.
External resources
At the village level there should be only one institutional agency for the supply of
credit. Funds intended for disbursement 'of taccavi, short-term or medium-term should be
placed at the disposal of the cooperative credit structure. The Life Insurance Corporation of
India should make substantial contribution to the debentures floated by land mortgage banks,
particularly in areas, which are less favourably situated in the matter of raising funds. Central
Cooperative Banks should assume the responsibility for supervision of primary credit
societies affiliated to and financed by them.
3) MIRDHA COMMITTEE ON COOPERATION (1965)
The Mirdha Committee on Cooperation, 1965 was appointed by Government of India
to suggest measures for the proper development of cooperatives and eliminating non-genuine
cooperatives.
The Mirdha Committee recommended the following:
(i) The membership in cooperatives should be open to all.
(ii) The Committee recommended that the imposition of statutory restrictions on number
of terms for holding office and the number of society's criteria is not necessary.
According to this Committee, the election should be managed by General Body and
not by the Registrar. The Committee also recommended to have minimum number of
Government nominations in the management of cooperatives.
(iii) Government, Local Bodies and Corporations should invest their deposits in
cooperatives and Deposit Insurance should be available to all deposits.
(iv) Establishment of National Cooperative Bank was recommended by the Committee
(v) The Committee recommended for a wider objective in the audit of cooperatives.
Further, it stressed for independence in conduct of audit.
(vi) Cooperative education and training should be given' importance. The District union to
be strengthened in order to facilitate effective education and training to the staff and
members of cooperatives.

45
4) ALL INDIA RURAL CREDIT REVIEW COMMITTEE (1969)
The All India Rural Credit Review Committee was appointed in 1969 by RBI for
reviewing the supply of rural credit in India. Sri.Venketappiah, Member, Planning
Commission, was the Chairman of the Committee. The Committee has stated: "Cooperatives
are often looked upon not as farmer's institutions but as part of Government". This
Committee came to the conclusion that the non- institutional sources still accounted for 81
percent of the total agricultural credit in 1961-62 as against 93 percent in 1951-52. The
Committee observer that cooperative credit had not still been oriented in respect of coverage
of credit needs and membership. It also noted that over dues were not only heavy but they
were rising from year to year.
Important findings of the Committee
❖ The small and marginal farmers were not benefited by the agriculture schemes of the
Government. Benefits of such schemes were annexed by the rich and influential
farmers.
❖ The 'management committee members and office bearers role a recovering the loans
from the borrowers on due dates is not satisfactory.
❖ The existence of a large number of dormant societies at the primary level is one of the
disturbing features of the cooperative credit movement in India. The dormant societies
are societies only on the registration books of the cooperative department.
❖ The staff selection in the cooperative institutions was often influenced by
consideration of local patronage or personal favoritism. In a large number of cases,
the chief executives of central cooperative banks w-as not suitably trained and that the
management was often neither independent enough or sufficiently competent to
ensure efficient objective working.
Recommendations of the Committee
 In areas where cooperatives are not developed, the Committee recommended the
setting up of Agricultural Credit Board within Reserve Bank.
 The Reserve Bank should link loans with deposit mobilization. The Reserve Bank
should sanction separate limits for financing the marketing of crops and separate
limits for crop loans.
 Primary Land Development Banks should be made independent units and provided
with qualified staff. The size of the units should be compact. Each unit should be
viable and it should have close contacts with borrowers.
 The banks themselves should try to mobilize savings, particularly in the rural areas.

46
Possibility of issuing rural saving certificates may be explored.
 States should actively participate in the share capital of the banks.
 Proper supervision on utilization of the loan should be ensured.
 While sanctioning loan, cost factor of the area in which development is proposed to
be made, should be taken into consideration.
 Production rather than security offered for loan should be the main
 Repayment of loan installments should be so fixed that these coincide with the
harvests of major crops.
In areas where the agricultural credit societies are dormant and their reactivization or
liquidation is proceeding slowly, the central cooperative bank may finance the non- defaulter
members of the societies direct through its direst branch.
The Committee has suggested that cooperative banks and cooperative apartments
should exercise the utmost vigilance to see the book-adjustments do not occur on a large
scale by gap between the dates of recovery and fresh loans.
An arrangement may be tried in selected areas and on an experimental basis, for
enabling a cultivator to acquire automatic entitlement to production credit from his society
for a particular year, provided he has repaid his previous fees promptly and in full.
5) SANTHANAM COMMITTEE (1969)
The Committee on Cooperation was appointed by Government of Tamilnadu, under
the Chairmanship of Shri.Kasturiranga Santhanam. The Committee gave its report during
1969. Some of the important recommendations of the Committee are:
 The scale of cultivation finance should include a reasonable amount towards the
consumption expenses of the member's family
❖ PACS should be empowered to pursue action under the Land Revenue Recovery Act
to drive up recovery measures
❖ Need for 3% margin between lending rate by PACS to members and its borrowing
rate from DCCBs.
6) BANKING COMMISSION REPORT (1972)
The Banking Commission was set up by the Government of India in February, 1969
under the Chairmanship of Sri.R.C.Saraiya, a veteran cooperator. The Commission submitted
its report in 1972. In particular, there is a significant gap in institutional arrangements in
respect of small, marginal and sub-marginal farmers and other rural producers of this
category which calls for a different approach. Besides, it is not enough to concentrate merely
on providing credit, emphasis has also to be given to supervision of the application of the

47
credit and guidance to the borrower in his operation.

The Commission made the following important recommendations with regard to

rural credit:
1. The structure of banking institutions in the rural sector should be improved by
strengthening the primary credit societies by providing adequate credit and
developing banking habit in this sector with a wide range of banking services and
other closely allied non-banking services. For this purpose, they have to become rural
banks.
2. Banking facilities are to be provided in rural areas by commercial banks through
financing of primary credit societies.
3. Effective coordination between commercial banks and cooperative banks is an
essential pre-requisite for developing rural credit.
7) REPORT OF THE COMMITTEE ON COOPERATIVE LAND DEVELOPMENT
BANKS (1973)
The RBI constituted in March 1973, a Committee under the Chairmanship of Shri.
K.Madhava Das to undertake a thorough examination of the various aspects relating to the
working of Land Development Banks to identify specific problems of areas where there was
need for improvement and to suggest remedial measures.
Referring to norms of viability, the Committee has observed that the norms cannot be
applied uniformly to all States. Further the norms may undergo changes from time to time.
Each primary land development bank should have minimum loan business of Rs.35 Lakh in
order to function as a viable unit.
The Committee has recommended integration of the credit structure in 6 States viz.
Assam, Himachal Pradesh, Jammu and Kashmir, Pondicherry, Tripura and West Bengal to
play an effective role in meeting the credit needs cultivators.
The following reforms in the loaning policies and procedures were suggested:
a) Technical appraisal of loan proposals is needed, especially where loans are given for
minor irrigation works or land reclamation, soil conservation, bounding, horticulture,
plantation development, etc.
b) Computation of the repaying capacity and fixing of the period of loans on a realistic
basis.
c) Introduction of various safeguards such as disbursement of loans in instalments for
minor irrigation works or land reclamation, hypothecation of agricultural machinery
and equipment and also insurance of assets like pump sets and tractors.
48
d) Strict adherence of payments directly to the suppliers in the case of loans for
agricultural equipment, machinery and tractors.
e) Verification of utilization of loans.
8) RESERVE BANK OF INDIA - STUDY TEAM ON OVERDUES, 1974
Dr.Datey Study Team was appointed by the RBI to study the problems of over dues
from cooperatives and to suggest measures to tackle the problem. The Datey Committee in its
Report has estimated that there were overdues to the tune of Rs.377 crore, at the primary
level out of which non-willful default amounted only to Rs. 100 crore.
The main reasons pointed out by the Committee for overdues are (i). Faulty lending
policies and indiscriminate loan operations (ii). Inadequate supervision: absence of proper
management (iii). failure to link credit with marketing (iv). Lack of will on the part of the
management to enforce recovery or take strong and necessary action against recalcitrant and
willful defaulters and (v). Lack of financial discipline. The study team recommended
coercive measures supported by legal and administrative action to tackle willful defaults.
9) DATEY COMMITTEE (1975)
The report of the Study team on Overdues of Cooperative Credit Institutions referred
as Datey Committee was set up in 1974 by Reserve Bank of India under the Chairmanship of
Dr.C.D.Datey. The committee remarked that about 3/4th of the overdue arose due to willful
default besides internal reasons. The committee suggested that stern action on recalcitrant
should be taken up. The committee also recommended to strengthen the financial and
organizational positions of cooperative banks through adequate mobilization of internal
resource.
10) REPORT OF THE COMMITTEE ON INTEGRATION OF COOPERATIVE
CREDIT INSTITUTIONS (1976)
In response to the request made by the Government of India, the RBI appointed a
Committee in September 1975, under the Chairmanship of Dr.R.K.Hazari to study the
feasibility of integrating the two wings of the cooperative credit structure. The Committee
submitted its report in July, 1976. In the view of the Committee, the dichotomous pattern of
short term and long-term structure has created difficulties because of the compartmentalized
approach. Farmers have to approach different sources for various credit facilities and services
and the absence of one contact point has created difficulties because of their composite needs.
The integration of credit function, in the view of this Committee would avoid splitting
up of security between two credit agencies and competition between them in realization of
their dues. Besides according to this Committee proper linkage between production and

49
investment credit could be obtained only if the two structures are merged into one. The
farmers find it difficult to exploit the investment credit and hence there is a strong case for
creating single point for lending short term and long term agricultural credit.
11) REPORT OF THE NATIONAL COMMISSION ON AGRICULTURE (1976)
The National Commission on Agriculture, which enquired into aspects of the Indian
agriculture and allied problems, has made particular reference to 'supporting services and
incentives' especially providing credit by cooperatives and commercial banks. The combined
share of cooperatives and commercial banks in meeting the farm credit need, however, has
not exceeded 40 percent of the estimated requirement.
One of the important recommendations of this Commission regarding cooperative
credit was the creation of Farmers' Service Societies (FSS). It has to cater to the entire farm
needs of all its members, particularly small and marginal farmers and for local artisans. It
provides the organization framework for joint action that enables the small farmers to
overcome the handicaps of smallness.
Each FSS is to be registered as a cooperative society under the Cooperative Societies
Act of the concerned State. The major functions of the FSS shall be:
a. Drawing a broad plan of agricultural and related development in its area of operation
b. All the credit requirements of the members including term loans are to be met by the
FSS
c. It will supply inputs and services and also take up marketing activity.
12) REPORT OF THE COMMITTEE TO REVIEW ARRANGEMENTS FOR
INSTITUTIONAL CREDIT FOR AGRICULTURE AND RURAL DEVELOPMENT,
(CRAFICARD) 1981
The RBI appointed in March, 1979, a Committee under the Chairmanship
Shri.B.Sivaraman, to review arrangements for institutional credit for agricultural and rural
development (CRAFICARD) and the Committee mitted its report in January, 1981.
The terms of reference of this Committee were:
i. To review the structure and operations of the Agricultural Refinance and
Development Corporation in the light of the growing need for term loans for
agricultural and allied purposes.
ii. To consider the relative merits of three tier and two tier structures for cooperative
financing institutions and suggest improvements, if any
iii. To review the role of the RBI in the field of rural credit having due regard to its
central banking functions

50
The Committee urged the State Governments to make vigorous effects immediately to
develop Farmers Service Societies and Large-sized Adivasi Multipurpose Societies, so that
they can fulfill their objectives within a time. CRAFICARD recommended to establish
NABARD in 1982 by the functions of Agricultural Refinance Development Corporation
(ARZ Agricultural Credit Department (ACD) of RBI.
The Committee did not agree with the integration of short-term, medium-term and
long-term credit structures but recommended a broader ARDBs in rural development with
complete responsibility on NABARD to meet the resource needs for their growing
operations.
13) AGRICULTURAL CREDIT REVIEW COMMITTEE (1989)
The RBI constituted Agricultural Credit Review Committee popularly known as
Khusro Committee on 1st August, 1986, under the Chairmanship of Dr. A.M.Khusro, to make
a review of the credit system in agriculture.
The objectives of the Committee were:
(a) To review the rural financial system in the country and to assess the credit
requirements of the agricultural sector during the next decade.
(b) To make recommendations for improving the quality of credit and strengthening its
efficiency and effectiveness.
The Committee observed that out of 92,000 PACS in India, 44% were incurring
losses and over 70% of societies had no paid Secretaries. To remedy this situation, the
Business Development Plan was recommended for Kharif season from 1991-92 onwards. The
committee has suggested:
(1) A market based and not over-administered banking System.
(2) The need for a Market Credit Allocation.
(3) A Two-Category Solution and Avoidance of Populism.
(4) Free Structure of Interest Rates.
(5) Administered rate for specified categories of borrowers.
(6) Government to bear the cost of infrastructure and Mandatory Programmes and
Creation of National Cooperative Bank of India
14) NARASIMHAM COMMITTEE (1991)
Government of India constituted a High Level Committee on Financial System under
the Chairmanship of M.Narasimham, former Governor of RBI K August, 1991, to examine
all aspects relating to financial system in the country. It dealt with financial sector reforms.
The objective of the Committee was to find out steps needed to improve financial health of

51
the banks and development of financial institutions to make them viable.

Some of the recommendations were as given below:

a) Phasing out of directed lending for priority sector
b) Redefining small and marginal farmers, tiny, small scale rural artisans and fixing
targets for this group at 10% of the aggregate credit
c) Deregulation of interest rates.
The Committee said that "the health of banks is determined by many factors, the most
significant being a strong capital base, adequate provisioning, the nature of investments
made, the quality of asset management, the skill and commitment of officials, quantity and
quality of informational data, the internal incentive mechanisms and above all the nature of
governmental interference, in particular by the monetary authorities of the country in
question".
Impact of NPAs on banks' profits and lending
NPAs have a deleterious effect on the return on assets in several ways as given below:
❖ They result in reduced interest income
❖ They require higher provisioning requirements affecting profits and accretion to
capital funds and capacity to increase good quality risk assets in future, and
❖ They limit recycling of funds, set in asset-liability mismatches, etc.
15) JAGADISH CAPOOR COMMITTEE (1999)
A Task Force to study cooperative credit system and provide suggestions for its
development was appointed under the Chairmanship of Shri.Jagadish Capoor in 1999. It
emphasized the need for strengthening borrowing membership for increasing volume of
business in cooperatives. The Committee also stressed the need for introducing Model
Cooperative Societies Act in the states. According to this Committee, cooperative banks have
to evolve sound personnel policies and suggested that the board of directors of the banks
should be professional and accountable. This Committee suggested to continue three-tier
structure and felt that Agricultural Rural Development Banks (ARDBs) have to continue as
full-fledged banks.
They have suggested revamping and streamlining the regulation and supervision
mechanism by introducing prudential norms and bring cooperative banking fully under the
control of Banking Regulation Act, 1949.
16) EXPERT COMMITTEE ON RURAL CREDIT (2001)
An Expert Committee headed by Prof.VS.Vyas was appointed by NABARZ in 2000
to review the present trend in rural credit and suggested an effective plan of action for further
52
development. The Committee's report came out 23rd July 2001 with the recommendation of
strengthening cooperative by revitalization and adoption of Model Cooperative Societies Act
and Banking Regulation Act. This Committee also suggested to have professionals Chartered
Accountants for audit in cooperatives, integration of short-term and long-term credit
structures and greater involvement for cooperative banks in rural credit For strengthening of
credit delivery system as per the recommendation of Expert Committee for revitalization of
cooperatives, Rs.500 crore was placed with NABARD.
Some of the recommendations are given below:
1. New innovations such as formation of Self Help Groups, Joint Liability- Groups,
Contract Financing, etc., need to be encouraged
2. Improve links between credit and marketing
3. Credit institutions need to play a larger role in financing non-farm activities
4. Restore health of PACS by scrapping cadre system, allow mobilization of deposits by
PACS and linking them for borrowings from higher tiers and restrict voting rights to
active members and design .deposit insurance schemes.
5. Cooperative banks need to offer value added services through rural branches to
improve their viability
6. Under Human Resource Development, attention to selection of leaders, motivating
and training of personnel, incentive, etc to be development.
7. Cooperatives' CEOs may be professionals, Ex-officio Board Members and adequately
empowered.
17) TASK FORCE ON REVIVAL OF COOPERATIVE CREDIT INSTITUTIONS
(2004)
The Government of India constituted a Task Force under the Chairmanship of
Prof.A.Vaidyanathan in 2004 to formulate a practical and implementation plan of action to
rejuvenate the rural cooperative credit structure. The revival package is aimed at reviving the
short-term rural Cooperative Credit Structure (CCS) and make it a well-managed and vibrant
medium to serve the credit needs of rural India, especially the small and marginal farmers.
The important terms of reference of the Task Force were:
❖ To recommend on implementable action plan for reviving rural cooperative banking
institutions.
❖ To suggest an appropriate regulatory frame work and the amendments which may be
necessary for the purpose in the relevant laws
❖ To suggest any other measures required for improving the efficiency and viability of

53
rural cooperative credit institutions

Some of the pointers highlighted by the Task Force were:

1) No elections have been held in the CCS units across all tiers for long (10 years or
more) in three states.
2) Boards of 9 out of 30 SCBs and 134 out of 368 DCCBs have been superseded
3) The cooperative department headed by Registrar of Cooperative Societies influence
administrative matters of cooperatives in the form of supersession of Boards,
appointment of administrators and assuming powers to approve staffing patterns,
interest rates in loan decisions, etc.
4) The impairment of the governance structure is also because < politicization of these
institutions reflected in fact that directors o Boards of cooperative banks are involved
in active politics either at the state, district and taluk level.
5) The action taken by the Government also becomes responsible for the non recovery of
loans like waiver of loans.
Legal and Institutional Reforms
i) Ensuring full voting membership rights on all users of financial service including
depositors in cooperatives other than cooperative banks
ii) Removing State intervention in all financial and internal administrate matters in
cooperatives
iii) Allowing transition of cooperatives, registered under the Stat Cooperative Societies
Act to migrate to the Parallel Act (wherever enacted)
iv) Permitting cooperatives in all the three tiers freedom to take loans from any regulated
financial institution and not necessarily from only the upper tier and, similarly
placing their deposits with any regulate financial institution of their choice, beyond
certain thresholds.
v) Limiting powers of State Governments to supersede the Boards
vi) Ensuring timely elections before the expiry of the term of the existing Boards
vii) Prudential norms including CRAR, for all financial cooperatives including PACS, as
per the directions of RBI. The package will include assistance necessary to bring all
cooperative including PACS, to a minimum Capital to Risk Weighted Assets Ratio
(CRAR) of 7%. This ratio will be raise within three years to 9%. This increase in
CRAR shall be met by the CCS from its own resources.
Reforms in the BR Act 1949
i. All cooperative banks would be on par with the commercial banks a far
as regulatory norms are concerned.
54
ii. RBI will prescribe certain qualifications and experiences for professionals in the
board of management. If such professionals do not get elected in the normal electoral
process, then the Board will be required to co-opt such professionals (having full
voting rights) to the Board.
iii. The CEOs of the cooperative banks would be appointed by the respective banks
themselves (with the approval of RBI) and not by the State Government.
iv. Cooperatives other than cooperative banks as approved by the RBI shall not accept
non-voting member deposits. Such cooperatives would also not use words like
"bank", "banking", "banker" or any other derivative of the word "bank" in their
registered name.
Cooperatives as member-driven institutions
The share of the State Government in the equity of each institution in the three tiers
shall be brought down below 25% of the total subscribed share capital within a period of
three years. To facilitate this process, the Task Force recommends that soft loan support be
provided to institutions which do not have wherewithal to return State Government equity.
Further, there will be only one Government representative on the Board of a DCCB or SCB
to represent the equity of the State Government. However, there would be no State
Government nominee on the board of a PACS even if it has received equity contribution from
the State Government.
Revival Package
Based on the recommendation, Package was announced with a financial outlay Rs.
13596 crore in January 2006 with Gol share of Rs.9245.28 crore based on tentative data as on
31st March 2003. Package size became Rs.21739 crore with GoI share of Rs. 15902 crore
based on Special audits as on 31st March 2004.

1. Financial Assistance: Financial assistance was to be provided for cleansing of

balance (as on 31 March 2004) of STCCS, strengthening their capital base, and then
move on to the upper tiers. This step will enable PACS to clear their dues to the upper
tiers and thereby reduce the accumulated losses of DCCBs. The DCCBs will
thereafter be provided assistance to clear the balance of accumulated losses, if any,
and to reach a minimum norm of capital adequacy. The same process will apply to
the SCBs. Capitalization will be full for the PACS with recovery levels of 50% and
above. The PACS with recovery levels between 30% to 50% will receive financial
assistance in three annual back-ended instalments at the beginning of each succeeding
year subject to then achieving an incremental increase in their recovery rate by at least 10%

55
on 30 June 2006 against the benchmark recovery achieved on 30 June 2004, and an annual
increase of 10% points thereafter. As and when a PACS achieves 50% recovery, the entire
assistance will be released without waiting for the year to year recovery benchmarks.
2. Special Audit: The financial package is extended to STCCS after conducting special
audit on them.
3. Legal Reforms: The States are to amend their respective Cooperative Societies Acts
(CSA) to ensure (i) democratic functioning of the cooperative institutions, (ii)
autonomy in financial and administrative matters and (iii) regulatory control of RBI
on these institutions. Fn and proper Criteria' have also been prescribed by RBI for
election/ appointment as Directors and CEO of SCB and DCCB.
4. Common Accounting System and Management Information System: The
Common Accounting System (CAS) and Management Information System (MIS) for
PACS have been formulated and are put in place in all PACS to standardize
accounting systems and decision making process. Once operationalisation of
CAS/MIS manually is achieved, computerization of CAS/MIS will be provided.
5. HRD Initiatives: Training is provided to functionaries and Members of PACS.
Training was also imparted for departmental auditors and supervisors of cooperative
banks to enable them to provide hand holding support to the PACS functionaries.
 Special Package for NER: In November 2008, GoI announced package
providing special dispensation for STCCS in NER (Arunachal Pradesh,
Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura)
keeping in view the health of the institutions, present business, etc. The revival
package for STCCS in NER is to be shared by the Central Government and
State Government in the ratio of 90:10 irrespective of the origin of loss and
commitments.
18) TASK FORCE OF VAIDYANATHAN COMMITTEE ON REVIVAL OF LONG-
TERM RURAL COOPERATIVE CREDIT STRUCTURE (2006)
Based on recommendations of the Task Force (Chairman: Prof. A.Vaidyanathan) on
Long-Term Cooperative Credit Structure (LTCCS), GOI has finalized a package for revival
of the LTCCS in 2006 and the same has been approved by the Union Cabinet. The package
will help credit flow for long-term investment purposes to around 16 million members of
LTCCS and help revive SCARDBs and PCARDBs.

The task force was setup to review the present system of Long Term Lending for
Agriculture and Rural Development and assess the performance of CARDBs in the overall

56
system and suggest a comprehensive strategy for institutional financing of Long Term
Agriculture and Development.
Findings
The important findings of the Committee are given below:
 The LT structure has a membership of about 16 million out of which 82% are
borrowing members.
 Although the credit flow by the structure increased from Rs.1,212 crore in 1992-93 to
Rs.3,143 crore in 2002-03, its share in the overall credit flow for long-term loans for
agriculture has fallen from 24% to 13% .
 The structure also shows poor levels of governance. An important reason for poor
governance lies in the very character of the structure which is purely borrower
oriented with no counter balancing mechanism in the form of depositors.
Recommendations
The key recommendations of the Task Force on institutional restructuring are as
follows:
 allow PCARDBs to access all types of deposits from members
 allow PCARDBs to provide all types of loans to its members
 allow PCARDBs to borrow from any regulated financial institution including federal
units of the STCCS
 allow PCARDBs to affiliate themselves with an upper tier of their choice
 all state equity in the LT CCS maybe retired
 convert branches of unitary SCARDB into autonomous PCARDs
 CRAR of minimum 7% be stipulated, to be increased to 12% in 5 years

Financial Package
In tune with the recommendations of the revival of the STCC financial package for
the LTCCS should cover accumulated losses and technical assistance including installation of
a computerized standard accounting, internal control and capacity building of the staff and
elected representatives. A audit may be conducted to arrive at its true and fair assessment
accumulated losses at the primary level and the cost of such a special audit may be part of the
financial package.

Criteria for Eligibility to Receive Assistance under the Package

The Task Force recommends that only that PCARDB (or branch unitary structure)
whose gross interest margin is equal or greater than I its operating expenses and whose
recovery is equal to or more than 50% demand may be considered eligible to receive
57
financial assistance und package directly. Since estimating accumulated losses for each
individual branch under the unitary structure will be difficult, it is recommended that all
arrears at the branch level for eligible branches may be covered and the branches allowed to
start on a clean slate after converting itself into an autonomous PCARDB. Ineligible
PCARDBs or branches will have to be closed and their business taken over by the upper tier.
Legal Reforms
Amendments to the Cooperative Societies Acts are proposed to make PCARDBs fully
autonomous and allow them flexibility in borrowing and making investments. NABARD Act
may be amended to allow it to lend directly to any unit of the LTCCS on the basis of the
financial strength of the ARDBS without necessarily taking State Government guarantees.
Accumulated Losses and Sharing Pattern
The aggregate accumulated losses of PCARDBs under the federal structure and the
entire unitary structure are Rs.2,864 crore as on 31 st March 2004. It is estimated that the
losses at the SCARDB level under the federal structure will get wiped out once the
PCARDBs are funded. In tune with the conditions for the STCCS, the GOI may bear all
losses arising out of LT loans for agricultural and related activities. State governments may
pay upfront existing dues from them. Losses arising from non-agricultural loans by the
structure may be borne equally by the concerned State government and the LTCCS.
Present Developments
Based on the recommendations, Package for Revival of the LTCCS (with 31.3.2008
as cutoff date) was announced in the union budget 2008-09 with a financial package of 3070
crore including GOI share of 2206 crore. The package was further re-examined/
recommended by GOI Task Force set up under the Chairmanship of Shri.G.C.Chaturvedi, the
then Additional Secretary DFS, GoI. The Task Force suggested the financial package of 3070
crore (with Gol share 2397crore) and cutoff date as 31st March 2008. The Package has been
revised several times and sent to GoI with various cut off dates the latest being as on 31
March 2012 with total financial outlay of 7704 crore with GOI share of 6513 crore. However,
the recapitalization of ARDBs has not been operationalized till date March 2017.

19) EXPERT COMMITTEE

In July 2012, RBI set up the Expert Committee under the Chairmanship of Dr.Prakash
Bakshi, Chairman, NABARD was constituted to review the existing Short Term Cooperative
Credit Structure (STCCS) focusing on structural constraints in rural credit delivery system
and explore various ways to strengthen the rural cooperative credit architecture with

58
appropriate institutions and instruments of credit to fulfill credit needs. The Terms of
Reference for the Committee include:
❖ To assess the role played by SCBs and DCCBs in fulfilling the requirement of
agriculture credit, the primary purpose for which they were set up.
❖ To identify Cooperative Banks that may not be sustainable in the long run even if
some of them have met the diluted licensing criteria for the time being.
❖ To suggest appropriate mechanism for consolidation by way of amalgamation,
merger, takeover, liquidation and de-layering.
Major Recommendations
Some of the important observations/ recommendations made by committee in its
report published on 23rd January 2013;
i. For providing safety of deposits and efficient loan services to farmers, the Committee
has recommended that PACS should work only business correspondents (BCs) on
behalf of banks and should themselves act as financial intermediaries. In addition,
PACS should provide a range of other fee based financial and non-financial produce
The immediate consequence of such a change would be that all depositors and
borrowers in villages would become direct member clients of the- CCBs.
ii. The Committee observed that 238 of the 370 CCBs in the country already have
CRAR of 7% or above, and about two thirds of them would be able to internally
generate enough capital to maintain a sustainable CRAR of at least 9% by 2016-17.
About 209 of the 370 CCBs would require additional capital aggregating Rs 6,500
crore in four years to attain 9% CRAR by 2016-17. It is estimated that despite these
measures, about 60 CCBs will not become sustainable and would need to be merged
with other CCBs. The Committee has suggested a roadmap for such an exercise.
iii. Some of the CCBs do not have adequate capital to meet even the relaxed licensing
norm of 4% CRAR. The Committee recommends that 31 March 2013 may be set as
the deadline for these banks to mobilize the required capital either internally or from
any other external source so as to achieve 4% CRAR, failing which RBI should take
the necessary regulatory action.

iv. The Committee has also estimated that about 58 CCBs would generally not be able to
mobilize the required capital, or their business sizes are so small that they would not be
sustainable in the long run and would have to be therefore consolidated with other CCB(s).
v. Most of the CCBs and SCBs will also have to take concrete steps to improve their

59
internal systems, human resources, and technology adoption. The Committee has also
recommended various steps for improving the governance and management in SCBs
and CCBs on the lines of recommendations of the Vaidyanathan Task Force.
vi. 30th September 2013 to be set as deadline for all SCBs and CCBs to be fully
operational on CBS and providing RTGS, NEFT, ATM and PCS device based
services.
While accepting most of the recommendations of the Expert Committee, RBI issued a
letter on 10th June 2013, accepting the recommendations of PACS to work as BCs of DCCBs
and said that in states where CCBs are fully computerized and are entirely on CBS mode,
PACS may be allowed to function as BCs of CCBs the same way as they are functioning as
BCs of Commercial banks. It may be seen that the RBI guidelines are not a compulsion and
only says that if the banks so desire they may use PACS as BCs.
Following the first meeting of the implementation Committee on 5 th June 2013,
NABARD addressed a circular dated 22 nd July 2013 to the Chairmen and Chief Executives of
all SCBs and DCCBs issuing directives for converting PACS as BCs of DCCBs/SCBs.
Highlights of NABARD directives are as follows:
i) To transfer assets and liabilities of PACS to DCCBs/SCBs
ii) The assets of PACS arising out of lending operations will stand transferred to the
books of DCCBs/SCBs along with the related liabilities
iii) All deposits collected by the PACS would also be transferred to the DCCBs/SCBs.
However, they will carry out the services both in respect of lending operations and
collection of deposits on behalf of DCCBs on pre decided commission or fee basis.
iv) PACS would however, do other business as an independent entity out of its own fund
and earn income.
v) The share capital mobilized by PACS from its members by way of share linked
capital of the loans provided will now stand transferred to the books of DCCBs/SCBs
and form part of share capital of DCCBs.
vi) The borrowing members and depositors will have to become the members of
DCCBs/SCBs

60
20) COMMITTEES ON URBAN COOPERATIVE BANKS
a) Madhava Das Committee
The Committee constituted by the Reserve Bank of India under the Chairmanship of
Mr.Madhava Das to evaluate the role and other working features of the Primary Urban
Cooperative Banks in September 1977, submitted its report on 11th July 1978. The important
recommendations of the Committee were:
1) Urban banks should do vigorous pioneering work in financing the small- scale
industrial sector in close collaboration with the State Government departments
dealing with small- scale industries.
2) Urban banks should solve unemployment problems by financing the educated
unemployed, self-employed persons and professionals such as doctors, lawyers,
chartered accountants, architects and engineers. This sector will include small shop
owners, stallholders, fruits and vegetables vendors, shoemakers, tailors, etc.
3) Provision of finance to small transport operators such as pliers of cycles, scooters,
rickshaws, taxis and vans
4) Urban banks can undertake the house finance to individuals, housing societies,
housing boards, local bodies, slum clearance, etc.
5) Urban banks may enter into participation/consortium arrangements with commercial
banks
6) There should be a separate cell in the Agricultural Credit Department to issue licenses
to the existing bankers without further delay which prima facie satisfy the important
requirement of Sec. 11, 22(3)(4) and 22 (3) (b) of the BR Act.
7) Urban banks may give representation to women members on the board of
management and wherever necessary set up a separate section to cater for the needs
of women members.
8) The State Government may contribute to share capital of new banks organized
especially in backward areas or weaker sections of the community.
9) The State Government should permit local bodies, quasi-government institutions and
public trusts to keep surplus funds with urban banks which have earned 'A' or 'B' class
in audit.
Criterion of Viability:
The Committee listed out the following methodology for retaining the viability of
urban banks:

I. Compute the margin available on raising the resources and deploying them
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and Compute the management and other expenditure

II. Find out the quantum of loan business which will meet the above
expenditure The Committee fixed the order of priorities for the lending of
urban banks as:
1. Small scale and cottage industries
2. Schemes for gainful employment of educated unemployed
3. Self employed persons and professionals
4. Small road and water transport operators
5. Trade and commerce
6. Housing schemes
7. Consumption loans
8. Loan for Consumer cooperative societies
b) Committee on Licensing of New UCBs
The Governor of Reserve Bank constituted a Committee in September 1991 headed
by Shri.S.S.Marathe, to review the policy relating to the licensing of the new primary
cooperative banks and other aspects. The Committee found that 100 UCBs out of 1406 were
holding more than 53% of deposits and only 4 scheduled UCBs were having more than 26%
of deposits. Again 797 UCBs were functioning as unit banks, 430 with 5 or more number of
branches and 000 banks were working with less than Rs. 10 crore working capital. This
clearly reveals vast disparities in terms of size, strength and operations.
The position of UCBs as found by the Committee is detailed below:
Table No: 1.2
Position of UCBs
Non Salary
S. Scheduled
Particulars Scheduled Earners' Total
No. UCBs
UCBs Societies
1 No. of reporting banks 14 1201 82 1297
2 Deposits 2713.32 6980.19 504.27 10197.78
3 Loans & Advances 1760.41 5679.73 630.08 8070.22

Some of the important recommendations of the Committee are given below:

1) The "one district one bank" approach may be given up and the new banks may be
permitted on the criteria of need
2) The existing policy of Mahila banks and proposals for banks for SC/ ST and weaker
sections etc., may be continued. No bank should, be allowed to be organized for the
exclusive benefit of a particular caste, creed, avocation, profession, etc.

62
3) The licensing policy may be reviewed after every 5 years

63
4) Suitable changes may be made in the Cooperative Societies Act to reduce level of
manipulation/external interference in the working of UCBs
5) RBI may conduct statutory inspection at an interval of 2 years.
6) Approved chartered accountants may be permitted to audit accounts of UCBs which
will help in getting audit done in time
The Committee also stressed the need for the strategy such as professionalized
management, decentralized process of decision making, stress on increased productivity,
resource mobilization and efficient housekeeping operation, etc.
c) Working Group to review the systems of UCBs (1996)
A working group was formed in December 1995, under the Chairmanship of
Shri.Uday M.Chitale to review the then existing system of UCBs. During 1996, the working
group gave the following suggestions:
❖ The audit of banks with deposits of Rs.25 crore and above is conducted by Chartered
Accountants.
❖ There be a standard format of audit for all states
❖ The audit rating model for UCBs be revised
❖ The UCBs are allowed to invest 10% of their deposits outside co-operative fold
❖ The ceiling on quantum of advances to nominal members to be increased substantially
and
❖ The scheduled UCBs have been allowed to do merchant banking/ forex operations.
d) The High Power Committee on Urban Banks
The High Power Committee headed by Sri.Madhav Rao, IAS (Retd.) and former
Chief Secretary, Andhra Pradesh, constituted by the RBI has submitted its report on
November 30th 1999.
Five main objectives before this Committee were:
1. To preserve the cooperative characters in UCBs
2. To put in place strong regulatory norms at the entry level so as to sustain the
operational efficiency of UCBs
3. To align urban banking sector with that of the segments of banking sector in the
conduct of application of prudential norms.
The recommendations contained in the report were:
❖ Relaxation for banks for SC/ST, Mahila Banks and less/least developed areas to
continue

❖ New banks can extend their area of operation to the entire district of their registration
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and adjoining districts

❖ The committee felt that the continued financial stability of UCBs could not be ensured
unless they were subjected to the CRAR discipline.
Pursuant to the recommendations of the High Power Committee Madhavrao
Committee), UCBs were brought under the CRAR discipline with effect from March 31 st,
2012, in a phased manner. Accordingly, UCBs were advised to adhere to capital adequacy
standards over a period of three years as indicated below:
Table No: 1.3
CRAR standards for UCBs
Date Scheduled UCBs Non-Scheduled UCBs.
31.03.12 8% 6%
31.03.13 9% 7%
As applicable to commercial
31.03.14 9%
banks i.e. 9%
As applicable to commercial As applicable to commercial
31.03.15
banks i.e., 9% banks

e) Anant Geete Committee (2002)

A high level committee was set up by Ministry of Finance, GOI, during 2012, under
the Chairmanship of Shri.Anant Geete, the then Minister of State for Finance. The Committee
looked into the problems relating to cooperative banks including their regulatory and
supervisory framework.
The committee suggested to do away with a dual control of the RBI and RCS over the
UCBs. It also recommended that UCBs should be controlled by RBI by incorporating
amendments to the Banking Regulation Act. Further, no scheduled UCBs would be allowed
to keep their deposits with other scheduled UCBs, district central cooperative banks and state
cooperative bank. All scheduled UCBs are brought under the purview of the Multi-state
Cooperative Act. UCBs would have to accept RBI norms to improve their health and they
would slowly have to improve their capital adequacy levels.
f) Joint Parliament Committee (2012)
A Joint Parliament Committee on stock market scam and matters relating thereto was
constituted during 2012 under the Chairmanship of Shri.Prakash Mani Tripathi, for
strengthening of audit of UCBs. The committee made following recommendations:
1. Concurrent audit made mandatory for all UCBs
2. Audit committee of board should exist in each of the banks
3. As of Compliance to RBI report, following are the recommendations: Compliance to
be furnished within 6 weeks

65
❖ All defects pointed out in inspection report to be removed within 4 months
❖ Certificate to be effect submitted to RBI within 4 months
❖ False certificate or delayed compliance to attract penal action
❖ Strict penalty for non - compliance of RBI directives
g) Committee on Financial Sector Assessment (2006)
The Committee on Financial Sector Assessment (CFSA), set up by GoI in September
2006 under the Chairmanship of Dr. Rakesh Mohan looked into the financial health of all
banks including the cooperative banks and made recommendations for improvement of
financial health and systems for attaining/ maintaining financial stability. A major
recommendation of the Committee was to prohibit unlicensed banks from functioning beyond
March 2012.
h) Malegam committee (2011)
The RBI set up the Expert Committee on Licensing of Urban Cooperative Banks
referred as Malegam Committee was set up under the Chairmanship of Y.H.Malegam. As per
the announcement made in the Second Quarter Review of Monetary Policy 2010-11, the
scope of the Committee was extended to look into the feasibility of an umbrella organisation
for the UCB sector. Accordingly, the revised terms of reference of the Committee are as
under:
❖ To review the role and performance of UCBs over the last decade and especially
since the adoption of VISION document in 2005,
❖ To make recommendations relating to the legal and regulatory structure to facilitate
the growth of sound UCBs especially in the matter of raising capital consistent with
cooperative principles.
❖ To examine other issues incidental to licensing of UCBs and make appropriate
recommendations.
The important recommendations of the Committee are:
1. Provisions of Cooperative Societies Act may be amended to raise fresh capital
2. UCBs should have a board who in turn would appoint chief executive officer. The
board of management to follow a code of corporate governance
3. Audit by Chartered Accountants to be appointed from the panel maintained by RBI
4. To reduce total dominance of borrowers on management, 50% in value of deposits is
recommended to be held by voting members
5. Committee recommended that there should be two separate umbrella organizations

66
viz., a national level organization, a multi-state UCB which provides payment and
settlement services and other services normally provided by central banks as also
liquidity support to its members.
High Powered Committee on UCBs, 2015
The High Powered Committee on UCBs set up by RBI under the Chairmanship of
R.Gandhi constituted during January 2015, submitted its report on 30 th July 2015. The
important terms of reference of the Committee are:
1) What lines of business (that commercial banks undertake) can be permitted for UCBs
and what should be the benchmark in terms of size of business, capital requirement,
regulatory regime etc.
2) Examine whether the time is opportune to give license to new UCBs as per the
recommendations of the Expert Committee on Licensing of New UCBs and if so the
modalities of taking forward the recommendations of Malegam Committee.
Important observations of the Committee
 Cooperative character of UCBs: The Committee observed that over the years, many
UCBs have lost their cooperative character and have been reduced to almost family
run institutions. To ensure cooperative membership, RBI has prescribed that the
proportion of borrowing nominal members should be limited to 20% of regular
members. The Committee pointed out on a study undertaken by RBI found that the
"Cooperativeness of Cooperative banks" in India is on the decline.
 The HPC, 2Q15 observed that some o£ the barge UCBs are bigger than the smaller
commercial banks in terms of deposits, advances, and total assets.
 The HPC, whilst emphasizing the continued relevance and role of UCBs, observes
that concerns like restricted ability to raise capital, lack of a level playing field in
regulation and supervision and absence of resolution mechanism on par with
commercial banks could be addressed through conversion of large UCBs into
banks/small finance banks.
 When small finance banks are operational, there could be a regulatory conundrum for
RBI as the small finance banks, with stricter capital norms and priority sector loan
target are not permitted to undertake activities that are presently allowed in the case of
UCBs.
 Multi-State UCBs could be easily converted into commercial entities by amending
Section 17 and 121 of the Multi State Cooperative Societies Act, as suggested by
RBI. However, with respect to UCBs not covered by MSCS Act, conversion into

