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CO-OPERATIVE
BANKS
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ORIGIN
Originated with the enactment of the Co-operativeCredit Societies Act of 1904.
The Co-operative Credit Societies Act, 1912 providedfor establishment of co-operative Central banks by aunion of primary credit societies.
The Maclagan Committee appointed in 1914 ,recommended the establishment of a State Co-operative Apex bank .
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Banks formed on the principle of co-operation arecalled co-operative banks.They provide short-term credit to agriculturists, artisans,
small farmers and small-scale industries.Co-operative banks accept all kinds of deposits andmake loan to the members at lower rate of interest.
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PRINCIPLE OF CO-OPERATION
Cooperatives work on basic concept of mutualHelp/assistance , democratic decision making ,open membership and one man one vote . Every member have one vote, irrespective of his/hershareholding.NO VOTING BY PROXY - Voting must be done in
person .Work on No-Profit, No Loss basis
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COOPERATIVE CREDIT INSTITUTIONS
Urban Co-operativeBanks (1872)
Rural CooperativeCredit Institutions(106919)
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Co-operative Credit Structure
ST/MTLT
SCBs
DCCBs
PACSs
SLDBs
PLDBs
FSS LAMPS
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The Co-operative banking structure in India is apyramid type of a three tier structure comprising;
Primary Agricultural Co-operative Credit Society(PACSs) at the Village Level ,District Central Co-operative Banks (DCCBs) at theDistrict level, andState Co-operative Bank (SCBs) at the State level.
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The state co-operative banks lend money to central co-operative banks which in turn lend to primary societies.The district central banks act as intermediaries
between the state co-operative bank and primarycredit societies .In smaller states and union territories, there exists a twotier structure with SCBs at the apex level and PACSs atthe base level.
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DISTRICT CENTRAL CO-OPERATIVEBANKS (DCCBS)
A DCCB is a federation of PACSs in a specified area normally extending to the whole district.The central bank raise funds by way of share capital
from member societies, deposits from public andloans from the SCBs .The main task of these banks is to finance membersocieties and they carry on commercial bankingactivities.DCCBs act as balancing centers making availabletemporary excess funds of one primary society toanother which is in need of them.
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PRIMARY AGRICULTURAL CREDITSOCIETIES (PACS)
The PACSs function at the base of the co-operativecredit system .It may be organized by ten or more persons normally
belonging to a village or a cluster of villages.The societies raise funds by way of share capital,deposits from members and non-members and loansfrom DCCBs .The borrowing powers of members as well as society islimited.The loans are given for short periods for thepurchase of cattle, fodder, fertilizer, pesticides etc.
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The banks of Tamil Nadu, Andhra Pradesh, Karnatakaare of this (two-tier) type.In states like Gujarat, UP, and Jammu & Kashmir thereis unitary structure, i.e., the Apex Land DevelopmentBanks operate directly through their own branches at thedistrict or taluka level.The LDBs obtain funds mainly by the issue of long-term
debentures. Such debentures carry the guarantee of thestate government and are subscribed by the central andstate governments, commercial banks, life insurancecorporation and RBI.
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URBAN CO-OPERATIVE BANKS
The term Urban Co-operative Banks (UCBs), refers toprimary cooperative banks located in urban andsemi-urban areas .These banks, till 1996, were allowed to lend money onlyfor non-agricultural purposes..They lent to small borrowers and businesses.
Today, their scope of operations has widened.
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CONT
They suffer from infrastructural weaknessesThey do not look like banks and do not inspireconfidence in the potential members, depositors and
borrowers.They unduly depend on government capital rather thanmember capital.There is no active participation of their members in theirworking.They have been resorting to unethical practices.
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ISSUES FACING THE COOPERATIVEBANKING SEGMENT ININDIA
Governance Issues Dual Control and Borrower drivenstructureManagement and HR Issues
Issues relating to Finance
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GOVERNANCE ISSUES - DUAL CONTROL
Cooperation is a State subject under the Indian Constitution;hence all cooperative societies are governed by the CooperativeSocieties Act of the State. Registration, incorporation,management, amalgamation etc are governed by the particularState.
