Q Why is it in News ?
A The Reserve Bank of India (RBI) has cautioned members of the public not to deal with cooperative societies undertaking banking business by adding ‘bank’ to their names.
- It has also come to the notice of RBI that some co-operative societies are accepting deposits from non-members/nominal members/ associate members.
- This is tantamount to conducting banking business in violation of the provisions.
Q Who can use ‘Bank’ title?
- The Banking Regulation Act, 1949 was amended by the Banking Regulation (Amendment) Act, 2020, which came into force on September 29, 2020.
- Accordingly, co-operative societies cannot use the words “bank”, “banker” or “banking” as part of their names, except as permitted under the provisions of BR Act, 1949 or by the RBI.
Q What is Cooperative Banking?
- Cooperatives are people-centred enterprises owned, controlled and run by and for their members to realise their common economic, social, and cultural needs and aspirations.
- Cooperative bank is an institution established on the cooperative basis and dealing in ordinary banking business.
- Like other banks, the cooperative banks are founded by collecting funds through shares, accept deposits and grant loans.
- They are regulated by the Reserve Bank of India (RBI) and governed by the
- Banking Regulations Act 1949
- Banking Laws (Co-operative Societies) Act, 1955
Q What are Features of Cooperative Banks ?
- Cooperative banks are generally concerned with the rural credit and provide financial assistance for agricultural and rural activities.
- Such banking in India is federal in structure. Primary credit societies are at the lowest rung.
- Then, there are central cooperative banks at the district level and state cooperative banks at the state level.
- Cooperative credit societies are mostly located in villages spread over the entire country.
Q What is history of Cooperative Banking in India ?
- The cooperative movement in India was started primarily for dealing with the problem of rural credit.
- The history of Indian cooperative banking started with the passing of Cooperative Societies Act in 1904.
- The objective of this Act was to establish cooperative credit societies “to encourage thrift, self-help and cooperation among agriculturists, artisans and persons of limited means.”
- Many cooperative credit societies were set up under this Act.
- The Cooperative Societies Act, 1912 recognised the need for establishing new organisations for supervision, auditing and supply of cooperative credit.
Q What is Structure of Cooperative Banking ?
- The whole structure of cooperative credit institutions is shown in the chart given.
- There are different types of cooperative credit institutions working in India.
- These institutions can be classified into two broad categories- agricultural and non-agricultural.
- Agricultural credit institutions dominate the entire cooperative credit structure.
Various facets of cooperatives in India
- Cooperatives in India have grown exponentially.
- In the banking sector, according to the RBI, their contribution to rural credit increased from 3.1 percent in 1951 to an impressive 27.3 percent in 2002.
Q What is Importance of Cooperative Banks ?
- The cooperative banking system has to play a critical role in promoting rural finance and is especially suited to Indian conditions.
- Various advantages of cooperative credit institutions are given below:
(1) Alternative Credit Source: The main objective of the cooperative credit movement is to provide an effective alternative to the traditional defective credit system of the village moneylender.
(2) Cheap Rural Credit: Cooperative credit system has cheapened the rural credit by charging comparatively low-interest rates, and has broken the money lender’s monopoly.
(3) Productive Borrowing: The cultivators used to borrow for consumption and other unproductive purposes. But, now, they mostly borrow for productive purposes.
(4) Encouragement to Saving and Investment: Instead of hoarding money the rural people tend to deposit their savings in cooperative or other banking institutions.
(5) Improvement in Farming Methods: Cooperative credit is available for purchasing improved seeds, chemical fertilizers, modern implements, etc.
(6) Financial Inclusion: They have played a significant role in the financial inclusion of unbanked rural masses. They provide cheap credit to the masses in rural areas.