67
commercial banks/small finance banks requires requisite amendments in the provisions of the
Cooperative Societies Acts of all states, which is a long-drawn-out process.
Important recommendations of the Committee
1) Enhancing Cooperativeness: Some of the steps to enhance the cooperativeness in
UCBs in India could be increasing member awareness to strengthen the democratic
character, focus on member education and rekindle members' interest in the principles
of cooperation. Steps can be also taken to increase in the quorum requirement for
Annual General Body Meetings, make provision of electronic and secure remote
voting facility and cap the tenure/term of the Directors of UCBs in the Board.
2) UCB as Commercial entity: For large UCBs who have reached certain threshold in
the size and complexity of business, enabling their graduation into commercial banks
can be thought of, so that their further growth is facilitated. Alternatively, to grow and
sustain in the existing set-up, the existing restrictions can be liberalized for UCBs.
3) Umbrella organization for UCBs in India: In India only scheduled UCBs have
direct access to liquidity support from RBI in the form of refinance. Other UCBs are
dependent on District Cooperative Banks/State Cooperative Banks for their liquidity
needs.
4) The Committee recommended that the business turnover limit of UCBs should be
Rs.20,000 crore for conversion into commercial banks.
IMPORTANT COMMITTEES ON COOPERATIVE CREDIT AND BANKING
1. Report regarding the possibility of introducing Land and Agricultural Banks into the
Madras Presidency, 1895 (Chairman: Sir F.A.Nicholson)
2. Committee on Cooperation in India - 1915 (GoI, Chairman: Sir E.D.Maclagan)
3. Cooperative Planning Committee - 1946 (GoI, Chairman: Shri.R.G.Saraiya)
4. All India Rural Credit Survey - General Report, Volume II, 1954 (Reserve Bank of
India, Chairman: Shri.A.D.Gorwala)
5. Report on certain aspects of cooperative movement in India - 1957 (Government of
India, Planning Commission - By Sir Maloom Darling)
6. Committee on Cooperative Credit - 1960 (Ministry of Community Development and
Cooperation, Department of Cooperation, Government of India, Chairman:
Shri.V.L.Mehta)

7. Rural credit follow up survey, General Review Report for 1956-57, 1957- 58, 1958-
59, 1959-60 (RBI - 1960, 1961 and 1962 respectively)
8. Committee on Takavi loans and Cooperative Credit - 1963 (Ministry of Community

68
Development and Cooperation, Department of Cooperation, Government oJ India,
Chairman : Shri.B.PPatel)
9. Mirdha Committee on Cooperatives - 1965 (Chairman : Mirdha)
10. I.C.A. Commission on Cooperative Principles - 1966 (International Cooperative
Alliance, Chairman: Prof.D.G.Karve)
11. Santhanam Committee, 1969 (Govt, of Tamilnadu, Chairman: Shri.Kasturiranga
Santhanam)
12. Report of the All India Rural Credit Review Committee - 1969 (Reserve Bank of
India, Chairman: Shri. Venkathappiah)
13. Banking Commission Report - 1972 (Chairman : R.C. Saraiya)
14. Expert Committee on Multi-state Cooperative Societies Legislation - 1972
(Government of India, Ministry of Agriculture, Department of Cooperation,
Chairman: Shri.Udaybhan Singhji)
15. Report of the Study team on Overdues of Cooperative Credit Institutions - 1974
(Reserve Bank of India, Chairman: Dr.C.D.Datey)
16. Expert Committee on Consumption Credit - 1976 (Government of India, Department
of Revenue and Banking, Chairman: Shri. B.Sivaraman)
17. Committee on Integration of Cooperative Credit Institutions - 1976 (Reserve Bank of
India, Chairman: Dr.R.K.Hazari)
18. Report of the Committee on UCBs, 1978 (Chairman Madhava Das)
19. Committee to Review Arrangements for Institutional Credit for Agriculture and Rural
Development - 1981 (RBI, Chairman: Shri.B.Sivaraman)
20. Study Group on Development of Resource by State and Central Cooperative Banks -
1981 (RBI, Chairman: Shri.M.V.Hate)
21. Study Group to Review working of the Scheme for financing of Primary Agricultural
Banks - 1982 (NABARD, Chairman: C.VNair)
22. Agricultural Credit Review Committee - 1989 (Chairman: Dr.M.Khusro)
23. Narasimham Committee - 1991 (Chairman : M. Narasimham)
24. Committee on Licensing of New UCBs - 1991 (RBI, Chairman: Shri.S.S.Marathe)
25. Working Group to review the systems of UCBs-1996 (RBI, Chairman: Shri.Uday M.
Chitale)
26. Committee on Model Cooperative Societies Act - 1996 (Government of India,
Chairman : Chowdri Bram Prakash)
27. Task force to study the functioning of Cooperative Credit System - 1999 (Chairman:
Jagadish Capoor)
69
28. The High Power Committee - 1999 (RBI, Chairman: Sri.Madhav Rao former Chief
Secretary, Andhra Pradesh)
29. Expert Committee on Rural Credit - 2001 (Chairman : Prof. VS.Vyas)
30. Anant Geete Committee - 2002 (Ministry of Finance, GOI, Chairman: Shri.Anant
Geete)
31. Joint Parliament Committee on stock market scam - 2002 (GOI, Chairman: Prakash
Mani Tripathi)
32. Task force on Revival of Cooperative Credit Institutions - December 2004 (Gol,
Chairman: Prof.A.Vaidyanathan, Madras Institute of Development Studies) and
revival of Long Term Credit Structure (2005).
33. The Committee on Financial Sector Assessment (CFSA), 2006 (Gol, Chairman: Dr
Rakesh Mohan)
34. Expert Committee on Licensing of Urban Banks (Malegam Committee), 2011 (RBI,
Chairman Y.H. Malegam)
35. Expert Committee on STCCS, 2012 (RBI, Chairman Dr. Prakash Bakshi)
36. HPC on UCBs, 2015 (RBI, Chairman R.Gandhi)

Limitations of Cooperative Banks

1. Limitations of Capital
The members in a co-operative society are people with limited resources, and
therefore, they cannot make large capital contributions.
2. Inefficient management:
A co-operative society generally suffers on account of inefficient management. Due
to limited financial resources, it is generally not in a position to employ and retain competent
professional managerial personnel. It, therefore, has to depend on its own members who
generally lack in skill and experience. Voluntary service is good but it is no substitute for
efficiency, skill, maturity, and experience of professionals.

3. Lack of unity and cohesion:

After an enthusiastic start, the functioning of a co-operative society is generally
marred by a lot of rivalry, factionalism, and politicking among its members, and this reflects
on the efficiency and effectiveness of the society. One of the reasons responsible for this is
the lack of proper training and education to members in co- operative principles and

70
functioning.
4. Limitations of size:
Apart from the limitations of capital, management, and cohesive functioning, a co-
operative society also suffers on account of its small size. Since a cooperative is generally
organized to cater to the requirements of a limited membership, and therefore, its operations
are limited, and that makes the size of the organization small.
5. Inadequate motivation:
Motivation is conspicuous in a co-operative society by its absence. Low or no
dividend to shareholders and nominal remuneration to the members of the society act as
dampers on their activity and enthusiasm.
The net result of all this is that the have- not’s generally cluster around a co-operative
society and dishonest and less competent people come to occupy managerial positions in it.
This sets a vicious circle in motion.
6. Delays in decision-making and decision-implementing:
The conduct of business of a cooperative society is strictly according to the rules and
regulations framed in this regard by the government. No one single office-bearer can take any
important decision on his own.
It can be taken only by the managing committee for whose meeting reasonable notice
has to be given to all members. Matters of larger significance can be decided only at the
general meeting of the society which is really a time consuming affair. Delay is experienced
not only at the level of taking decisions but also in their implementation.
7. Excessive government interference and lack of secrecy:
The functioning of a co-operative society is generally subjected to a lot of supervision
and regulation by the co-operative department — it has to submit its accounts regularly to the
Registrar, it has to get its accounts audited every year by auditors of the co-operative
department, and in some cases it has to get the appointment of its managerial personnel
approved by the Registrar.

8. Lack of public confidence:

A co-operative society generally does not enjoy much public confidence due to both
the excessive state regulation and the dishonest and political conduct of the society’s office
bearers.
Problems of Cooperative Banks
71
1. Lack of Democratic Spirit
Cooperatives need to run on well established democratic principles and elections held
on time and in a free and fair manner. It has been observed that majority of the members as
well as directors of the society are ill-informed about the activities of the society due to their
illiteracy & indifferent attitude. The dominant politicians who normally have political
background use to take undue advantage of the resources of the society. It seems majority of
the members are ignorant about the objectives of the cooperative movement & the spirit of
democracy.
2. Fair Audit
It is well known that audits are done entirely by department officials & are neither
regular nor comprehensive. Delays in the conduct of audits and submission of reports are
widespread. Audit is limited to such accounts as are available & reports seldom examine
whether accounts & record are complete, accurate and up to date. Neither the observance of
procedures for grant of loans and their recovery nor the veracity of the reported
characteristics of borrowers is properly scrutinized. Further, in case of the purchasing activity
lots of irregularity & manipulation takes place by the office bearers due to their vested
interests. /this causes loss to the society.
3. Abusing Power by the Leadership
Those who control cooperative societies are locally powerful, with strong political
affiliations. The political classes as a whole, irrespective of party, are loath to dilute, let alone
give up the power that they get to garner electoral support, reward their supporters and
mobilize funds from their control of cooperatives. Under the existing regime, they are able to
abuse this power brazenly and with impunity.
4. Mismanagement & Manipulation
The strength of the movement was the involvement of the farmers who were
shareholders & members of the society. Over the years, this truly democratic idea got
corrupted and wealthier people having political background became more powerful. In
practice, this altered the power structure of the cooperatives. in the elections of the governing
bodies, money became such a powerful tool that the top posts of chairman & vice-chairman
usually went to the richest political persons even though the majority of members were
farmers with small- or medium-sized holdings. The social power that the cooperatives
brought to rural India was gradually hijacked and turned into a political tool.
5. Government Interference
Right from the beginning the government has adopted an attitude of patronizing the

72
movement. Cooperative institutions were treated as if these were part & parcel of the
administrative set up of the government. The government interference thus became an
essential element in the working of these institutions. As a result people’s enthusiasm for the
movement did not grow. The movement’s independence and self-reliance existed only on
paper and files.
6. Modern Banking Practices
They are not having the modern practices of banking in there working viz. net
banking, mobile banking, online banking, e-banking, ATM banking and all other modern
banking practices. Due to which they have been eliminated and remained back foot in the
modern era of marketing.
7. Lack of Awareness
The people are not well informed about the objectives of the movement, the
contributions it can make in rebuilding the society and the rules and regulations of
cooperative institutions. People look upon these institutions as means for obtaining facilities
& concessions from the govt. so long as people expect to get something from the
government, they see to it that societies somehow continue to function. Lack of education,
dirty politics of the village, caste ridden elections to the offices of cooperative societies,
bureaucratic attitudes of the government officers at the lower rank are some of the hurdles in
spreading the correct information about the cooperative movement and in educating the
people about its true character and vital role in the society.
8. Limited Coverage
The cooperative movement has also suffered on account of two important limitations
on its working. (i) The size of these societies has been very small. Most of these societies are
confined to a few members and their operations extended to only one or two villages. As a
result their resources remain limited, which make it impossible for them to expand their
means and extend their area of operations. (ii) Majority of the societies have been single
purpose societies. For this reason these societies are not unable to take a total view of the
persons seeking help, nor can they analyze and solve problems from different angles. The
help these societies render thus cannot be adequate.

73
9. Functional Weakness
The cooperative movement has suffered from inadequacy of trained personnel right
from its inception. Lack of trained personnel has been caused by two major factors. (i) Lack
of institutions for this purpose of training personnel. (ii) Because of it unsatisfactory working
of cooperative institutions, efficient personnel did not feel attracted towards them.
10. Lack of Professionalism
The professionalism reflects the co-existence of high level of skills and standards in
performing duties entrusted to an individual. The absence of a proper system of placement
and skill upgradation inputs constrain professional management in cooperative banks.

Review Questions
1. Define Banking.
2. Define Cooperative Banking.
3. What are the objectives of Banking?
4. Explain the law implies rights and obligations into this relationship.
5. Discuss the various classification of Banking Industry in India.
6. Explain the difference between Cash Reserve Ratio and Statutory Liquidity Ratio
7. State the various Functions of Cooperative Banking.
8. Explain the main objectives of Cooperative Banking.
9. Describe the classification of Cooperative Credit society in India.
10. Discuss the different Structures of Cooperative Credit society in India.
11. What are the limitations and problems of Cooperative Credit systems?

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LESSON- 2
PRIMARY AGRICULTURAL CREDIT SOCIETIES (PACS)
The objectives of this lesson are:
1. To understand the meaning and objectives of primary agricultural co-operatives
societies.
2. To understand the functions and workings of PACS
3. To study the recent lending policies of PACS
4. To understand the crop loan systems of PACS.
5. To recognize the recovery and overdues problems and different issues of PACS
6. To analyze the viability of primary agricultural co-operatives credit society.
Introduction
Indebtedness in rural India was said to have widespread at the beginning of the 20 th
century. The indebtedness of the farmers and exploitation by moneylenders urged the Indian
Government to formally introduce the cooperative movement. Sir Donzil Ibbesteor while
introducing the First Cooperative Societies Bill in the central legislature as early as 1903
stated that, "one of the most difficult problems which the small agriculturists everywhere
confronted with, is to obtain the money which is necessary for their cultivation operations at a
reasonable rate of interest".
In developing countries like India, the development of agriculture sector is important
for a variety of reasons. Agriculture is still the primary source of livelihood for majority of
people in rural areas and this livelihood needs to be made sustainable for many. Credit is an
important input in the development of agriculture. Credit played a critical role in the Green
Revolution. However, in the recent past, since the initiation of financial reforms in India, the
flow of credit to agriculture in relation to the demand for it has slowed down. Indian
agriculture is also facing a crisis.
Meaning and Definitions
“A primary agricultural co-operative credit society is to be treated as an organization
of the villagers for mutual help and co-operation to meet their common economic
requirements and to increase agricultural production .the idea is to relate the short-term credit
which the society gives to the production plan of the farmer and to the yields he is likely to
get from the loan.”
Thus a service co-operative society is essentially an institution, which helps the
members to improve their agricultural yield at a lower cost by rendering certain, needed
services at their door A service society differs from a production on its own ,but just helps the
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constituents in improving their production. Service societies exist in European countries also
but they generally render only one service. For example, in Canada they have telephone
service societies. In U.S.A. there are patrol supply service societies and in Germany they
have electric supply societies. Mostly the Service cooperatives of our conception, however,
differ from them in so far as we want to chandelles through the medium of these societies, the
necessary where with all of farming on easy term to the farmers. Service societies are also
given the name of primary agricultural credit societies.
Evolution and growth
The Co-operative societies Act of 1904 was passed as per the recommendations of Sir
Edward Law Committee which was appointed on the basis of the report of Sir Fredrick
Nicholson, who was commissioned to study the theory and practice of agricultural land banks
in Europe by Government of India. Report of Sir Edward Law was instrumental in realizing
that cooperative movement would not really advance without a special legislation. The main
objective of the first All India Cooperative Credit Societies Act, 1904 was to encourage thrift
and self-help among the agriculturists, artisans and other persons of limited means. Primary
Cooperative Agricultural Credit Societies (PACS) are at the grass root level of the
cooperative movement in India. They are the very foundation stone of the cooperative credit
and banking structure.
The Cooperative Societies Bill, based on the recommendations of this Committee,
was enacted on 25th March, 1904. As its name suggests, the Cooperative Credit Societies Act
was restricted to credit cooperatives. By 1911, there were 5,300 societies in existence with a
membership of over 3 lakh. The first few cooperative societies registered in India under the
1904 Act in the first 5-6 years are as follows: Rajahauli Village Bank, Assam (1904), Tirur
Primary Agricultural Cooperative Bank Ltd., Tamil Nadu (1904), Agriculture Service
Cooperative Society Ltd., Devgaon, Piparia, MP (1905), Bains Cooperative Thrift & Credit
Society Ltd., Punjab (1905), Bilipada Service Cooperative Society Ltd., Orissa (1905),
Government of India, Sectt. Cooperative Thrift & Credit Society (1905), Kanginhal
Vyvasaya Seva Sahakari Bank Ltd., Karnataka (1905), Kasabe Tadvale Cooperative Multi-
Purpose Society, Maharashtra (1905), Premier Urban Credit Society of Calcutta, West Bengal
(1905), Chittoor Cooperative Town Bank, Andhra Pradesh (1907), Rohika Union of
Cooperative Credit Societies Ltd., Bihar (1909). The PACS started under the above Act were
very small in size at the beginning. Many of the societies were having the area of operation of
one or two villages. Our former Prime Minister, Jawaharlal Nehru favoured the formula of
one-village one-society. He showed keen interest and strong desire to develop the cooperative

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movement in the country. Due to their single purpose, small size and smaller area of
operation, they could not maintain viability. These small societies were not able to render
much help to the farmers. Though the banking activities such as lending of loans, collection
of deposits were undertaken by PACS in rural areas, the real banking was started by District
Central Cooperative Banks (DCCBs) and Urban Cooperative Banks (UCBs) after the
enactment of second All India Cooperative Societies Act of 1912 which recommended the
organization of federal cooperatives such as DCCBs and SCBs.
A notable feature in the history of cooperative movement during 1914 was the
appointment of Committee on Cooperation under the Chairmanship of E.D.Maglagan. The
report of the Committee served as the base in the edifice of cooperative movement in the
country. Cooperation became a provincial subject with the enactment of Montegue-Semsford
Reform, 1919. The Bombay Province gave a lead in passing of its Cooperative Societies Act
in 1925, which was followed by Madras Province in 1932, Bihar and Orissa in 1935 and
Bengal in 1941. The Royal Commission (1928) has commended the progress achieved by the
cooperatives in India. The Committee was of the opinion "that many millions of peasants,
proprietors may be led to a better life through a sound cooperative movement if this is
secured much else is brought with the bounce of attainment. If cooperation fails, there will
fail the best hope of rural India". (Government of India, Report of the Royal Commission on
Agriculture in India, Agrocole Publishing Academy (Reprinted) New Delhi-17, 1929, p.450)
During the period of depression in world economy in 1930, the non repayment of loans by
members led to the increase of mounting overdues at the primary level. Thus the primaries
fail to repay the funds borrowed from the DCCBs. As a result, many primaries had fallen sick
with increasing overdue. The RBI, in 1939, suggested the organization of multi-purpose
cooperatives to provide different services to the farmers and others.
The RBI recommended converting the existing single purpose societies in to multi-
purpose societies with the following functions:
❖ To improve the quantity of production by supplying good quality seeds
❖ To improve better business by issuing different types of loans
❖ To supply of improved agricultural implements
❖ To supplement the income of the members by inducing them to take subsidiary
industries

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To introduce better living measures as laid down in Sir Horace Plunkett's formula,
"the multi-purpose society is expected to fulfill better farming, better business and better
living". The idea behind the organization of separate multipurpose societies gained further
strength due to the recommendation of Saraiya Committee (1946) and Conference of
Registrar of Cooperative Societies in 1947.
Revival
The revival of PACS was started during the post war period (1941-48). In addition to
the starting of consumer cooperatives, the PACS were also directed to distribute the essential
consumer goods to the public. A radical change was brought by All India Rural Credit
Review Committee to have a change in the credit policy by adopting multi-agency, approach
in the rural area to bridge the existing gaps and to supplement the efforts of cooperatives and
not to supplant them. But the cooperative sector had fear even from the very beginning that
commercial banks/RRBs will try to supplant the cooperatives. The system of direct financing
to the farmers by the commercial banks created a problem of interest rates charged by them.
There was also confusion due to the dual finance both by cooperatives and the commercial
banks. Much dynamism into the cooperative movement in India was infused only at the dawn
of planning era. The programme of revitalization of PACS on the basis of these
recommendations was carried during the course of second Five Year Plan (1957-61) and this
was completed by the end of Third Five Year Plan (1962-66). By the end of 1984, the
cooperative movement has covered nearly 60% of the rural population. In 1984-85, Rs.2500
crore was distributed as short-term credit, Rs.250 crore as Medium-term credit and Rs.500
crore as Long term credit by the cooperative societies.
Cooperative Rural Banks
The cooperative banks suggested by the All India Rural Credit Survey Committee are
known as Cooperative Rural Banks. Cooperatives are categorized under PACS but having
comparatively larger area of operation say a village. Some of the cooperative rural banks in
India are Thenipalam Cooperative Rural Bank, Malappuram, Kerala; Mulkanoor Cooperative
Rural Bank, Karimnagar, Telengana, etc.
Large-sized Societies
As recommended by the All India Rural Credit Survey Committee, the large sized
societies were organized from 1954 onwards. The large-sized societies when compared with
small-sized societies progressed better in respect of member enrolment, loans advancement,
mobilization of rural savings and supply of inputs and consumer goods. After the successful
organization of large-sized multi-purpose societies, the scheme of linking credit with

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marketing during Third Five Years Plan (1961-66) was implemented vigorously. According
to Sir.M.L.Darling, large-sized cooperatives were too large; the system of direct participation
of Government was not congenial for the promotion of independence and self-reliance.
Hence the National Development Council decided to introduce service cooperatives.
Service Cooperatives
A Service Cooperative Society has been defined as an organization of the villagers for
mutual help and cooperation to meet their common economic requirements and to increase
agricultural production. These societies have to perform the following functions:
1. To issue Short-term, Medium-term and Long term loans to the farmers for productive
purposes
2. To arrange the supply of farm requirements like improved seeds, fertilizers,
pesticides, agricultural implements, etc.
3. To maintain and supply on hire the tractors, power tillers, and other agricultural
machineries
4. To provide storage and marketing facilities
5. To distribute the consumer and household articles and
6. To promote thrift, savings and mutual-help among the members
Farmers Service Cooperative Societies (FSCS)
The poverty in rural areas during the Fifth Plan (1974-78) was very high. It was found
that out of 350 million population, living below poverty line in India, 300 million i.e., 85%
were in rural areas. Credit cooperatives were involved in financing various schemes of Rural
Development. In order to provide integrated credit and agricultural services to the farmers,
National Commission on Agriculture, Government of India recommended the organization of
Farmers Service Cooperative Societies (FSCS) in 1976 with wider area of operation.
Structure of PACS
Presently (2017), the STCCS functions as a three-tier structure (PACS affiliated to
DCCBs which in turn affiliated to SCBS) in 16 states; while in 13 smaller states & union
territories, PACS are directly affiliated to the SCB and the STCCS functions as a two tier
structure. In 3 states, a mixed structure, i.e., two tier in some districts, and three-tier in the
other districts operates.
Area of operation of PACS
The Committee on Cooperative Credit headed by Edward Maclagan (1915) advocated
"one society for one village" within a radius of 3 or 4 miles. In 1958, the National
Development Council also adopted a resolution for adopting the above pattern so as to have

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mutual knowledge among members and to have easy access to the society. But the All India
Rural Credit Survey Committee (1950-51) had recommended for the reorganization of PACS
to serve a group of villages with reasonably large membership and adequate share capital so
as to provide it with adequate business.
The Metha Committee on Cooperative Credit (1960) stated that no village included in
a society should be at a distance of more than three or four miles from the headquarter
village. The population covered should not exceed 3000 people or 600 families or 500
cultivating families.
The All India Rural Credit Review Committee (1969) has recommended that an
Agricultural Credit Society may be permitted to cover a population of more than 3000. The
Committee emphasized the need for considerable flexibility with regard to the area of
operation. However, at present the area of operation of PACS consist of group of villages or
few villages.
Objectives of PACS
The main objectives of the PACS are:
❖ To issue short term and medium term loans to the members
❖ To supply seeds, fertilizers, pesticides and other inputs required by the agriculturist
❖ To provide storage and marketing facilities and to construct or hire godowns for the
same
❖ To distribute the essential and other consumer goods
❖ To own and maintain agricultural implements, machinery and lend them to the
members
❖ To promote thrift, savings, self-help and mutual-help among the members
Membership
The membership comprises of the farmers and agricultural labourers residing in the
area of operation of the PACS. Any person above the age of 18 residing in the area of
operation or possess a land in the area of operation of the society are eligible for membership.
By the end of June 1950, there were 1.17 lakh agricultural credit societies with a membership
of 48 crore. The membership increased from 170.41 lakh in 1960-61 to 631.71 lakh in 1981-
82. The membership increased further to 6.91 crore during 1984-85. The membership details
in PACS since 1998-99 to 2017-18 are given in Annexure No.I.

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Liability
From the viewpoint of liability, PACS in India can be divided into two types, Viz.,
societies with limited liability and societies with unlimited liability. Unlimited liability
implies that every member assumes full responsibility for the obligation of the society in
respect of the money borrowed by all its members. The credit societies organized on the
Raiffeisen Model followed unlimited liability. Unlimited liability is an important cooperative
principle, which creates a sense of collective responsibility and mutual watchfulness amongst
the members.
The Maclagan Committee favoured unlimited liability. However, the Cooperative
Planning Committee (1946) was of the view that, "except where unlimited liability has
produced good results, the liability of the reformed and reorganized primary society should
be limited". The Rural Credit Survey Committee advocated the formation of only the large
sized societies with limited liability. At present the trend in India seems to be towards the
organization of PACS with limited liability or conversion of existing unlimited liability
societies into limited liability societies.
Management
The management of the PACS is democratic. The day-to-day administration is vested
with a board of directors elected by the General Body (GB). The managing committee
consists of 9 to 15 members - The General Body consists of all the members of the society.
The important powers of the General Body are Election of the Board of Directors, approval
of Annual Report and Audit Report, amendment of bye-laws, distribution of net profit,
amalgamation and division of cooperatives, etc. The Board of Directors' meeting is convened
normally once in a month. Admission of members, approval of monthly receipts and charges
statement are approved in the meeting. The loans applied by the members are recommended
by the Board to the DCCB. Certain loans like gold loans, consumer loans, deposit loans, etc.,
are sanctioned by the Secretary/Manager of the PACS with the approval of the Board.
Staff
A Secretary and one or two clerks are normally appointed to carry out the day to day
work in PACS. The PACS do not possess financial strength to employ well-qualified
professionals. In States like Kerala, Tamilnadu, Karnataka, Andhra Pradesh and Maharashtra
where banking is well developed, more number of staff viz., Secretary, Cashier, Accountants,
Clerks, Salesmen and Peons are appointed. For instance, in Kerala, branches are having
separate staff to provide banking and allied services to the public. In Tamilnadu, Salesmen
are appointed to run the cooperative village shops run by the PACS under the Public

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Distribution System.

Functions of PACS
The Working Group on cooperative policy appointed by the Government of India in
1959 brought the following functions into the ambit of the PACS. "The primary functions of
the village cooperatives will be the provision of short term and medium-term credit, supply of
agricultural and other production requirements and the marketing of agricultural produce. In
addition to these functions the cooperatives will help firmly and implement a plan of
agricultural production for the village and undertake such educative advisory and welfare
work as the members might be willing to take up".
The following functions are undertaken by PACS at present:
1. Preparation of the loan application for short-term and medium- term agricultural and
allied purposes and issue of loans sanctioned by the district central cooperative banks
to the members.
2. Borrowing of funds from central cooperative bank and issue of various loans like
consumption loans, gold loans, etc
3. Purchase of inputs like seeds, fertilizers, pesticides and insecticides from marketing
federation and supply the same to the borrowers of the loans and also to other farmers
4. Collection of share capital, thrift deposit from the members and mobilization of
savings, fixed and other deposits to promote the habit of savings of rural people
5. Providing storage and marketing facilities to the members
6. Distribution of essential goods like rice, wheat, sugar, kerosene and other consumer
goods to the public in the rural areas and act as an agent of Government, by
implementing public distribution system.
Sources of Funds
PACS was expected to mobilise deposits from its members, and use the same for
providing crop loans to the needy members who need it. However, as deposits in PACS may
not be enough to meet the loan requirements of all its farmer borrowing members', PACS
draw support from the federal structure, viz., the DCCB/SCB. The DCCB therefore mobilise
deposits from public and provide the same for supporting the credit needs of PACS and its
members.
The funds of PACS consist of: a) Paid up share capital b) Reserve fund and other
reserves c) Deposits and d) Borrowings.

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Share Capital
Share capital is the initial and important fund contributed by the members. It is the
lifeblood of the cooperative society. The members become owners of the cooperative society
only when they contribute the required share capital. Increase of share capital helps the
society to increase its borrowing from the central cooperative bank. In order to motivate the
small farmers to cooperatives, the Mehta Committee on Cooperative Credit, recommended to
accept share capital contributed by them in installments. The details of members' contribution
of share capital from 1998 - 99 to 2017-18 is shown in Annexure No.I.
Government Participation
The All India Rural Credit Survey Committee and V.L. Mehta Committee
recommended the Government to contribute its share capital to the PACS. The contribution
of the Government towards the share capital of the PACS will depend on the extent of
partnership, duration of the partnership and the State control over the society's management
etc. The All India Rural Credit Survey Committee suggested that 50% State contribution
should be extended to PACS on matching basis. The State Governments and the RBI have
accepted the policy of participating in the share capital of the PACS on the conditions that the
share capital contributed by the Government should not be more than the share capital
contributed by the members of the society. The details of government contribution of share
capital from 1998 - 99 to 2017-18 is shown in Annexure No.I.
Reserve Fund
The reserve fund has to be created from the net profit earned by the societies. It is
meant to meet the unforeseen losses. It also occupies an important position in the working
capital of the society. The percentage of reserve fund is specified in the States' Cooperative
Societies Act. The percentage of reserve fund varies from State to State ranging between 15%
and 25%. The details of Reserve Fund of PACS from 1998-99 to 2017-18 is shown in
Annexure No.I.
Deposits
Promotion of thrift and savings among the members is one of the objectives of PACS.
At the beginning, PACS were collecting only thrift deposits from the members. Even though,
the PACS were registered at the beginning in the name of Primary Agricultural Thrift and
Credit Society in many States in India, some of the States registered these societies without
the word thrift. Some of the societies, which were registered as thrift and credit societies, did
not collect the thrift deposit. On the other hand, some States like Kerala, Tamilnadu, Andhra
Pradesh, Maharashtra and Karnataka concentrated in collecting various types of deposits like

83
savings deposit, fixed deposit, etc. due to the diversification of lending operation.

In Kerala, all the credit societies join together to tap the internal resources from the
State itself by initiating a special deposit mobilization campaign, which commenced in the
year 1976. The cooperative department was also involved to support the deposit mobilization
scheme of PACS of Kerala. The entire mechanism supported the scheme and it was a grand
success thereafter. Since then, the deposit mobilization campaign is organized every year
with a view to increase the resource position of PACS. The details of deposits from 1998-
1999 to 2017-18 is given in Annexure I.
Borrowings
In addition to the share capital, reserves and deposits, borrowings occupy an
important portion of the working capital of PACS. PACS borrow funds from DCCBs, State
Government, and Commercial Banks. Major share of the borrowings of the PACS were from
DCCBs. RBI started providing refinance facilities to the short-term credit structure from the
year 1955 due to the recommendation of All India Rural Credit Survey Committee.
Loans
The PACS generally issue the following loans:
❖ Short-term loans for seasonal agricultural operations (purchase of inputs such as
seeds, fertilizers, pesticides, insecticides, etc., and cultivation expenses for various
crops like paddy, sugar cane, wheat, groundnut, cotton, tapioca, species, etc.)
❖ Loans for purchase of agricultural implements and for marketing of crops
❖ Medium term loans for purchase of milch animals, bullock cart, construction of cattle
sheds, poultry, sheep, gobar gas plant, etc.
The Rural Credit Review Committee observed that, "the medium and long term credit
have much in common from the point of view of the purposes which they finance but differ
in the duration of the loan which depends mainly upon the life of the asset to be financed and
on the repaying capacity of the cultivator". The Working Group on Cooperation for the fifth
Five Year Plan ’1973) recommended that the cash credit system be progressively introduced
in all areas where multiple cropping as well as subsidiary occupations were common among
members. The Study Team on overdues, 1974, recommended extension of cash credit facility
to the selected PACS fulfilling the following conditions:
❖ PACS should have a full time paid Secretary
❖ The farmers of such PACS should adopt intensive form of cultivation
❖ The farmers should have prompt payment of loans.

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The RBI also suggested the cash credit lending in multiple cropped areas. Based on
the above recommendations, some of the States like Andhra Pradesh, Kerala. Maharashtra,
Tamil Nadu and Uttar Pradesh extended cash credit facility on a selective basis.
Medium-term (Conversion) and Medium-term (Replacement)
During the period of drought, famine, earthquake, flood and other natural 3-emities,
the recovery of loans from the farmers become difficult due to the fail-re of their crops.
Hence the financing bank, as per the decision of the Government, decides to convert the
short-term crop loan in to medium term loan. When the failure of crop continue and the
income of the borrower is affected due to continuation of natural calamities, the period of
medium-term conversion again extended and converted to medium-term replacement. The
period of the MT conversion and replacement is extended if there is continuous drought area
which may be brought into "blocked loan account". For example, in Tamilnadu the amount of
loan outstanding as on 31.3.2004 amounting to Rs.68.95 crore under MT conversion and MT
replacement was brought into blocked loan account without any further interest repayable in
three annual installments with a moratorium of 2 years commencing from the date of issue of
loans. The details of loans advanced and loan outstanding from 1998-99 to 2017-18 is given
in Annexure I.
Overdues
One of the serious problems faced by the PACS at the grass root level is with regard
to mounting of overdues. The main reason for the increase of overdues is due to natural
calamities. It is said that the Indian economy is gamble on the monsoon. The position of
collection of overdues has become worse during the recent years due to the write-off proposal
brought by the Government. The total overdues of ST and MT, demand, collection and
percentage of overdues to demand from 1998-99 to 2017-18 is given in Annexure I.
Non Credit Activities and of PACS
PACS purchase inputs like seeds, fertilizers, pesticides and insecticides from
marketing federation and supply the same to the farmers. They also distribute essential goods
like rice, wheat, sugar, kerosene and other consumer goods to the public in the rural areas and
act as an agent of Government, by implementing public distribution system. Jagdish Capoor
(Task Force) Report, 1999 constituted by the Central Government, emphasized
diversification of business products as the prime need at all levels in the cooperative credit
institutions. ("Report of the Task Force to Study the cooperative Credit System and Suggest
Measures for its Strengthening", Govt, of India, 1999) For example, Tudiyalur Agricultural
Cooperative Service Society (TUCAS) in Coimbatore district of Tamilnadu provide seeds to

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farmers from its own seed farms, supply of farm implements, preparation and supply of its
farm mixtures, formulation and sale of pesticides, supply of all kinds of fertilizers, poultry
and cattle feeds. TUCAS arranges processing and marketing of agricultural produce and
developed a brand for its mixture called 'Ashok Brand Manure'. In addition to the crop loans,
the society provides loans for Gobar gas plant, poultry, sheep and dairy farms.
During 2016, some of the PACS become online service centers for various needs of
residents such as community, income, nativity, and first-generation graduate certificates at
Trichy district of Tamilnadu. The 8 PACS are Vengur, Natarajapuram, Tiruverumbur,
Koothaipar, Thuvakudi, Asoor, Navalpattu and Vazhavanthankottai PACS. Now the residents
need not visit government offices to get essential certificates from the revenue department
with the introduction of e-governance project.
The Nanniyodu Service Cooperative Bank, Thiruvananthapuram, Kerala undertakes
the following non credit activities:
❖ Produces bottled tender coconut water, carbonated tender coconut water, plain soda,
tender coconut halwa and tender coconut ice cream.
❖ Run a coconut processing unit converting the raw coconut into copra and afterwards
crushed for producing coconut oil.
❖ Procure vegetables from farmers and also from certified farms and supply them in the
market
❖ Distribute seeds and seedlings among the farmers through agri-nursery for the
promotion of organic farming.
Mutholi SCB, a PACS established since 1957 at Kottayam district in Kerala opened
an old age home during 2012. The bank has come forward to meet the challenge being posed
by growing geriatric load on the country's population. The bank is building modern huts and
cottages for the elderly people. The living quarters for the old people are being constructed on
a 4 acre plot. The project is called "Sahakarana Vishrambhavanam".
Problems of PACS
❖ The problems of PACS in India are multifold. Many committees including the
Vaidyanathan Committee and Prakash Bakshi Committee pointed out the weakness
of PACS in India.
❖ Although the number of PACS has substantially increased, the number of members
actually borrowing from the PACS is not increasing in the same proportion.
❖ The frequent write-offs, settlement schemes, etc., announced by the government from
time to time also affected the willingness of the borrowers to repay the loans in the hope that

86
the loans will be written off again.
❖ The RCS is responsible to guide, control and supervise the activities of the
cooperatives in a State. RCS is often transferred from his post without giving him an
opportunity to get implemented the various reform measures in the cooperative
sector.
❖ The cooperative structure should be member-driven. However, members having a
voting right do not take active part or show interest in the affairs of the PACS since
the control and management are vested in a few members.
❖ Governance, connected lending, transparency in grant of loans, audit, internal checks
and control, recovery of dues, recruitment of qualified persons are issues trammeling
the efficient functioning of PACS.
❖ Supervision and guidance by the elected Boards is lax. Delay in conduct of elections,
frequent supersession of the Boards, lack of participation by members in the
management and decision-making process have impaired functioning of PACS on
sound business lines.
❖ PACS have access to huge deposits from public but there is no system to ensure
prudent deployment of these funds. While deposits are accepted at unsustainably
higher rates, loan pricing is done in imprudent manner without factoring in cost of
funds. Many cooperatives are unable to generate enough revenue or surplus to sustain
their operations and boost capital formation on account of very thin or negative
margins.
❖ Low capital base due to less or non participation of members in mobilizing deposits,
contributing to shares, purchasing and utilizing services and availing of loans, etc.
❖ The Institutional Development Department of NABARD made an overview of
cooperative credit in 2001-02 about the critical problems faced by the PACS.
They are as given below:
1. High cost of management:
2. Lack of professionalization of management, low accountability, lack of
responsibility of the board members and low level of awareness among the
members.
3. Weak Management Information System
4. Low interest margins

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5. Involvement in non-viable /profitable activities
6. Lack of diversification in business portfolio
7. Imbalances in loan outstanding
8. Lack of skilled staff
Punam (2005) stated that the most baffling problems facing the cooperative credit
structure are the lack of viability on the part of PACS, mounting of overdue, lack of
professional management, uncertainties arising out of dilatoriness of land reform measures,
lack of proper infrastructure in the rural areas, lack of farm guidance arrangements and other
measures for improving credit absorbing capacity of the farms and encouraging adequate
investment coupled with improvement in technology and too much political and bureaucratic
interference in the day-to-day functioning of cooperatives. ("Grass Root Cooperative Credit
Societies", Mittal Publications, New Delhi, First Edition, 2005)
The Report of the Expert Committee on Three tier ST CC, Jan.2013, pointed out that
the area of concern of PACS is the fact that only a little more than 4 crore members availed
loans from PACS out of the total membership of over 9 crore signifying that the majority of
the members do not avail of loan services from their cooperative; there are reasons to believe
that most of such members did not become members for availing of the services of the PACS.
Such a large proportion of inactive members also have its negative impact on the governance
of the PACS.
Suggestions
❖ Effective leadership is the key to success of any people's movement and cooperatives
are no exception to it. It is only on the effective, honest and sincere efforts of the non-
officials that the cooperatives can be brought back on the rails for an efficient and
result oriented performance.
❖ The cooperatives have now to function in a market oriented competitive environment
and will therefore have to strive hard for achieving competitive efficiency in the field
of rural credit.
❖ The percentage of borrowers to that of total members during 2014-15 stood at 40%.
Hence it is essential to improve the lending to more number of members.
❖ Action should be taken against willful defaulters and the name of such defaulters may
be published in daily newspapers. With regard to giving relief to the affected farmers,
the conversion or replacement facility may be provided instead of following the write
off policy.