At the same time, certain provisions of the Banking Regulation(BR) Act, 1949, are applicable to the cooperative banks that accept
public deposit. This duality of control and regulation has given rise to serious
problems in the governance structure (such as interference by theState Govt. due to its combined role as dominant shareholder,manager, regulator, supervisor and auditor.
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BORROWER DRIVEN STRUCTURE
The rural cooperative structure in India is focused mainlyon credit. The upper tiers refinance the lower tiers hencethe structure is driven by borrowers at all levels.Depositors are either non- members or nominalmembers without voting rights while the borrowers havefull voting rights.This also prevents any incentive for good governance
since the depositors, whose money is beingintermediated, have no say in the management of theirown money.
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MANAGEMENT AND HR ISSUES
Management problem arises due to the impairment ofGovernance.Poor human capital leading.
Generally ageing staff profile characterized byinadequate qualification and training.
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ISSUES RELATING TO FINANCE (RURALSTRUCTURE)
The poor recovery of outstanding credit,Lack of standardized business model and riskmanagement systems,
Over exposure to the agri sector,lack of diversification of the loan portfolios,For the LT structure, the loan portfolio consists of a
single product long terms agri loan of > 5 years term.
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REVIVAL AND REFORM INITIATIVES
Revival package (2006) for Rural Short Term CoopCredit Structure (RSTCCS)Draft revival package (2008) for Rural Long Term Coop
Credit Structure (RLTCCS).RBI s vision document (2005) for Urban CooperativeBanks.
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REVIVAL PACKAGE FOR RSTCCS
1. Financial Revival : Assistance by Govt. of India toeligible credit societies for (i) wiping out accumulatedlosses; (ii) Bring a minimum CRAR of 7%; (iii) refund ofshare capital to the State Govt; and (iv) cost of special
audit.2. Capacity Building and Technical Assistance : For
capacity upgradation, training, installing commonaccounting and monitoring systems and forcomputerization.The estimated budget for these 2 components is Rs.
13,596 Crore; to be shared by Central Govt., State Govts
and RSTCCS units in the proportion 68:28:4
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CONT..
3. Institutional, legal and regulatory reforms: Amendment sin the State Cooperative Societies Act; in some
provisions of the BR Act (1949) and in the NABARDAct to enable to refinance PACS
Remove State intervention in financial and administrativemattersGive voting rights to depositors
Pave way to regulatory control by RBIBring coop banks on par with the commercial banks interms of regulatory norms
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REVIVAL PACKAGE FOR RSTCCS: THESTATUS SO FAR
As of Sept 2008, 25 out of 29 States have executed MoUwith GoI and NABARD.As of March 2008, special audit was completed in 59294PACS in the country.As of Sept 2008, governments of 8 States have passed
bills to amend their coop societies Acts.Common Accounting System (CAS) and Management
Information System (MIS) have been introduced alongwith human resources development initiatives in theStates willing to participate.
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GOVT. INITIATIVES TO STRENGTHENCO-OPERATIVES
A scheme for the reorganization of PACSsWeak Banks brought under the rehabilitation
programme.
A 12-point programme has been formulated for the weak banks to provide them refinance support.Some development programmes are also initiated bysome of the state governments in their respective states tostrengthen the working of the co-operatives.
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CO-OPERATIVE BANKING REFORMSSINCE 1991
Licensing of new UCBs has been liberalized and have been brought under income recognition, classificationof assets and other norms.
The National Co-operative Bank of India (NCBI) was registered in 1993 as a multi-state co-operativesociety. It is promoted by the National Co-operativeUnion as the apex institution for the co-operative
banks.The RBI and NABARD have not extended financialsupport to it. The NCBI does not have anyregulatory functions .
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CONT. .
A co-operative development fund has been set up byNABARD to improve managerial systems and skills inthese banks.