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❖ PACS should improve the recovery performance so as to enable themselves to borrow
adequate funds from higher financing agencies to cater to the increasing credit needs
of the members, besides there is a need to reorganize the dormant PACS keeping in
view of their viability. Persuasion method, follow-up, contacting the borrowers,
regularize the group collection and above all quality lending will help for regular
repayment of loans.
❖ The average size of the direct loans to the members provided by PACS during 2014-
15 amounted to Rs.9,446 only. Therefore, the PACS should try to develop the share
of the credit by reducing the overdues and enhancing the lending to the existing
members as well as to the new members.
Viability of PACS
The cooperative bank becomes viable or feasible if its earned income is adequate to
meet its expenditure and, at the same time, provide surplus as a cushion to observe shocks if
any. The concept of viability which is not a new in the spectrum of banking but essentially
need to examine with reference to the working of cooperative banks. The viability of
cooperative banks is absolutely essential in the context of rapid growth of cooperative banks.
The viability, thus, occupies an important place in the working of cooperative banks to
emerge from their uneconomic size and to find out a solution. Otherwise, their functioning on
uneconomic size forms as shade on their progress. As result, putting adverse effects are in the
cooperative movement as a whole.
On knowing the operational efficiency of cooperative banks, a meaningful with
conducive policy for organizing new cooperative banks can be tackled for their pace progress
and economic uplift of the people. To avoid unhealthy competition, the efficiency check
measures essentially need to be created on the fluidity of the cooperative banks and also to
know the operational efficiency allowing the local conditions which effectively being
measured with the help of ‘viability’ technique.
Viability denotes self-reliance as well as efficient conduct of business operations.
Nakkiran who has conducted a study on the viability of the operations of the cooperatives
concluded this: “Viability is closely linked to the efficiency of operations and management.”
A viable concern should be able to mobilize sufficient deposits and disperse adequate credit.
The norm of viability of a cooperative bank depends upon the effective mobilization of funds
and their efficient use resulting in better margin, low-cost of management, profitability and
break-even analysis in the study with added feature keeping up the prescribed norm of non-
performing assets. A viable of cooperative bank:

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 Becomes a model to counterparts
 Can render sufficient services to its clientele
 Can meet the social objectives
 Can patronize local funds and deploy them locally and thereby habituating banking
among the people
Table No: 2.1
Viability of PACS in India (2017-18)
In Numbers
Total No Potentially
S. No Region Viable Dormant Defunct
of PACS Viable
14058 10688 2682 420 163
1 Central
(14.81) (18.28) (9.7) (8.98) (6.60)
17843 8670 5981 1523 1185
2 Eastern
(18.73) (14.83) (21.79) (32.56) (48.0)
North 3511 2011 350 680 390
3
Eastern (3.70) (3.44) (1.28) (14.54) (15.80)
15337 10827 3463 725 259
4 Northern
(16.15) (18.51) (12.62) (15.50) (10.49)
14850 8483 4611 652 200
5 Southern
(15.64) (14.51) (16.80) (13.94) (8.10)
29351 17800 10360 678 272
6 Western
(30.91) (30.44) (37.75) (14.49) (11.02)
94950 58479 27447 4678 2469
All India
(100) (100) (100) (100) (100)
Source: Performance of Primary Agricultural Cooperative Societies for various years
Though effective steps have been taken to rehabilitate PACS, the problem of viability
till continues. The region wise viability of PACS depicts that more number of viable and
potentially viable PACS were functioning in Western Region. At the same time, the dormant
societies were 14.49 percent in this region. More number of dormant and defunct societies
was found in Eastern Region. Central and Northern regions had 18 percent of the viable
societies whereas Eastern and Southern regions had around 14 percent of the viable societies.
North Eastern region had just 3.44 percent of the viable societies and 1.28 percent of the
potentially viable societies. Around 15 percent of the societies in this region were dormant.

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FARMERS SERVICE COOPERATIVE SOCIETIES (FSCS)
National Commission on Agriculture, Government of India, suggested the
organization of Farmers' Service Cooperative Societies (FSCS) in 1976. As a part of the
reorganization programme, FSCS were formed by converting the existing PACS or by
organizing new ones with competent and adequate supporting staff.
Objectives
The main objectives of FSCS are:
❖ To provide integrated credit and agricultural services like supply of fertilizers, seeds
and other inputs
❖ To supply the essential consumer articles and
❖ To increase production and employment, marketing of agricultural produce, etc.
Area of Operation
The National Commission on Agriculture recommended that in order to provide
integrated services to farmers, a FSCS should be organized covering an area of one
Development Block consisting of about 100 villages and a population of about one lakh. The
society should have its branches or depots to cater to serve population of about 10 to 12
thousands. While deciding upon the jurisdiction of a branch, the relevant considerations will
be business viability and accessibility.
Membership
FSCS is a sole agency to take care of all the development needs of farmers. Those
farmers, agricultural labourers and village artisans who have qualified to receive assistance
under Small Farmers Development Agency (SFDA) and Marginal Farmers and Agricultural
Labourers (MFAL) were mainly eligible for the membership of the FSCS.
Management
Management of the FSCS is democratic. The day to day administration is vested with
the Board of Directors elected by the General Body. The President of the society is elected by
the Board. The General Body is the ultimate authority to take major decisions in managing
the society.
Staff
The Managing Director in the grade of Deputy Registrar of Cooperative Societies is
posted and the cost of whom is to be met by the FSCS if it has attained a loan business of
Rs.5 lakh and declared a dividend of 5%.Technical staff of one Extension Officer-Agriculture
(E.O.- Agri.) from the cadre of Deputy Agricultural Officer and Two village-level workers
are also appointed. In addition to the above staff, a Secretary appointed by the society and
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other supporting staff are managing the society.
Functions
The important functions of FSCS are given below:
1. To issue ST, MT and LT finance to members for productive purposes
2. To procure, purchase and supply agricultural inputs.
3. To market and sell the agricultural produce, dairy, animal husbandry, fishery
products, etc.
4. To provide agricultural services by owning or hiring agricultural machineries like
tractors, power tillers, sprinklers, etc
5. To own or hire godowns to provide storage of agricultural produce
6. To arrange for modern farms and for the dissemination of modern agricultural
techniques
LARGE-SIZED ADIVASIS MULTI-PURPOSE COOPERATIVE SOCIETIES
(LAMPS)
The Government of India appointed a Study Team on cooperative structure in tribal
development project areas, under the Chairmanship of Bawa in 1973 to indicate a suitable
institutional structure for the development of tribal communities. The Study Team
recommended that the LAMPS should be organized in tribal areas to provide the tribal
people, all types of credit Viz., ST, MT and LT including:
❖ Credit for meeting consumption needs
❖ Agricultural and consumer requirements
❖ Technical guidance for mechanization of agriculture and
❖ Arranging for marketing of agricultural and forest products
Thus a number of LAMPS were organized in tribal areas to improve the social and
economic conditions of tribal people and to save them from the exploitation of the
middlemen and money lenders. The LAMPS membership is dominated by tribal members.
This substantial membership of tribal people shows their confidence in solving their socio-
economic problems through LAMPS.
Objectives
LAMPS are intended for providing helping hand to tribal people, scheduled caste and
scheduled tribe people living in hills and forest areas.
The objectives of these societies are:

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 To help the tribals, rural artisans, agriculturists and agricultural labourers by
providing short term loans at concessional rate of interest
 To issue medium term loans for the purchase of milch animals, bullock cart, sinking of well,
purchase of pump set, etc.
 To supply fertilizers, seeds, pesticides, and other inputs to the members.
 To market the agricultural hill and forest products of the members
 To distribute the essential and other consumer goods and
 To promote thrift, self-help and mutual help among the members
Tribal people regularly collect a few of the over 400 types of Minor Forest Produce
(MFP) such as honey, tree moss, gooseberry, wild ginger, wild turmeric, muruganahuli,
soapnut powder and spices. Both Central and State Governments provide grants, subsidies,
share capital and other funds and assistances to these societies. Assistance is available to the
LAMPS under Integrated Tribal Development Programme (ITDP) of the Government.
Structure
Tribal cooperatives consist of 3 tier structure viz., LAMPS at the base level, State
Tribal Cooperative Development Corporations at the state level and a Tribal Cooperative
Marketing Federation at the national level. For instance, at the end of March 2013, there were
23 LAMPS functioning in Karnataka which are affiliated to Karnataka State LAMPS
Cooperative Federation which is in turn affiliated to Tribal Cooperative Marketing
Federation.
Sources of Funds
The following are the sources of funds available to LAMPS:
 Share capital contributed by the members and Government
 Borrowings from Central Cooperative Bank, Government and National Cooperative
Development Corporation (NCDC)
The NCDC assist the tribal cooperatives for their marketing operations, in
establishing outlets for consumer goods, in strengthening share capital base of LAMPS and
tribal development corporation/federations in establishing small and medium size processing
units for agricultural, horticultural and minor forest produce, godowns, dairy units, cold
storages, expansion and modernization of existing processing units.
The different types of Government subsidies such as share capital subsidy, transport
subsidy, and subsidy for drivers' pay and allowances are available to LAMPS. The tribal
members are entitled to get share capital subsidy. These societies are permitted to issue ST,
MT and jewel loans to the tribal members with free of interest. When the interest subsidy is
paid to the Central Cooperative Bank is less than their claim, the Central Cooperative Bank
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debit the balance amount of interest to the loan account of the societies.
Constraints faced by LAMPS
❖ Recovery of overdue loans has become a serious constraint at present. Many of the
LAMPS become ineligible to borrow from central cooperative banks due to the heavy
percentage of overdues.
❖ Obtaining forest lease in time and at reasonable price is a continuous problem being
faced by LAMPS
❖ Due to the loss in many LAMPS they find much difficulty in getting assistance from
NCDC.
State Tribal Cooperative Development Corporation/Federation
It is the apex level institution at the State-level for providing parental help to LAMPS
functioning in various parts of the State. There were 13 State Tribal Cooperative
Development Federations functioning at the end of March 2006. The major functions of the
State-level Federation are:
❖ Collection of minor forest produce through LAMPS
❖ Marketing of minor forest produce and
❖ Liaison with Government and cooperative organizations
The Girijan Cooperative Corporation Ltd., Vishakhapatnam, brought out Girijan
branded products like minor forest produce, oil seeds, food items like honey, tamrind,
rajmah, cashew, maize, soya beans, medicine herbs such as myrobalan pulps, amla pulp,
belleric fruit, gymnema leaves, nannari, etc. Nearly 45 varieties of products are collected,
produced and processed by the Tribals.
Tribal Cooperative Marketing Federation (TRIFED)
LAMPS at the grass root level market the Minor Forest Produce (MFP) like tamarind,
samai, mirobalan, soap nut, etc. Tribal Cooperative Marketing Federation (TRIFED) has been
procuring MFP since 1994-95. TRIFED is the apex cooperative federation for providing a
helping hand to the LAMPS functioning in the country. The main objective of TRIFED is to
serve the interest of its members in more than one state for the social and economic
betterment by conducting its affairs in professional, democratic and autonomous manner
through self-help and mutual cooperation for undertaking marketing of the tribal products.
The important functions of TRIFED are:
❖ To facilitate, coordinate and promote the marketing of tribal products by its members

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❖ To undertake/promote on behalf of the members, institutions or Government both
inter-state and international marketing of tribal products
❖ To develop market intelligence related to supply, demand, price trends, product
quality, value addition, processing facilities, etc
❖ To identify the items of Minor Forest Produce in different states to be brought under
the ambit of the cooperative marketing
❖ To organize seminars, workshops, conferences, exhibitions, etc., within the country
and abroad to fulfill the objectives of TRIFED
TRIFED has its registered office and head office located in New Delhi and has a net
work of 13 regional offices located at various places in the country and a central warehouse
at Delhi. TRIFED has been doing the retail marketing of tribal products through 36 own
outlets under the brand name called 'TRIBES INDIA' and also through 9 State Emporia on
consignment basis.
Crop Loan System
One of the most significant innovations in the operational policies of the cooperative
financing system is the adoption of the crop loan system advocated by the All India Rural
Credit Survey Committee. The primary objective of this system is to channalize of crop
production finance on the basis of the needs of cultivators in relation to the size of their
cultivated holdings and the type of crops produced by them. The crop loan is given as short-
term loan and the procedure followed for the issue of this loan is very simple. The individual
sheet (property details) consists of the following, viz., extent of land with survey number,
area, irrigation facilities, etc., obtained from Village Karnam or any Village Authority, has to
be handed over by the member to the society.

The All India Rural Credit Survey Committee has described the crop loan as given
below:

The system may be briefly described as one which concentrates on productive

purposes, provides short-term loans on the basis that a crop is anticipated and not primarily
that a title exists, relates such loans in amount to the estimated outlay on raising the crop, and
as and when the crop is sold, recovers the loans from the proceeds of the sales. The loan
should be to the maximum extent possible be disbursed in kind".

The crop loan system was first introduced in Bombay in 1950. The main features of the
system were given in the action programme brought by the Government of India in 1963.

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Rate of interest and collateral requirement on crop loans
In terms of Government of India instructions for 2016-17, all the crop loans upto Rs.
3 lakh are being disbursed at the interest rate of 7% p.a. Govt, of India also provides interest
subvention of 3% p.a. to prompt repaying farmers, thus making available the crop loans to
them at 4% p.a. Crop loans beyond Rs. 3 Lakh are being disbursed by the banks at the rate of
interest as per RBI and other conditions as approved by their Board of Directors.
At present (August 2015) concessional crop loan at 7% with interest rate subvention
is available to farmers as pre-harvest loan. However, in case of post-harvest loan against the
negotiable warehouse receipts, the farmers are granted loan at commercial rates. In order to
discourage distress sale by farmers and to encourage them to store their produce in
warehousing against warehouse receipts, the benefit of interest subvention is available to
small and marginal farmers having Kisan Credit Card for a further period of upto six month
post harvest on the same rate as available to crop loan against negotiable warehouse receipt
for keeping their produce in warehouses. In terms of RBI instructions, no separate security is
required for crop loans upto Rs.l lakh. Beyond Rs.l lakh the security is decided by the
individual bank in terms of RBI guidelines.
Advantages of Crop Loan System
1. Crop loan system is production-oriented and not security-oriented
2. Since the crop is the security for loan, the farmers find no difficulty to get loans from
PACS
3. As this system consists of both cash and kind components, the farmers make use of
the fertilizer, seeds, etc., necessarily for their productive purposes.
4. The loans are issued on the basis of scale of finance prepared by the technical
committee consisting of agricultural experts, officials and non officials of central
cooperative banks and societies. This helps the farmers to get adequate finance to
undertake their agricultural operations.
5. Seasonality is observed both in disbursement and in recovery of loans
6. The purpose worthiness is very much watched rather than credit worthiness of the
farmers. For instance, the type of crop cultivated, extent of land cultivated, the
honesty of the farmers, etc., are watched.
Limitations of Crop Loan
Since the kind portion like fertilizer is made compulsory, the farmers feel difficulty
whenever they have their own fertilizer for use. Because of compulsion they get fertilizer and
sell it in the outside market. Further, the society does not make any efforts to market the

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produce of the members. The society and the members do not take any steps to sell the
produce due to the lack of linking of credit with marketing which ultimately affects the
recovery of the loans.
Procedure for the preparation and disbursement of crop loan
1. The Secretary of the society has to prepare the annual credit loan application which
consists of the name of the crop, quantum of finance required, irrigation facilities
available, extent of land and other details. All the needs of the farmers will be
consolidated in one statement
2. The credit needs of the farmers for different seasons in a year are worked out
3. The Annual Credit Limit (ACL) application has to be recommended by the Board of
Directors of the societies, and then it has to be sent to concerned district central
cooperative banks through the Field Managers (FMs) of the bank for approval.
4. When the ACL statement is ready for central bank's approval, the board of directors
or the loan committee of the central bank verify the ACL and sanction the same with
certain conditions.
5. The sanctioned loan application will be forwarded to the branch of the central
cooperative bank with a copy to the concerned primary cooperative society.
6. The FACS will prepare the drawal application, fulfill all the conditions imposed by
the Central Cooperative Bank and submit the same to the branch of the bank for
receiving the loan amount. A promissory note to cover the total loan is executed by
the president of the PACS.
7. The amount of the cash portion will be disbursed to the society and the society will
disburse the same to the members by obtaining the members' signature in the
concerned disbursement register.
8. After the disbursement of the loans to the members by the society, the disbursement
statement will be sent to the branch of the central bank.
Usually the loans are disbursed through the branch of the central cooperative bank by
crediting the accounts of the concerned society. The President or any authorized persons are
allowed to draw cheques in favour of individual members. The members will encase the
cheque from the bank. The kind portion (B-component) will be supplied to the members
separately before the drawal of cash portion (A-component) from the bank.
Documents required for Crop Loan
1. A certified copy of the resolution passed in the General Meeting by managing
committee of the society stating the amount of loans or credit limit applied

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2. Property statement in respect of each member of the society in the form prescribed by
the bank once in a year
3. A balance sheet showing the latest financial position of the society
4. A statement in respect of each member showing details of lands to various crops in
the prescribed form
Application for medium term loans on credit limit is also required in the prescribed
form and is to be accompanied by above items mentioned under 1,2 and 3. The application of
the society is generally prepared by its Secretary or the Supervisor. After its completion it is
forwarded to the DCCB through the intermediary officers (e.g. the cooperative bank's
supervisors in Bihar and Orissa and through the departmental Supervisors and the Assistant
Registrar in Jammu and Kashmir, circle supervisor and field manager in Tamilnadu). In
Gujarat and Maharashtra, the applications are routed through local supervising unions. In
Punjab, the A' and ’B' class societies send their applications direct to the bank but 'C' class
and non-classified societies send them through the cooperative department. Applications,
which are completed in all respects, are placed by the DCCB before the Board of Directors
for consideration and sanction. Loan applications sanctioned by the DCCBs are sent to the
societies.
Consumption Credit
The Study Group of the National Credit Council pointed out that, while the credit
requirements of organized sector of the economy and large borrowers are generally met by
commercial banks and cooperative institutions, institutional credit facility are virtually non-
existent so far as the small borrowers and the weaker sections of the community are
concerned. This result not only in the vicious circle of poverty of small borrowers, but also
responsible for the encouragement of moneylenders.
The Bombay Commission referred consumption credit to short and intermediate credit
involving relatively small amounts granted to consumers for personal consumption purposes
or for repaying debts incurred for such purposes. It may also be given to meet emergency
expenses like medical, educational bills, etc. The main objective of the consumption credit is
to avoid the borrowers in depending the moneylenders for such purposes and also to make
use of the loans obtained for productive purposes only.

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ANNEXURE- I
STATEMENT SHOWING ALL INDIA POSITION OF
PACS INCLUDING FSS & LAMPS FROM 1998-99 TO
2017-18
(Membership * Borrowers in 000)
(As on 31st March) (Rs. in Lakhs)
SI.
Particulars 1998-99 2000-01 2004-05 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
No.
1. No. of Societies 95,156 98.843 108.779 94.647 93.413 92.432 93.488 93,042 92,789
2. Membership 895,688 99.918 127,406 126.419 121.225 113.596 127.468 130,120 121.088
3. Total Paiil up Capital 280,594 388.552 557,136 714.842 755.117 828.010 986.831 978,880 1.106.829
4. Reserves 209.407 171.023 362,569 533,021 690,444 771,577 864.795 913,550 1.060.659
a. Deposits 706.170 1.348,107 1,897.604 3,528,607 3,723.816 5.025,279 6.711.310 8.189.491 8,461,633
6. Borrowings 1.732.644 2.588,961 4,024.949 5,176.390 5.400.010 8.883,557 9.335.916 - 9,583,580 9.998,011
7. Working Capital 3.176.544 5.386.747 7.540,741 13.519.152 14.422.190 16,050.797 28.081,643 21.242.917 22.371,057
8. Total No. or Borrowers 51.643 46.533 45,070 59,800 52.388 44,886 49,533 48.081 49.858
9. Total Loans Issued 1,776,780 2.569.831 3,921,172 7,493.754 9.130,382 10.730,023 16,190,916 17,141.956 15,905.029
a. Short Term 1,561.506 2.124.497 3.188,709 6,195,076 7.542,682 8,022,775 12,519,726 14.204.370 12.856,151
b. Medium Term 215.274 445,334 732,463 1.298.678 1.587.700 2.707.248 3,671,190 2.937.586 3.048.878
10. Total Loan Outstanding 2.130.109 3.452.233 4.878.546 7,647,983 8.776,794 9.124.321 13.939.871 13.005.386 14.722.557
a. Short Term 1,545.176 2.403.190 3,248,104 5,497.028 6,363,536 5.944.317 10,315.580 9.650.397 10.356,117
b. Medium Term 584.933 1.049.044 1,630,442 2,150.955 2.413.258 3.180.004 3.624,291 3.354,989 4.366.440
11. Total Demand 2,093,538 2,876.407 4,778.528 9.549,660 9.024.036 9,074.798 15.538,524 15.585,309 15,962,581
a. Short Term 1,815,712 2.383.942 3,835,336 8.433.765 7.808.314 7.986,510 12.623.654 12.504,001 12,716.393
h. Medium Term 277.826 492,465 943.192 1,115,895 1.215.722 1.088,288 2,914,870 3,081,309 3,246.188
12. Total Collections 1,361.817 1.872.619 3.173.305 5.597.260 6.754.323 6,644.439 11,708.975 12,622.126 12.383,522
a. Short Term 1.252.960 1,615.414 2.669.742 2.351,883 5,950,113 5,905.200 9.385,541 10.201,278 10,207,739
h. Medium Term 108.857 226,329 503.563 659,350 804.210 738,976 2.323.434 2.420.-848 2,175.783
13. Total Overdues 731,721 1.003,788 1.605,223 3.952.400 2,269.713 2.430.359 3.829,562 2,963.194 3,579.058
a. Short Term 562.752 768,528 1.165.594 6.081,882 1,858,201 2,081.310 3.238.113 2.302,722 2.508,653
h. Medium Term 168.969 266.136 439.629 456,545 411.512 349.312 591.449 660.472 1.070.405
14. % of Overdues 34.95 34.90 33.59 41.39 25.15 26.78 24.65 19.01 22.42
la. Number of Staff 171.550 207,453 388,118 215,529 290.540 208.697 210.136 177,036 164,432
(Source : NAFSCOB. Mumbai)

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Review Questions
1. What is meant by PACS?
2. Define the term PACS.
3. What are the objectives of PACS?
4. Explain the different types of Cooperative Banks.
5. State the various Functions of Primary Agricultural Cooperative Credit Society.
6. Discuss the lending policies of PACS.
7. Explain the different functions of FSCS.
8. Explain the various objectives of LAMPS.
9. Discuss the various Advantages and limitations of Crop Loan System.
10. What are the problems of PACS?
11. Explain the viability of PACS.

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LESSON - 3
DISTRICT CENTRAL COOPERATIVE BANKS (DCCB)
The objectives of this lesson are:
1. To understand the progress of district central cooperative banks.
2. To understand the origin, growth and functions of DCCB
3. To study the recent lending policy and procedure of DCCB
4. To study the objectives and workings of DCCB
5. To identify the various structure of DCCB.
6. To analyze the recovery and overdue problems of DCCB
7. To understand the concepts of the State Cooperative Banks
Introduction
The District Central Cooperative Banks (DCCBs) occupy a position of cardinal
importance in three-tier credit structure. They came into existence due to the failure of PACS
to collect the required resources of village community on one hand and to inspire the habit of
thrift and savings among the members to provide strong capital base. Hence the DCCBs were
started to tap the required finance from the members, higher financing institutions and
individuals, in order to fulfill the credit needs of the affiliated societies. In Uttar Pradesh, the
PACS worked as DCC Bank in 1906. The first DCC Bank was started at Ajmeer in 1911.
However, the Cooperative Societies Act of 1912 paved the way for the registration of DCCBs
with an objective of providing financial assistance to primary societies. The policy of
organizing a DCC bank for each district originated from a recommendation of Maclagan
Committee on Cooperation in India in 1915. Thus, the origin of DCCBs took place during the
period between 1906 and 1918 in various parts of the country.
Progress of DCCBs
During the period of world's depression i.e., from 1919 to 1929, there was a rapid
expansion of cooperative banking system in the country. The number of DCCBs increased
from 233 in 1919-20 to 588 in 1929-30, while their membership increased from 1.22 lakh to
1.91 lakh. The total working capital also increased from Rs.6.43 crore to Rs.30.90 crore
during the same period. Since more importance was given to societies for membership, there
was a decline in the individual membership from 0.90 lakh in 1929-30 to 0.85 lakh in 1936-

37. Because of the new DCCBs started in UP and Bihar, there was a good increase of 588
banks in 1929-30 to 611 banks in 1936-37. The progress of DCCBs in all areas during 1945-
46 was found to be increasing when compared with 1938-39 except in case of advances. Even
though, there was a progress of cooperatives during the war period, the weakness was very much
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found before the first Five Year Plan.
In some of the States like Punjab, Bihar, Madhya Pradesh, Orissa, Himachal Pradesh
and Andhra Pradesh there was an excess number of DCCBs and Banking Unions. Due to this,
the number of affiliated societies were very limited and not able to give adequate business to
each DCCB. Further, in States like Rajasthan, there was no uniformity in organizing DCCBs.
The area of operation of few banks was having more than a district. Hence, the need was felt
to reorganize such DCCBs all over India.
In order to rationalize and strengthen the central financing agencies, the All India
Rural Credit Survey Committee drew up a plan. One of the steps was the implementation of
the recommendation of the Standing Advisory Committee on Agricultural Credit (1952) to
ensure a minimum working capital of Rs.20 to Rs.25 lakh in each DCCB and to ensure one
DCCB for one district. Thus during the First Plan period (1950-51 to 1954-55) the States
began to reorganize and amalgamate the DCCBs. The same process was continued in Second
Plan period also. The formula of one DCCB in each district was adopted throughout the
country to maintain uniformity and viability. Due to the reorganization and amalgamation,
the number of DCCBs fell from 505 in 1950- 51 to 478 in 1955-56 to 380 in 1960-61 and to
353 in 1986-87. The share capital, deposit and working capital showed a rapid progress since
1960-61. As a result, the share capital, deposit and working capital increased from Rs.37.93
crore, Rs.110.59 crore and Rs.299.73 crore during 1960-61 to Rs.575.06 crore, Rs.6051.64
crore and Rs.10458.33 crore respectively during 1986-87. The number of DCCBs functioning
from 1998-99 to 2014-15.
Types of DCCBs
The DCCBs are classified as given below:
1. Banks whose membership confined to individuals: At present there are no such
banks in India. The Maclagan Committee was of the opinion that such bank should
not be registered under Cooperative Societies Act.
2. Banks whose membership is confined to societies only: The banks whose
membership is confined to primary societies situated in the area of operation are
permitted to become members of the DCCBs. The Maclagan Committee was in
favour of admitting societies only as members.
Mixed type banks: Membership of these types of banks consists of both individuals
and societies. Certain proportion of representation of individual membership in the board of
management is given under this type. There is a possibility to get experts with adequate
knowledge and experience in management from both rural and urban areas under this type.

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Area of operation
In 1915, the Maclagan Committee stated: "A central bank should cover as large an
area as it is compatible with convenience and efficiency. Although it may commence on a
large scale, it cannot expect ultimately to work at a profit unless it has a considerable capital
either at once or within a reasonable times, with at least 200 to 250 societies. Subject to the
above considerations, it is always well to adhere as far as possible to administrative divisions
and to avoid the creation of banks intended permanently to deal with any area exceeding a
district".
Reserve Bank Standing Advisory Committee on Agricultural Credit and All India
Rural Credit Survey Committee has expressed their view that there should be one district as
area of operation for a DCCB. The norm for the area of operation of a DCCB would be most
convenient to enable the bank to become a strong and powerful unit and to discharge its
responsibilities towards the lower tiers in the cooperative credit structure sufficiently. (Report
of the Committee on Cooperation P.72)
Membership
The membership of DCCB consists of PACS and other type of Cooperatives viz.,
Weavers Societies, Cooperative urban banks, Employees thrift and credit societies,
Marketing cooperatives, Consumer cooperatives, Milk production cooperatives, Cooperative
sugar factories, Cooperative spinning mills, etc. working in the district, Government and the
Individuals.
In the initial stage individuals were admitted as members. At present many State
Cooperative Societies Act do not permit the individuals to become members in the federal
cooperatives like SCBs and DCCBs. However, in Maharashtra, there are more number of
individuals as members in DCCBs with the restricted powers in the Board of Management.
The details of membership of DCCBs from 1998-99 to 2014-15.
Objectives
The main objectives of DCCBs are:
1) To meet the short, medium term and other credit requirements of PACS and other
affiliated cooperative societies in the district.\
2) To collect deposits and arrange funds for the purpose of lending
3) To act as balancing center for the surplus funds of the societies
4) To arrange supervision and inspection of borrowing societies
5) To develop and extend banking services in the area of operation

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6) To implement the credit policy and programmes of both Government and NABARD
Structure
The question of organization structure for cooperatives viz., the federal or unitary
structure has been often debated. The Central Cooperative Banks adopt federal structure in
many of the States i.e., primary societies at the bottom, central banks and apex banks at the
district and state level. In bigger States like Uttar Pradesh, Bihar, Andhra Pradesh, Karnataka,
Tamilnadu, etc., the federal structure has been followed. The International Cooperative
Alliance (ICA) has recommended "cooperation among cooperatives" as a new principle for
the growth of "cooperative movement through interrelations". In States like Goa, Delhi,
Pondicherry, the unitary structure consist of apex bank with branches.
DCCBs Vs. Branches of State Cooperative Bank
The following points are argued in favour of branch of Apex bank:
1. Cheap rate of interest to the ultimate borrowers is possible if one structure at the
middle level is removed or by having only the branch of Apex bank.
2. Apex banks can maintain uniform staff position and exercise regular and strict control
over the branches
3. Savings in the cost of management is possible
4. Uniform policy and regulation can be adopted
There has been another argument with regard to direct finance for crop loan to
DCCBs from NABARD refinance so as to reduce the interest rate for the benefit of ultimate
borrower.
Management and organization of DCCB
The management of the DCCB vests in a Board of Directors elected by the General
Body which is the supreme authority. The term of office for the directors is normally 5 years
in many States in India. The Committees normal appointed among directors to undertake
various works of the bank are Executive Committee, Loan Sub-Committee, Purchase
Committee, Staff Committee, Building Committee etc. The duties and the responsibilities of
the Board of Directors are:
1) To sanction the loan applications
2) To approve the annual reports
3) To appoint the employees required for the bank
4) To consider for investments of bank's funds and
5) To approve the monthly receipts and charges statements

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Staff
In some of the States, the Managing Directors (MDs) are appointed either by the
Registrar of Cooperative Societies or by the Board of Management. He will be the Chief
Executive and look into the interest of cooperative department and the bank as per the
concerned State Cooperative Societies Act, Rules and byelaws. In Tamilnadu, in addition to
the MD, a Chief Executive Officer at the cadre of Deputy Registrar is appointed in each
DCCB. He will look into the recovery of loans with the assistance of Field Level Officers
working under his control.
The following administration set up is followed normally by the DCCBs in the
country:
Chart No: 3.1
Administration Setup of DCCBs
Chairman and Board of Directors

Managing Director (MD)

Chief Executive Officer (CEO)

General Manager (GM)

Manager Manager Manager Manager Manager

(Administration) (Agri. Credit) (Non Agri. Credit) (Development) (Banking/Accounts)
All managers are assisted by Deputy/Assistant Managers in the Head Office. In some
of the States like Tamilnadu and Kerala, DCCBs are having Assistant General Managers
(AGMs) for the above wings and working under the control of the General Manager.
Superintendents for loan section, banking- section, etc., are also working in Head Office.
They are assisted by Accountant. Senior and Junior Assistants, Typist, Peon, etc. In some of
the States, Officers are posted in the branch according to their deposit and loaning
transactions. For example in Ahmed Nagar DCCB. Maharashtra, the total branches of the
bank were classified into four categories viz., A, B, C and D according to deposits and
lending operations. The total number of employees working in DCCBs from 1998-99 to
2014-15.

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Resources
Resources available to DCCBs can be broadly divided into two categories, namely
internal and external. The internal resources consist of share capital collected by the DCCB
from its constituents and the different reserves built up over a number of years in the past.
The external resources consist of borrowings from other credit institutions like RBI,
NABARD, State Cooperative Bank, Government, deposits from the members, public,
institutions and other cooperatives.
Share capital
The affiliated societies and individual members subscribe the share capital of the
DCCBs. As per the Byelaws of the bank the members have to subscribe shares in proportion
to their borrowings. The Mehta Committee on Cooperation recommended that the primary
credit societies should contribute to the share capital of DCCB at the rate of l/20 th of their
borrowings. However, the RBI has suggested that the DCCB should collect share capital
from the primaries up to 10% of them borrowings.
Statutory and Other Reserves
Reserve fund with paid up share capital enhance the maximum borrowing power of
the DCCB from Apex financing agency. Reserve Fund to the tune of 25%, Bad and Doubtful
Debt Reserve usually at 15%, Agricultural Credit Stabilization Fund and Common Good
Fund normally at 10% are kept out of net profit in various States. The main object of
maintaining bad and doubtful debt reserve is to keep at the disposal of the bank funds from
which bad debts can be written off. The main objective of Agricultural Credit Stabilization
Fund to make use of it for conversion of short term loan into medium term loan where the
crops of the farmers are affected by natural calamities like drought, famine, flood,
earthquake, etc.
The DCCBs were able to constitute this fund for Rs.46.93 crore only at the end of
1981-82. The position of the reserves had been increasing in the recent years as many of the
DCCBs started providing various credit facilities to the affiliated societies. The position of
ACSF during 1992-93 was Rs.142.85 crore, which was increased to Rs.1185.88 crore during
2007-08. The details of Reserves of DCCBs from 1998-99 to 2014-15.
Deposits
All India Rural Credit Review Committee recommended that the concessional lending
rate of RBI should be related to the achievement of the DCCB in reaching the target fixed by
RBI in respect of mobilizing deposits. In addition to the finance available from RBI or
NABARD, the DCCBs also should strive hard to tap resources from the rural sector in the

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form of deposits so as to meet the emerging credit needs of various activities like agricultural
production, investment, animal husbandry and rural industries. The DCCBs should try to
increase their deposits position by adopting the following suitable methods:
❖ Opening of branches at the potential areas of the district
❖ Studying the environment, identifying the potentials of different segments viz.,
agriculturists, traders, industrialists, professionals like doctors, engineers, educational
institutions, religious institutions, local bodies, etc.
❖ Improving the services to the clients
❖ Preparing different types of deposit scheme suitable to different customers
Functions of DCCB:
1. DCCBs meet the credit requirements of member societies.
2. They shall also perform the banking business and provide facilities relating to it.
3. DCCBs act as a balancing center for Primary Agricultural Credit Societies (PACS).
This is done by diverting the surplus funds of some societies to those who face
shortages of funds.
4. DCCBs can also perform non-credit activities.
5. DCCBs maintain close and continuous contact with the PACS. This means they shall
provide leadership and guidance to them.
6. Further, DCCBs supervise and inspect PACS such that a safe place is provided for the
investment of the PACS resources.
Loans and Advances
The main object of the DCCBs is to meet the credit needs of member societies. They
finance agricultural credit societies for production purposes, marketing societies for
marketing and supply operations (through clean, pledge and hypothecation loans) and
industrial and other societies for working capital expenses. As a financing bank in the district,
central bank acts as a "balancing center" for adjusting the surplus and deficiency of working
capital of the primary credit societies. The DCCBs finance PACS from their resources
consisting of share capital, reserves, deposits and from credit limits sanctioned by the
NABARD. Besides the credit limit sanctioned by NABARD, the State Cooperative Bank also
lend to DCCBs from its own resources.
The weavers' cooperatives are financed similarly supplementing the credit limits
provided by NABARD for the purpose. DCCBs lend to urban cooperative banks, employees'
thrift and credit societies, consumer cooperatives, cooperative processing societies like sugar
mills, spinning mills and industrial cooperatives.

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Technical Committee
Credit limit is fixed on the basis of extent of land and type of crop to be cultivated and
with cash and kind portion as decided by the Technical Committee. The Technical
Committee convened by each DCCB consists of selected progressive farmers, Chairman and
selected directors of the DCCBs, Deputy Agricultural Officer and other invitees having the
background of agricultural credit. This Committee also includes a few successful and
enterprising farmers in the area. The scale of finance fixed by the Technical Committee in the
districts are examined and approved by the State Level Committee. The Secretary for
Cooperation, Director of Agriculture, and the Representatives of the Apex Cooperative Bank
are the members of the State Level Committee. The arrangement of fixing adequate finance
will help the farmers to ease their credit for the purpose for which it is sought. Sir Frederick
Nicholson, wrote a century back, "use of the little credit hampers production, while
borrowing too much leads to bankruptcy". The details regarding the scale of finance proposed
in the SLBC meeting organized by Andhra Pradesh State Cooperative Bank applicable to
DCCBs in the State is given in Table No. 3.1.
Table No: 3.1
Scale of Finance of DCCBs
Scales of finance
Percentage
SOF for suggested by
SI. Crop (Irr: irrigated) (UI:- increase over
2012-13 (Rs. per SLTC for the
No. un-irrigated) previous year's
acre) year 2013-14 (Rs.
Per acre) SOF
1 Paddy (Irr.) 22000 18000-24000 9.09%
2 Srivari & Direct sown 15000 16000-20000 33.33%
3 Jowar (Irr.) 10000 8000-12000 20%
4 Jowai’ (UI) 8000 8000-10000 25%
5 Bazra (Irr.) 7000 6000-7500 7.14%
6 Bazra (UI) 5500 5500-6000 9.09%
7 Raagi (Irr.) 7000 6000-8000 14.29%
8 Raagi (UI) 5000 5000-6000 20%
9 Maize (Irr.) 15000 15000-20000 33.33%
10 Maize (UI) 11000 11000-15000 36.36%
11 Pulses 5000-6000 6000-8000 33.33%
12 Raj ma 7000 7000-8000 14.28%
13 Redgram (Irr.) 10000 10000-12000 20%
14 Redgram (UI) 8000 8000-10000 25%
Blackgram &
15 7000-9000 8000-10000 11.11%
Green gram
16 Bengalgram 11000-12000 12000-14000 14.28%
17 Groundnut (Irr.) 13000-15000 14000-17000 13.33%
18 Groundnut (UI) 10000-12000 11000-14000 16.67%

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19 Sugarcane (Pltn.) 50000 45000-55000 10%
20 Sugarcane (Ratoon) 30000 28000-35000 14.29%
21 Sunflower 9000-10000 10000-13000 30%
22 Mulberry 18000-18500 25000-30000 62.16%
Mulberry
23 28000 30000 7.14%
(for woven variety)
24 Banana (Pltn.) 36000 35000-40000 11.11%
25 Banana (Ratoon) 25000 25000-30000 20%
26 Cotton (Irr.) 25000 22000-27000 8%
27 Cotton (UI) 22000 22000-25000 13.64%

Interest Subvention
Interest subvention simply means a subsidy offered on interest rates. The subsidy helps
the loan borrower in not having to pay the total interest amount on a loan amount. This could
be to help the marginalized and the weaker sections of society. The Union Cabinet has
approved the Interest Subvention Scheme for farmers for the year 2016-17. Interest
subvention for providing short term crop loan to farmers has been provided to Public Sector,
Private Sector, Cooperatives, and Regional Rural banks.
Interest subvention scheme of crop loans
Banks are to ensure that all crop loans against which they are claiming interest
subvention should satisfy the following criteria viz., the borrower should be an agriculturist,
the rate of interest charged should not exceed the rate stipulated by the Gol, the amount of
loan is fixed according to the prescribed scale of finance for agricultural loans and the loan is
used for stated purpose and seasonality is observed in regard to both disbursement and
recovery. (Source: RPCD.FSD.BC.45/05.02.02/2012-13, dated 9th Nov. 2012)
Medium-term credit limits
Medium-term accommodation got the fillip only after the creation of long-term
operations fund in 1956 by the RBI. When NABARD came into existence in 1982, the name
of the above fund was changed as National Rural Credit Long Term Operations Fund.
Progress in collecting share capital from members and accepting deposits was to determine
the size of additional limits to be sanctioned over and above the normal limit of a central
bank which was up to its owned funds.
The NABARD continued to follow its existing credit policy governing the sanction of
medium-term credit limits out of National Rural Credit (Long Term Operation) Fund and
National Rural Credit (Stabilization) Fund to SCBs on behalf of DCCBs for financing
approved agricultural investment purposes and for conversion of short-term agricultural loans
in respect of crops affected by natural calamities respectively.

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Financing of Employees’ Cooperatives
The Employees Thrift and Credit Cooperatives and Employees' Cooperative Banks
receive finance in the form of term loan, cash credit, reimbursement loan, etc., from the
DCCB. While receiving the loan application from employees' cooperatives, the DCCBs have
to receive the resolution passed by the board, reimbursement certificate and other details
including sundry debtors and sundry creditors list, receipt and charges statement, balance
sheet, investment details, etc. from the borrowing society.
The loans to employees' societies are normally sanctioned for the maximum period of
120 months. The quantum of loan is based on the maximum borrowing power of the societies
as per the byelaw. The financing bank will also receive the inspection report of the
Supervisor. As soon as the loan is sanctioned by the bank, the employees' societies receive
the sanction order and submit pro-note bond and required certificates with the drowned
application to the financing bank. The loan amount is drawn by the employees' societies from
DCCBs as well as the same is credited in the account. As a follow up action, the DCCBs
conduct inspection for the societies once in three months for the regular utilization of the
loans.
Financing of Consumer and Marketing Cooperatives
The DCCBs extend cash credit facility for undertaking public distribution system and
supply of consumer articles to consumer cooperatives and district wholesale stores.
Marketing cooperatives get assistance from DCCBs for marketing of crops. They also
provide cash credit accommodation against hypothecation of stock for carrying out marketing
and consumer business.
Financing of Cooperative Sugar Mills
The DCCBs extend working capital finance against the pledge of sugar bags to the
extent of 85% of the sugar value. However, the extent of loan differs from State to State as
per the concerned State Act and byelaws. NCDC also provide financial assistance through
DCCBs for the purpose of issuing loans to sugar mills.
When the borrowers apply for loans to PACS for cultivation of sugarcanes, the
DCCBs sanctions the loans to the concerned societies. The cane supervisor of the sugar mills
visit the land of the borrower and permit for harvesting the sugarcane and also arrange to
supply the same to sugar mills. The sugar mill will prepare a bill for the amount to be paid to
the borrower of the concerned society and send the same to the branch of the concerned
DCCBs. Now the DCCB has to credit the loan account of the borrower of the concerned
society and the balance amount to be credited in the personal account of the borrower.

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Financing of Cooperative Spinning Mills
Cooperative spinning mills avail working capital finance and term loan from DCCBs.
'The DCCBs provide loan to cooperative spinning mills to the extent of 90% of the stock of
yarn where the Government guarantee is available. If there is no Government guarantee
available, 60% of the stock value is given as loan.
Financing of Weavers’ Cooperatives
The loans are sanctioned by DCCBs to Weavers' Cooperatives in the form of cash
credit towards production basis and loom basis. Banks sanction loans for power looms based
on their production. For instance, Kanchipuram DCCB issue loan to power looms to the
extent of 3 years' production average. With regard to marketing of handloom products, loans
are sanctioned to weavers' cooperatives which buy and sell handloom products in the form of
cash credit. Apart from the minimum share capital, each society has to remit certain
percentage of borrowing amount as additional share capital. For instance, in Tamilnadu, the
DCCBs presently receive 2% of loan amount as additional share capital from the
cooperatives.
Financing of Self Help Groups (SHGs)
The DCCBs have diversified its lending. They issue housing loan, house renovation
loans, consumer loan, vehicle loan, etc. In order to improve the economic conditions of the
poor and downtrodden womenfolk and also to encourage the habit of savings among them,
DCC Banks introduced various loans.
The DCCBs disburse loans to SHGs and gets tremendous business out of it as the
recovery is almost 100 per cent. In case of Kanchipuram DCCB, it offers two kinds of loans
to SHGs, viz., direct lending and revolving fund and the recovery stood at 99%. For
revolving fund, subsidy is given by the Government. The loan amount is fixed twice the
amount of the Group's savings with the bank.
Loans against Gold Ornaments
In order to help the farmers, middle and lower middle class people both in the villages
and towns, the DCCB and its branches introduced the issue of Gold Loan at the cheaper rate
of interest. Since the Moneylenders, Pawn Brokers, Chit funds, Nidhes and Marvadis charge
exorbitant rate of interest on gold loans, the Government was also interested to direct the
cooperatives to issue jewel loans. Many times the farmers and the people of small means
require funds for meeting certain expenses like marriages, education, cultivation, etc. Hence
DCCBs also introduced the issue of jewel loans. A person may get the loan to the maximum
of Rs.5 lakh against gold ornaments.
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Branch Banking
To fulfill the main objective of disbursement of loans to primaries and to provide
other banking services to the people living in rural areas the DCCBs have to open branches in
between head office and villages in the district. All India Rural Credit Survey Committee
favoured the same. Even, All India Rural Credit Review Committee indicated the need for
good appearance of the branches in order to increase the deposits to the maximum extent. The
Action Programme prepared by the Ministry of Food, Agriculture and Cooperation sent to the
State Governments in 1964 suggested that every DCCB should open branches at every taluk
and in small towns.
As a result of Nationalization of Banks in 1969 and due to the exemption given by
RBI to open branches with the permission from it as per section 23 of Banking Regulation
Act, DCCBs started more number of branches. RBI's interest in providing exemption for
opening of branches by DCCBs in their area of operation was to tap rural savings and to
provide helping hand to affiliated societies for their lending and collection of loans. The
number of branches of DCCBs in 1950-51 was 759, which increased to 7969 in 1981-82. The
expansion of branch banking was vigorously undertaken in Maharashtra, MP, Gujarat, and
Karnataka. The DCCBs in Gujarat, Maharashtra, Tamilnadu, Kerala, Karnataka and few
other states in the country opened branches exclusively for women. The number of branches
of DCCBs from 1998-99 to 2014-15.
Other Services
The DCCBs are expected to provide other services such as collection of cheques,
issue of drafts, transfer of funds, safe deposit lockers, etc. For the benefit of customers and
other general public living in different places, the DCCBs have started running mobile
branches to various localities in the area of operation. For instance, the Thiruvananthapuram
DCCB in Kerala, Chennai CCB in Tamilnadu, Pune DCCB in Maharashtra, etc., provide
various banking services through mobile van, concentrate collection of small savings and
help customers particularly those belonging to the weaker section of the community to build
up their savings for their future.
In addition to the banking services, the DCCBs in the country used to provide various
other services beneficial to the people by fulfilling one of the cardinal principles of
cooperation i.e., the concern for community. For instance, in Kerala, Malappuram DCCB
involve regularly in social activities like paying donations for palliative clinic, sponsoring
education expenses to blind students, extending free collection facilities to organizations
engaged in social activities, etc.

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Integrated Cooperative Development Project (ICDP)
One of the important schemes of the National Cooperative Development Corporation
(NCDC) is "Integrated Cooperative Development Project (ICDP) Scheme" which was
introduced in the year 1985-86 and aims at:
❖ Development of PACS as multi-purpose self-reliant cooperatives;
❖ Development of allied sector cooperatives; and
❖ Development of viable functional linkages among cooperatives.
Under the Scheme, an area development approach is adopted for development of
cooperatives. A Macro Plan is prepared for the whole of selected district, keeping in view the
local resources and needs.
The project funding is under two heads - i) Loan and ii) Subsidy. The loan is for
creation of infrastructure facilities - such as godowns, banking counter, transport vehicles,
small processing units, etc. and strengthening of share capital/providing margin money for
augmenting the business of the societies. Subsidy is provided for project implementation, cost
of project preparation, manpower development and training, monitoring and incentives. The
project period is for 5 years during which it is monitored regularly.
The Project is implemented by Project Implementation Agency (PIA) generally District
Central Cooperative Bank, to be selected by State Government, in consultation with NCDC.
The PIA is assisted by specially created team 'Project Implementation Team' (PIT) in
preparation of Business Development Plan, assessing society-wise requirements and
implementing and monitoring the project. All societies having potential for development are
assisted under the project.
Total subsidy component in a project is limited to 30% of the total project cost.
Subsidy in respect of cost of project implementation, manpower development, monitoring
and incentive is shared between the NCDC and the state Government on 50:50 basis. In case
of special category states, entire subsidy for project implementation, manpower development,
monitoring and incentives, is provided by the NCDC. Special category States are all North-
Eastern States, Sikkim, Himachal Pradesh, Jammu & Kashmir and Uttrakhand. There is a
provision for dovetailing of subsidies from other schemes of the Government/
Ministries/Agencies for beneficiary cooperatives within the 30% subsidy ceiling.
As on 31.03.2016 cumulatively 363 projects with project cost of Rs.5372.83 crore
were sanctioned involving NCDC share of assistance of Rs.5068.17 crore comprising
Rs.4141.91 crore as loan and Rs.926.25 crore as subsidy. The cumulative assistance released
by NCDC to State Governments for ICP projects by the end of 2015-16 stood at Rs.3060.37

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crore comprising loan of Rs.2633.53 crore and subsidy of Rs.426.84 crore.
Overdues of DCCB
One of the serious problems faced by the DCCBs is mounting of overdues from year
after year. The overdue position was only Rs.3 crore in 1950-51 which was increased to Rs.
1463 crore in 1984-85. The loans recovered during the year 2000-01 was Rs.23,327.33 crore
to total demand of Rs.36,089.14 crore constituting to 35.36%. The recovery to demand as on
31.3.2004 at the level of DCCBs was 62%. The details of total demand, collection and
balance of overdues and percentage of overdues to demand from 1998-99 to 2014-15.
Non-overdue Cover
One of the recommendations of the Committee on Cooperative Credit was the
adoption of liberalized standards by the RBI for sanctioning credit limits to central
cooperative banks for short-term agricultural purposes including the provision of additional
limits subject to certain conditions. It was in this context, that the Committee recommended
that, in respect of both normal and additional credit limits sanctioned by the RBI the
outstanding dues to the RBI under the limits should be matched by loans outstanding from
the societies of an at least equal amount which had been issued for the same purpose and
which had not become overdue. The Committee said that:
"a) For the amount outstanding against a bank out of the limits sanctioned by the RBI in
excess of the 'normal limit', the bank should show outstanding loans against societies
for agricultural purpose for twice the amount borrowed. In other words, of the excess
of loans outstanding against societies for agricultural purposes over and above the
'normal' limit, only 50% can be from funds provided by the RBI, the other half being
provided by the bank out of its own resources.
b) The outstanding loans for the above purpose i.e., for normal or additional Emits will
not be included in overdue loans. It will also be necessary to ensure that the real
position of overdues is not concealed by extensions granted without proper
examination of the merits in each case.
c) In computing the bank's own resources for the purposes mentioned in (a) borrowings
from the state cooperative bank, the SBI and Government will be excluded."
Low recovery of loans obviously affects the profitability of the institutions. Poor loan
recovery has resulted in a peculiar phenomenon, often referred to as "imbalance". Imbalances
are the difference between the amounts showing as outstanding from a borrower in the books
of a higher tier entity (a DCCB) and the amounts shown as being repayable in the books of
the borrowing entity (say a PACS). The imbalance occurs when the PACS receives interest

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and repayment from a subset of its customers and pays in the amount towards its borrowing
from the DCCB.
When the amount is paid to the DCCB, the total amount is adjusted first by the DCCB
to the total interest due. The residual amount then is adjusted to the principal. Imbalances also
occur when the PACS collects the loans and uses the cash to fund its overheads and above the
actual interest spread available to it. These two factors and in some situation, actual
defalcation results in a curious situation, where the principal amount due to the PACS at the
ground level is smaller than the principal amount to be paid by the PACS to the DCCB. (Ref.:
Vaidyanadhan Committee Report, 2004)
Non Performing Assets (NPAs)
As directed by the RBI, all State Cooperative Banks and DCCBs have to follow
Prudential Norms regarding income recognition, assets classification and provisioning from
1996-97 while drawing their financial statement at the end of the year. On introduction of the
prudential norms accumulated losses of DCCBs increased to a greater extent, as they have to
make sufficient provisions towards NPAs.
Settlement Schemes
RBI announced One Time Settlement (OTS) Scheme for public sector banks.
NABARD finalized the OTS for cooperative banks both for short term and long- term
structure during 2001-02. Most of the cooperative banks adopted this scheme.
The salient features of OTS are as under:
1) The cut-off date for Non Performing Assets (NPAs) has been fixed as 31st March,
1998 and cut off level amount was Rs.5 lakh
2) NPAs under all loans and advances will be covered and the scheme will be operative
upto March, 2002.
3) Wherever the State Governments have formulated OTS scheme it would be necessary
to issue instructions/order modifying their scheme to confirm to the above scheme
4) The amount recovered under this scheme should be passed on in repayments to the
higher financing institutions immediately.
5) No financial support from Government, RBI or the National Bank would be available
for the implementation of the scheme.
6) The guidelines should be followed by banks without any discrimination
It was announced that the cost of the scheme would work out to about Rs.71,680
crore. While the entire 'eligible amount' shall be waived in the case of a small or marginal
farmers, in the case of 'other farmers', there will be a OTS scheme under which the farmer

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will be given a rebate of 25% of the 'eligible amount' subject to the condition that the farmer
repays the balance of 75% of the 'eligible amount'. (Source: Report on Trend and Progress of
Banking in India, 2008-09)
Capital Risk Adequacy Ratio
Rural cooperative banks have been kept out of Capital to Risk-Weighted Assets Ratio
(CRAR) framework for a long time on the grounds that there is an in-built accretion to capital
every time a loan is availed of by a member. In view of the high level of default
characterizing the STCCS and the risk posed by higher concentration of loan portfolios of
these banks in a single sector with defined areas of operation, the Vaidyanathan Task Force
recommended for bringing all tiers of the STCCS under the CRAR framework. The Reserve
Bank of India recently reviewed the position of CRAR in SCBs and DCCBs and has
introduced the minimum CRAR requirement for these banks. A roadmap was laid down for
achieving CRAR of 7% by March 31, 2015 and 9% by March 31, 2017.
Working Results
The number of DCCBs which earned profit and incurred loss from 1999- 2000 to
2014-15 is given below:
Table No: 3.2
Working Results of DCCBs
(Rs. in crore)
No. of banks Amount of No. of banks Amount of
Year No. of banks
in profit profit in loss loss
1999-2000 367 223 427 144 530
2000-2001 367 247 608 120 578
2001-2002 368 243 694 125 736
2002-2003 367* 243 742 122 954
2003-2004 365 263 864 102 756
2004-2005 367 296 1379 71 405
2005-2006 366 278 1116 88 913
2006-2007 371$ 271 754 97 724
2007-2008 372 284 760 88 825
2008-2009 373 $ 320 1603 50 287
2009-2010 372 $ 322 1659 47 523
2010-2011 371# 318 1400 52 500
2011-2012 370 328 1511 42' 332
2012-2013 370 330 1704 40 336
2013-2014 358 ** 329 1731 38 354
2014-2015 359 301 1841 58 1036
(NA: Not Available * Data of 2 DCCBs not available, $ Data of 3 DCCBs not available, #

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Data of 1 DCCB not available ** 9 banks not reported (Source: Trends and Progress of
Banking, RBI)
Compliance of BR Act
In terms of Section 11(1) of the B.R. Act 1949 (as applicable to cooperative
societies), a DCCB should have a minimum share capital of Rs.l lakh.
The Committee on Financial Sector Assessment (Chairman: Dr. Rakesh Mohan and
Co-Chairman: Shri Ashok Chawla) had recommended that rural co-operative banks, which
fail to obtain licences by 2012, should not be allowed to operate. A roadmap was drawn up
for achieving this objective in a non- disruptive manner in consultation with NABARD.
Accordingly, the Reserve Bank relaxed norms which helped in granting licences to large
number of rural cooperative banks and only 42 DCCBs remained unlicensed at end-March
2012. The number of unlicensed DCCBs came down to 3 at the end of September 2016.
Regular inspection helps for maintenance of accounts up to date and helpful for
finalization of accounts in time. On-site inspection of banks is carried out on a periodic basis.
Besides, the Head Office and some branches are covered during inspection so as to ensure a
minimum coverage of advances. The On- Site Inspection focuses on solvency, liquidity and
operational health of the bank. All the inspected banks are rated as per supervisory rating
based on CAMELSC concept. 'Off-site Surveillance' analyse critical data on a continuous
basis, to identify areas of supervisory concern and to issue early warning signals on risky
areas requiring further action by banks. The system basically envisages desk scrutiny of
operations of Cooperative Banks through a set of statutory and non-statutory returns.
Supervision
DCCBs exercise supervision of the primary cooperatives and other affiliated
cooperatives in the district. DCCBs have got their own supervisors at different levels to
monitor the societies with regard to the lending of loans, collection of overdues and other
matters pertaining to the management of the affiliated societies.
Audit
Every DCCB shall be audited every year as per the concerned State Cooperative
Societies Act. Since the DCCB is situated at the district level with many branches, the audit
cannot be completed within a short period. Hence the Auditors from department with the
assistance of bank Staff adopt cross checking of accounts so as to complete the audit within 6
months after the completion of accounts every year. In most of these banks, two or three
Auditors are deputed by cooperative department for conducting concurrent audit.

The Rural Credit Survey Committee recommended that there must be uniform

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standards in respect of DCCBs for the classification on an all India basis in respect of
different type of societies. Hence, the RBI evolved standards in respect of DCCBs for their
classification in Audit into 'A', 'B', 'C and 'D' classification. 'A' and 'B' indicates the efficient
working of the banks, 'C' and 'D' indicates the poor performance of the bank. Audit
classification was made on the basis of general management, working capital, number of
affiliated defunct societies, percentage of overdues, etc.
Problems of DCCBs
DCCBs have problems like: (i) Improper application of IRAC norms resulting in
inflated profit/reduced losses, shortfall in provisions, etc., (ii) high level of NPA/erosion of
assets, (iii) deficiencies in sanction, appraisal of loans/advances and post-disbursement
follow-up, (iv) inadequate financial margins/high cost of management/adverse working
results, (v) ineffective funds management, (vi) inadequate risk management systems, (vii)
delay in submission of returns and satisfactory compliance to inspection observations, (viii)
lack of corporate governance, (ix) weaknesses in internal checks and control system, (x)
incidence of frauds, etc.
DCCBs have been unable to adapt themselves to the rapid pace of changes in the
financial sector. Cooperatives have lagged behind in designing of new products and services
and in adoption of technology and advanced management practices that have changed the
face of financial sector in the post economic-liberalization era.
Faced with challenges, as bad loans have galloped, social obligations, directed
lending practices and weak risk management processes, led to deterioration in asset quality of
DCCBs.
Recommendations
For the successful working of a DCCB, it is important to have a suitable area of
operation so as to attain adequate business turnover so that the bank may employ adequate
staff, meet the overheads and build up a strong reserve fund.
Since the strength of the upper tier depends upon the strength of the federal structure
at the middle and gross root level, the DCCBs and PACS must have proper planning to
recover the overdues and increase their business.
Cooperative banks should make use of financial assistance for capacity building
provided by NABARD from Cooperative Development Fund and under scheme of Financial
Assistance for Training of Cooperative Banks Personnel SOFTCOB).
Under the Credit Information Companies (Regulation) Act, 2005, all co-operative
banks are credit institutions and every credit institution has to be a member of at least one

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Credit Information Company (CIC). State and Central cooperative banks are required to take
membership of at least one CIC. Reports from CICs contain information about the payment
behaviour of consumers and commercial entities, including data on timely fulfillment of or
delinquency in meeting the financial obligations. It helps credit institutions in making an
informed decision about a credit applicant.
Bank should provide on its website where customer can access information about
products, procedures, forms, fees/charges, annual reports, etc.
Cooperative banks with their intimate knowledge of customers and familiarity with
the area of operation can attract new customers and retain the existing clientele with their
unique selling proposition. However, this can be achieved only with suitable changes in
outlook, processes, business model and strategy.
Government should provide a better enabling climate for the cooperatives to play a
bigger role and the cooperatives themselves should upgrade their technologies, improve and
modernize the ways of doing businesses in order to create interest among youth to get
involved and become more competitive and innovative without compromising their
cooperative identity and without deviating from essential cooperative ethos.
Implementation of effective loan appraisal policies at the approval stage will ease the
pressure on recoveries at a later date and help to curtail expenditure on litigations.
Continuous monitoring of loan accounts which give signals on creeping sickness and
effective steps aimed at recovery at an early stage will prevent deterioration of asset quality.
Further, higher provisioning towards NPAs severely erodes profitability. Banks would be
better served if the responsibility of the loans given by an officer is fixed and he/she is asked
to follow up with the borrower to get the loans repaid. Banks should give incentives to
officers/staff for good loans and prompt repayment.
DCCBs should look' for more fee-based activities like selling of insurance products,
fund transfer facility, locker facility, etc., to supplement their earnings.
DCCBs have not succeeded in leveraging technology to create products, business
models and delivery channels that maximize productivity and efficiency. Transaction costs
need to be reduced by fully leveraging technology. This would include creation of new cost
effective products, business models and delivery channels.
Banks have not attempted to carry out comprehensive Business Process and Structure
Reengineering to ensure that internal processes are realigned by leveraging technology with
the goal of weeding out redundant processes and simplifying/ automating others.
According to Union Finance Minister Shri.Arun Jaitley, about 40% of the small and

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marginal farmers avail themselves of credit from the cooperative structure and therefore the
Government is committed to support NABARD on computerization and integration of all
63,000 functional PACS with the core banking solution of DCCBs. This will be done in three
years at an estimated cost of Rs. 1900 crore, with financial participation from the State
Governments to ensure a seamless flow of credit to small and marginal farmers. (Source:
www.indiancooperative.com).
Recommendations of Task Force
The Task Force to study the functioning of cooperative credit system i.e. the Capoor
Committee, 1999, and Vikhe Patil Committee, 2001, recommended special financial
assistance to help viable and potentially viable DCCBs to wipeout accumulated losses,
strengthen their capital base, consolidate their outstanding debt from past borrowing and
convert them into medium term loan at lower rate of interest. They also recommended that
the cost of financial restructuring should be shared by the Central and the State Governments.
The Task Force on revival of cooperative credit institutions, 2004, stressed the following
needs for the cooperative credit structure:
 Radical changes in the legal framework to empower the RBI to take action for
prudent financial management of banks
 Qualitative improvement in personnel in all tiers and at all levels through capacity
building and other interventions, leading to an increase in overall efficiency.
The Task Force felt that in view of huge rates of defaults characterizing the credit
cooperatives, there is a need to bring all tiers of cooperative credit structure (CCS) under the
Capital to Risk Assets Ratio (CRAR) framework.
According to the Task Force, the time has come for the CCS to return the equity
received by them from the State Governments over time. It also recommended to grant the
Soft loan to those cooperatives, which find difficulty in returning the equity received from the
Government. It believes that this will pave the way for cooperatives to return to their original
mandate of member-driven and member-centric institutions. The Task Force, stressed the
need for future training strategy to attain the skill development of all the staff, elected
representatives and members in various tiers.
CASE STUDY ON THE ERNAKULAM DISTRICT COOPERATIVE BANK LTD
The Ernakulam District Co-operative Bank (EDCB) Ltd., the leading District Central
Co-operative Bank in Kerala, started functioning on 15-03-1961. The Bank was registered
under the Travancore-Cochin Co-operative Societies Act, 1951 (Act x of 1952) on 10-2-
1960. The Bank comes under Banking Regulation Act and Kerala Co-operative Societies Act

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1969. At present, the Bank has membership strength of 633, all of which are cooperative
societies. DCB is an ISO 9001:2008 certified bank. By establishing and implementing :he
quality management system, the bank is striving to consistently achieve excellence in the
areas of error free operational results, quality assurance, sustaining customer relations and to
set a vision to be a significant leader in :he similar field.
Branches
Bank has 60 branches and 6 extension counters across the district and most of them
are situated in rural areas. All the branches are working on core banking solution and
rendering state of art service to all levels of people in the society. Bank has introduced mobile
branches in the brand names of Bank on Wheels and Bank on Waves during March 2006 to
serve the people of near: J islands and remote areas where banking services are not available.
ATM facilities are available with these branches.
Bank on Wheels
The Bank has set up a branch counter in a Van with Online Real time banking facility.
The Van is also equipped with an 'On line Real time' ATM (Cash Dispenser). This Mobile
Bank will be stationed at pre-defined locations at stipulated time, during which the customers
can have all kinds of online Banking operations as good as they are doing it from a real
Branch Counter.
Bank on Waves
The Bank has set up a branch counter in a VESSEL with Online Real time banking
facility. The Boat is also equipped with an Online Real time ATM (Cash Dispenser). This
Mobile Bank will be sailing through the backwaters of Kochi and will be harboured at pre-
defined boat jetties at the stipulated time, during which the customers can have all kinds of
online Banking operations as good as they are doing it from a real Branch Counter. There are
deposit and loan schemes targeting specific segments of customers like businessmen,
industrialists, farmers etc. Bank crossed 10000 Crore Business on 13-10-2015.
Information Technology
The bank best use the Information Technology; in tie up with the world class IT
vendors like Infosys, Wipro, Sun Microsystems, HCL Comnet, Diebold, YCS, etc., and
provide best of breed service to customers.
Bank implemented Centralized Online Real time Electronic Banking solution (Core
Banking) since March 2004 to provide Modern Banking Service to the customers in all walks
of life. EDCB is the first in the co-operative sector in Kerala, and the 2nd in India, that
implemented CORE Banking.

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During 2013, the bank implemented NEFT/RTGS, Cheque Truncation System (CTS),
Regional electronic clearing (RECS) and Aadhar Payment Bridge System (APBS). The Bank
implemented Direct Benefit Transfer (DBT), E-Pass Book and issued Rupay Debit Cards
during 2014. During 2016, the bank implemented CCTV Surveillance System at Branches
and head office. The Rupay Cards enabled with POS (Point of sale) system was also
established during the year.
ATM
Bank has 34 on line real time 24 hours ATMs across the district, (which includes on
site, off site and mobile ATMs). Cash and Cheque deposit facility providing through On Site
ATMs. EDC Bank's ATM cards can be used all over India through 'BANCS' ATM network
sharing facility. Around 4500 ATMs of other Banks come under this network. Major Banks
are Bank Of India, Axis Bank, IDBI Bank, Cosmos bank, Saraswat bank, Greater Mumbai
Cooperative Bank, etc. The bank offers ATM service with the options like Withdrawal, Fast
Withdrawal, Balance Inquiry, Mini Statement, Deposit Cash and Cheque, Fund Transfer and
PIN Change.
Prepaid Card Service
The EDC bank has introduced ATM prepaid card service named "EDCB Prime Card"
for its member cooperative societies, with a view to extend the ATM service to the members'
bank customers. It has designed as non- personalized cards and can be delivered across the
counter. The cash charging can be done from the cooperative societies themselves.
Any Branch Banking
Any Branch Banking facility has been activated by the bank since November 2005.
Customers can do Online, Real-time withdrawal and remittance across the Branches.
SMS Banking
The bank has started SMS banking since June 2008 to offer messages Through SMS
to customers pertaining to the transactions on their account. The bank is also able to send
bulk SMS for its promotional activities including sending of Greetings on different occasions,
etc. The bank is also responding for those enquiries from customers through SMS like
account balance enquiry, statement request, stop payment of cheques, cheque book request,
exchange rate, etc.
Other Services
As a modest step towards making the bank a financial super market offering all
banking and financial services under one roof, bank has introduced hew products in the form
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of General Insurance, Life Insurance and Mutual funds since March 2007.
General Insurance: Bank has entered into an agreement with United India Insurance
Co. Ltd. for providing general insurance cover on referral basis to the banks clients availing
various types of loans such as Housing loan. Vehicle loan etc. In addition, accident insurance
cover to individuals is also offered to customers.
Life Insurance: For Life Insurance the bank has a tie up with ICICI Prudential
Insurance Co. Ltd. The products offered by ICICI Prudential include both investment
oriented and conventional insurance products giving customers a wide range to choose from.
Mutual Fund: Bank has entered into agreement with major Mutual Funds like, UTI
MF, LIC MF. Their products are available with the selected branches.
To achieve the objective of 'paperless office', the bank implemented the office
automation system for movement of documents/files/notes, etc., from one desk to another
through computers.
Social Commitments:
1. MITRA Agricultural Producer Co.
Bank actively supporting MITRA, a co-operative company specially formed to aid the
farmer fraternity in general and in particular to inculcate best practices of organic agriculture.
2. EMS Co-operative library
The Bank runs a library for the benefit of general public named after the famous
thinker, ideologist, EMS (E.M.Sankaran Namboothiripad). The library is having 6000
members and a book base of 70,000. Separate section for visually challenged people is
available in the library.
3. Rural Academy for Management Studies (RAMS)
The bank recently, floated a registered charitable society, to promote education,
training, research and development and to extend consultancy and related services of
international standards for those who are dedicated to the cooperative sector, including
employees.
4. Social Benefit Fund (SBF)
With a view to uphold the values of Co-operative principles, the bank has raised
social benefit fund for assisting to the poor and downtrodden people like scholarship to
students, development of villages, medical aid, etc.
Awards
The bank achieved first place in Deposit Mobilisation Campaign during 1985, 1992,
2001, 2004, 2009 and 2010 in Kerala. The bank fetched bank in frontier Awards in National

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level several times viz., during 2006 for pioneers in core banking, during 2007 for best
brochure, during 2008 for best advertisement during 2009 for best network, during 2009 for
best data centre, during 2009 for best annual report, during 2011 for excellence in technology
innovation, during 2011 for best DCCB (runner) in IT adoption, during 2012 for best DCCB
in outsourcing project and during 2012 for best DCCB in social project.
The progress of EDC bank for the periods commencing from 2001-02 to 2015-16 is
given below:
Table No: 3.3
Progress of EDC Bank
(Rs. in crores)
Particulars 2001-02 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16*
Share
9 17.28 19.36 20.87 22.33 23.63 23.76 23.77 23.86 24.04 24.45 57.27
Capital
Reserves 53.15 101.89 131.42 175.78 218.73 237.95 248.31 268.07 321.75 362.79 364.16 372.54
Deposits 780.25 1364.97 1524.37 1656.32 1853.85 2514.31 3003.65 3630.65 3902.60 4774.48 5796.60 8043.81
Advances 415.07 762.8 963.53 1104.7 1198.21 1300.6 1678.72 2105.27 2612.73 2759.73 3306.73 3716.09
Investments 407.07 631.1 645.96 658.75 836.33 1366.35 1468.11 1743.13 1541.59 2187.73 2849.07 4399.35
Profit 3.32 31.62 35.63 21.05 7.53 9.23 9.44 8.24 (25.17) 1.91 5.97 17.01
(Source: www.edcbank.com * unaudited figures)
Conclusion
With the best use of Information Technology, unmatched customer service,
innovations and tie up with the world class IT vendors, the bank provides best of breed
service to the customers more quickly and at surprisingly low cost. With the sustained growth
trends in various parameters, continuous technological upgradation, varied options of
deposits and loans schemes offered and fulfilling the requirements of various categories of
customers, the bank has already achieved different milestones of success and marching
towards its vision of a role model bank in the cooperative sector.
STATE COOPERATIVE BANKS
State Cooperative Bank (SCB) is the apex cooperative bank in a State. It is the
federation of DCCBs and the leader of the three-tier pyramidal cooperative banking structure
of a State. Reserve Bank of India, Act, 1934 defines a State Cooperative Bank as, "a principal
cooperative society at the State-level and the object of which is financing other cooperatives
in the State".
Need for State Cooperative Banks

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Ever since the cooperative movement was launched in the country, it was realized that
there should be an apex bank at the State-level to coordinate the activities of the PACS and
DCCBs in the State. The resources available with the DCCBs were not sufficient to meet the
demand of their member- societies like PACS. Hence the need was felt to have an apex bank
at the State-level to mobilize adequate resources and to act as balancing center for the
DCCBs. The Central Banking Enquiry Committee, 1931, had expressed its view as given
below: "provincial banks are best suited for linking of cooperative organization with the
general market and commercial banks and should be managed on ordinary business principles
with due regard to the special requirements of cooperation. These banks should not deal
directly with primary credit societies and should consolidate and strengthen their position as
financing agencies and balancing centers for central banks".
The Maclagan Committee, 1914, emphasized the need for establishment of SCBs in
the following words: "In some provinces DCCBs are unable to secure sufficient funds locally
to meet their needs and these can best be provided by a bank capable of attracting deposits
from their richer urban classes and more suitably equipped to serve as a channel between the
cooperative movement and presidency or joint stock banker. It is therefore, in our opinion
necessary to provide in each of the major provinces an apex bank which will coordinate and
control the working of central banks, forecast and arrange for their provincial requirements as
a whole and be the financing cooperative center of the province".
Origin and Growth of State Cooperative Banks
Madras State started the apex bank at an early stage. The Madras Central Cooperative
Urban Bank now called Tamilnadu State Apex Cooperative Bank came into existence in
1905. Bombay State Cooperative Bank was registered as urban bank on 11th October 1911
under the first Cooperative Societies Act of 1904. Since, the Second Cooperative Societies
Act, 1912, paved the way for organizing federal cooperatives i.e., the SCBs at the apex level;
the other States subsequently started their own apex cooperative banks mainly between the
periods from 1912 to 1920.
During the period of world economic depression, agriculture and other allied activities
in rural areas were affected seriously. Due to the mounting of overdues, poor lending and
lack of adequate resources, the state apex banks became very weak during the period of
depression. In some States there were no SCBs at all. Even in some of the States where apex
banks were working, they required reorganization. Hence the informal conference on rural
finance convened in 1951 by RBI, recommended to establish such apex banks wherever they
did not exist or to reorganize them wherever they are existed.

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During the First Plan period, a considerable emphasis was laid on the establishment or
reorganization of SCBs in India. Within a short period of two years, from 1952-53 to 1953-
54, seven new SCBs were organized. During the period of reorganization of States in
November, 1956, the problem of reorganization of SCBs came into existence. The conference
convened by RBI in 1956 decided to suggest having only one SCB in each State. At the time
of reorganization of States, there were two or three apex banks in few States. For instance,
there were three apex banks in Bombay during that period. The process of organizing SCBs
and reorganizing the existing SCBs continued throughout the Second Plan period. In some of
the States, SCBs opened their branches wherever the DCCBs were not functioning.
There were 83 branches of the SCBs in 1961-62 and 215 branches in 1972-73, which
increased to 264 in 1974-75 and 278 in 1975-76. Further, the branches were increased to 277
in 1981-82. The details of Number of SCBs and its branches from 1998-99 to 2014-15 is
given in Annexure III.
Objectives
The main objectives of the State Cooperative Banks are:
❖ To borrow funds from RBI/ NABARD and other agencies for issuing loans to central
banks and other member institutions
❖ To issue loans for various purposes to different types of State-level cooperatives such
as marketing, consumers, weavers, housing and other member institutions.
❖ To act as a balancing center of the DCCBs
❖ To provide banking facilities to the members and public as per the RBI Act and
Banking Regulation Act (as applicable to cooperatives)
❖ To coordinate and regulate the functions of DCCBs and to invest their shares in
cooperatives wherever necessary
❖ To supervise and inspect the DCCBs and other affiliated cooperatives
❖ To convene meetings, conferences and arrange for training in agricultural credit and
banking for better management of cooperatives
Membership
The membership of the apex bank comprises of DCCBs, state level cooperative
institutions and the Government. Individuals were also members in SCBs at the beginning.
Subsequently, the individual membership was discouraged due to the fact that, as a federal
society, SCBs should become "pure-type" by admitting societies only as members. In 1950-
51, there were 20,932 members consisting of 12,666 cooperatives and 8,266 Individuals.

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Since many of the SCBs were originally organized as urban banks and DCCBs, and
subsequently converted into SCBs, there were individuals members in the banks. The details
of membership of SCBs from 1998-99 to 2014-15 is given in Annexure III.
Management
The General Body elects the Board of Directors as per the byelaws of SCB to look
after the management of the bank. The State Government also by virtue of State participation
in the share capital has the power to nominate directors for the board not exceeding one-third
of the total strength of the directors. The Board appoints the Chief Executive Officer or the
General Manager. In some of the States, the concerned State Cooperative Societies Act has
the provision to appoint Managing Director as the Chief Executive of the apex bank. The
Deputy General Manager, Assistant General Manager, Managers, Assistant Managers,
Section heads, Senior/Junior Assistants and other staff are working under the control of the
Managing Director/General Manager.
Resources
The working capital of the SCBs consists of various sources viz., share capital,
reserve fund, deposits from members and non-members and borrowings from RBI /
NABARD, State Government and others.
Share Capital
Both the member constituents and the Government contribute their share capital of
SCBs. RBI/NABARD prescribed certain percentage of share capital to be collected in
proportion to the total borrowings of DCCBs. Shares are collected even for the Non-Credit
business in proportion to their borrowings of the cooperatives doing non-credit business. The
share capital contributed by the Government should not exceed 50% of the total shares of the
bank. During the period 1992-93, the total paid up share capital of SCBs stood at Rs.272.02
crore of which Governments' share was Rs.32.87 crore i.e. 12.08% of the total paid up share
capital. The details of share capital of SCBs from 1998-99 to 2014-15 is given in Annexure
III.
Reserve Fund and Other Reserves
One of the funds created by SCBs out of their net profit is Agricultural Credit
Stabilization Fund (ACSF) converting the short term loans into medium term loans at the
time of failure of crops. During the year 1992-93, the statutory reserves amounted to
Rs.416.56 crore. The details of Statutory Reserves, ACSF and other Reserves of SCBs from
1998-99 to 2014-15 are given in Annexure III.

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Deposits
Collection of deposits is one of the important functions of the apex bank. It attracts
deposits such as current, savings, recurring, fixed and other special type of deposits from the
member-cooperatives, institutions, local bodies and individuals mainly to meet the credit
requirements of the DCCBs. The total deposits outstanding of SCBs during 1992-93 was
Rs.9,053.68 crore. The details of deposits outstanding of SCBs from 1998-99 to 2014-15 is
given in Annexure III.
Cooperative Card - A Unique Deposit Scheme
The Andaman & Nicobar SCB Ltd., launched the cooperative cards for the door
delivery of pensions for old age, widow and disabled persons on 4th August 2012. The
monthly pension disbursal scheme at people's doorsteps covers old age pension, handicapped
persons, destitute, widow. The bank official will travel to the beneficiary's doorstep with a
point of sale devise, where the cooperative card which has been issued to the beneficiaries for
payment of pension wages will be kept beneath the Radio Frequency Identification (RFID)
based hand held machine. After verifying the beneficiaries' bank account number in the
machine, the necessary amount for the said beneficiary which is listed on the point of sale
device screen will be disbursed to the beneficiary. The entire transaction will take around 60
seconds to perform.
NRI Deposits
Many of the SCBs obtained license from RBI to maintain Non-Resident Indian (NRI)
Accounts with a view to mobilize deposits and to extend banking facilities to the NRIs. For
instance, The Tamilnadu State Apex Cooperative Bank obtained license from RBI to
introduce Non-Resident of both ordinary and external accounts.
Borrowings
Resources like share capital, reserves and deposits alone are not sufficient to meet the
demand of the constituents. Hence the SCBs borrow funds from NABARD, Government and
commercial banks. Maximum funds are obtained from NABARD for the issue of loans for
seasonal agricultural operation, marketing of crops and allied agricultural activities including
medium term agricultural loans. SCBs avail financial accommodation from the National
Bank for general banking purposes. This facility is available against Government and Trustee
Securities including debentures of State Land Development Banks. The borrowing power of
the SCB has been fixed up to 20 times of its paid up share capital and reserves.
This limit includes all borrowings from various segments. The borrowing to working
capital was 32.87% in 1992-93 which was decreased 25.10% in 1994- 95. The details of
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Borrowing of SCBs from 1998-99 to 2014-15 is given in Annexure III.