Lending and deposit rates of all co-operative bankshave been more or less completely freed orderegulated.The prudential accounting norms have been madeapplicable to SCBs/DCCBs .
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COMMERCIAL VS. COOPERATIVE BANKS
Profit Motive
Organized on Unitary basisBranch network isspread far and wide
within the country andsome banks have set up branches abroad
Self help and Mutualcooperation for benefit ofmembers
Have a three-tier set-up.Area of operation isrestricted to a particularlocal boundary or district
or state.
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CONT
RBI is a lender of lastresort for commercial
banks.
For cooperative banks it isthe lender of 1 st resort which provides financialresources in the form ofcontribution to the workingcapital and refinancethrough state government .
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CONT
Traditionally urbanoriented ( Shift fromurban to rural)
Most commercial banksare scheduled banks, eg.,SBI, PNB, HDFC, etc.
Basically rural oriented ( ashift from rural to urban )
Most are non-scheduledlike., Maharashtra State Co-operative bank, Junnarcooperative society, thoughsome are scheduled , like;Saraswat Cooperative BankLtd.
http://www.google.co.in/imgres?imgurl=http://topinews.com/blog/wp-content/uploads/2010/06/logo_nabard865.gif&imgrefurl=http://topinews.com/blog/2011/03/12/nabard-recruitment-2011/&usg=__e6bt-3AZj-0uDEuf2PnJjwKXjyg=&h=150&w=192&sz=8&hl=en&start=3&zoom=1&tbnid=80TRZU23jI_iGM:&tbnh=80&tbnw=103&ei=cEsyTv_eIsTqrQf2ufS7Cw&prev=/search%3Fq%3Dnabard%2Bbank%26hl%3Den%26gbv%3D2%26tbm%3Disch&itbs=1 -
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NABARD
National Bank for Agriculture and RuralDevelopment
http://www.google.co.in/imgres?imgurl=http://topinews.com/blog/wp-content/uploads/2010/06/logo_nabard865.gif&imgrefurl=http://topinews.com/blog/2011/03/12/nabard-recruitment-2011/&usg=__e6bt-3AZj-0uDEuf2PnJjwKXjyg=&h=150&w=192&sz=8&hl=en&start=3&zoom=1&tbnid=80TRZU23jI_iGM:&tbnh=80&tbnw=103&ei=cEsyTv_eIsTqrQf2ufS7Cw&prev=/search%3Fq%3Dnabard%2Bbank%26hl%3Den%26gbv%3D2%26tbm%3Disch&itbs=1 -
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OVERVIEW
The various financial agencies provided credit in afragmented way to various rural sectors . The RBIfelt the need for an agency at the national level thatwill provide all types of credit to various sectors in therural economy in an integrated way for ruraldevelopment. The Committee for Review Arrangements forInstitutional Credit for Agricultural and RuralDevelopment set up by the RBI in 1979recommended in its report setting up of NABARD.
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In 1982, NABARD was set up as a development bankfor facilitating credit flow for promotion anddevelopment of agriculture and integrated rural
development.The mandate also covers supporting all other alliedeconomic activities in rural areas, promotingsustainable rural development and ushering in
prosperity in the rural areas.
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With a capital base of Rs 2,000 crore provided by theGovernment of India and Reserve Bank of India , itoperates through its head office at Mumbai, 28 regional
offices situated in state capitals and 391 district offices atdistricts.
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It is an apex institution handling matters concerning policy, planning and operations in the field of credit foragriculture and for other economic and developmental
activities in rural areas.It is a refinancing agency for financial institutionsoffering production credit and investment credit for
promoting agriculture and developmental activities in
rural areas.
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Prepares on annual basis, rural credit plans for all thedistricts in the country. These plans form the base forannual credit plans of all rural financial institutions.
Undertakes monitoring and evaluation of projectsrefinanced by it.Promotes research in the fields of rural banking,agriculture and rural development.
Functions as a regulatory authority, supervising,monitoring and guiding cooperative banks and RRBs .