128
Seasonal Agricultural Operation (SAO)
NABARD refinances SAO activities including preparation of land for sowing, usage
of farm inputs and labour by way of a consolidated limit to SCBs on behalf of the DCCBs in
its jurisdiction. The quantum of refinance assistance to Co-operative Banks is based on net
Non Performing Assets (NPAs) for profit making SCBs and for others it is based on gross
NPA provided there are no accumulated losses.
Support to Weavers' Cooperatives
Refinance assistance is available through NABARD to SCBs on behalf of eligible
DCCBs to meet the working capital requirements of primary, apex and regional weavers'
societies. The refinance assistance is linked to their net NPA, with relaxations for eastern and
north eastern regions.
Loans and Advances
SCBs route the funds provided by NABARD for financing SAO, medium term
agricultural purposes and medium term conversion loans, weavers' finance and produce
pledge loans. SCBs provide funds to DCCBs for various purposes such as fertilizer business
of marketing and credit societies, general business of supply and marketing cooperatives,
cooperative whole sale stores, refinance facility to DCCBs for providing credit to spinning
mills, sugar mills, etc. These banks are also extending refinance support to DCCBs under
NABARD automatic refinance scheme for various national programmes like TRDP, massive
assistance programme for small and marginal farmers, etc. SCBs may sanction credit limits to
DCCBs from its own resources in anticipation of the sanction by NABARD. They are
purveying credit through DCCBs and PACS except in northeastern and small States like Goa,
Pondicherry as there are no intermediary tiers. The SCBs directly finance various apex
cooperative institutions like cooperative marketing federation, cooperative consumer
federation, etc. The apex bank provides interim finance to the Agricultural Rural
Development Banks.
a) Medium Term Conversion (MTC) Loans
The SCBs arrange funds from National Bank to issue medium term conversion loans.
The object of conversion loan is to provide relief to the farmers affected by natural
calamities. Medium Term Conversion (MTC) loan is provided out of National Rural Credit
(Stabilization Fund) to SCBs to facilitate repayment of ST agricultural loans borrowed by
them by the National Bank on behalf of affiliated DCCBs. Even if a SCB had not borrowed
any short term loan from National Bank for financing SAO, it can avail MTC facilities from
National Bank.
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b) Replacement and rescheduling of MTC Loans
Interest rate on MTC loans is the same rate at which SAO loans were provided. If
natural calamity reoccurs and crops are affected to such an extent as to justify stabilization
arrangements again the period of the first conversion loan extended from 3 to 5 years, the
installment falling due for repayment in the year in which the calamity reoccurs is deferred
and the balance amount of the outstanding conversion loan is suitably rephased to correspond
to the extended period of replacements i.e. 5 years.
Procedure for extending MTC Loan
SCBs are required to submit application with recommendation of Registrar of
Cooperative Societies (RCS). Facility to be allowed to the extent of MTC loan outstanding on
behalf of DCCBs or the amount applied for/recommended by RCS whichever is lower.
Annawari certificate in the format prescribed by National Bank giving details of crop yield
should be submitted. Separate accounts are required to be maintained bank-wise in respect of
these loans at all levels.
Minimum Involvement
While lending for seasonal agricultural operation to DCCBs, NABARD insisted the
SCBs to involve their own funds to the extent of 25% till 2003-04. Under Minimum
Involvement (MI) norms, SCBs are required to deploy a certain minimum proportion of their
internal lendable resources (ILR) in short term Agricultural loans so as to become eligible for
refinance from the National Bank. This is to encourage resource mobilization by SCBs, its
deployment for seasonal agricultural operations and to reduce the dependence on the
refinance from the National Bank. Since 2004-05, the policy of minimum involvement has
been changed.
c) Other Loans of SCBs
SCBs have been sanctioning overdraft limits to the DCCBs against
Government/Trustee securities and fixed deposits with the bank for keeping general banking
requirements. These banks extend performance in respect of term loans sanctioned by
urban/central banks to small-scale industries and small road transport operators under
refinance from ID BI. Employees' cooperatives are financed by DCCBs through the limits
sanctioned by SCBs. Further the SCBs provide funds from their own resources for issue of
jewel loans, etc., by DCCBs urban banks and PACS. They also finance the DCCBs with
refinance assistance from the NABARD under non-farm sector for financing rural artisans,
tiny, village, small scale and cottage industries. Financial help to cooperative industrial
sector, handloom weavers, coir societies, small scale and cottage industries and various

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credits are given by the SCBs.
Agricultural Debt Waiver and Debt Relief
The Scheme of Agricultural Debt Waiver and Debt Relief (ADWDR) for farmers was
announced in the Union Budget 2008-09 to address the indebtedness of farmers and
difficulties of the farming community, especially small and marginal farmers. NABARD
implemented the Scheme as the nodal agency for co-operative banks and RRBs. About
lakh farmer borrowers of co-operative banks and RRBs are estimated to have
benefited under the Scheme, of which small and marginal farmers, constituting 83.5
per cent, were the major beneficiaries.
Non-Performing Assets (NPAs)
The NPA of SCBs constituted to the extent of 13.74% of their total loans and
advances as on 31.3.2002. At the end of March 2008, the recovery of SCBs recorded at
86.73%. The details of demand, collection and balance with the percentage of demand from
1998-99 to 2014-15 are obtained in Annexure III. The NPA position of SCBs from 1998-99
to 2014-15 is given in the following Table.
Table No: 3.4
Non Performing Assets of SCBs
(Rs. In crore)
Type of 1998 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014-
Asset -99 05 06 07 08 09 10 11 12 13 14 15
Sub-
1398 3135 2960 2498 2779 1627 1400 1700 1500 2060 2066 2080
standard
Doubtful 1217 2973 1975 2234 2652 3822 2200 2600 2300 1990 2614 2470
Loss 86 225 1136 1628 737 276 800 1300 1400 1580 1019 1170
Total 2701 6333 6071 6360 6168 5725 4400 5600 5200 5630 5699 5720

Working Results
The working results of SCBs from 1999-2000 to 2014-15 is given below:
Table No: 3.5
Working results of SCBs
Total Amount in Amount in
Year No. in Profit No. in Loss
SCBs Crore Crore
1999-00 29 23 251 6 110
2000-01 29 24 240 5 12
2001-02 30 24 258 6 87

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2002-03 30 25 500 5 30
2003-04 31 27 393 4 20
2004-05 31 25 351 5 67
2005-06 31 27 408 4 30
2006-07 31 27 592 4 44
2007-08 31 26 515 5 49
2008-09 31 26 385 5 71
2009-10 31 29 462 2 209
2010-11 31 29 549 2 317
2011-12 31 29 624 2 75
2012-13 32 29 1110 3. 4
2013-14 32 26 979 6 94
2014-15 32 28 1110 4 30
Source: Annual reports of NABARD-2015
State Drafts Scheme
The cooperative banks found much difficulty at the earlier stage to issue demand
drafts to the customers. The paying banker used to take 10 to 15 days for the payment of
demand drafts due to the non-receipt of advices. In order to remedy this problem and satisfy
the customers, the apex bank took the interest in number of States and started State Draft
Scheme. DCCBs, urban cooperative banks and employees' cooperative banks coming under
the Banking Regulation Act were admitted under this scheme. Every cooperative bank
admitted to this scheme should open a current account with SCB and keep sufficient funds to
meet the drafts issued by it. The demand draft issued under the scheme will be paid at par by
the drawee bank. The rate of commission to be collected from the constituents will be
governed by the rules of the bank issuing the drafts. The authorized signatures of the
concerned officials were obtained and distributed to the member banks.
All India Mutual Arrangement Scheme
The National Federation of SCBs brought All India Mutual Arrangement Scheme
(AIMAS) in 1965 to facilitate the cooperative banks in honoring the drafts and cheques
without delay.
Licensing of SCBs
As on 31st March 2004, out of 30 SCBs, 13 SCBs only were licensed by RBI. Due to
continued effort of RBI, all the SCBs got license by March 2013.
Scheduled Status
SCBs became eligible for inclusion in the Second Schedule of RBI. As on 30.6.1982,
there were 14 scheduled SCBs. As on November 2016, there were 19 SCBs out of 33 SCBs,
included in the Second Schedule of RBI Act including Goa SCB, Haryana SCB, Uttarakhand
SCB, Chattisgarh SCB, Kerala SCB, Pondicherry SCB, Tamilnadu Apex SCB, etc.

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Maintenance of CRR and SLR
Section 42(1) of the RBI Act governs CRR maintenance by a scheduled SCB
whereas, CRR maintenance by a non-scheduled SCBs are governed by the provisions of
Section 18 of the BR Act (AACS). Presently (March 2017), all scheduled and non scheduled
SCBs have to maintain CRR at 4% of total demand and time liabilities.
As per Section 24 of the BR Act (AACS), all scheduled and non scheduled SCBs
have to maintain in cash or unencumbered approved securities, 20.50% of the total demand
and time liabilities as SLR.
Maintenance of CRAR
SCBs and DCCBs were outside the CRAR framework till 2006-07. In order to assess
the capital structure of the cooperative banks in the context of financial stability of the whole
system, the RBI in its Mid-Term Review of Annual Policy Statement for the year 2007-08,
advised them that they should disclose the level of CRAR as on March 31, 2008 in their
Balance Sheets and thereafter every year as 'Notes on Accounts' to their balance sheets.
Further, RBI advised all cooperative banks to attain CRAR of 7% by March 2015 and 9% by
March 2017. As on March 2014, 19 SCBs had CRAR above 9%.
Training and Affiliates Development Programmes
To impart necessary training to the personnel of the PACS, Agricultural Credit
Societies Staff Training Institutes (ACSTI) were started by the apex banks with the financial
assistance of National Cooperative Development Corporation - World Bank project. The
focus of training has been broadly classified as given below:
1. Induction training for new entrants
2. Core training programme for employees in identifying the areas
3. Placement related functional training
4. Training in the areas of specialization and in management inputs
In addition to the lending of loans to DCCBs for various purposes, the apex bank used
to provide financial assistance for other purposes viz., to purchase equipments like
computers, copier machines, fax machines, purchase jeeps/cars for implementing the loan
recovery process effectively at their field level. Apex banks also used to provide 50% subsidy
to the PACS selected under Intensive Development Programme for putting up of modern
banking counters, provision of furniture and fittings in order to strengthen the primary
cooperatives in the State of Tamilnadu, Primary Cooperative Development Fund has been
created at the apex bank level. With a view to create a sense of security in the minds of
depositors for giving impetus for deposit mobilization by PACS, a deposit guarantee scheme

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has been introduced in Tamilnadu since 1992-93.
Problems
Some of the problems faced by the SCBs are:
1) Non Performing Assets
At the end of March 2015, the NPA of amounted to Rs.5720 crore representing 5% of
loan outstanding as against the NPA of Rs.6168.69 crore representing 12.34% of loan
outstanding at the end of March 2008.
2) Loss Scenario
As reported by Task Force, 2004, the accumulated losses of SCBs aggregated Rs.281
crore as on 31st March 2003 which rose to 429 crore as on 31st March 2008. There were two
loss making SCBs functioning during 2011- 12 which increased to 4 during 2014-15.
3) Weaknesses pointed out by NABARD
Some of the weaknesses pointed out by NAB.ARD in its inspection report include: (i)
improper application of IRAC norms resulting in inflated profit/reduced losses, shortfall in
provisions, etc., (ii) inadequate financial margins/high cost of management/adverse working
results, (iii) lack of corporate governance, (iv) weaknesses in internal checks and control
system, etc
Suggestions for Development
1) All India Rural Credit Review Committee made the following suggestions for further
development of SCBs:
❖ The CEOs appointed in these banks should be sufficiently trained and experienced
in the application of cooperative banking principles
❖ Changes should be made in the board with nominations made by RBI and
NABARD
❖ The amount contributed by the State Government towards the share capital of
these banks must be raised specially in those States where the SCBs have not been
able to build up their own resources adequately
❖ SCBs should arrange for training their staff to meet growing demand and
competition faced with commercial banks.
❖ Suitable personnel should be appointed by filling up vacancies and motivating the
staff by promotions
❖ Proper attention needs to be paid by the SCBs to improve their operational efficiency

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by effectively controlling branches and supervising the staff for better recovery of
loans.
2) For the formulation of Tenth Five Year Plan (2002-07), the Working Group on
Agricultural Credit, Cooperation and Crop Insurance recommended the following:
a. A Multi-pronged approach of legislative and policy initiatives and financial
restructuring to make cooperative banks self-reliant and efficient.
b. Enactment of Model Cooperative Law instead of parallel laws for self-reliant
cooperatives.
c. Effective mechanism of recovery of cooperative dues through Special Cooperative
Loan Recovery Tribunals.
d. Federations to assume more responsibilities of promotion, guidance, information,
etc., and also to take responsibility of ensuring timely conduct of elections, General
Body meetings and audit with punitive measures for defaulters.
3) The Task Force, 2004 suggested radical changes in the legal framework to empower the
RBI to take action directly in matters related to prudent financial management of banks
and qualitative improvement in personnel in all tiers and at all levels through capacity
building and other interventions, leading to an increase in overall efficiency.
4) Both Capoor and Vikhe Patil Committees including Task Force recommended special
financial assistance to help viable and potentially viable SCBs and DCCBs to wipe out
accumulated losses and strengthen their capital base.
5) NABARD initiated the following measures to curb NPAs
 Depending upon the relative importance of various parameters such as profitability,
recovery performance, business, leadership, NPAs management, etc., in the
development of cooperatives, proper weightages are assigned and the institution
which gets the highest aggregate marks is adjudged the best among them.
 Vikas Volunteers Vahini (VW) Programme introduced by NABARD aimed to
address the problems posed by mounting of overdues of agricultural loans of rural
financial institutions. Under this programme, Farmers Clubs' were formed with a
group of devoted volunteers chosen from good borrowers with impeccable record
of good utilization of bank loan and its timely repayment.
6) Cooperative banks need to accelerate towards bringing PACS on technology platform and
adopt RuPay card facility.
CASE STUDY ON THE TAMIL NADU STATE APEX COOPERATIVE BANK LTD

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The Tamilnadu State Apex Cooperative Bank Ltd., popularly known as TNSC bank
was registered on 23rd November 1905 and started functioning on 26th November 1905. The
Bank has completed 111 years extending the required credit through the various Cooperative
institutions like the DCCBs, PACS and Primary Weavers' Cooperative Societies. The Bank
was included in the Second Schedule of RBI in July 1966 and licensed in August, 1972. The
TNSC Bank is playing a major role in formulating the credit programmes as well as the credit
policy for the Cooperative institutions in Tamil Nadu. The Apex Bank is providing
Agricultural credit for both short term and medium term and is also providing non-
agricultural credit for the upliftment of the farmers and the rural population through DCCBs.
The Apex Bank has been playing a major role by providing refinance facility for the
successful running of the PDS in the State. TNSC Bank is a member of the Deposit Insurance
and Credit Guarantee Corporation (DICGC) and is an insured coop, bank as per DICGC Act.
The Bank is catering to the needs of the public in Chennai through its network of 46 branches
including one extension counter and 6 own ATMs situated in and around the Chennai city.
Membership and Management
The Management of the Apex Bank is vested with Board of Management to be
elected by the General Body. But for many years the bank was managed by Special Officers
in the rank of Additional Registrar of Co-op. Societies appointed by the state government.
Recently the election was conducted to the Bank and the newly elected Board of
Management has assumed charge from 24.8.2013.
Technology
TNSC bank is offering various technology based services to its customers like SMS
banking, net banking, payment of utility bills, online deposit opening, etc. The bank had
entered agreement with TANGEDCO for facilitating the electricity bill payment for its net
banking customers. Similarly the TNSC bank entered agreement with Chennai Corporation,
LIC and BSNL for helping the customers to use the net banking channel for any payments to
these institutions. The fund transfer facility using both NEFT and RTGS are offered to the
customers.
Business Activities
The Bank raised the resources required for lending and investments through owned
funds, deposits and borrowings. Some of the deposits mobilized by the bank are fixed
deposit, savings deposit, current account, etc. The deposits comprise both cooperative
institutions, individuals and others. The bank depends NABARD for borrowings. The bank
lend for SAG, Joint Liability Groups, Investment credit and non agriculture credit, etc.

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Non-Resident Indian Accounts
With a view to mobilizing deposits from Non-Resident Indians and to extend banking
facilities to them, the TNSC bank had obtained license from the RBI to introduce Non-
Resident (ordinary) A/c and Non-Resident (External) A/c and introduced in selected
branches. The bank mobilized a sum of Rs. 122.65 lakh under NRI accounts as on 31.3.2016.
Agricultural Cooperative Staff Training Institute (ACSTI)
ACST1 impart training to the personnel working in Cooperative sector viz.. Apex
Bank, DCCBs and UCBs in addition to the personnel working in PACS. The total number of
programmes conducted and persons trained by ACSTI upto March 2016 stands at 2312
programmes and 66,605 trainees.
Revival of STCCS
As a leader of Short Term Cooperative Credit in Tamil Nadu, the TNSC Bank has
been playing a predominant role in the implementation of the revival package. The TNSC
Bank has formed a separate section namely "SCORE CELL (Short-term Co-operative
Revival Cell)" for the purpose of guiding and monitoring the progress of the implementation
in PACS and DCCBs and also for coordinating with the implementing agencies viz.,
NABARD and office of the Registrar of Cooperative Societies in the State.
Other Activities
Collaborating with M/s. Shriram Life Insurance Company and M/s. IFFCO- Tokio
General Insurance Companies, the bank undertakes insurance business as Corporate Agent
for selling of insurance products.
Best Performance Awards
 The National Federation of State Cooperative Banks Ltd., (NAFSCOB) has instituted
a scheme of performance awards to Apex Bank, since 1982-83. During the last 20
years period commencing from 1985-86, the bank could get awards from NAFSCOB
for 15 times with first prize during 1991-92, 1995-96, 1996-97 and 2000-01
 The NAFSCOB has selected the Bank and awarded Special Prize for best
performance under "All India Mutual Arrangement Scheme (AIMAS)" for 1996-97,
1997-98, 1999-2000, 2006-07, 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13.
 NHFDC has awarded the Bank National Award for the performance in the
development of Handicapped during 2005-06, 2006-07, 2008-09 and 2013-14.

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 The NCUI awarded the bank with best performing member cooperative organization
in recognition of its contribution to cooperative agricultural credit for the year 2011-
12.
ANNEXURE - III
STATE COOPERATIVE BANKS AT A GLANCE (From 1998-99 to 2014-15)
(Rs. in Lakhs)
Main Items 1998-99 2000-01 2001-02 2004-05 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
1. No. of DCCBs 369 370 371 368 372 371 371 370 370 370
2. No. of Offices 13031 12787 13068 12858 13181 13327 13495 13655 13811 14060
3. No. of Members 1839636 1986370 1837433 2145876 3975660 3146070 3659385 3915657 3563497 3048735
a. Cooperative Societies 437309 565672 413738 473010 973624 (30451 805000 570229 572801 488315
b. Individuals 1402:127 1420698 1423695 1672866 3002036 25156919 2854385 3345428 2990696 2560450
4. Paid up Capital 25436S 301578 338800 411547 777653 725768 818892 891461 977448 1340976
a. Of which Govt. 49892 48812 51395 62476 241902 132021 131461 143797 140273 142801
5. Total Reserves 470867 675021 792982 4267286 2013296 2069292 2292034 2437531 256903!) 2881242
a. Statutory 52922 68672 804482 132347 289378 302611 355772 364821 405648 421278
b. A.C.S. Fund 31724 55741 48903 73114 140841 155822 209046 175266 177006 201758
6. Total Deposits 4553775 6181320 6679721 8047636 14630314 16130882 17682238 1957264 21566170 25111552
7. Total Borrowings 1371038 1656668 1827605 2155710 3035483 3910116 5048131 6173116 6722889 7379366
8. Working Capital 7318032 8954136 10202039 12263289 20691844 23543070 25730623 2880212 31865124 37709816
9. Investments 2038215 2447805 2831959 3478322 7562446 7562446 9021081 9405085 10911345 12411878
10. Total Loan Issued 4290543 5578039 6130249 6535578 11052929 13775717 16255432 2093708 21794084 23242126
11. Total Loans 3885579 5056989 6016562 7208961 10499715 12279548 14476115 1715127 18314394 20720549
12. Total Demand 2755755 3608914 4166602 5485797 8889616 10611864 12437600 1548253 17332928 18989938
13. Total Collection 1860246 2332733 2704314 3682622 6513284 7706922 9716686 1232950 13557729 15017413
14. Balance 895509 1276181 1462288 1803175 237(332 2904942 2720914 3153030 3775199 3972525
15. Percentage of Overdoes 32.50 35.36 35.10 32.86 26.73 27.37 21.88 20.37 21.78 20.92
to Demand
16. Cost of Management 186500 265989 289834 368012 44737 530745 586488 737496 805502 975786
17. Total No. of 102755 113012 113088 109124 87554 87928 85996 85611 84497 83347

Source: NAFSCOB. Mumbai

Review Questions
1. Write short notes on the District Central Cooperative Banks.
2. Explain the organization and structures of DCCBs.
3. Discuss the various objectives of DCCBs
4. Explain the different types of DCCBs.
5. Describe the various Functions of DCCBs.
6. State the various Funds Positions in District Cooperative Banks.
7. Discuss the lending policy and procedures of DCCBs.
8. Explain the recovery and overdue problems of DCCBs.

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9. Describe the need for State Cooperative Banks.
10. Explain the various objectives State Cooperative Banks.

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LESSON - 4
LAND DEVELOPMENT BANK (LDB)
The main objectives of this lesson are:
1. To understand the concepts of land development banks
2. To study the sources of funds lending and overdue problems of LDB
3. To understand the organisation and structure of land development banks.
4. To know the concepts of urban co-operative banks
5. To understand the objectives of employee's cooperatives credit societies
6. To realize the functions and working of employee's cooperatives credit societies
Introduction
A land development bank (LDB), is a special kind of bank in India, and is of quasi-
commercial type that provides services such as accepting deposits, making business loans,
and offering basic investment products. The main objective of the LDB is to promote the
development of land, agriculture and increase the agricultural production. The LDB provides
long-term finance to members directly through its branches.
History
The first Land Development Bank was started at Jhang in Punjab in 1920. Even
though the first LDB was started in Punjab, the real progress began when the land
development bank was established in Chennai in 1929. Without it, land banks, land mortgage
banks, agriculture banks, agriculture development banks are now called land development
banks in modern world.
Type
There are different kinds of functions of land development banks in world. They also
differ from one another in their bye-laws or constitutions. Some are organized on
a state basis, some on a co-operative basis and some on a private basis, incorporating joint
stock principles.
Funds
The sources of funds of land development banks are:
1. Share capital
2. Deposits from members or non-members
3. Issue of debentures
4. Accepting deposits
5. Reimbursements of subsidies from the government and other funds.

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Loans and advances
Land development bank provides long-term funds for various agriculture related
projects besides development of land and business. The borrowing capacity of a member is
generally determined according to the number of shares he holds in the bank. The loans
granted by land development bank is repayable within 20 to 30 years. Normally, loans are
granted up to 50% of the value of the land or up to 30 times the revenue. Loans are granted
only after a thorough verification of security title-deeds as well as the necessity for the loan.
The rates of interest for LT loans are generally low and within the paying capacity of farmers.
They are around 11 to 12%.
Land Development Banks in India: Structure, Working and Progress of LDBs
Indian farmers need three types of credit, viz., short-term, medium-term and long-
term. Their short-term and medium-term credit requirements are fulfilled by the co-operative
banking institutions like PACs, CCBs and SCBs.
Farmers have to borrow also for the long-term (for a period of 5 years to 20 years) for
buying equipment like pump sets, tractors, etc., and for other development purposes, such as
reclamation of land, fencing, digging of new wells, construction of a tank or tube-well, or
buying additional land. Thus, a need for a special kind of institution to provide long-term
finance to the Indian agriculturists was earnestly felt. Consequently, land development banks
came into existence.
Initially, the land development banks were instituted in the form of co-operative land
mortgage banks. The first co-operative land mortgage bank was established at Jhind, in
Punjab in 1920. However, it did not function well. A real beginning was made by the
establishment of the Central Land Mortgage Bank in Madras in 1929. Later on, the
movement spread too many other states.
The land mortgage banks grant long-term loans to the farmers against the conveyance
of land as security. Since, 1966-67, the land mortgage banks are renamed as land
development banks.
Organisation and Structure of Land Development Banks:
The Land Development Banks (LDBs) are essentially co-operative institutions. All
the LDBs are registered under the Co-operative Societies Act. In a strict sense, however, they
are semi co-operatives. In fact, they are limited liability associations of agricultural
borrowers, as their members have limited liability. Further, unlike other co-operatives, LDBs
do not have personal involvement in their functioning.

139
The working capitals of LDBs are raised from share capital, deposits and debentures,
and borrowings from the State Bank of India, commercial banks and the State Co-operative
Banks. However, a large part of their funds are raised through long-term debentures. The
debentures can be issued only by the Central Land Development Banks and not by the
Primary Land Development Banks.
The Land Development Banks have no uniform pattern. In some states, they are
unitary and in some others, they are federal in nature. States like Bihar, Gujarat, Maharashtra,
and Uttar Pradesh have a unitary structure of the LDBs. Other states have a federal structure.
Under its federal structure, the LDB consists of two-tier institutions: (i) the Central Land
Development Bank at the State level, and (ii) the Primary Land Development Bank at the
district or Taluka level.
Obviously, there is only one Central Land Development Bank in each state and one
primary development bank at the district level. Thus, a state is normally supposed to have
many primary land development banks as there are a number of districts. The Primary Land
Development Banks are affiliated to the Central Land Development Bank in the State.
In States like Himachal Pradesh and West Bengal, however, there is a mixed type of
LDBs combining the features of both the unitary and federal structure.
Under the federal structure, the Primary Land Development Banks deal with the
farmers directly and the Central Land Development Bank deals with the primary land
development banks.
Under unitary structure, however, the state may have more than one Central Land
Development Bank and they make direct deals with the farmers. In some cases, the Central
Land Development Bank has its branches spread over the State and they do direct business
with the agriculturists.
In some cases, the Central Land Development Bank serves as a department of the
State Co-operative Bank.
This heterogeneity of the LDBs must be removed if we wish to evolve LDB
institution of the first order in our country.
The Working of the LDBs:
The LDBs provide long-term loans to the agriculturists for permanent improvements
on land. They usually charge 9 per cent interest. They grant loans against the security of land
or other agricultural property. Loans are usually given on the first mortgage and sometimes
even on the second mortgage of land or agricultural property. Generally, they give loans up to
50 per cent of the market value of the mortgaged property.

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Several defects have been noticed on the operational side of the LDBs.
1. They charge very high rates of interest.
2. On account of red-tapism, there are the usual delays up to more than a year in
granting loans.
3. No second loans are given until the first one is repaid.
4. They give loans only up to 50 per cent of the value of the land mortgaged. Thus, a
very high margin is kept.
5. They adopt complicated procedures which ultimately force the illiterate farmers to
resort to moneylenders to meet their financial requirements.
6. Quite often, loans are granted to discharged prior debts rather than for land
improvement.
A major problem of the LDBs is, however, the mounting over-dues. Another problem
is of the inadequacy of trained personnel. A third difficulty is regarding land as a form of
security. Its valuation, titles, ownership etc., are to be checked. As a result, the LDBs cannot
avoid some usual delays in sanctioning loans to their borrowers.
The Reserve Bank of India had appointed a Committee on Co-operative Land
Development Banks, under the chairmanship of Shri K.M. Das in 1973 to examine the
working of land development banks.
The Committee submitted its Report in December 1974 and made a number of
recommendations, such as: (1) there should be an integration of the short-term and long-term
credit structures. (2) concrete efforts should be made to recover overdues, (3) lending
operations of LDBs should be diversified by linking them with specific and other rural
developmental programmes, (4) there should be strengthening of the technical and
managerial staff.
No adequate steps have been taken by the state governments to implement these
recommendations.
Progress of LDBs:
A remarkable progress has been made by the LDBs in providing long-term finance to
the agriculturists. The total number of LDBs (central and primary) increased from 481 in
1960-61 to 920 in 1984-85. In 1984-85 their number of membership had gone up to 10.6
lakhs. In 1984-85, their loans outstanding were to the tune of Rs. 3,643 crore and loan
overdues amounted to Rs. 409 crores.

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Banking & Credit: LAND DEVELOPMENT BANKS (LDB)
The special banks providing Long Term Loans are called Land Development Banks
(LDA). The history of LDB’s is quite old. The first LDB was started at Jhang in Punjab in
1920. But the real impetus to these banks was received after passing the Land Mortgage
Banks Act in 1930’s (LDB’s were originally called Land Mortgage Banks). After passing this
Act LDB’s were started in different states of India.
The Agriculture Credit Review Committee (ACRC) in 1989 emphasised the bigger
role for the LDBs and recommended to incorporate development of agriculture and its allied
activities including wastelands and non-farm sector development. The banks in due course
diversified their activities and at the instance of the NABARD in the year 1982 they started
financing for agriculture and rural development activities including wastelands. However,
late eighties and the beginning of nineties were the crucial period in which LDBs adopted
financing long term loans for more significant rural development activities like, village and
cottage industries, rural artisans etc. Besides financing for rural housing schemes under NHB
refinance was introduced by the banks in selected states like Kerala, Karnataka, Uttar
Pradesh, Maharashtra, West Bengal etc. In view of broader role of LDBs they are now known
as State Co-operative Agriculture and Rural Development Banks (SCARDBs).
Objective
The main objective of the land development bank is to promote the development of
agriculture and increase the agricultural production. The CLDBs provide long-term finance to
PLDBs affiliated to them or finance directly through their branches.
Structure
These Banks have two-tier structure
1. Primary Land Development Bank at district level with branches at taluka level.
2. State Land Development Bank. All primary Land Development Banks are federated into
Central Land Development Bank at the State Level. In some States, there is “ Unitary
structure” wherein, there is only one State Land Development Bank at the state level
operating through its branches and sub-branches at district and below levels.
Primary Land Development Banks (PLDB)
These banks were originally organized to cover one or a few taluks in the district. At
present they are eligible to cover one development block. All land owners are eligible to
become members and borrow funds by mortgaging their land. The principal borrower is
enrolled as ‘A’ class member and others who have interest in the mortgaged property are
admitted as ‘B’ class members.

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State and Central Land Development Bank (SLDB/ CLDB)
These members of the CLDBs are the PLDBs and a few individual promoters. It
grants long-term loans to agriculturists through the PLDBs and branches of CLDBs. It raises
funds through floating debentures, which are guaranteed by the State Government. When
PLDB obtains loan from the CLDB, it assigns the mortgage deeds obtained from the
borrowers to the CLDB. The CLDB floats debentures and raises funds against the security of
these properties. The NABARD and LIC subscribe for the debentures in large amounts and
the former also extends refinance assistance to LDBs.
Raising Funds
Top
The main function of raising funds is carried out be the Central or State Land
Development Bank which can really deal with the money market of the country effectively
and advance loans to primary LDB’s. The sources of funds of State LDB’s are:-
1. Share capital.
2. Issue of debentures
3. Loans from NABARD
4. Reimbursements of subsidies from the Govt.
5. Other funds.
Issue of debentures is the main source of funds for the LDB’s. Debentures is a
`Bond’ conveying and acknowledging the debt and also containing the provision of promise
for payment of interest at stipulated rate and return of the principal amount. The period of
debentures varies from 7 to 15 years. As LDB’s require funds of longer duration to advance
LT loans to borrowers, the debenture is a convenient instrument of raising funds. Because it
guarantees that funds will remain with the Banks for a specified period.
There are three types of debentures
1. Regular debentures
2. Rural debentures
3. Special development debentures.
These debentures are mostly purchased by financial institutions like LIC, Commercial
Banks, Co-op. Banks, NABARD, and State Govts. As there is limited response from the
public. The State Govt. give incentive subsidies for many development activities by
individual farmer including purchase of tractor. The amounts of subsidies are reimbursed to
the LDB’s.

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Interest rate
The rates of interest for LT Loans are generally low and within the paying capacity of
farmers. They are around 11 to 12%.
Loan Procedure
The Branch offices receive applications from the prospective borrower. Then
Agricultural Finance Officer or Inspector scrutinises these applications, they visit places of
the application and ascertain the purpose of borrowing, verify the genuineness of the proposal
and it economic viability, repaying ability of the farmers, adequacy of security, etc. After
completing those formalities, the loan is granted by the appropriate authority at appropriate
level depending upon the delegation of powers by the Banks.
Credit Services by SCARDBs
Financing of the long-term credit (5 years and above) for agriculture and its allied
activities and also for NFS, Rural Housing, Wastelands development is the main objective of
the SCARDBs. Thus, the credit delivery system of SCARDBs may be divided broadly into
three sectors. Farm sector, non-farm sector and rural housing sector.
A. Farm sector
Under farm sector the purposes for which the long-term loans are advanced by the
SCARDBs are as follows:
i. Minor Irrigation works i.e
a) Digging/renovation of wells
b) Installation of pumpsets
c) Construction of irrigation channels
d) Pipelines
e) Sprinkler/drip irrigation system
f) Community wells
g) Lift irrigation system etc
ii. Farm Mechanisation
a) Tractor/power tillers with accessories
b) Combined harvesters
c) Trolleys
d) Power threshers etc.
iii. Land Development/Land Reclamation including water conservation
iv. Horticulture development (fruit crops, floriculture, mushrooms, vegetables etc)
v. Plantation crops (coconut, cashew, areca nut, rubber, coffee, cardamom, tea, bamboo etc.)

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vi. Diversified activities (dairy, poultry, piggery, rabbit, fishery, sheep & goat rearing, gobar
gas/bio-gas, farm house, sericulture, rural godowns, bullocks and bullock carts/camel carts,
APMC, cold storages/storages etc.)
vii. Wastelands development/afforestation, dry land development.
viii. Payment of old debts
ix. Purchase of land
B) Non-farm Sector
i. Village and cottage industries
ii. Rural artisans
iii. Small-scale industries/agro-processing, food processing units.
iv. Small Road Transport Vehicles (upto 16 tonnes pay load capacity)
C) Rural Housing
i. Construction of new houses upto Rs.5 lakhs
ii. Renovation/repairs of old houses upto Rs. 1 lakh.
Terms & Conditions
i. Upto 95% loan may be sanctioned to borrowers depending upon the purposes for which
loan is required.
ii. Security
LT loan is granted on land/agricultural land mortgage as main security. Besides
hypothecation of assets, surety etc., will be treated as collateral security.
iii. Land Valuation
The eligibility criteria of loan will be fixed on land valuation 60 per cent of which will
be taken as loan value.
iv. Repayment period
LT loans are granted for five years and above upto 15 years depending upon the loan
purpose. Grace period is granted on specific projects.
Whom to approach for loan/details of scheme
Primary Agriculture and Rural Development Banks/Branches of SCARDBs are
located at each taluka/block in the country. The needy person may contact Manager of the
PCARDBs/Branches during working hours for details for detailed enquiry about schemes,
terms and conditions, loan application etc.
Deposit Mobilisation
To strengthen the resource base of SCARDBs, RBI has granted permission for
accepting rural deposits from the borrowers/non-borrowers of SCARDBs in rural areas.

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SCARDBs have formulated their various deposit mobilisation schemes and are accepting
deposits ranging from one year onwards.
URBAN COOPERATIVE BANKS (UCBs)
The Urban Cooperative Banks (UCBs) occupy a significant place in the urban credit
movement. The need for organization of UCBs was felt to provide helping hand to the
weaker section of urban community viz., small traders, artisans, salaried people,
professionals and other people of small means. These banks were expected to spread banking
habits among the people in the cities, towns and semi-urban areas.
In Bombay Province, the Mehta Bhanseli Committee, 1939 made an attempt to define
an Urban Cooperative Bank (UCB). According to this Committee, all urban credit societies
having paid up share capital of Rs.20,000 and over and accepting deposits of money on
current account or otherwise subject to withdrawal by cheque, draft or order came with in the
category of UCBs.
The Study Group of credit cooperatives in the non-agriculture sector appointed by the
GOI under the Chairmanship of V.P.Varde in 1963, recommended that a cooperative credit
society registered under the State Cooperative Societies Act in urban and semi-urban areas
having a minimum paid up share capital of Rs.50,000 and undertaking the provision of
banking facilities could be termed as an urban cooperative bank.
Banking Regulation Act refer an urban bank as Primary Cooperative Bank and
defined "as a cooperative society other than a Primary Agricultural Credit Society and (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.l lakh; and (iii) the byelaws of which do not permit
admission of any other cooperative society as a member.
Genesis and Progress prior to bringing UCB under BR Act
The urban cooperative movement was originated in Germany when | Herman Schulze
started such societies in 1850's for the benefit of urban people. Inspired by the success of
urban cooperative movement in Germany, the first mutual aid society "Anyonya Sahakari
Mandali" was organized in the then princely State of Baroda (Gujarat) in 1889 under the
guidance of Late Shr. Vithal Laxman Kavthekar. The enactment of Cooperative Credit
Societies Act (1904), however, gave the real impetus to the movement and the first Urbar.
Cooperative Credit Society named "Big Kanchipuram Cooperative Town Bank' was
registered in Kanchipuram town named in the then Madras Province in October, 1904.
Subsequently, the Bangalore City Cooperative Credit Society in the erstwhile Mysore State
was registered in 1905. After the Second All India Cooperative Societies Act (1912) was

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enacted, many of the urban credit cooperatives and UCBs were started. After 1912, selected
urban credit cooperatives all over India were converted into UCBs.
The urban cooperative credit movement did not receive the impetus till the Maclagan
Committee (1915), recognized its importance as seen from the fact that urban cooperative
credit societies, numbering 602, constituted a meager 4.4% of the 13745 agricultural credit
societies. The Maclagan Committee pointed out "urban credit societies might serve useful
purpose in training the urban and middle classes to understand ordinary banking principles".
As per the report of the Committee, UCBs were operating in Madras, Bengal, Bihar, Orissa,
Punjab and Assam.
In 1931, the Central Banking Enquiry Committee recommended that the limited
liability cooperative societies generally known as urban banks should be established for the
benefit of small merchants and middle class population The Cooperative Planning Committee
(1946) also pointed out that the urban banks were the most suitable agencies to meet the
credit needs of numerous persons of limited means.
The survey made by RBI in 1958-59, for assessing the financing pattern of UCBs and
their role in financing Small Scale Industries (SSIs), revealed that notwithstanding absence of
State support to urban banking sector (unlike its counterpart viz. in the Agricultural
Cooperative Credit Sector), the UCB sector, as a whole registered a fairly good rate of
progress. However, the real- growth and proliferation began after this sector was brought
under the purview of Banking Regulation (BR) Act in 1966.
Genesis and Progress since bringing UCB under BR Act
The evolution since 1966 of UCBs may be broadly divided into three phases, Growth
phase, crisis phase and Consolidation phase.
1) Growth phase (1966-2003)
1st March 1966 is a landmark in the history of UCBs, when with the application of
provisions of the BR Act (1949), they came under the dual control of RBI and State
Governments. Further certain provisions of the RBI Act (1934), were also extended to UCBs.
A new role was assigned to UCBs to provide financial assistance to SSIs. In 1966, there were
about 1100 UCBs with deposits and advances of Rs.1.67 billion and Rs.1.53 billion
respectively. Since then there has been phenomenal growth in terms of their numbers, size
and scale of operations. Report of Madhavadas Committee (1978), was the second major
landmark development in the urban cooperative banking sector. In 1983, a Standing Advisory
Committee for UCBs was constituted by RBI to advise on various aspects such as
organizational matters, mobilization of resources and their deployment in various sectors

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including the priority sectors. The Committee observed that UCBs could make their advance
to 60% for priority sectors such as SSIs, weaker sections, etc.
The Reserve Bank pursued a liberal licensing policy especially pursuant to the
recommendations of the Marathe Committee (1991), which had suggested dispensing the
"one-district, one-bank" approach and to shift the stance of the policy to assess the "need and
potential" in an area for mobilizing deposits and purveying of credit for a new UCB. In the
year 1993, before the liberalisation of bank licensing policy, there were 1311 UCBs having
deposits and advances amounting to Rs.111.08 billion and Rs.87.13 billion, respectively.
Liberal licensing norms in May 1993 and up to June 2001 resulted in 823 UCBs getting
license.
The branch network almost doubled. In 1996, UCBs were given freedom B finance
direct agricultural operations. Interest rates were deregulated. These developments resulted in
the sector with 1926 UCBs having deposits and advances of Rs.1020.74 billion and
Rs.649.74 billion, respectively (Rs.15785 billion and Rs.8643 billion, respectively, for
scheduled commercial banks.) by end-March, 2004.
Il Crisis phase (2003-2008)
UCBs grown largely during the growth phase however were qualitatively weak. It
was observed that nearly one-third of these newly licensed UCBs became financially unsound
within a short period. RBI, therefore, constituted a screening committee consisting of outside
experts in June 2001 to examine the applications for licences.
However, in the light of the experience and the prevailing financial health of the UCB
sector after the Madhavpura Mercantile Cooperative Bank episode, it was announced in the
Annual Policy Statement for the year 2004-05 that the Reserve Bank would consider issuance
of fresh licences only after comprehensive policy on UCBs, including an appropriate legal
and regulatory framework for the sector, is put in place and no fresh licences have been issue:
thereafter for organizing new UCBs.
Reserve Bank took several steps to strengthen the sector during this period. In order to
improve the financial soundness of the UCB sector, Reserve Bank of India entered into
Memoranda of Understanding (MoU) with all State Governments and the Central
Government since 2005. The MOUs facilitate: coordination of regulatory policies and actions
through the mechanism TAFCUBs, a comprehensive set of capacity building initiatives and
measures to bring in efficiency through adoption of technology. This phase also ushered in
voluntary consolidation in the sector by merger of non-viable UCBs with financially sound
and well-managed UCBs. The number of UCBs declined to 1770 by end of March 2008. The

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deposits and advances of urban banks increased only marginally to Rs. 1398.71 billion and
Rs.904.44 billion respectively. In 2008, the deposits and advances were Rs.33201 billion and
Rs.24770 billion, respectively, in case of scheduled commercial banks.
3) Consolidation phase (2008 onwards)
To function as a strong entity, mergers of more than 116 UCBs have been effected till
date after 2005. The Malegam Committee set up in 2010 for studying the advisability of
granting new urban co-operative banking license recommended that UCBs play a useful role
and there is need for a greater presence of UCBs in unbanked districts and in centers having
population less than 5 lakh. As a result of the new initiatives and sustained efforts by RBI, the
number of financially weak banks in the UCB sector declined and consequently the total
number of UCBs declined from 1770 as end-March 2008 to 1606 by end-March 2013.
However, the deposits and advances of urban banks increased from Rs.1398.71 billion and
Rs.904.44 billion to Rs.2769 - billion and Rs. 1809.60 billion, respectively, during the same
period. (In 2013 deposits and advances were Rs.74295 billion and Rs.58797 billion,
respectively, for scheduled commercial banks.) Thus, there was an average annual growth of
20% in deposits and in advances, which is more than double of the previous phase growth.
Further, the number of financially sound banks also increased from 248 as on March 31, 2010
to 684 as on March 31, 2013.
However, the growth was not uniform in the UCB sector. The share of deposits of all
UCBs to the total deposits of the banking system was around 8% in 2003 and the same has
declined to 3.7% in 2014. The number of UCBs same down from 1,579 in 2015 to 1,574 in
2016. While the number of scheduled multi-state UCBs increased from 29 to 31, non-
scheduled single-state UCBs decreased from 1,507 to 1,502 by end of March 2016. At the
end of March 2015, there were 9722 branches for UCBs and 2741 own ATMs. Even though,
due to consolidation the number of banks came down, growth was witnessed in number the
branches to 10,091, extension counters to 238 and own ATMs to 2961 as on March 2016.
Area of Operation
The area of operation of an UCB consists of a compact area such as a town, municipal
limit or city. If it is a big city like Mumbai or Chennai there may be more than one urban
bank for effective operation, supervision and active participation of members in bank's
management. Normally the UCBs are permitted to open branches within the area of
operation. On consideration of its viability it is permitted to open branches outside the
district. In exceptional cases, selected banks are allowed to open branches outside the State
and they are brought under the Multi State Cooperative Societies Act.

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Objectives
The main objectives of urban cooperative bank are:
1. To attract deposits from members and non members
2. To advance loans to members
3. To collect bills, cheques, issue drafts and provide banking services
4. To provide safe custody of valuables
5. To promote thrift, saving and self and mutual help among the members
In Scheduled UCBs like Bombay Mercantile Cooperative Bank and Cosmos
Cooperative Bank, the following objects are also included in their byelaws:
❖ To buy and to sell foreign exchange including foreign bank notes
❖ To grant and issue letters of credit
❖ To carry on and to, transact every kind of guarantee and indemnity business on behalf
of constituents
❖ To provide financial and technical assistance to small scale and cottage industries and
to help self employed persons for setting up their own business
❖ To enter in to consortium finance arrangements with any other bank or financial
institutions with the object of marketing loans and advances
Structure
UCBs have represents a unitary structure. They operate on standalone basis; unlike
the three-tier rural co-operatives credit structure, though loosely integrated to the higher
financing agencies, such as DCCBs and SCBs.
Dual Control
UCBs come under the purview of both the RBI and concerned State Government.
Since UCBs are primarily credit institutions meant to be run on commercial lines, the
responsibility for their supervision devolves on the Reserve Bank. The managerial aspects of
these banks relating to registration, constitution of management, etc. are controlled by the
State Governments under the provisions of the respective State Cooperative Societies Act.
The details of control on UCBs are given below:

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RBI State Government
• Licensing • Incorporation
• Branch Opening • Registration
• Area of operation • Constitution of Board
• Inspection • Removal of Directors
• Imposition of Penalty • Superseding the Board
• Prudential Norms • Audit
• Capital (CRAR) • Enquiry into the conduct of Directors
• Asset Quality • Winding up
• Earnings
• Liquidity
• CRRand SLR
• Systems and Control
• Customer Service etc
Membership
Membership is open to the people living in urban area viz., traders, artisans, workers,
salaried people, professionals, transport operators and other people of small means besides
small scale industries. There are two classes of members. 'A' class members are called
Regular Members. 'B' class members are called as Associate Members. In some States 'B'
class members are called as Nominal Members. Nominal members are eligible only for jewel
loans and they do not have voting rights and right to participate in the General Body Meeting.
Management
The management of the urban banks vested with the Board of Directors elected by the
General Body. Every urban bank has to convene the General Body once in a year to take
major decisions for amendment of byelaws, approval of annual report, audit report and
distribution of net profit, etc. The elected directors of General Body form the Board of
Management. The day to day administration of the bank is vested with the Board of
Management and sanction of loans is taken care of by the Board, with the support of the
General Manager, Assistant General Manager, Managers, Senior Officers, Clerks and other
staff. In April, 2002, the Standing Advisory Committee of RBI advised the UCBs that there
should be two professional directors with suitable banking experience or other professional
qualifications like chartered accountancy, etc., on their boards. However, having
professionals in the board in case of Salary Earners Banks are not mandatory in view of the
nature of their membership. The office bearers hold office for a period of 5 years as per the
Cooperative Societies Act of various States in India.
Sub Committees
The Board of Directors, if necessary, appoint sub-committees for various purposes
like loan sanctioning, recruitment, building construction, etc., by including Chairman,
Managing Director as delegates to such sub-committees. In scheduled UCBs and the banks
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coming under the Multi-State Co-operative Societies Act, the Board of Directors appoint a
Branch Committee for a branch situated outside the head office of the bank beyond 25 Kms.
and delegate to it such powers regarding sanction of loans.
Funds
The funds raised by UCBs are Share Capital from members, Entrance Fees, Reserves,
Deposits, Borrowings from DCCBs, Loans, Cash Credit. Overdraft, etc., from financing
Banks and Grants Subsidies from State Government.
Share Capital
Share capital occupies an important position in owned funds. The value of share is
fixed as per the byelaw of the bank. K.Madhava Das Committee constituted by the RBI in
1977 favoured the suggestion of RBI to keep the value per share at Rs.25. After the
introduction of Banking Regulation Act. 1949 (as applicable to cooperatives) in March 1966,
all the urban banks were required to have Rs.l lakh of paid up capital and reserves if they
want to call as "Banks". Traditionally, UCBs have been augmenting their share capital by
linking the same to the borrowings of the members. The Reserve Bank has prescribed the
following share linking norms:
(i) 5% of the borrowings, if the borrowings are on unsecured basis.
(ii) 2.5% of the borrowings, in case of secured borrowings.
(iii) In case of secured borrowings by SSIs, 2.5% of the borrowings, of which 1% is to be
collected initially and the balance of 1.5% is to be collected in the course of next 2
years.
Deposits
One of the main sources of funds in urban bank is deposits from members and non-
members. Urban banks accept current account, savings account, fixed deposits, recurring
deposits, thrift deposits, etc. The Varde Committee has' emphasized that "the main object of
urban cooperative banks being the promotion of thrift among members, efforts are primarily
directed towards tapping their savings". In order to mobilize local deposits, RBI permitted
UCBs to pay interest at 1% more than the commercial banks. The deposit resources of UCBs
rose from a meager sum of Rs.153 crore as at the end of financial year 1966-67 to over
Rs.52,681 crore as at the end of 31st March 1999 and reached Rs.1,58,733 crore (provisional)
at the end of March 2009. The details of deposits position of UCBs from 2002-03 to 2015-16
is given in Annexure VI.

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Deposit Insurance
All the deposits of urban banks are covered by the Deposit Insurance and Credit
Guarantee Corporation (DICGC) under the 'Deposit Insurance Scheme'. The institutional
protection to public deposits is fixed at Rs.l lakh since 1st May 1993.
Non-Resident Accounts
In 1985, Government of India issued notification granting permission to urban
cooperative banks to maintain Non-Resident Ordinary Rupee Account and Non-Resident
(external) Rupee Account. Some of the scheduled UCBs such as Bombay Mercantile
Cooperative Bank, Cosmos Cooperative Bank in Maharashtra deal in foreign exchange
department with the permission of RBI.
Investment
The resources mobilized by way of deposits and borrowings are invested by urban
banks in different loans to members as per their byelaws after maintaining the Cash Reserve
Ratio (CRR) and Statutory Liquidity Ratio (SLR) as laid down in the Banking Regulation
Act.
Loans and Advances
Loans are issued mainly for the purposes like working capital for business,
construction and repairs to dwelling houses, purchase of domestic requirements, loans to
artisans, surety loan, education loan, transport operation loans, hypothecation, jewel and
deposit loans and loan for small scale industries. The details of loan outstanding of UCBs
from 2002-03 to 2015-16 is given in Annexure VI. Important loans issued by UCBs are:
1.a. Housing Finance
An important avenue for which funds of urban banks could be increasingly channeled
is by provision of loans to individuals for construction and repairs to houses. In view of the
urgency and importance assigned to housing for the weaker sections of the community under
the 20 point economic programme, Reserve Bank issued a circular as early as 24th August
1976, giving guide lines for providing finance for housing schemes particularly for low
income groups.
b. Education Loan
Education loans are mainly provided in some of the urban banks mainly for higher
studies. The service area norms are to be followed only in case of government sponsored
schemes and are not applicable to sanction of education loans. Accordingly, banks have been
advised not to reject any educational loan application for reasons that the residence of the
borrower does not fall under the bank's service area.

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c. Finance to road transport operators
Provision of finance to small road transport operators is another avenue, which afford
scope for urban banks to expand their business. The small road transport operators cover
pliers of cycles, scooters, motorcycles, rickshaws, taxis, vans, etc.
d. Small and Medium Enterprises (SMEs)
Many committees have emphasized the importance of financing small- scale and
cottage industries by urban banks. The Cooperative Planning Committee is of the opinion
that, "there are in urban areas numerous persons of small means like traders and merchants,
and artisans who resort to money lenders and similar agencies for small loans and obtain
them at high rates of interest. Ex-servicemen like technicians and skilled workmen like
carpenters, black smiths, mechanics, etc., will also require credit for setting up their own
business in small workshop. Cooperative urban banks qualify by establishing personal and
intimate relationship with people of this class as the most suitable agencies for serving their
credit needs". RBI appointed Working Group on industrial finance through cooperative banks
in 1968. A new role was thus assigned to UCBs to provide financial assistance to small-scale
industries. But the UCBs were not showing interest to provide industrial finance at the initial
stage. Reserve Bank recognized 22 broad groups of cottage and small scale industries such as
flaying and tanning, leather goods, pottery, hand founding of paddy and cereals, rice mills,
flour mills, oil crushing, palmgur, cane and kandasari, canning of fruits and vegetables, etc.,
in addition to cotton, woolen and silk handloom weaving and power-loom weaving industries
as eligible industries for accommodation under section 2(b) and 17(4)(c) of the RBI Act for
financing their production and marketing activities. RBI charge concessional rate of interest
for the loans for small scale and cottage industries.
Credit Guarantee Scheme
The Deposit Insurance and Credit Guarantee Corporation (DICGC) introduced a
credit guarantee scheme for covering advances to small-scale industries during March 1981.
From 1st July 1984 onwards, guarantee cover in respect of certain credit facilities granted by
the urban banks to borrowers engaged in activities under priority sectors like small transport
operators, retail traders in goods, professional and self employed persons, small business
enterprises, housing, etc., were available.

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Procedure for Issuing Loans
Different types of applications are prescribed for various loans. The loan applications
provide details such as the name and address of the applicant, income, expenditure, security
offered and the purpose of the loans, etc. In the case of surety loan, the application obtained
from the member is verified by the Chief Executive and recommended to the board for
sanction. Surety loans are sanctioned by the board, after satisfying the terms and condition
prescribed for such loans. Different rate of interest are charged according to the type of loans.
In the case of mortgage loans, the borrowers are required to produce title deed, value of
property and location, genealogical certificate, tax receipts and non-encumbrance certificate
for a period of not less than 12 years. The bank should get the legal opinion regarding the
borrower's title valuation report of the property. The members' borrowings are generally
linked by the share capital subscribed by them.
2. Personal finance
UCBs issue finance for various purposes viz., working capital requirement, term
loans, overdraft facilities for businessmen and for various personal requirements of
individuals. Special schemes for senior citizen, retired officers and children are also available
in UCBs.
3. Self Employment Loans
UCBs issue loans to professionals, viz., Doctors, Engineers, Lawyers, Chartered
Accountants and Architects for purchase of equipments, furniture, etc. They can extend loans
to artisans like gold smiths, black smiths, toy makers, etc. and self-employed persons like
small shoemakers, tailors, launderers and other self employed persons.
4. Consumption loans
Urban banks provide credit for consumption purposes like loans for household
expenditure, medical expenses, education, religious ceremonies, etc.
5. Gold Loans
Jewel or gold loans are issued at present, in many states like Tamilnadu, Kerala,
Karnataka, Andhra Pradesh, Gujarat and so on. Jewel loans are issued mainly for education,
ceremonies and agricultural purposes. Persons who apply for gold loans are admitted as
nominal or associate members. Membership form, promissory note, etc., have to be filled up
by the loanee. The loans are issued quickly after verification of jewels by the appraiser.

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Gross NPA and Net NPA
Gross NPA is the amount outstanding in the borrowal account, in books of the bank
other than the interest which has been recorded and not debited to the borrowal account.
Gross NPA is defined as "Principal dues of NPAs plus Funded Interest Term Loan (FITL)
where the corresponding contra credit is parked in Sundries Account (Interest Capitalization -
Restructured Accounts), in respect of NPA Accounts."
Net NPAs is the amount of gross NPAs less (1) interest debited to borrowal and not
recovered and not recognized as income and kept in interest suspense (2) amount of
provisions held in respect of NPAs and (3) amount of claim received and not appropriated.
For instance, if Gross NPA is 100 crore; Provision set aside is 10 crore; at the end of the year,
the bank manages to collect 85 crore only. In such a case, Net NPA would be Rs.5 crore (i.e.
Actual NPA 15 crore - Provision 10 crore).
Gross NPA reflects the quality of the loans made by banks whereas the Net NPA
shows the actual burden of banks. In an ideal and healthy scenario, the Net NPA of banks
should be close to zero. In practice both the Net NPA and Gross NPA are shown as a
percentage.
The Reserve Bank of India has advised the banks to compute their Gross Advances,
Net Advances, Gross NPAs and Net NPAs as per the following format w.e.f. September
2009.
Computation sheet to be used for arriving at Gross NPA and Net NPA:
1. Standard Advances
2. Gross NPAs
3. Gross Advances (1 + 2)
4. Gross NPAs as a percentage of Gross Advances (2/3) (in %)
5. Deductions
a. Provisions held in the case of NPA Accounts as per asset classification (including
additional Provisions for NPAs at higher than prescribed rates).
b. DICGC I ECGC claims received and held pending adjustment
c. Part payment received and kept in Suspense Account or any other similar account
d. Balance in Sundries Account (Interest Capitalization - Restructured Accounts), in
respect of NPA Accounts
e. Floating Provisions
f. Provisions in lieu of diminution in the fair value of restructured accounts
classified as NPAs

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g. Provisions in lieu of diminution in the fair value of restructured accounts
classified as standard assets
6. Net Advances (3-5)
7. Net NPAs {2-5 (i + ii + iii + iv + v + vi)}
8. Net NPAs as percentage of Net Advances (7/6) (in %)
The non-performing assets of the 1091 banks stood at Rs.2901.70 crore constituting
10.30% of their aggregate advances as on 31st March 1998 as compared with 11.30% in
respect of 756 banks as at the end of March 1997. The gross NPA and net NPA during as on
March 2007 stood at 18.3% and 8.8% respectively. As on March 2015, the gross and net
NPA reduced considerably to reach 6.2% and 2.7% respectively.
Cooperative Court
The Maharashtra Cooperative Societies Act provides for setting up of cooperative
courts to hear and give award on recovery cases of cooperative banks in the time bound
manner. It also has provisions for filing summary suits for recovery of small loans, which are
not secured by tangible assets.
Declaration of dividend by UCBs %
The UCBs can declare the dividend without prior permission of RBI subject to
compliance with the following conditions:
❖ Compliance with CRAR norms as prescribed by RBI
❖ Net NPA or less than 5% after making all necessary provisions (including provisions
required as per assessment made by RBI in the last inspection report)
❖ There is no default in CRR/SLR during the year for which dividend is proposed
❖ All required provisions have been made for NPAs, investments and other assets as
per prudential norms
❖ Dividend is paid out of the net profit and after making all statutory and other
provisions and adjustment for accumulated losses in full.
UCBs complying with all the above parameters except net NPA, and desirous of
declaring divided my approach the respective regional office of the RBI for permission for
declaring dividend provided the Net NPA is less than 10%. (Source: UBD.BPD.
(PCB).Cir.No.4/12.05.001/2012-13 dated 5th July 2012)
Scheduled UCBs
A scheduled bank, in India, refers to a bank which is listed in the 2nd Schedule of the
RBI Act, 1934. In 1988, the notification regarding scheduling of UCBs with deposits of
Rs.50 crore and above was issued. Due to the progress made in terms of profit, deposits,
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working capital, advances and recovery, some of the UCBs they are honored with the status
of Scheduled Banks.
There were 53 scheduled UCBs consisting of 25 Multi-State UCBs and 1668 non
scheduled UCBs consisting of 15 Multi-State UCBs functioning in the country at the end of
March 2009. Saraswat Cooperative Bank, Mumbai, Bombay Mercantile Cooperative Bank,
Mumbai, Mahesh Cooperative Urban Bank, Andhra Pradesh, Ahmedabad Mercantile
Cooperative Bank, Gujarat, Amanath Cooperative Bank, Karnataka, Mahila Cooperative
Bank, UP, etc., are some of the Scheduled UCBs functioning in India. At the end of March
2016, there were 1574 UCBs consisting of 57 scheduled banks.
Maintenance of CRR & SLR
All UCBs (scheduled as well as non-scheduled) are required to maintain stipulated
level of cash Reserve Ratio (CRR) and statutory Liquidity Ratio (SLR). In regard to CRR, the
provisions of section 42 (1) of the RBI Act, 1934, governs scheduled UCBs whereas, non
scheduled UCBs are governed by the provisions of section 18 of the Banking Regulation Act,
1949 (As Applicable to Co-operative Societies) [BR Act, 1949(AACS)].
In terms of Notification UBD.BPD.(PCB).Not. No. 1/16.26.000/2013-14 dated June
5, 2014, CRR required to be maintained by every UCB, whether a scheduled cooperative
bank or not, shall be 4 per cent of the total of demand and time liabilities, from the fortnight
beginning from July 12, 2014.
In terms of Section 24 (2A) of the BR Act, 1949 (AACS), every co-operative bank in
addition to the CRR required to be maintained under Section 18 (1), shall maintain in India,
liquid assets, the value which shall not be less than such percentage as may be specified by
Reserve Bank in the Official Gazette from time to time and not exceeding forty percentage of
its NDTL in India as on the last Friday of the second preceding fortnight. With effect from
February 7, 2015, the SLR for all UCBs is 21.50% of NDTL. During January 2017, the SLR
for UCBs is required at 20.50% on NDTL.
Maintenance of CRAR
The Capital Risk Adequacy Ratio (CRAR) serves as a buffer which can absorb the
unforeseen losses a UCB may incur in the future. In order to strengthen the capital base of
banks and in keeping with the recommendations made by the Basel committee on Banking
Regulations and Supervisory Practices, the RBI has introduced Capital to Risk Assets Ratio
(CRAR) system for commercial banks (including foreign banks) in India as a capital
adequacy measure way back in 1993. The prudential norm relating to capital adequacy was
not made applicable simultaneously to urban cooperative banks due to certain statutory

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constraints faced by them. The High Power Committee (Madhavrao Committee)
recommended the application of capital adequacy norms to UCBs. Pursuant to the
recommendations of the High Power Committee, UCBs were brought under the CRAR
discipline with effect from March 31, 2002, in a phased manner. Presently, the CRAR is
fixed invariably for all UCBs at 9%.
Unit Banking Vs. Branch Banking
Unit banking refers to a single bank which renders services and operates without any
branches anywhere. This kind of banking system is common in the USA. Restrictive
branching laws encourage large numbers of small, independently owned state banks, and
large multi-bank holding companies owning numerous unit banks. Unit banking operate one
full banking service. In India, a unique characteristics of the UCB sector is the presence of
large number of unit banks i.e. banks which function as head office-cum-branch. Unit banks
essentially capture the basic concept and spirit of cooperative banking since they function
from a single office/ branch and cater to the clientele in and around their place of business. Of
the 1721 UCBs, 830 were unit banks at the end of March 2009.
Branch banking refers to a single bank which operates through various branches in a
city or in different locations or out of the cities. This kind of banking system is common in
India, e.g. State Bank of India. It offers a wide array of face to face service to its customers.
Services provided by a branch include cash withdrawals and deposits from a demand account
with a bank teller, financial advice through a specialist, safe deposit box rentals, insurance
sales, etc.
Branch Licensing
The Reserve Bank has taken steps to liberalise and rationalize the branch licensing
norms for UCBs to provide incentive to financially sound UCBs to expand their branch
network. It was indicated in the Annual Policy Statement 2004-05 that fresh issuance of
licenses to UCBs would be considered only after a comprehensive policy on UCBs, including
an appropriate legal and regulatory framework for the sector, was put in place and a policy
for improving the financial health of the UCB sector was formulated. Subsequently, in the
Annual Policy for 2007-08, it was decided to allow the opening of new branches/ extension
counters to banks that were registered under the Cooperative Societies Act of the States that
has signed MOUs with Reserve Bank or under the Multi-State Cooperative Societies Act,
2002 subject to certain parameters. Pursuant to the announcement in the Annual Policy
Statement for 2008-09, branch licensing norms were liberalized for well-managed and
financially sound UCBs operational in the MOU States and those registered under the Multi-

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State Cooperative Societies Act.
New Licensing Policy for UCBs
RBI has recently reviewed the licensing policy for UCBs pursuant to the
recommendations of the High Power Committee constituted for examining the existing
licensing policy among other regulatory issues. The thrust of new licensing policy and
revised entry point norms are given below:
Revised Policy Approach
The thrust of revised licensing policy is on strong start up capital and corporate
governance. Accordingly, the entry point norms has been revised, and prescribed 4 categories
viz. 'A', 'B', 'C' and 'D'.
Category of Centre Population
A Over 10 lakh
B 5 lakh and above but less than 10 lakh
C 1 lakh and above but less than 5 lakh
D Less than 1 lakh
Corporate governance assumes significant importance in running UCBs on sound
lines, following eligibility criteria have been prescribed for promoters of new UCBs. (a)
There should at all times be at least two directors with suitable banking experience or persons
with relevant professional qualifications i.e., Chartered Accountants with banking experience,
(b) The promoters should not be defaulters to any financial institution/bank/cooperative
bank/cooperative society, etc. (c) No criminal proceedings should have been instituted
against the promoters (d) Promoters should not be associated as director with any chit
fund/NBFC/ cooperative bank.
In case of unit banks (i.e. single branch bank), 50% relaxation in entry point capital is
prescribed.
However, an UCB which subsequently desires to open branch/branches has to
necessarily enhance its capital to the level required for setting up of a new bank as applicable
to the centre where its registered office is located or where the branch is proposed to be
opened, whichever is higher.

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Entry Point Norms for General Category
(Rs. In lakh)
A B C D
Share capital 400 200 100 25
Membership 3000 2000 1500 500
Entry Point Capital/ Norms for Unit Banks/ Banks Organised by Mahilas/ SCs / STs and in
less Developed States
(Rs. in lakh)
A B C D
Share capital 50% OF EPN 200 100 50 12.50
Membership 3000 2000 1500 500
Entry Point Norms for Banks organised in least developed States/ North-Eastern States/
Tribal Regions
(Rs. in lakh)
A B C D
Share capital (33.33% of EPN) 133.33 66.67 33.33 8.33
Membership (66.67% of normal
2000 1334 1000 334
membership)

Currency Chest
To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has
authorized select branches of scheduled banks to establish Currency Chests. These are
actually storehouses where banknotes and rupee coins are stocked on behalf of the Reserve
Bank.
In pursuance of the announcement made in the midterm review of the Annual Policy
Statement for the year 2005-06, the currency chest facility was extended to Scheduled UCBs
registered under the respective States' Acts where the State Governments have assured
regulatory coordination by entering in to MOU with RBI. The main conditions of the
eligibility norms were that the banks should have: a) minimum net worth of Rs.200 crore, b)
CRAR of 12%, c) Net NPA at less than 10%, d) made profit in the preceding 3 years, net of
accumulated losses, e) complied with CRR and SLR requirements and f) elected board of
management with at least 2 professionals. (Ref.: RBI - Trends and Progress of Banking in
India, 2005-06)
Insurance Business
According to the Annual Policy Statement for the year 2007-08, UCBs registered in
States that had entered into MOU with the RBI or those registered under Multi-State
Cooperative Societies Act, 2002, were allowed to undertake insurance agency business as

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corporate agents without risk participation, subject to the condition the minimum net worth of
RS.10 crore to be maintained. All banks entering into insurance business will be required to
obtain prior approval of the Reserve Bank. The Reserve Bank will give permission to banks
on case to case basis keeping in view all relevant factors including the position in regard to
the level of non-performing assets of the applicant bank so as to ensure that non-performing
assets do not pose any future threat to the bank in its present or the proposed line of activity,
viz., insurance business. However, there is no objection to banks offering referral services to
their customers for financial products subject to the following conditions:
a. The bank/third party issuers of the financial products should strictly adhere to the
KYC/AML guidelines in respect of the customers
b. The bank should make it explicitly clear upfront to the customer that it is purely a
referral service and strictly on a non-risk participation basis.
Welfare Schemes
Similar to agriculture credit cooperatives, UCBs also render many social welfare
measures. For instance, the Kalupur Commercial Cooperative Bank Ltd., the largest Multi-
State UCB in Gujarat, celebrated its 44th foundation day on 5th December 2013 by appealing
to its customers to donate discarded items like old clothes, toys, electric/electronic gadgets,
utensils, etc., which in Turn would be distributed among the needy people. In Sir
M.Visvesvaraya Cooperative Bank Ltd., Bangalore, a non-refundable medical aid maximum
of Rs.10,000 will be paid to the members for specified diseases. In order to encourage the
children of the members in their education/sports/literature, the rank holders and distinction
holders of the State, will be honored. A death relief fund upto Rs.6000 will be given for
helping the bereaved families to carry out the last rites of the deceased.
Mahila Banks
Self employed women workers and producers are economically very active and
contribute to the growth of the economy. They are mainly involved in production, trading and
the service sector. However, in spite of their hard work and their contribution to the countries
gross domestic product, they do not have access to financial services, which would help them
to upgrade their own work and productivity. In a major policy initiative taken in December
1983, the concept of Mahila banks and banks for weaker sections of the society was
introduced. Membership of Mahila UCBs was exclusively confined to women except as
nominal members for the purpose of standing as sureties for the borrowers from the bank.
Mahila cooperative Banks organized in many parts of the country can become very important
part of the drive for economic empowerment of women. They bring upon saving habits of the

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housewives and household sector and are great help to women in setting up of self-
employment avenues and augment their family income.
Some of the successful Mahila Banks includes, SEWA Bank (Self Employed Women
Association) at Ahmedabad, Bhagini Nivedita Sahakari Bank at Pune, Jiyamata Sahakari
Bank at Pune, Panaji Mahila Cooperative Bank in Goa. Surat Mahila Cooperative Bank,
Guntakal Mahila Sahakari Bank in Andhra Pradesh and Ichal Karanji Mahila Sahakari Bank
in Maharashtra. There were 117 Mahila Cooperative Banks at the end of March 2007, which
decreased to 108 with Maharashtra having more number of banks, at the end of March 2009.
At the end of March 2016, there were 88 Mahila banks functioning in the country. (Source:
NAFCUB President's speech at the 40th AGM)
CASE STUDY ON BHAGINI NIVEDITA SAHAKARI BANK LTD.,
PUNE
Madam Bhagini Nivedita an Irish women, who came to India, as an ardent follower of
Swami Vivekananda devoted her life in the service of Indians. Based on her preaching, the
Bhagini Nivedita Cooperative Bank Ltd. (BNCB) was founded on 24 th March 1974 at Pune,
Maharashtra with the primary objective of offering banking services to the needy women for
uplifting of their standard of living. The bank extends service with 18 branches and 7 own
ATMs located in Pune and Satara.
Management
The bank's board consists of experienced and qualified professionals who have been
consistently following ethical and transparent practices. The bank's services to its customers
are appreciated and it has always been keen on helping women become self-reliant. All the
directors are women. The bank is staffed by women. The bank has a CEO, 2 general
managers, 24 managers, 60 officers, 162 clerks and 47 sub-staff.
Customer Base
The bank has a customer base of about 2 lakh. The bank offer financial services to
both men and women. By focusing effectively on the customer requirements, the bank has
tied up with New India Insurance Company to offer insurance products to its customers.
Besides, the bank is also providing Pradhan Mantri Surksha Bima Yojana and Pradhan
Mantri Jeeven Jyoti Bima Yojana and there are around 9000 customers to these services.
Technology based service
The bank provided Core Banking Solution, CTS clearing, Aadhar seeding, Electronic
Clearing System, and NACH, ATM, Rupay card, NEFT/RTGS facilities within the time
frame given by RBI. Recently, the bank has implemented an anti-money laundering

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application, E-KYC application and documents scanning application for streamlining
business processes and for integrating and sharing data across system effectively and
efficiently and manage documents in a structured and secured manner. It has distributed
40,000 ATM cards and the number of peak transactions per day is 1850 and the gross amount
is Rs.73 lakh. The number of average transactions per day is 1200 and the gross amount
Rs.42 lakh.
Business Operation
Bank gives loan for starting new enterprise or expansion of existing income
generating enterprises, purchase and repair of house, purchase of truck, three
wheeler/computer/other electronic appliances, repayment of old debt, medical treatment,
educational purposes, marriage ceremony, purchase of machines, etc. By initiating 'Nivedita
Puraskar' scheme, the women entrepreneurs who received financial assistance from the bank
are recognized for their success in running their business. The bank has a tradition of giving
loans to women beneficiaries at concessional rates, especially for the girl student for
education purpose.
Financial Performance
The deposits and loans outstanding as on 31st March 2016 amounted to Rs.735 crore
and Rs.447 crore respectively. The bank's Net Interest Margin during 2015-16 accounted for
3.61%. The bank has been classified as 'A' category by the statutory auditors every year. With
the systematic and planned efforts for timely recovery of loans, the bank succeeded in
retaining net NPA at 0% since last 12 years and gross NPA below 1% since the last 3 years.
The bank's income from the third party products amounted to Rs.4.22 lakh in 2015-16.
Social Aspect in Banking
Hundreds of families have been freed from the clutches of money-lenders, by the
bank, by giving loans. The share holders and the staff are given financial assistance for
medical and educational purposes. Loans for school and college buildings are given on liberal
terms and conditions. Financial assistance is provided to institutions which work for the
welfare of the handicapped, mentally retarded and the needy poor. Financial assistance to
organisations working for widows, divorcees and neglected women is also given on priority.
In times of storms, flood, earthquake etc., BNCB comes forward readily, to extend a helping
hand. Exhibitions are held by the bank for women entrepreneurs and many times directors
give them the required guidance to promote entrepreneurship among them. On the 7th of
March every year the bank gives awards to three bank's women entrepreneurs and two awards
to the institutions working for social cause. On women's day, the bank offer donations to

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institutions doing social work.
Achievements
All the branch premises are owned by the bank. Every year shield is given to the
branch which gives best performance. A number of delegates and visitors from all over India
and abroad visits the bank to study its working. The bank has secured many awards on
district and national levels. A few years ago a Bombay based publication Bris Indiglo had
examined 464 urban banks in Maharashtra and BNCB was ranked the first among all urban
banks in the state. Professional approach, absence of vested interests, well trained staff and
directors, transparency, discipline in the work, efficient customer service, capacity to
visualize future and to take right decision and no politics in the board and customer's faith are
the hallmarks of the bank.
Inspection
As per Section 35 of the B.R. Act (as applicable to cooperative societies), 1949,
UCBs are inspected by Urban Bank Division (UBD) of RBI. Currently the frequency of
onsite inspection cycle for scheduled UCBs and weak UCBs is once in a year, while well-
managed non-scheduled UCBs are inspected once in 3 years. All other urban banks are
inspected once in 2 years.
Supervision of UCBs
The Reserve Bank development prudential supervisory reporting system in the form
of Off-Site Surveillance (OSS) for the UCBs to obtain relevant information on areas of
prudential interest as well as to address the management information needs and to strengthen
the MIS capabilities within the UCBs. OSS returns are called for the purposes of "prudential
supervision", i.e. for overseeing financial soundness and safety of banks. OSS returns are also
designed to address the management information needs and strengthen the MIS capabilities
within the reporting institutions. The OSS reporting system was first introduced in April 2001
for the Scheduled UCBs comprising ten OSS returns.
OSS returns are statutory returns that are called in exercise of powers vested in RBI
under Section 27(2) of Banking Regulation Act which reads as follows "The Reserve Bank of
India may at any time direct a co-operative bank to furnish it within such time as may be
specified by the Reserve Bank, with such Returns and information relating to the business or
affairs of the banking company (including any business or affairs with which such banking
company is concerned) as the Reserve Bank may consider necessary or expedient to obtain
for the purposes of this Act". Non-submission of or wrong reporting in these returns attracts
penalties as specified in Section 46 of the Act.

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Internal Control System and Audit
Some of the urban banks have internal control and audit system. This is not adopted in
many of the weak banks. This system has become a must because of multiplicity of various
factors like expansion of branches, growth of volume of operations and diversification of
business. RBI has appointed a Committee under the Chairmanship of Shri. Uday M. Chitale,
a prominent Chartered Accountant for reviewing the audit system in UCBs and suggesting
appropriate model. The Committee has strongly recommended for induction of professionals
to carry out the audit of UCBs as the later are distinctly different from other cooperative
institutions. The Committee among other suggested for commissioning Chartered
Accountants to carry out statutory audit of large size urban banks with deposits over Rs.25
crore. RBI has accepted the Committee's recommendation and advised the State
Governments for expeditious implementation of the recommendation.
Rating Model for UCBs
The UCBs had to be rated on the basis of the CAMELS components, viz.. Capital,
Asset Quality, Management, Earnings, Liquidity, and Systems & Control on a scale of 1 to
100, based on the weighted average of the ratings of the components, UCBs had to be
assigned rating of 'A+' to 'D' whose details are given below:
❖ Capital Adequacy: Marks are given for the level of CRAR, ability to plough back
profit to reserves over and above statutory limit, growth in capital fund vis-a-versa in
Risk Weighted Assets and Net Worth, etc.
❖ Asset Quality: Marks are given for percentage of net NPA, Quality of advance
portfolio, etc.
❖ Management: Marks are given to quality and composition of Board, functions of
various committees, etc.
❖ Earnings: Marks are given for Return on Assets, Return on owned funds. Net Interest
Margin, operating profit to total assets, etc.
❖ Liquidity: Marks are given for ratio related to customer deposits, compliance with
CRR/SLR, etc.
❖ Systems and Control: Marks are given for effectiveness of audit committee, degree of
compliance, vigilance, etc.
In order to bring about supervisory convergence between UCBs and commercial
banks, the rating models were revised from the inspection cycle beginning March 31, 2009.
With the introduction of revised rating model, the gradation system of UCBs was dispensed

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with. The revised CAMELS rating model was made applicable to UCBs with deposits of
Rs.100 crore and above, and a revised simplified version of the same was made applicable to
UCBs with deposits of less than Rs.100 crore.
Training
UCBs recognized the need for training for their staff from the beginning. They used to
depute their staff for various training programmes conducted by RBI, College of Agricultural
Banking, Pune, NIBM Pune, Institute of Cooperative Managements and Regional Institute of
Cooperative Managements, situated in various parts of the country viz., VAMNICOM, Pune,
and so on. At present some of the banks like Bombay Mercantile Cooperative Bank, Saraswat
Cooperative Bank, Mumbai, Rupee Cooperative Bank, Pune, Aamanath Cooperative Bank,
Bangalore, Abhyudaya Cooperative Bank, Mumbai, etc., have established their own training
centers to impart job oriented training programmes to their staff.
Conversion of Cooperative Credit Societies into Primary Cooperative Banks
RBI has issued revised guidelines which are as follows:
A cooperative society as defined u/s 5cc(ii) of the BR Act seeking to convert itself
into an UCB should comply with the following:
i) Net owned funds of the society and the total membership are not less than the Earning
Per Share (EPN) prescribed for setting of a new bank in a particular category of
centre where the registered office of the society is situated. If registered office and
branch is located in different centres, the EPN for higher category of centre will be
applicable.
ii) The society should be making profits in each of the previous three consecutive years
iii) The society's methods of operation are not detrimental to the interest of the present
and future depositors
iv) The society has been earning A' Class audit rating for the last three years.
v) Prescribed CRAR has been achieved
A cooperative credit society fulfilling the above norms should apply to RBI Regional
Office, through RCS. The RCS shall forward the application only after ensuring that all
norms are complied with and there are at least 2 directors with professional qualification and
the society has amended its byelaws to ensure continuance of the said 2 directors at all times.
On receipt of a communication from the Screening Committee regarding clearing of the
proposal, RBI will issue in-principal approval to RCS. The society will thereafter amend its
byelaws on the lines of model byelaws. For commencing banking business, the society has to
obtain license from the RBI u/s 22 of the BR Act.

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Vision Document - 2005
The Vision Document -2005, the most important structural initiative undertaken by
the Reserve Bank, primarily aims at addressing the issue of dual regulatory control of the
Reserve Bank and State Governments over the UCB sector. In line with the recommendations
of Document, the Government of India (for multi-State UCBs) and various State
Governments (for single- State UCBs) entered into Memorandum of Understanding (MoUs)
with the Reserve Bank. Following the recommendation of the Vision Document, the MoUs
were followed by the constitution of a State level Task Force for Cooperative Urban Banks
(TAFCUB) in order to identify the viable and nonviable UCBs in the concerned States and
suggest time bound plans for the revival of the viable UCBs while making way for a non-
disruptive exit for the non-viable entities.
Problems
Failure in UCBs is mainly because of unprofessional approach for managing banking
business, financial impropriety, high level of NPAs, poor funding and investment
management, indifferent attitude towards customers' needs and preferences, violation of
credit norms and principles and growing distance between members and management.
1. The branch licenses have not been liberalized resulting in total stagnation in the
growth of the UCBs sector.
2. The development of UCBs in the country is uneven. Out of 707 districts in the
country, 322 districts are completely devoid of UCBs. Even in 385 districts, where
urban banks exists, such banks are concentrated only in metropolitan cities like
Bombay, Pune, Ahmedabad, Nagpur, Bangalore, Chennai, etc.
3. Even though, major portion of deposits comes from non-members, they don't have a
say in the decision making process of UCBs due to the absence of representation from
among the depositors. Hence it is very often discussed as a problem.
4. Withdrawal of 100% income tax deduction on the profit generated by UCBs u/s 80 P
(2) (a) (i) of the Income tax Act from the year 2005-06 resulted in payment of around
30% income tax on the profit. The withdrawal of this deduction will affect the
formation of reserves and creation of capital fund which will in turn affect the capital
adequacy of UCBs.
5. In the Finance Act 2006, a clause (xxi) was introduced to Section 80 C of the Income
tax Act which states that a term deposit of 5 years and above with a scheduled bank is
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6. In majority of UCBs, meetings are not conducted in real sense and they are rather
conducted to fulfill the requirements of State Cooperative Societies Act and byelaw of
the bank.
7. The cause of concern in UCBs mostly relates to non-professional management. This
in turn results in relatively weak internal control and risk management systems in the
UCBs. Therefore, the incidence of failure of banks in India has been the highest in
urban banking sector vis-a-vis other banking sectors.
8. In a majority of banks, no proper procedure has been evolved with regard to sanction
of loans. Loans were sanctioned by circulation of papers among directors. Officials
such as the Manager and the Secretary are also sanctioning loans without proper
authority. In certain cases, loans were sanctioned without proper preliminary scrutiny
of loan applications with reference to the need, period, repaying capacity, past
performance of the borrowers, etc.
9. Various Committees in the past, which went into working of the UCBs, have found
that the multiplicity of command centres and the absence of clear cut demarcation
between the functions of state governments and the RBI have been the most vexatious
problems of UCBs.
10. With introduction of prudential norms and emphasis on capital adequacy in banks,
cooperative banks are finding themselves handicapped in raising the required capital
only from members. They do not have access to capital markets.
11. Bad experience in UCBs had shown that irresponsible and unethical behaviour by
even a few cooperative banks could have some contagion effect beyond the particular
area or state concerned and would cause severe harm to depositors, including smaller
cooperative banks, and impair the confidence in the system.
Suggestions
1. Management of the UCBs must be forced to come out of the orthodox management
policies and introduce new management techniques.
2. It is necessary to identify the problems related to the backwardness of cooperative
banks in States where they are less pocketed and make necessary revitalization for
their proper development.
3. Restrictions on loans to the directors and their relatives should be removed as they are
also members of UCBs
4. Cooperative banks are brought in to income tax net, which is a major setback. There
should be relief to augment the capital through retained profits.

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5. Cooperative banks should have access to low cost deposits
6. Surplus funds available with UCBs should be prudently managed for lending
7. Both professionalization of management and democratic management should be
imposed wherever not existing.
8. As commercial banks and private banks are engaged in banc assurance activity on a
large scale covering middle and higher income groups, it is the cooperatives
especially the UCBs which can effectively cater the needs of the poor by selling
insurance products of major insurance companies.
9. Small UCBs in order to make them viable, may act as both business facilitators and
business correspondents to other larger UCBs or DCCBs or SCBs and earn good
amount of fees.
10. In order to reach out to remote areas of the area of operation, UCBs may make use of
assistance from Business Correspondence and get the accounts of all those who do
not have bank accounts.
11. Banks will also have to be proactive in first rendering themselves eligible to provide
net banking and mobile banking as per RBI norms.
Suggestions to prevent NPA
a. All technical, economic, commercial, organizational and financial aspects of the
project need to be assessed realistically.
b. The banker should at the pre-sanction stage not only appraise the project but also
the promoter - his character and his capacity. It is said that it is more prudent to
sanction a 'B' class project with an 'A' class entrepreneur than vice-versa.
c. At the post-disbursement stage, bankers should ensure proper follow up and
supervision to ensure both assets creation and assets utilization. Bankers can do
either off-site surveillance or on site inspection to detect whether the unit I project
is likely to become NPA.
d. By inspecting the unit the banker is able to see for himself where the problem lies.
During discussion with the borrower, the banker may come to know details
relating to breakdown in plant and machinery, labour strike, change in
management, death of a key person, reconstitution of the firm, dispute among the
partners etc.
e. In case of chronic NPAs, banks can consider entering into compromise
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f. Banks may file suits promptly against willful defaulters. The bank should
vigorously follow up the legal cases.
Initiatives for the development of UCBs
1) To strengthen corporate governance in the UCBs, the RBI and the government of
India has taken several initiatives. These include the appointment of several
committees and working groups to recommend strategies for the development of
UCBs like Madhava Das Committee in 1978, Marathe Committee in 1992, Chitale
Committee in 1996, Madhava Rao Committee in 1999, Anant Geete Committee in
2002, Joint Parliament Committee 2002, Malegam Committee in 2011, etc.
2) The RBI has decided to leverage the network of 1,600 UCBs across the country as
PAN Service agents. However, only those UCBs having strong finances would be
allowed to become PAN Service agents. UCBS could become PAN service agents
through a tie up with UTI Infrastructure and Technology Services (UTIITS), with
prior approval from the apex bank.
3) In India UCBs can raise capital only from their members. Recognizing this limitation,
RBI has prescribed share-linking to borrowing. The matter was further, examined by
a Working Group appointed by RBI and based on their recommendations, UCBs
were permitted in 2008 to raise capital through innovative instruments like Perpetual
Non- Cumulative/Cumulative and Redeemable Preference Shares as also Long Term
(Subordinated) Deposits.
4) RBI has also prescribed that at least two directors with suitable banking experience or
with relevant professional qualification in the fields of law, accountancy or finance
are co-opted on the Board.
5) UCBs not operating under directions u/s 35A of the BR Act, 1949 (AACS) and which
have not implemented/partially implemented CBS will be eligible for financial
assistance under the scheme. Such UCBs may approach IDRBT/IFTAS for availing
benefits under the scheme.
6) As announced in the first Bi-monthly Monetary Policy Statement-2016- 17 dated
April 05, 2016, certain standards were prescribed for CBS in UCBs. Both the
financial assistance and technology support through Institute for Development and
Research in Banking Technology (IDRBT) is provided to those UCBs who have
partially implemented CBS or are yet to implement CBS.

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CASE STUDY ON THE SARASWAT COOPERATIVE BANK LTD., MUMBAI
The Saraswat Cooperative Bank Ltd., was originally formed as a cooperative credit
society on 14th September 1918 for enhancing the status of Saraswat Community but the
benefit of the bank was later shifted to all without any caste, religion, etc. The society
attained the status of full-fledged cooperative bank on 19th October, 1933. Since then, the
bank has its credit of many remarkable achievements. Prosperity through customer
relationship has been the motto of the bank for the last 95 years of functioning. The basic
principle on which the bank was formed i.e. to inculcate savings habit among the people of
small and moderate means holds good even today. While fulfilling the financial requirements
of the blue chip companies like Cipla, FDC, US Vitamins, American Products, Bharat Bijlee,
Finolex, Nath group of industries, Kirloskar Cummins, etc., the bank not forgotten its
commitment to the small man and still continues to function with the glorious tradition in
public services. By satisfying the bigger institutions and serving the downtrodden, the bank
now claimed to the top and got the crown of the largest urban cooperative bank in Asia.
Mission
The mission of the bank is "to emerge as one of the premier and most preferred banks
in the country by adopting highest standards of professionalism and excellence in all the areas
of workings"
Staff Pattern
As on March 2016, the bank is managed with a group of dedicated and professional
team of 4186 which includes young professional viz., Cost Accountants, Chartered
Accountants, etc.
Branches
As on March 2016, the bank is extending direct customer service through its 283 fully
computerized branches spread across 6 States viz., Maharashtra, Karnataka, Gujarat, Goa,
New Delhi and Madhya Pradesh. 56 branches are offering Sunday banking.
Technology
The bank has the crown of introducing first pass book printer in the country. In the
entire UCB sector in India, the bank is the pioneer to solve Y2K problem. The bank could
complete total computerization during 1987 itself and presently providing Any Time
Banking, Any Where Banking and Tele Banking facilities to its customers. The Bank is
providing 24-hour service through ATMs at 255 locations. The bank also provides ATMs for
its customers by having consortium arrangements with other banks like Axis, IDBI, SBI,
BOI, etc. Further, all the branches are linked with net, thereby providing internet banking to

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its customers.
Tie-up Arrangements
The bank is providing a place in its premises to canvass the life insurance products of
HDFC Standard Life Insurance Co. Ltd., and recommend its customers to invest in such
policies. Further, the bank sells the general insurance products of Bajaj Allianz General
Insurance Co. Ltd., on customers' articles, building, machinery, stock, etci Furthermore, the
bank is having tip-up with Tata AIG for providing life insurance for its customers availing
home loans.
The bank is offering mutual funds distribution by having tie-up arrangement with
Reliance, Kotak Mahindra, ICICI, SBI, UTI, etc., comprising of equity funds, debt funds and
liquidity funds. The bank gets commission out of the above tie-up arrangements. The bank
also have tie up with leading mobile operators so as to make the customers to make recharge
of mobile. DTH and Data Card using the debit card issued by Saraswat bank.
Training
The bank provides training through its expert faculty members in the areas of general
banking, customer service and behaviour science to face the challenges of the future, not only
to its own staff of all cadres but also to the employees of other cooperative banks at its own
training college at Vashi, Navi Mumbai.
Knowledge Management Department
E-learning Concept was introduced by learning through chatting among the
employees of the bank. Messages, articles, circulars, etc., are put in the net which can be
viewed by the employees.
Welfare Measures
The bank extends medical checkup facility to those members continuing for more
than 3 years. Further, awards are presented to member's children for different purposes. The
bank pay dividend of 18% to its members continuously. Donation of 5% of net profit is
appropriated for utilizing the same for paying to other cooperatives.
Mergers and Acquisitions
The bank is looking to grow both through the organic and the inorganic route. It has
received many proposals from cooperative banks for mergers of which banks like South India
Cooperative Bank and Kolhapur Maratha Cooperative Bank were already taken.
Important highlights of the Bank
❖ In 1979, the bank obtained license from the RBI to operate as an Authorized

Dealer in foreign exchange. Presently the Bank is having correspondent relationship

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in 45 countries covering 9 currencies with over 125 banks. This bank is the only cooperative
bank to open a full- fledged overseas branch which deals exclusively in foreign exchange
❖ During the time of deregulation, the bank is the first in the cooperative sector to have
declared highest interest rate of 15% on domestic term deposit, during 1996.
❖ A separate Treasury Department is set up to deal in money market more effectively
❖ First in the UCB sector to have full-fledged Merchant Banking Division to operate as
Category I Merchant Bankers.
❖ Awarded 'A' Class audit classification continuously since 1933
❖ In 1988, the Bank was conferred with "Scheduled" status by RBI.
❖ Earnest and Young doing benchmarking for the bank
❖ One among the four banks (other banks are SBI, Standard Chartered Bank and ICICI
bank) which initiated the RTGS implementation in the country
❖ Only cooperative bank have permanent license to deal in foreign exchange
❖ In the last two decades the Bank has witnessed a steady growth in business and also
taken several Strategic Business Initiatives such as undertaking Business Process
Reengineering initiative, merging seven Cooperative Banks and then consciously
nurturing them.
❖ The Bank tied up with VISA International for issuance of Debit Cards.
❖ In 2011, the Bank was granted permission for All India Area of Operation by RBI.
The Bank has an ambitious business expansion plan in place to have a presence in all
major cities of the country, reach a business level of Rs.l lakh crore by 2021.
Performance of the bank
The bank done a total business of Rs.36167.75 as on March 2013, constituting
Rs.21,144.33 crore deposits and Rs. 15023.42 crore loans. The Bank has retained its coveted
position as Zero Net NPA bank for the ninth successive year. The bank could break its record
achievements by itself by improving its performance every year. The performance of
Saraswat bank for the periods since 2007-08, is given in the following table:

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Table No: 4.1
PERFORMANCE OF THE BANK
(Rs. in crore)

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Total Income 1177.59 1499.92 1458.2 1690.86 2124.35 2551.14 2646.78 3022.41 3254.71

Total
930.81 1174.56 1242.36 1332.67 1713.02 2068.79 2235.14 2690.05 2887.30
Expenditure

Net Profit 202.26 241.29 119.67 212.27 235.57 112.09 147.09 190.18 211.19

Deposits 11430.82 12918.85 14266.73 15800.96 19252.71 21144.33 23939.51 27170.84 31495.84

Advances 7448.31 8110.41 9250.35 11511.99 13952.7 15023.42 15470.05 17798.12 20366.11

Net NPAs % 0% 0% 0% 0% 0% 0% 0% 0.67% 1.83%

Share capital 71.21 77.5 86.23 102.83 116.92 126.91 167.69 189.30 202.76

Reserves 1059.74 1096.71 1184.14 1370.66 1598.77 1834.4 1974.12 2057.57 2168.40

Capital
10.85 10.92 14.63 12.74 12.37 11.15 12.11 12.57 12.15
Adequacy (%)
(Source: Annual Report of the bank)
Conclusion
Through its best banking practices and with the combination of dedicated human
resource, regular technology upgradation and attractive products, the bank is scaling new
heights by fulfilling the basic objective of service to common man and emerge as one of the
premier bank in the country.

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ANNEXURE VI
Performance of UCBs from 2002-03 to 2015-16
(Rs. In crores)

No. of Share Owned Loans &

Year Deposits Borrowings
Banks Capital Funds Advances
2002-03 1909 2819 9269 1,00,757 1590 64,022
2003-04 1926 3267 12,348 1,10,256 1484 67,930
2004-05 1872 3221 NA 1,05,021 1782 66,874
2005-06 1853 3488 13,641 1,14,060 1781 71,641
2006-07 1813 3884 14,751 1,21,391 2657 79,733
2007-08 1770 4769 20,108 1,38,496 2680 88,981
2008-09 1721 5261 20,852 1,58,733 2554 97,918
2009-10 1674 5567 30,098 1,83,150 2340 1,12,436
2010-11 1645 6300 32,600 2,11,900 4400 1,36,500
2011-12 1618 7300 34,300 2,38,600 3600 1,57,800
2012-13 1606 9300 38,000 2,76,900 3100 1,81,000
2013-14 1589 NA NA 3,15,503 NA 1,99,651
2014-15 1579 9954 37,329 3,55,133 2246 2,24,329
2015-16 1574 11,007 40,602 3,92,179 2615 2,45,013
Source: Report of Trends and Progress of Banking in India, RBI and www.nafcub. Org

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EMPLOYEES' CO-OPERATIVE BANK
The urban credit cooperatives including Employees' Cooperative Banks were
registered under second All India Cooperative Societies Act, 1912. Subsequently, urban
credit cooperatives/employees' cooperatives were organize: in various parts of the country.
Among the non-agricultural credit cooperative next to the urban cooperative banks,
prominent are the employees' cooperative- credit societies, salary earners' cooperatives and
employees' cooperative banks
The Pay Commission 1957-59 and the Staff Welfare Review Committee setup by the
Ministry of Home Affairs recognized the need for employees' cooperatives for the
improvement of the economic condition. The Committee said, "If the welfare of the
employees is to be really effective, they must be saved from the clutches of unscrupulous
creditors by providing alternative honest sources of credit". (Ref: The Staff Welfare Review
Committee Report of the Study Group p.44) Hence separate employees' credit
cooperatives/banks were organized for different categories of workers to provide helping
hand to the people such as salaried persons, economically weak, middle and lower class
people, artisans, self-employed persons, etc.
During 1938-39, there were 6731 Employees Cooperatives had membership, owned
funds, deposits, working capital and loan advance to the tune of 0.13 crore, Rs.8.29 crore,
Rs.15.26 crore, Rs.23.66 crore, and Rs.14.42 crore respectively as against 50943 Employees
Cooperatives with membership owned funds, deposits, working capital and loan advance to
the tune of 2.31 crore, Rs.5760.50 crore, Rs.13603.19 crore, Rs.31246.16 crore and
Rs.20358.88 crore respectively at the end of March 2004. Maharashtra had the largest
number of above societies. Andhra Pradesh, Karnataka, Punjab, Tamilnadu, Uttar Pradesh
were having more than 1000 societies. (Ref.: NAFCUB status report)
Need for Urban Cooperative Credit/Employees' Cooperatives
The commercial banks were interested to take care of wholesale traders and large-
scale industries. They used to invest larger funds with high cost of advances, whereas the
middle and lower class, small and petty traders, small scale industries and artisans living in
urban areas were not looked in to by any joint stock/commercial banks in the country. Hence
the need was felt to have urban credit cooperatives I banks. Moreover the employees working
in various Government, Semi-Government, public sector undertaking, banks and companies
were in need of such institutions to avail credit and banking facilities.
The following are some of the Employees Cooperatives organized for such people
viz., Port Trust Employees' Cooperative Bank, LIC Employees Cooperative Bank, Circle

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Postal Employees' Cooperatives Bank, BHEL Employees Cooperative Bank, RBI Employees
Cooperative Bank, etc.
Types of Employees' Cooperatives
There are two types of employees' cooperatives viz., employees' thrift and credit
societies and Employees' Cooperative banks registered by the Registrar Cooperatives
Societies (RCS). Employees' cooperative banks are registered
By the RCS and controlled both by cooperative department and RBI.
Employees' cooperative thrift and credit societies follow the Act, rules and byelaws of
the society, where as the employees cooperative bank have to function not only as per the
Cooperative Societies Act but also as per the Banking Regulation Act.
Area of Operation
Those public and private organization having area of operation within the State, are
registered under the concerned States' Cooperative Societies Act. Those employees'
cooperatives having the area of more than one state like LIC Employees Cooperative Bank
are registered under the Multi-State Cooperative Societies Act.
Membership
The employees of the concerned institutions /companies /industries /banks are
admitted as "A" class members. Those who want to avail the services like receiving of gold
loans are admitted as Associate Members. The "A" class members have to remit Rs.10 for
each share. However, this amount differs from state to state as per the byelaws of their
society. The members have to remit additional share according to their borrowings of loans.
"B" class members have to pay Rs.5 at the time of their admission. Both share capital and
entrance fee are paid for getting admitted as members. Government also takes share in
employees' cooperatives.
The liability of the members shall be limited to the share capital subscribed by them.
The bank shall be eligible to receive deposits and loans from members and others up to 10
times its paid up share capital plus accumulated reserves minus accumulated losses, if any.
Objectives
The main objectives employee's cooperatives are:
a) To borrow funds from members and others to be utilized for issuing loans to
members for useful purposes
b) To raise funds required for the business of the society
c) To encourage thrift, self-help and cooperation among the members

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Management
General Body is ultimate authority, which is conducted every year as per the
concerned Cooperative Societies Act, rules and byelaws. The General Body of the society
consists of all the members of the society.
The management of the employees' cooperatives is vested with board of directors
elected by the general body. The term of office of a director is five years as per the present
cooperative societies Act. The board of management is assisted by Secretary, Assistant
Secretary, Managers, Chief Accountant, Senior and Junior Assistants, Clerks and Sub-staff.
Resources
Employees' cooperative banks raise funds from admission fee, share capital, loans and
grants from Government, deposits, reserves, accumulated profits, etc.
Deposits
The main objective of the employees' cooperatives is to promote thrift, self- help
among the members and to fulfill their credit needs by issuing loans far different purposes.
Savings, recurring, fixed and thrift deposits, cash certificates (the investment scheme), etc.,
are accepted by these banks. Special deposits suitable to the various types of customers are
also mobilized.
Thrift Deposit
Every member shall subscribe to the thrift deposit as long as he continues it serve as a
member at the rate prescribed by the byelaw. The subscription is collected every month along
with the installment of loan dues if any. The interest shall be allowed on the thrift deposit at
the rate decided by the board. No member shall be permitted to withdraw any portion of his
thrift deposit except when he withdraws his membership.
Borrowing
Employees' cooperatives avail reinvestment credit from DCCBs after their lending to
the individual members. They have to submit the following details to DCCBs to avail such
credit:
1. Copy of the resolution passed by the society
2. Reimbursement certificate regarding the disbursement made by the society
3. Receipts and charges statement with balance sheet
4. Due to and due by details
5. Particulars of loan application received from members
6. Inspection report of supervisor of the DCCB

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The borrowing societies must submit promissory bond. The Maximum borrowing
power is ascertained on the basis of number of times of paid up share capital plus reserve of
the society as per their byelaws. After receiving the sanction order from the bank the
withdrawal by the society take place. After the loan is issued, the bank has to inspect and take
follow up action.
Type of Loans
Various types of loans like surety loans, consumer loans, jewel loans, festival loans,
loans on fixed deposit, NSC etc. are issued by the employee- cooperatives. The period of
repayment is fixed. Every member is eligible to get loan by giving two sureties. The
maximum amount of loans, interest and repaying period however varies according to the
byelaws of the different employees' cooperatives
Recovery of Loans
Since the employees' cooperatives issue loans to employees, the dues are recovered
through their salaries. The overdues are normally very low and sometimes nil. However, as
the concerned State Cooperative Societies Act varies the problem of recovery arises when
employees are transferred from one State to another. Further, administrative problem arises
for recovery when transfer happen from one place to another.
Maintenance of CRR & SLR
Employees' cooperative banks have to maintain CRR and as per the Sections 18 and
24 of BR Act. They have to keep their cash reserve with DCCB, SBI or any notified bank.
Welfare Measures
There are a number of family welfare measures undertaken by employees' cooperative
banks. For instance, in case of the death of the member, Rs.50,000 is paid to his family.
Tamilnadu Circle Employees' Cooperative Bank has two important funds viz., distress relief
fund and family welfare fund. According to the distress relief fund, each member has to
contribute Rs.50 every month and the members are eligible to get loans also from this
amount. If a member dies before his retirement, his loan outstanding is written off by the
bank.
Problems
Even though there was a progress in the growth of employees' cooperatives and urban
credit movement, certain defects were noticed viz.:
1. Development of urban credit and employees' cooperatives was uneven in various
States

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2. There was no proper help and guidance received by employees' cooperatives due to
the absence of federation from the beginning.
3. Competition and other operational problems were responsible for the failure of certain
employees' cooperatives.
4. Some of the societies have the problem of deficit resources but some are with surplus
funds not able to lend.
Suggestions for development
1. For the welfare of employees where the Employees' cooperatives are not formed, the
same should be organized in the interest and benefit of employees of every
organization.
2. Membership should be open to all. All classes of employees must be permitted to join
as members.
3. Supersession of the board should not be done as a matter of course. It should be the
last resort with the intention of improving the affairs of the society.
4. Different type of deposits should be introduced as in the case of DCCBs and UCBs
5. There must be diversification of business so that the entire funds may be utilized for
productive purposes. There should not be any ideal fund.
NATIONAL FEDERATION OF URBAN CO-OPERATIVE BANKS AND CREDIT
SOCIETIES (NAFCUB)
Growth of the urban cooperatives banks led to the starting of their federation in some
of the States like Maharashtra, Gujarat, Karnataka, West Bengal, Madhya Pradesh and Delhi.
In order to promote the interest of urban cooperative credit movement and to coordinate the
activities of State federations of urban cooperative bank and credit societies, NAFCUB has
been formed during February 1977 with the head quarters in New Delhi.
Vision
"NAFCUB is committed to work towards building a strong and viable urban co-
operative banking and credit system across the Country, to strive for level playing field for
the institutions, to be an effective voice of the sector, to work towards eliminating visible
weaknesses and infirmities, to provide the training and other support and to knit the
institutions into a cohesive unit for them to benefit from strength of being in co-operative
system."

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Objectives
The main objectives of NAFCUB are:
1. To coordinate the activities of state federations, for the benefit of UCBs in the country
and to advise, regulate and develop the urban banking movement.
2. To publish various data, articles and circulars of RBI in the interest of the UCBs and
Urban Credit Cooperatives
3. To arrange delegations to contact RBI, Government to discuss various problems
connected with UCBs and find out the possible solutions.
Membership
Membership of the Federation is open to UCBs and Urban Credit Societies, the State
Federations I Associations of Urban Banks and I or Credit Societies, NCUI and any other
organization useful for the furtherance of the objects of the Federation, with the approval of
the Central RCS.
Management
Administration of NAFCUB is vested with the Board of Directors elected by the
General Body as per the Multi-State Cooperative Societies Act, 1984. All State-level
federations represent on the Board. Apart from the Board of Directors, the federation has the
Executive Committee and Staff Committee.
Publication
NAFCUB has the following publication viz., weekly edition of cooperative banking
and quarterly edition of urban credit, etc. The federation brought out a book on prudential
norms for UCBs. The NAFCUB used to publish newsletter to furnish statistical details of the
institutions for compilation. It is also regularly compiling the RBI instructions and sends
them to all the member institutions. An analytical study of the weak banks and banks under
rehabilitation is also carried out at the federation.
Training
The federation organized a number of programmes including management
development programmes for directors, programmes on investment management, risk
management, credit analysis and monitoring, priority sector advances, etc. Apart from the
training conducted by Vaikunth Mehta National Institute of Cooperative Management
(VAMNICOM), Regional Institute of Cooperative Management (RICMs) and Institute’ of
Cooperative Management (ICMs), the College of Agricultural Banking of RBI at Pune has
started collaborating with NAFCUB to conduct training programmes. Study visits are also
arranged both in India and abroad to develop the awareness among the directors.

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Achievements
Some of the important achievements of NAFCUB are:-
❖ During the past 36 years of its existence, NAFCUB has attained recognition as the
Spokesman of the Sector.
❖ Conferment of Scheduled Status to Urban Cooperative Banks.
❖ Constitution of Marathe Committee for liberal Branch License policy 1992-93.
❖ Containment of Madhavpura Bank crises by involvement by working out a scheme
and its implementation.
❖ Convening RBI to draw Vision Document for Urban Cooperative Banking Sector and
to encourage consultative approach for regulation of Urban Cooperative Banks by
signing MOU with State Governments.
❖ Formation of TAFCUB in almost all the states and encouraging for voluntary Merger
of UCBs to ensure non-descriptive exit of non-viable Banks.
❖ National launch of Core Banking Solution (CBS) for Urban Cooperative Banks,
particularly for smaller bank at Ahmadabad on 25th December, 2010.
❖ With regard to calling of depositors' information from UCBs u/s 133(6) of the Income
tax Act, NAFCUB represented on behalf of UCBs with the Income tax Department to
enhance the threshold limit of Rs.2 lakh to Rs.5 lakh during August 2013 and the
same was favourably considered.

Review Questions
1. Discuss the various concepts of Cooperative Land Development Bank.
2. Explain the Working of the LDBs.
3. State the various Sources of Funds Positions in LDBs.
4. Explain the lending and overdue problems of LDBs.
5. Describe the Genesis and Progress of Urban Cooperative Banks.
6. Explain the various objectives Urban Cooperative Banks.
7. What are the objectives of Employees Cooperative Credit Societies?
8. State the various functions and working of Employees Cooperatives Credit Societies.

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LESSON - 5
NATIONAL BANK FOR AGRICULTURE AND
RURAL DEVELOPMENT (NABARD)
The main objectives of this lesson are:
1. To study the Role of NABARD
2. To understand the objectives of NABARD
3. To provide the functions of NABARD
4. To understand the organizational structure of NABARD
5. To analyse the Direct and Indirect Credit Finance by NABARD
6. To understand the operational performance of NABARD
Introduction
National Bank for Agriculture and Rural Development (NABARD) is an apex
institution accredited with all matters related to policy, planning and iterations in the field of
credit for agriculture and other economic activities in rural areas. NABARD is a national
level refinancing institution for agriculture and rural development.
Role of NABARD
1. It is an apex institution which has power to deal with all matters concerning policy,
planning as well as operations in giving credit for agriculture and other economic
activities in the rural areas.
2. It is a refinancing agency for those institutions that provide investment and production
credit for promoting the several developmental programs for rural development.
3. It is improving the absorptive capacity of the credit delivery system in India,
including monitoring, formulation of rehabilitation schemes, restructuring of credit
institutions, and training of personnel.
4. It co-ordinates the rural credit financing activities of all sorts of institutions engaged
in developmental work at the field level while maintaining liaison with Government
of India, and State Governments, and also RBI and other national level institutions
that are concerned with policy formulation.
5. It prepares rural credit plans, annually, for all districts in the country.
6. It also promotes research in rural banking, and the field of agriculture and rural
development.

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Genesis
As recommended by the All India Rural Credit Survey Committee, the Reserve Bank
of India created an Agriculture Credit Department (ACD) in B54, to initiate different
measures to develop a healthy rural credit structure and provide guidance to State
Governments in cooperative credit system. Agricultural Refinance Corporation (ARC) was
existing since 1963 to provide institutional credit needs for agricultural development. ARC
was further renamed as Agricultural Refinance Development Corporation (ARDC) in 1972.
At the instance of Government of India, Reserve Bank appointed a Committee to Review
Arrangements for Institutional Credit for Agriculture and Rural Development
(CRAFICARD) in 1979 under the Chairmanship of Shri.B.Shivaraman, which recommended
the establishment of NABARD. On the basis of NABARD Act 1981, the National Bank was
established on 12th July 1982, with initial capital of Rs.100 crore which was contributed by
the Government of India (GoI) and RBI in equal proportions.
NABARD's refinance is available to SCARDBs, SCBs, RRBs, Commercial Banks
and other financial institutions approved by RBI. While the ultimate beneficiaries of
investment credit can be Individuals, Partnership concerns, Companies, State-owned
Corporations or Co-operative Societies, production credit is generally given to individuals.
Objectives of NABARD
The main objectives of the National Bank are:
1. To serve as National Refinancing Agency to provide production and investment credit
to state cooperative banks, state agriculture rural development banks, commercial and
regional rural banks for agriculture and rural development.
2. To develop the institution building by monitoring formulation of rehabilitation
schemes, restructuring of credit institutions, training a personnel, etc.
3. To support national policies for increasing agricultural production and rural
employment.
4. Reducing regional imbalances.
Management of NABARD
The very success or failure even the survival of a rural development programme
depends on its management. When we talk of management, we mean those few men-the
executives or programme directors or managers, who are most concerned with giving
directions to the entire operations. On the quality and performance of its managers and on the
effectiveness of their directions, depends the overall productivity of the assets-both personal
and material. Ineffective management cuts at the very roots of the development and its

185
standing of any rural development programme.

Further, any rural development programme or part of it cannot be seen as a separate

entity of organizational development. Rural development programme must be seen in totality
and as part of the organizational function or responsibility. As we all know an organization is
a structure made up of two or more people who accept coordinated direction to achieve
certain predetermined goals. It refers to total system of relationships, arrangements and
procedures of which the structure is a component. In an organization, there will be a formal
structure consisting of pattern of positions, and parts created by those in-charge of an
enterprise which forms the institutional framework within which it operates, and the informal
structure, a pattern of relationships which grows up as a result of interaction between people
in the organization and management.
In any organization, there are four common aspects namely: (1) a set of objectives, (2)
a set of individuals, (3) clearly differentiated responsibilities for its members and (4) structure
or system of coordinative relationship. In rural development programmes too these four
aspects are found interrelated. Functionally, this hierarchy of relationship is the locus Standi
for allocating and integrating roles and facilities in order to achieve the goals of the social
system. It is here in these relationships that the arrangement of status, the provision of
facilities, the organization of procedures, the regulation of activity, and the evaluation of
performance take place. And these deep relationships are keys for the success of rural
development programmes.
The operational efficiency of any financing/refinancing institution depends to a larger
extent or organizational setup of administration and management. Before focusing our study
on refinance operations of the NABARD, it would be appropriate to examine the organization
and management which is the basis of the working efficiency of an organization or
institution. According to Peter F. Drucker "a poor organization structure makes good
performance impossible no matter how good the individual may be" In the same way, a good
management is necessary to guide and direct people who constitute an important part of an
organisation. As impressed by Peter E. Drucker, that "Management is the organ the life
giving cutting dynamic organ of the institution it manages." The organizational structure may
be defined as which is built up for realization of common objectives. Thus "the success of
management of a development bank depends to a great extent on its organizational set up, the
degree of delegation of authority that exists and the extent of independence it enjoys in its
day-to-day functioning.

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Definitions
The term 'orgnisation' is used in structural sense as well as in functional sense. In the
former sense, an organization is a structural device in which inputs are transferred into output
and as a function it refers to the structure as relationship among positions and jobs, which is
built up for realization of the common objects.
The term 'management' has been defined in different ways by various authors.
Generally, all the definitions are relevant and true as they lay stress on different aspects of the
management. So without going into analytical study of various definitions of the term
'management', we may use it to forecast to plan, to organize, to command, to coordinate and
to control.
The management of NABARD vests in a Board of Directors. The Directors of
NABARD comprises of Chairman, Managing Directors representatives from RBI, GOI and
State Government.
According to Section 5(1) of the NABARD Act 1981, the general superintendence,
direction and management of the affairs and business of the National Bank shall vest in the
Board of Directors, which shall exercise all powers and do all acts and things, which may be
exercised or done by the National Bank.
Under the provision Section 5 (2), subject to the provision of this Act, the Board in
discharging its functions, shall act on business principles with due regard to public interest.
Under the sub Section (3) of Section 5 of the NABARD Act 1981, subject to the
provisions of Sub-Section (i) and save as otherwise provided in the regulations made under
this Act, the managing Director shall also have power of general superintendence direction
and management of the affairs and business of the National Bank and may also exercise all
powers and do all acts and things which may be exercised or done by the National Bank.
Under the provision Section 5 (4), any whole time director appointed under sub-
section (3) of Section 6 shall assist the Managing Director in the discharge of his functions
under sub-section (3) and perform such duties as the Board may entrust or delegate to him.
Under the Provision Section (5), in the discharge of his power and functions under
Sub-Section (3), the Managing Director shall follow such directors as the Chairman may
give.
Under the Provision Section 5 (6), in the discharge of its functions under this Act, the
National Bank shall be guided by such directions in matters of policy involving public
interest as the Central Government, in consultation with the Reserve Bank may give in
writing.

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Board of Directors
Under the provision of sub-section (1) of the Section 6 of the NABARD Act, 1981,
the Board of Directors of the National Bank shall consist of the following namely:
 A chairman
 Two directors from amongst experts in rural economics, rural development
handicrafts and other rural crafts, village and cottage industries and small-scale
industries or in any other matter, the special knowledge or professional experience in
which is considered by the central Government as useful to the National Bank.
 Three directors out of whom two shall be persons with experience in working
cooperative banks and one with experience in the working of commercial banks.
 Three directors from out of the directors of the Reserve Bank.
 Three directors from among the officials of the central Government.
 Two directors from amongst the officials of the state Government and
 A managing director who is assisted in his day to day working by chief General
Manager, General Manager, Deputy General Manager, and other staff who are
assigned specific roles in the Head Office and the Regional office.
Under Section 6 and sub-section (2) of the NABARD Act 1981, the chairman and
other directors shall be appointed by the central government, in consultation with the Reserve
Bank, that it is necessary to do, it may appoint one or more whole-time directors with such
designations as may be deemed appropriate by that Government and any whole time director
so appointed that also be a member of the Board.
Hierarchical Levels
A graph indicating hierarchical level/tier in National Bank is given below:
Chairman

MD (Managing Director)

EDs (Executive Directors Grade F +)

GGM (Chief General Manager -Grade

F) GM (General Manager-Grade E)

DGM (Deputy General Manager-Grade D)

AGM (Assistant General Manager-Grade

C) Manager (Manager-Grade B)

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AM (Assistant Manager-Grade A)

Clerks/ Assistants/Typists/Stenographers/ caretakers/Hostel

Supervision (Group B Staff) Messenger staff/Driver/Semi-
skilled/Skilled Staff (Group C Staff)

Concept of Balanced Board

The Board of Management, which is nominated by the Government, carries out the
administration of the NABARD. The Board of Management is represented by the Reserve
Bank of India, Government of India, State Government and other institutions.
The constitution of Board should be balanced one. In order to keep a well defined
balanced board for a model bank like NABARD there must be representation from all
segments of the society like technocrats, politicians, management, social workers, farmers
industrialist etc. To some extent it is applicable in the constitution of the Board of Directors
in these banks as people from varied interests are there. Some of the Board members belong
to the different departments/branches. Some experts of different fields are also given
directorship. The need is to develop a system of directorship in which persons having wide
and varied experience in the spheres of banking, management, social development of village
industry and political economy will be represented on the Board of Directors. Only such a
Board would be able to carry out efficiently and day-to-day business and policies of the
NABARD for common interest of rural masses.
NABARD has more or less similar Board of Management, which ordinarily meets
once in a quarter of each year. The managing Directors may also call a requisition meeting
under the Chairmanship of one of the Senior Directors, and in the absence of a Senior
Director, an ordinary general meeting should be convened. In view of the present situation of
the balanced board of the NABARD it is clear that the meeting shall be convene only by
requisition or a normal ordinary meeting by the Directors. But in my view some alternative
arrangements should also be followed to convene a meeting wherever required by the rural
masses in order to solve their day-to-day problems. NABARD is established for the benefits
of rural masses through Cooperatives and Regional Rural Banks. Hence the Cooperatives,
Regional Rural Banks should also be permitted to requisition a meeting for their Agenda.
Out of the total number of Directors of NABARD only two directors were experts in
rural economics, three directors, out of whom two shall be the persons with experience in the
working of cooperative banks and one with the experience working in commercial banks,
three directors of RBI, three directors representatives of the central government, two directors
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from amongst the officials of the state government and a managing director who is assisted in
his day-to-day working by Chief General Manager.
In view of the shortcomings of nominated directors mentioned above, the author
recommends that there should be an increased number of directors which will balance the
board one of the Directors should be appointed for a specified period i.e. 3 years to manage
the NABARD accordingly. This will lead to the creation of a Balanced Board in the
NABARD because Directors nominated by-the Central Government on advice of Reserve
Bank of India as well as out of different areas will represent the commercial banks, rural
areas, state government, Reserve Bank of India, central government and other experiences of
various institutions.
A balanced board will contain the master minds to the development of Rural Areas
and the Board and the Directors which are having a comprehensive God gifted knowledge
with business talents to give an impact to its key officers. The Chairman, the Secretary,
Directors, Managing Directors, General Manager, Deputy General Manager and Regional
officer-in-Charge etc. should also be men of proven competence in the technical and
management field which will ultimately search for their proper training etc. The Directors are
supposed to be the key officers who should develop cordial relationship with their
subordinates so as to make effective teams-work. The policy formulation can come only if
there are competent persons at the top of the board for proper functioning. The people
involved in the functioning should have been extremely sensitive towards financial and
technical competence and have paid a little attention towards managerial skill and experience.
There is an imperative need for executive development and managerial growth in the
organisational set-up of other banks also.
Functions of NABARD
NABARD was established as a development bank to perform the following functions:
1. To serve as an apex financing agency for the institutions providing investment and
production credit for promoting various developmental activities in rural areas;
2. To take measures towards institution building for improving absorptive capacity of
the credit delivery system, including monitoring, formulation of rehabilitation
schemes, restructuring of credit institutions and training of personnel;
3. To coordinate the rural financing activities of all institutions engaged in
developmental work at the field level and liaison with the Government of India, the
State Governments, the Reserve Bank and other national level institutions concerned
with policy formulation; and

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4. To undertake monitoring and evaluation of projects refinanced by it.
5. NABARD gives high priority to projects formed under Integrated Rural Development
Programme (IRDP).
6. It arranges refinance for IRDP accounts in order to give highest share for the support
for poverty alleviation programs run by Integrated Rural Development Programme.
7. NABARD also gives guidelines for promotion of group activities under its programs
and provides 100% refinance support for them.
8. It is setting linkages between Self-help Group (SHG) which are organized by
voluntary agencies for poor and needy in rural areas.
9. It refinances to the complete extent for those projects which are operated under the
‘National Watershed Development Programme and the ‘National Mission of
Wasteland Development‘.
10. It also has a system of District Oriented Monitoring Studies, under which, study is
conducted for a cross section of schemes that are sanctioned in a district to various
banks, to ascertain their performance and to identify the constraints in their
implementation, it also initiates appropriate action to correct them.
11. It also supports “Vikas Vahini” volunteer programs which offer credit and
development activities to poor farmers.
12. It also inspects and supervises the cooperative banks and RRBs to periodically ensure
the development of the rural financing and farmers’ welfare.
13. NABARAD also recommends about licensing for RRBs and Cooperative banks to
RBI.
14. NABARD gives assistance for the training and development of the staff of various
other credit institutions which are engaged in credit distributions.
15. It also runs programs for agriculture and rural development in the whole country.
16. It is engaged in regulations of the cooperative banks and the RRB’s, and manages
their talent acquisition through IBPS CWE conducted across the country.
Other Functions
The main functions of the National Bank as per the NABARD Act are given below:
1. Refinance of Production and Marketing Credit
Refinance is provided in the form of a consolidated limit to SCBs on behalf of all
eligible DCCBs for financing Seasonal Agricultural Operations (SAO). The activities include
ploughing and preparing land for sowing, weeding, transplantation, applying inputs such as
seeds, fertilizers, etc., and labour of all operations. Refinance is available to SCBs on behalf

191
of DCCBs for financing marketing of crops for affording reasonable opportunities at
remunerative price to growers for their produce by enabling them to hold on to the produce
for time being. Such activities are permitted against pledge of agriculture produce kept in
own godowns also. Ceiling of Rs.5 lakh per borrower, maximum period of credit up to 12
months is provided.
Short-term credit (duration 18 months)
SCBs or financial institutions approved by the Reserve Bank in this behalf mm seek
refinance assistance from NABARD under Section 21 of the NABARD Am for the following
purposes:
a. Agricultural operations or marketing of crops, or
b. Marketing and distribution of inputs necessary for agriculture or rural development,
or
c. Any other activity for the promotion of or in the field of agriculture or rural
development, or
d. Production or marketing activities of artisans or small scale industries in the tiny and
decentralized sector, village and cottage industries or if those engaged in the field of
handicrafts and other rural crafts
e. Bonafide commercial or trade transaction
The Short-Term Seasonal Agricultural Operations (ST-SAO) loans outstanding
against advances on 31 March 2015 stood at Rs.58,348.48 crore to SCBs; and Rs.213.03
crore to commercial banks for financing PACS. The Short-term Other than Seasonal
Agricultural Operations (ST-OSAO) loans outstanding amounted to Rs.145.39 crore to SCB
as on 31 March 2015. (Source: NABARD, Annual Report)
2. Conversion Facilities (duration - 7 years, facilities including rescheduling)
In terms of Sec.22 of the Act, NABARD is empowered to convert short term loans
granted to SCBs and RRBs into medium term loans for period exceeding 7 years under
condition of drought, famine or other natural calamities. For the purpose of conversion it
would draw funds from the National Rural Credit Stabilization Fund (formerly known as
NAC Stabilization Fund) maintained by RBI and transferred to NABARD. Further,
contributions could be made to the fund every year.
3. Medium Term Credit (duration 7 years)
NABARD would provide medium term loans for periods not less than 18 months and
not exceeding 7 years for agriculture and rural development and such other purposes as the
NABARD may determine from time to time. These loans are available to SCBs and RRBs.

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The loans and advances for medium term purposes provided to SCBs under Section 24 of the
Act will have to be fully guaranteed as to repayment of principal and payment of interest by
the State Governments. Such guarantees can, however, be waived by the National Bank under
certain circumstances.
4. Long Term Credit (duration 15 years)
NABARD will provide long-term loans and advances by way of refinances or on such
terms and conditions, as it may think fit to impose, to SCARDBs. RRBs, SCBs, Commercial
Banks, Scheduled Primary Urban Co-operative Banks, etc. for promoting agricultural and
rural development. The period of long term credit is up to a maximum period of 15 years.
The long term credit is extended to farm sector like agriculture and allied activities such as
minor irrigation, farm mechanisation, land development, soil conservation, dairy, sheep/goat
rearing, poultry, piggery, plantation/horticulture, forestry, fishery, storage and market yards,
bio-gas and other alternate sources of energy, sericulture, apiculture, animals and animal
driven carts, agro-processing, agro-service centres, etc. The long term credit covers non-farm
sector like Artisans, Small & Micro Enterprises, handicrafts, handlooms, powerlooms, etc.
Refinance from NABARD
The agency-wise disbursement made by NABARD from 1982-83 to 1986- 87
witnessed an increasing trend. During the year 1986-87 the long term finance disbursed by
SCARDBs and SCBs stood at 443 crore, 65 crore respectively as against Rs.235 crore and 45
crore during 1982-83. SCBs charge interest on their loans based on the rate of interest
charged by NABARD. The rate of interest charged by NABARD on ST/MT refinance to
cooperative banks during January 2017 is indicated below:
Table No: 5.1
Rate of Interest on Refinance (w e f 31 January 2017)
S. Interest
Particulars
No. Rate (%)
1 Short Term Refinance Assistance
a SCBs for financing crop loans 4.50
b DCCBs directly financing for crop loans 4.50
Commercial Banks./RRBs in respect of their finance to PACS towards crop
c 4.50
loans
d SAO - Additional Limit to SCBs/RRBs 7.5
e ST - SAO to eligible Low Risk SCARDBs 7.5
f ST(OSAO) 7.5

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SCBs/RRBs - Conversion of Short Term- crop loans into Medium Term
g loans (3% less than the interest rate charged by banks to ultimate 8.20
beneficiaries subject to minimum interest rate at 8.20%)
2 Long Term Refinance Assistance
LT loan to State Government for contribution to share capital of coop,
a 8.5
credit institutions
b RRBs/ SCBs / SCARDBs
- Refinance for 5 years and above 8.4
- Refinance for 18 months to less than 5 years 8.5
c UCBs
- Refinance for 5 years and above 8.8
- Refinance for 18 months to less than 5 years , 9.0
LT Refinance for agriculture and allied sectors to SCBs and RRBs under
d 5.15
Long Term Rural Credit Fund (LTRCF)
Source: NABARD website)
Refinance Support Post Demonetization, 2016
The Prime Minister, on 31st December 2016, made an announcement to provide
farmers better access to loans from Cooperative Banks and PACS and accordingly an
additional amount of Rs 20,000 crore has been allocated towards the same through
NABARD. Accordingly, the quantum of refinance to SCBs for financing ST (SAO) loans has
been increased as enumerated below:
The normal quantum of refinance will be as under:
Eligible limit
Net NPAs of SCB [As a % Realistic Lending Programme (RLP) of
eligible DCCBs]
Up to 6% 55%
Above 6% and upto 10% 50%
Above 10% and up to 20% 45%
Above 20% Not eligible

SCBs in the North Eastern Region, Jammu & Kashmir, Sikkim, Himachal Pradesh,
Uttarakhand and Andaman & Nicobar Islands, will be eligible for additional refinance of
20% with relaxation in net NPAs, as under:
Eligible limit
Net NPAs of SCB [As a % Realistic Lending Programme (RLP of
eligible DCCBs]
Up to 15% 75%
Above 15% and upto 25% 70%
Above 25% Not eligible

SCBs in Eastern Region viz. Bihar, Orissa, West Bengal, Chhattisgart States and 28

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districts in Eastern Uttar Pradesh (under Bringing Green Revolution in Eastern India
(BGRE1) scheme of Govt, of India) will be eligible for additional refinance of 5% over and
above the applicable normal quantum of refinance, as under:

Eligible limit
Net NPAs of SCB [As a % Realistic Lending Programme (RLP) of
eligible DCCBs]
Up to 6% 60%
Above 6% and upto 10% 55%
Above 10% and up to 20% 50%
Above 20% Not eligible
(Source: Circular No.0'2 / DOR -OI Z2017 dated 5.1.2017 of NABARD)
Security
The type of security that the institutions availing of refinance facilities from
NABARD are indicated in Sections 21 to 25 of NABARD Act, 1981 from which it will be
seen that some flexibility has been introduced as regards the nature of the security. Normally
the credit limits are sanctioned to SCBs on behalf of affiliated DCCBs against two "good
signatures" of which one has to be that of the state cooperative bank and the other as DCCBs
concerned for the purpose of "good signatures". Audit classification has been given due
importance and taken as an indicator of the cooperative bank's financial position and
operational efficiency. Institutions, which are classified as "A" and "B" categories under
audit, fall under the term "good". The signatures of "C" class banks are accepted as "good"
only on the special recommendation of the Registrar of Cooperative Societies. The "D" class
banks are not formally eligible for any line of credit from the NABARD. But credit limits are
sanctioned to SCBs on behalf of such weak DCCBs against the State Government guarantee.
NABARD has a special responsibility for institution building and it does not
therefore, merely confines its activities to sanction of credit limits and loans for production
and investment purposes but also plays an effective role in formulation of schemes/projects,
their monitoring and evaluation.
Direct Lending to Cooperative Banks
NABARD usually provides refinance to DCCBs through SCBs. Direct refinance
assistance to DCCBs was conceived as an additional line of finance by NABARD during
2010-11 as was recommended by the 'Task Force on Revival of Short-Term Rural
Cooperative Credit Structure', 2004.
Credit limit is sanctioned to cooperative banks for lending to farmers, traders,
artisans, etc. through their branches and through PACS for a variety of purposes such as
working capital; repair and maintenance of farm equipment and other productive assets;

195
storage, grading and packaging of produce; marketing activities; crop loan above Rs.3 lakh;
redemption of old debts; and other socio-economic needs.
The sanction is in the form of cash credit accommodation to DCCBs or SCBs without
a limit on the number of withdrawals or repayments, provided the outstanding never exceeds
the credit limit.
During 2014-15, refinance assistance aggregating Rs.5053.76 crore was sanctioned to
59 DCCBs and 7 SCBs, with disbursements of Rs.4893.16 crore till 31 st March 2015. In
addition, NABARD designed another product to offer refinance assistance to DCCBs and
SCBs against pledge of sugar stocks belonging to cooperative and private sugar factories.
During 2014-15, four cooperative banks were sanctioned refinance assistance of Rs.626.50
crore under this scheme. This enabled the banks to promptly pay farmers for the procurement
of sugarcane. (Source: NABARD Annual Report, 2015)
A multipurpose short-term credit product designed for direct lending to DCCBs to
meet the requirements of individual borrowers and affiliated PACS for working capital and
farm asset maintenance was launched in 2011-12. The quantum of outstanding under this line
of credit stood at Rs.2818.17 crore on 31st March 2015.
Credit Authorization Scheme
It is a scheme introduced by RBI in 1965 as an additional measure for credit control
with a view to rationalizing of credit to larger borrowers. Prior authorization is required from
RBI by banks for extending credit to borrowers beyond certain cut off levels. In the case of
SCBs and DCCBs, authorization is given by NABARD. Prior authorization for cooperative
banks is required in the following circumstances:
1) Before sanctioning term loans for meeting block capital requirements of any
manufacturing or processing cooperative society and if the amount involved (from all
sources) exceeds Rs.25 lakh
2) For sanctioning working capital limit of Rs.300 lakh and above in the case of SCB
and Rs.150 lakh and above in the case of DCCB.
Developing PACS into Multi Service Centres
In order to enable PACS to provide more services to their members and generate
income for themselves, NABARD taken initiative to develop PACS as Multi Service Centres
which includes the following:
❖ Establishment of agro service centres;
❖ Rural retail outlets;
❖ Agri-marketing infrastructure

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❖ Rice mills;
❖ Rural warehouses (godowns);
❖ Reverse osmosis water treatment plants;
❖ Tent houses and the catering business;
❖ Farm machinery or implements for custom hiring;
❖ Transport vehicles for agricultural produce; and
❖ Strengthening backward and forward linkages through on-lending to members for
agricultural and allied activities.
PACS Development Cell
NABARD extended grant assistance to set up PACS Development Cell (PDC) in
DCCBs so as to help PACS to develop and grow their business. During 2014-15, 10 PDCs
have been sanctioned, taking the cumulative total number of PDCs to 96.
Swarozgar Credit Card Scheme
NABARD acted as the nodal agency for monitoring of Swarojgar Credit Card (SCC)
Scheme, introduced to provide adequate, timely and uninterrupted credit to the small artisans,
handloom weavers and other self-employed persons including micro-entrepreneurs, SHGs,
etc.
Potential Linked Credit Plan (PLCP)
NABARD prepares Potential Linked Credit Plans (PLCPs) for all districts in the
country every year. The PLP outline the credit potential in agriculture, allied sectors and rural
development projects in the district. The PLCPs serve as an important tool for banks in their
credit planning exercise.
Knowledge Center
The National Commission on farmers has recommended the establishment of Rural
Knowledge Centers all over the country using modern Information and Communication
Technology (ICT). The goal is to set up a knowledge center in every village by the 60 th
anniversary of Independence Day. The Government has decided to route its support through
NABARD and provide Rs.100 crore out of Rural Infrastructure Development Fund (RIDF).
Self Help Groups (SHGs)
A SHG is a group of 10 to 20 members from very low income families, usually
women, which mobilizes savings from members and uses the pooled funds to give loans to
those members who need them, with the interest rates on deposits and loans being determined
entirely by members. The main characteristics of SHGs are as follows:
❖ The group need not be registered.

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❖ From one family, only one member. (More families can join SHGs this way)
❖ The group consists of either only men or of only women. (Mixed groups are generally
not preferred)
❖ Women's groups are generally found to perform better.
❖ Members have the same social and financial background. (Members interact more
freely this way)
❖ Compulsory attendance. (Full attendance for larger participation)
SHG Model in India
In India, three different models of linkage of SHGs to the financial institutions have
emerged. They are:
❖ Banks, themselves form and finance the SHGs.
❖ SHGs are formed by NGOs and other agencies but financed by banks.
❖ Banks finance SHGs with NGOs and other agencies as financial intermediaries.
SHG - Bank Linkage Programme
Microfinance is emerging as a powerful instrument for poverty alleviation in the new
economy. In India, Microfinance scene is dominated by Self Help Group (SHGs)-Bank
Linkage Programme as a cost effective mechanism for providing financial services to the
"Unreached Poor" which has been successful not only in meeting financial needs of the rural
poor women but also strengthen collective self-help capacities of the poor, leading to their
empowerment.
Rapid progress in SHG formation has now turned into an empowerment movement
among women across the country. Cooperatives can play an important role in SHG-Bank
linkage, but States have to enact the enabling legislation for the purpose.
The SHG - Bank Linkage Programme started as an Action Research Project in 1989.
In 1992, the findings led to the setting up of a Pilot Project. The pilot project was designed as
a partnership model between three agencies, viz., the SHGs, Banks and Non-Governmental
Organisations (NGOs).The SHG Bank linkage Programme which started in 1992 has grown
exponentially over three decades and around 79.03 lakh SHGs are linked to different Banks
up to 2016.
Present status of SHG Programme
SHGs have also proven to be profitable propositions for rural and semi- urban bank
branches with over 95% of recovery and aggregated transactions one SHG means 10 to 20

198
individual members). Unlike the majority of agriculture and rural clients, SHGs operate their
saving accounts on a regular basis, and maintain credit balances in their account. Above all,
the SHG has given the poor women an identity, access to information, and bargaining power.
Poor women have always had to bear the double burden of being poor and women.
During 2015-16, 79.03 lakh SHGs had savings deposits with banks to the tune of Rs.
13691.39 crore. During the same period, 18.32 lakh SHGs availed bank loan to the tune of
Rs.37286.90 crore in the country.
Joint Liability Groups (JLGs)
The Joint Liability Groups (JLGs) are positioned as a strategic intervention for
purveying credit to small farmers, marginal farmers, tenant farmers, etc., thereby reducing
their dependence on informal sources of credit. The objectives of promoting JLGs are
augmenting flow of credit to tenant formers, extending collateral free loans to them and
building mutual trust and confidence between banks and tenant farmers. NABARD promoted
lakh JLGs upto March 2015. During 2014-15, NABARD sanctioned Rs.109.76 crore
for the promotion of JLGs.
Farmers' Clubs
NABARD introduced the concept of Vikas Volunteer Vahini (VVV) programme in
November 1992 to propagate the philosophy of development through credit with the help of a
group of farmers organized for the purpose. The programme was later rechristened as
Farmers Club Programme in 2005. The VVV programme as conceived by NABARD in the
initial years, laid emphasis on propagating 5 principles of development through credit viz.,
proper credit usage, enforcing strict credit discipline, adoption of proper production
techniques, proper savings and prompt repayment. Over the years, the role of Farmers' Clubs
has undergone many changes and currently, their role has been enlarged and expanded to
enable them to act as BFs/BCs for banks, strengthen agricultural extension services, facilitate
transfer of technology, undertake collective purchase of inputs, production and marketing ,
capacity building of members, formation of SHGs, JLGs, producer groups/companies,
federation of farmers' Clubs, undertake community related works, assume the role of a leader
and act as NGOs. There were 1.47 lakh farmers' clubs at the end of March 2015.
Cooperative Development Fund
With a view to strengthening the cooperative credit institutions, NABARD provides
financial assistance for giving impetus to institutional development in the form of grant-in-
aid, soft loan or grant-cum-soft loan for various purposes aimed at improving the
performance of these institutions from Cooperative Development Fund (CDF) constituted in

199
1993 under Section 45 of NABARD Act 1981, with an initial contribution of Rs.10 crore.
Assistance from the Fund is available to co-operatives in the form of soft loans/grants for
resource mobilisation, human resource development, capacity building and operational
streamlining, setting up of PACS Development Cells in DCCBs etc., which in turn contribute
to their functional efficiency. During 2014-15, financial assistance of Rs.11.71 crore was
sanctioned.
Core Banking Solutions (CBS) for Cooperatives
NABARD played the role of advisor and facilitator in implementation of Core
Banking Solutions (CBS) in co-operative banks. As on 30th June 2014 a total of 6953
branches of 14 SCBs and 187 DCCBs came into the umbrella of 'NABARD initiated project
on CBS in cooperatives'.
Rural Innovation Fund
Rural Innovation Fund (RIF) constituted by NABARD, in collaboration with the
Swiss Agency for Development and Co-operation (SDC) in 2005-06, continued to support
innovative, risk- friendly projects in farm, non-farm and micro finance sector, having
potential to promote sustainable livelihood opportunities in the rural areas.
SOFTCOB
Scheme for Financial Assistance for Training of Cooperative banks (SOFTCOB) is a
financial assistance scheme extended by NABAD covering training cost, library facilities and
capital expenses like training equipments is sanctioned to ACSTI, RICMs/ICMs and other
training institutes. During 2014-15, Rs.5.32 crore has been disbursed under SOFTCOB.
GIZ-NABARD Rural Financial Institutions Programme
NABARD and GIZ (Deutsche Gesellschaftfur International Zusammenarbeit, referred
earlier as GTZ) are collaborating under the Rural Financial Institutions Programme (RFIP)
within the framework of Indo-German bilateral technical cooperation. Co-operation between
NABARD and GIZ on financial inclusion is focused on improving banking services,
including remittances offered through the BC channel. The initiatives aim at improving the
viability of BC-based services by stimulating demand for services, supporting the
development of new or improved BC models that leverage on existing ground level networks
(SHGs, PACS, MFIs), fostering the utilisation of existing payments infrastructure, supporting
knowledge generation and knowledge exchange for the sector.

Centre for Professional Excellence in Co-operatives (C-PEC)

NABARD in collaboration with GIZ established the Centre for Professional

200
Excellence in Cooperatives (C-PEC) at BIRD, Lucknow in 2008. The main objectives of C-
PEC are:
 To coordinate the training efforts of various Co-operative Training Institutes (CTIs)
 To develop a process of accreditation of national and state level CTIs
 To evolve uniform standards for training
 To build and certify the professional competence in CCS
CPEC offers the following courses:
CTFC - "Certified Trainer for Financial Cooperatives"
CPS - "Certified PACS Secretary"
CPCB - "Certified Professional in Cooperative Banking" (Level - I)
CPCB - "Certified Professional in Cooperative Banking" (Level - II)
Inspection and Supervision of Banks
NABARD inspects SCB and DCCB in terms of the powers vested under Section
35(6) of the B.R. Act, 1949 (AACS), and of RRB under Section 35(6) of the B.R. Act, 1949.
Keeping in view the need for effective supervision over a sizeable number of weak banks,
NABARD's inspections are focused on ensuring conformity with banking regulations and
facilitating internalization of prudential norms.
NABARD Chair Unit Scheme
For establishing strong research linkages with reputed institutions and to pursue
extensive research in the area of agriculture and rural development, the NABARD Chair Unit
Scheme was established.
Training & Consultancy
National Bank provides facilities for training for dissemination of information and
promotion of research including the understanding of studies, researches, techno-economic
and other services in the field of rural banking, agriculture and rural development.
NABARD provides training facilities for the refinance institutions and agencies
involved in rural development through Bankers' Institute of Rural Development (BIRD),
Lucknow and through its Regional Training Centers (RTCs) with a view to broad-based
training and capacity building efforts. The other training centers established by NABARD in
the country are:
National Bank Staff Training Centre, Lucknow, BIRD, Hyderabad, BIRD. Mangalore
and BIRD, Bolpur. In addition to their own training institutes, the National Bank provides
training facilities and faculty support to conduct various programmes conducted by the staff

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training centers of SCARDBs in the country. Agricultural Credit Staff Training Institute
(ACSTI), Institute of Cooperative Managements (ICMs) and Vaikunth Bhai Mehta National
Institute of Cooperative Management (VAMNICOM), Pune.
Organisation Structure of NABARD
"A key to the successful performance of any institution and maintenance of a healthy
portfolio is the existence of an efficient and adequate organizational set up."
The organizational structure depends on the following departments.
 Planning and Development Policy Department (Farm Sector and Non Farm Sector)
 Institutional Development Department
 Inspection Department
 Economic Analysis and Publications Department
 Project and Operations Department
 Technical Services Department
 Human Resources Management Department
 Management Services Department
 Human Resources Development Department
 Finance and Accounts Departments
 Law Department
 Security's Department
 Internal Audit Department
 Journal Administration and Premises Department
 Vikas Volunteer Vahini Department
 Investment Monitoring Department
 Resource Mobilization Department
Various Departments of NABARD
The recommendations made by a team of management consultants from Indian
Institute of Management (IIM). Ahmedabad, appointed by the erstwhile ARDC, the set-up at
the Head Office and the Regional Offices of NABARD was reorganized. The new structure
was introduced in September 1982. Before we discuss the functions performed by various
departments in detail, it would be appropriate to mention that all the departments work
directly under the Managing Director and the heads of the departments are directly
responsible to him.
Planning and Development Department
This department functions under the headship of Chief General Manager. It contains

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three divisions, viz., Policy Formulation (farm sector) Division, External Aid Division and
Perspective Planning and General and Advisory Services Division. A separate Deputy
General Manager supports each division. The Policy Formulation Division undertakes the
responsibility of formulation of various plans for the development of agriculture and other
farm sector activities. The External Aid Division is responsible for the implementation of
such projects in which amount of external aid from World Bank and its affiliate International
Institutions/Agencies is involved. The Third division of the Planning and Development
Department is responsible for perspective Planning. It also provides general and advisory
services.
Another Planning and Development Department is also established. It is also headed
by a General Manager and supported by a Deputy General Manager. The division of this
department is responsible for the formulation of such policies related to non-farm sector.
Institutional Development Department
This department acts under the headship of Chief General Manager. Mainly there are
two divisions of the department. This first division may be divided as RRBs Division and
Commercial Banks Division, while the other Division and Special Investigation Division.
The department is responsible for implementing such measures, which may improve the
efficiency of various credit institutions engaged in the field of agricultural credit.
The RRBs division acts for improving the overall performance of the RRBs. For this
purpose this division undertakes various activities such as, recruitment and promotion
policies of RRBs, feasibility of enlarging the scope of lending by RRBs, increasing the RRBs
involvement in schematic lending, enabling the RRBs to formulate viable schemes and other
assistance for the improvement in their performance.
The Commercial Banks Division performs such functions, which are related to ensure
the participation of CBs in refinancing, review of system of maintaining demand, collection
and balance (DCB) register by CBs, review of their recovery performance etc. This division
helps to increase the involvement of CBs in agricultural and rural lending.
The Cooperative Bank Division performs various activities such as rehabilitation of
cooperative institutions, strengthening of cooperative structure investigation of overdues,
augmenting the bad debt reserves, stepping up recovery measures, rationalization of loan
policies and procedures, toning up the management of CCBs.
The LDBs Division takes different measures to improve the functioning of the
SLDBs like, stipulation of recovery discipline for lending eligibility PLDBs/branches of
SLDBs, training of SLDB staff, drawing up rehabilitation programmes, providing

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organization and managerial improvements of SLDBs and PLDBs, etc.

The Special Investigation Division undertakes various types of investigations to sort-

out the problems of the cooperative sector and provide appropriate suggestions.
Department of Inspection
Chief General Manager is the head of this department and it is located at Hyderabad.
The inspection Department is divided into divisions. The first has two parts-Policy and
Programme Division and Editing and Follow-up Division. It is under the charge of one
Deputy General Manager.
The second is the Inspection Division. The Division is also under the charge of a
Deputy General Manager. The Inspection Departments through its various divisions conduct
the inspection of SCBs. RRBs and CCBs. The purpose behind this function of the department
is to ensure that the interests of the depositors are protected and the banking institutions
related with NABARD followed the healthy and approved banking practices and not against
the interests of the depositors. The department prepares the inspection reports, which include
suggestions for improvement in the working of the banks. These reports are sent to the
concerned institutions and to other concerned authorities for necessary action. In this regard
the various actions taken by the concerned banks and other authorities to remove the defects
and implementation of the department follows up the suggestions mentioned in the inspection
reports.
Economic Analysis and Publications Department
This department acts under the headship of Chief General Manager. There are two
divisions of the department and a Deputy General Manager supports each. One of these
divisions is divided in three-parts, viz., the first is Evaluation Studies Division which is
responsible for launching evaluation studies regarding projects implemented by the
NABARD, while the second is Monitoring and Analysis Division which undertakes
monitoring of schemes and by monitoring the division provides a feedback. on current and
completed schemes. The monitoring and evaluation activities enable NABARD to learn
useful lessons from the experience of development schemes. The third is Data Bank and
Publication Division. This is responsible to collect and publish various types of data and
other literature regarding institutional credit for agriculture and rural sector.
The Special Studies Division undertakes various studies of farm and non-farm sector.
The Economic Analysis and Publication Department publishes reports on studies undertaken
and brings out other publications covering matters connected with rural other ad-hoc
publications, it brings out a journal 'National Bank News Review' on monthly basis. The
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circulars of NABARD and statistical statements relating to cooperative movement in India
(credit and non-credit societies separately) are also brought out annually by this department.
Advance statistics on important items of assets, liabilities, etc., of credit and non-credit
societies are also brought out to serve the immediate requirements of user institutions before
the regular publications relating to these societies are published. The department also
publishes a Hindi-English house journal entitled 'NABARD PARIVAR' to provide a medium
of expression for the literary, artistic and other creative talents amongst its employees.
Projects and Operation Department
The projects and operation departments have been set up with a purpose to cover
different regions of the country, three projects and operation Departments have been
established. The departments prepare various projects for agricultural and rural development.
These departments also implement the various operations, which are performed by
NABARD.
The first Project and Operation Department is headed by the General Manager and is
divided into three divisions. For the support of General Manager one Deputy General has
been deputed in each division. These divisions are the Northern Division, the Southern
Division and a General Division, which are responsible for the preparation of multistate
projects and monitoring and administration in the Northern, and Southern divisions.
A General Manager also heads the second Project and Operation Department. This
department has two divisions, i.e., the Western Division and General Division. One Deputy
General Manager for each division has been appointed. The Western Division is responsible
for the preparation of projects and implementation of other operations in the area. The
general division of this department undertakes the implementation of credit authorization
schemes and various other operational policies.
Chief General Manager heads the third Project and Operation Department with
support of a Deputy General Manager. It performs its activities in Eastern Division.
Technical Services Department
The Managing Director heads this department. It provides all types of technical
assistance, advice and other support in implementing various programmes of agricultural and
rural development. Under this department various cells have been established for various
purposes. These are forestry, land development/soil conservation/agronomy agricultural
engineering/farm mechanization, handlooms and khadi and village type industries cells. Each
acts under a manager rank official. While civil engineering and market yards are under the

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charge of a Deputy Manager. The fisheries, animal husbandry and dairy, minor irrigation,
hydrogeology and irrigation engineering and horticulture and plantation cells are functioning
under Deputy General Manager.
Department of Human Resource Management
This department is headed by the Chief General Manager and is divided into three
divisions i.e. Personnel Administration Division, Personnel Policy Division, and Training
Division. Each division is under the charge of a Deputy General Manager. This department is
responsible for preparing various schemes for upgrading the human resource in NABARD
and other credit institutions. The department also prepares outlines for various training
courses, seminars and workshops, etc. It is also responsible for personal administration and
industrial relations.
During the year 2002-03, 1774 officers received training in various courses conduct
by the National Staff College (NBSC), Lucknow and 1364 officers were trained by NBSC
through 62 programmes. Therefore, 172 staff members (Group B) were trained with a view to
upgrading their skills for improved job performance and shouldering higher responsibilities
and NBTC organized 5 general programems for 98 (Group C) employees.
Two teams comprising 28 and 27 senior officers from the National Bank attended the
'Change Management Programme' at Management Development Institute (MD1), Gurgaon
with exposure visits to Germany and France and at Administrative Staff College of India
(ASCI), Hyderabad with exposure visits to the Netherlands, France and Italy to study the key
issues associated with effective corporate strategies and for playing an effective lead role in
introducing changes in the Bank.
162 officers from the National Bank and 44 officials from partner institutions (11
from cooperative banks, 31 from RRBs and 2 from NGOs) were deputed abroad for various
overseas training programmes/exposure visits, workshops and seminars.
Department of Management Services
Organisation structure at Regional office is based on the recommendation made by
the Management Service Department. However, depending on the needs of concerned
officers, some flexibility in groupings of functions is possible.15 The department is headed by
the Chief General Manager and supported by a Manager. This department performs all the
functions related to the management services.
Human Resource Development Department
The HRDD was set up in 2000 by combining activities of the management service
department and the training activities from the Human Resource Management Department.

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The Chief General Manager heads the department.
Department of Finance and Accounts
The Finance and Accounts Department is very important for any institution. This
department is headed by a Chief General Manager and supported by a Deputy General
Manager. A training division of the human resource management department under the
charge of Deputy General Manager is also attached with the department. The finance and
accounts department is responsible for : (i) preparation of budget, (ii) planning and
mobilization or resources, (iii) preparation of reports, returns and other correspondence
therewith, (iv) planning for utilization of funds, (v) framing of rules relating to provident
funds, medical benefits and other allowances payable to the employees of the NABARD (vi)
maintenance of proper books of accounts of all receipts and payments, (vii) preparation of
bills and disbursement of salaries, to deposits accounts maintained by the NABARD.
Department of Law
The Department of Law is headed by the Chief General Manager and supported by a
Manager. It is responsible for: Ascertaining the legal accuracy and title deed verification of
assets acquired by NABARD. Preparation and execution of all legal documents, and taking
legal actions where it is necessary to protect the interest of NABARD, etc,.
Secretary's Department
This department is headed by Chief General Manager and supported by a secretary.
This department performs all the secretarial works.
Internal Audit Department
The department is headed by Chief General Manager and acts under the charge of
Deputy General Manager. The department conducts internal audit from time to time to ensure
compliance with rules and efficient discharge of functions both in the Regional Offices and
Head Office. The department completed first round of audit of All Regional offices by
December, 1982. Under the second round the audit of 3 Regional Offices was completed by
June 1983. But the Zonal Audit Cell at Kolkata completed inspection in respect of 4 Ros in
the NER. Complete inspections of four HO Departments, besides partial inspection of two
departments were undertaken during the year 2002-03.
General Administration and premises Department
The Chief General Manager heads the department. It is divided in two divisions,
namely General Administration division and Premises Division. The two divisions are under
the charge of a Deputy General Manager. This department is responsible for establishment
work and maintenance of premises. Acquisition of land, arrangement of additional

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accommodation and construction of premises and buildings are performed by this
department.
National Bank continued to lay considerable emphasis on preventive vigilance system
in the organization. Vigilance Awareness Week was observed by the Bank from October 31
to 6 November 2002 as advised by the Central Vigilance commission, Gol. During the week,
a pledge, as forwarded by the Commission was administered to all the staff. A special
training programme on Vigilance-Domestic enquiry and Related Aspects' was conducted for
27 officers at NBSC, Lucknow in October 2002. Preventive Vigilance Inspection of 13
Ros/TEs was also conducted during the year 2002-03.
Industrial relations during the year continued to be cordial. Periodical discussions
were held with the All India NABARD Officers' Association; the All India NABARD
Employees' Association and the All India NABARD Progressive Employees' Welfare
Association (AINPEWA)
Vikas Volunteer Vahini Department
The Director General of NABARD heads this department. The department is located
in New Delhi. This department is established for disseminating the five principles of
'Development Through Credit' among the rural masses. The five principles briefly are : (i)
Credit must be used in accordance with suitable methods of science and technology, (ii) The
terms and conditions of credit (techno-economic parameters) must be fully respected, (iii)
work must be carried out with the desired skill so as to realize optimum increase in the
productivity and income, (iv) A part of the additional income created by credit must be saved,
and (v) Loan installments must be repaid in time and regularly to facilitate recycling of credit.
Investment and Monitoring Department
With a view to strengthening the mechanism for monitoring refinance supported
investment projects implemented with loans from Rural Infrastructure Development (RIDF),
an exclusive Department of Investment Monitoring (DIM) has been set up at the Head Office
of the National Bank from 15 September 2000. DIM has been a assigned the responsibility of
monitoring and evaluation of projects under RIDF, earlier looked after by the State Projects
Department (SPD) as also District Oriented Monitoring (DOM) studies, taken over from the
Investment Credit Department (ICD). Chief General Manager heads this department.
Resource Mobilisation Department
Recognizing the importance of resource mobilization and having been permitted to
issue Capital Gains Bonds under Section 54(EC) of Income Tax Act, 1961, as announced in
the Union Budget 2000-01, the National Bank set up a new Department at it's Head Office.

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The Department is responsible for the entire gamut of resource mobilization by the National
Bank, including borrowings from Gol, RBI, domestic as well as international agencies and
mobilization of funds from the open market. Chief General Manager heads this department.
Direct and Indirect Finance by NABARD
Finance to individual farmers, includes Self Help Groups (SHGs) or Joint Liability
Groups (JLGs), i.e., groups of individual farmers, provided that the banks maintain
disaggregated data on such finance for Agriculture and Allied Activities (dairy, fishery,
piggery, poultry, beekeeping, etc.).
Short-term loans for raising crops, i.e., for crop loans include traditional/non-
traditional plantations and horticulture.
Advances up to Rs 10 lakh against pledge/hypothecation of agricultural produce
(including warehouse receipts) for a period not exceeding 12 months, irrespective of whether
the farmers were given crop loans for raising the produce or not.
Working capital and term loans for financing production and investment requirements
for agriculture and allied activities.
Loans to small and marginal farmers to purchase land for agricultural purposes.
Loans to distressed farmers indebted to non-institutional lenders, against appropriate
collateral or group security.
Loans granted for pre-harvest and post-harvest activities such as spraying, weeding,
harvesting, grading, sorting, processing and transporting undertaken by individuals, SHGs
and cooperatives in rural areas.
Finance to others (such as corporate, partnership firms and institutions) for
Agriculture and Allied Activities (dairy, fishery, piggery, poultry, beekeeping, etc.).
Loans granted for pre-harvest and post-harvest activities such as spraying, weeding,
harvesting, grading, sorting and transportation.
Finance up to an aggregate amount of Rs one crore per borrower for the purposes
listed above.
One-third of loans in excess of Rs one crore in aggregate per borrower for Agriculture
and Allied Activities.
Indirect Finance by NABARD
Two-thirds of loans to corporates, partnership firms and institutions in excess of Rs
one crore in aggregate per borrower for agriculture and allied activities Loans to food and
agro-based processing units with investments in plant and machinery up to Rs 10 crore,
undertaken by those other than individuals, SHGs and cooperatives in rural areas.

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(i) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc.
(ii) Loans up to Rs 40 lakh granted for purchase and distribution of inputs for the
allied activities such as cattle feed, poultry feed, etc.
Finance for setting up of Agri-clinics and Agribusiness Centres Finance for hire-
purchase schemes for distribution of agricultural machinery and implements.
Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers’
Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).
Loans to cooperative societies of farmers for disposing of the produce of members.
Financing the farmers indirectly through the cooperative system (otherwise than by
subscription to bonds and debenture issues).
Loans for construction and running of storage facilities (warehouses, market yards,
godowns, and silos), including cold storage units designed to store agriculture
produce/products, irrespective of their location.
If the storage unit is registered as SSI unit/micro or small enterprise, the loans granted
to such units may be classified under advances to small enterprises sector.
Advances to Custom Service Units managed by individuals, institutions or
organisations that maintain a fleet of tractors, bulldozers, well-boring equipment, threshers,
combines, etc., and undertake work for farmers on contract basis.
Business Operations performance of NABARD
1. Production Credit:
NABARD sanctioned aggregating of 66,418 crore short term loans to Cooperative
Banks and Regional Rural Banks (RRBs) during 2012-13, against which, the maximum
outstanding was 65,176 crore.
2. Investment Credit:
Investment Credit for capital formation in agriculture & allied sectors, non-farm
sector activities and services sector to commercial banks, RRBs and co-operative banks
reached a level of 17,674.29 crore as on 31 March 2013 registering an increase of 14.6 per
cent, over the previous year.
3. Rural Infrastructure Development Fund (RIDF)
Through the Rural Infrastructure Development Fund (RIDF) 16,292.26 crore was
disbursed during 2012-13. A cumulative amount of 1,62,083 crore has been sanctioned for
5.08 lakh projects as on 31 March 2013 covering irrigation, rural roads and bridges, health
and education, soil conservation, drinking water schemes, flood protection, forest
management etc.

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New Business Initiatives:
1. NABARD Infrastructure Development Assistance (NIDA):
NABARD has set up NIDA, a new line of credit support for funding of rural
infrastructure projects. The sanctions under NIDA during the year 2012-13 was 2,818.46
crore and disbursement was 859.70 crore.
2. Direct refinance assistance to CCBs for short term multipurpose credit:
Direct refinance assistance to CCBs was conceived and additional line of finance for
CCBs in the light of recommendations of the “Task Force on Revival of Short Term Rural
Cooperative Credit Structutre, which enables the latter to raise financ ial resources other than
from STCBs. During 2012-13, refinance assistance aggregating 3,385 crore was sanctioned to
42 CCBs and disbursement stood at 2,363.45 crore. Now it can be conclude that the
Agricultural & rural development is totally dependent on the efficiency of the NABARD,
which is doing its job as per the requirements of the economy.
Committees of
NABARD Executive
Committee
The Board of the NABARD may constitute an Executive Committee consisting of
such number of directors as may be prescribed. This committee shall discharge such
functions as may be prescribed or may be delegated to it by the Board. The Executive
Committee of the NABARD shall meet at such times and places and shall observe such rules
or procedures in regard to the transaction of business at its meetings as may be prescribed.
The Executive Committee shall consist of the Chairman, the Managing Director and
other Directors nominated by the Chairman. These Directors should be from amongst the
directors appointed under clauses (b), (c), (d) and (e) of the Section 6(1) and one of the whole
time directors (if any).
The regulations and such special and general directions as the Board may give from
time to time, the Executive Committee shall have all the powers of the Board to transact the
usual business of the NABARD except powers in relation to matters which are specifically
reserved by the Act to the Board.
The Chairman may call a meeting of the Executive Committee ordinarily once in two
months at Bombay on such date and such time as he may specify. For this a notice of not less
than ten clear days shall be given to the members of the Executive Committee to enable them
to attend the meeting. If the Chairman considers necessary to call an emergency meeting of
the Executive Committee, a notice of not less than five clear days shall be given to the

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members of the Executive Committee to enable them to attend the meeting.
The Chairman, or if for any reason he is unable to attend any meeting, any other
member of the Executive Committee nominated by the Chairman in this behalf and in the
absence of such nomination, any other members of the Executive Committee elected by the
members present at the meeting shall preside at the meeting of the said committee.
Three members of the Executive Committee of whom one should be a director
appointed under clause (b) or (c) or (d) or (e) of Section 6(1), shall form the quorum at its
meetings. Copy of the proceedings of each meeting of the Executive Committee shall be
circulated for information to the directors of the Board as soon as possible after the same are
signed by the member presiding at that meeting or the next succeeding meeting.
The executive board held meeting five times in year 1998-99 but in 1999-2000 and
2000-01, six meetings are held in each year. The Executive Committee held five meeting in
2002-03.
Other Committees
The Board may constitute such other committee consisting wholly of directors or
wholly of other persons or partly of directors and partly of other persons as it thinks fit and
for such purposes as it may decide and every committee so constituted shall discharge such
functions as may be delegate to it by the board. The time and place at which any such
constituted committee shall meet, the rules of procedure which such committee shall observe
in regard to the transaction of business at its meetings, and the fees and allowances which
may be paid to the members of such committee for attending the meetings of the committee
and for attending to any other work of the NABARD shall be such as may be specified by the
Bank.
Other Committee held (project sanctioning committee for loans under RIDF) its
meetings seven times during the year 1998-99 and 1999-2000 in each. In 2000-01 & 2002-03
the meeting of the other committee was held nine times in each year.
Advisory Council
The Board shall constitute an Advisory Council consisting of such number of
directors and such other persons who, in the opinion of the Board, have special knowledge of
agricultural credit, cooperation and rural Economics, small-scale industries, village and
cottage industries and handicrafts and other rural crafts or have special knowledge and
appreciation of the country's overall development policies and in particular overall monetary
and credit policies, which are considered by the Board as useful to NABARD.

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The Advisory Council shall advise the NABARD in such matters as may be referred
to the Advisory Council by the NABARD. The Council may discharge such other functions
as may be entrusted or delegated to the Advisory Council by NABARD. A member of the
Advisory Council shall hold the office for such term not exceeding five years as the
NABARD may fix. The member of the Council may receive such fees and allowances as may
be prescribed for attending the meeting or any other work of the NABARD. The Advisory
Council shall meet at such times and places and shall observe rules of procedure in regard to
transaction of business at its meetings, as may be prescribed. The Chairman or in his absence
the Managing Director may convene a meeting of the Advisory Council once in six months at
the Head Office of the NABARD on such date and at such time as he may specify. For this a
notice of not less than once clear fortnight shall be given to the members of the Advisory
Council to enable them to attend the meeting.
The Chairman and in his absence any other members of the Advisory Council
nominated by the Chairman for the purpose shall preside at the meeting of the Council. In the
absence of such nominated member any other member of the Advisory Council elected by the
members present at meeting shall preside the meeting of the Advisory Council. One-third of
the members of the Advisory Council (any fraction being ignored) or five members thereof
whichever is less shall form the quorum at its meetings.
Each member of the Advisory Council other than a director or an officer of the
Government or of the Reserve Bank of India shall receive a fee of Rs. 200 on every meeting
of the Advisory Council attended by him. Each member shall be reimbursed travelling and
halting expenses if any.
A member of the Advisory Council who is a director (other than a Managing Director
or a whole time director) shall receive such fees and allowances as are admissible to him for
attending a meeting of the Board. A member of the 120 Advisory Council who is an officer
of the Government or the Reserve Bank of India shall receive such allowances as are
admissible to him for attending a meeting of the Board.
Review Questions
1. What are the objectives of NABARD?
2. Discuss the various role of NABARD.
3. Explain the different functions of NABARD.
4. What are the organizational structures of NABARD?
5. Explain the direct and indirect finance by NABARD.
6. State the various operational performance of NABARD.

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7. Describe the main characteristics of Self Help Groups (SHGs)

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