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NABARDS ROLES AND FUNCTIONS
Credit FunctionsDevelopmental and promotional Functions.Regulatory Functions/Supervisory Functions
Role in training
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CREDIT FUNCTIONS
NABARD's credit functions cover planning,dispensation and monitoring of credit.
This activity involves:
Framing policy and guidelines for rural financialinstitutionsProviding credit facilities to issuing organizationsPreparation of potential-linked credit plans annually for
all districts for identification of credit potentialMonitoring the flow of ground level rural credit
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Prepares, on annual basis, rural credit plans for all thedistricts in the country. These plans form the base forannual credit plans of all rural financial institutionsUndertakes monitoring and evaluation of projects
refinanced by itPromotes research in the fields of rural banking,agriculture and rural developmentFunctions as a regulatory authority, supervising,
monitoring and guiding cooperative banks and regionalrural banks
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Monitor implementation of development action plans of banksProvide financial assistance to cooperatives and
Regional Rural BanksProvide organisation development intervention (ODI)through reputed training institutes like Bankers Instituteof Rural Development (BIRD), Lucknowwww.birdindia.com , National Bank Staff College,Lucknow www.nbsc.in and College of AgricultureBanking, Pune, etc.
http://www.birdindia.com/http://www.nbsc.in/http://www.nbsc.in/http://www.birdindia.com/ -
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Provide financial support for the training institutes ofcooperative banksProvide training for senior and middle level executives
of commercial banks, Regional Rural Banks andcooperative banksProvide financial assistance to cooperative banks for
building improved management information system,computerization of operations and development ofhuman resources
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SUPERVISORY FUNCTIONS
Undertakes inspection of Regional Rural Banks (RRBs)and cooperative banks (other than urban/primarycooperative banks) under the provisions of BankingRegulation Act, 1949.
Undertakes inspection of State Cooperative Agricultureand Rural Development Banks (SCARDBs) and apexnon-credit cooperative societies on a voluntary basisProvides recommendations to Reserve Bank of India on
opening of new branches by State Cooperative Banksand Regional Rural Banks (RRBs)Administering the Credit Monitoring Arrangements inSCBs and CCBs
Types of Refinance facilities
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AGENCY CREDIT FACILITIES
Commercial Banks
Short Term Cooperativestructure (State CooperativeBanks, District CentralCooperative Banks, PrimaryAgricultural Credit Societies)
LT credit for investment purposes,financing the working capitalrequirements of Weavers'Cooperative Societies (WCS) andState Handloom/Handicraft
Development CorporationsST (crop and other loans),MT(conversion) loans, TermLoans for investment purposes,
financing weavers' cooperatives -State Handloom DevelopmentCorporations for working capital
by State Cooperative Banks
Types of Refinance facilities
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AGENCY CREDIT FACILITIES
Long Term Cooperativestructure (State CooperativeAgriculture and RuralDevelopment Banks, PrimaryCooperative Agriculture andRural Development Banks)Regional Rural Banks (RRBs)
Urban Cooperative Banks(Scheduled)
Term loans for investment purposes
Short Term (crop and otherloans) and term loans forinvestment purposes
Long term investmentactivities both in farm andnon-farm sectors in ruralareas.
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AGENCY CREDIT FACILITIES
State Governments
Non-GovernmentalOrganisations (NGOs) -Informal Credit Delivery
System
Long Term loans for equity participation in Co-operatives,Rural InfrastructureDevelopment Fund (RIDF) loansfor rural infrastructure projects
Revolving Fund Assistance forMicro Credit DeliveryInnovations and PromotionalProjects
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ROLE IN TRAINING
National Bank Staff College, LucknowNational Bank Training Centre, LucknowZonal Training Centre, Hyderabad Regional Training Centre, Mangalore Regional Training Centre, Bolpur Bankers Institute of Rural Development(BIRD), Lucknow
http://www.nabard.org/training/mangalore.asphttp://www.nabard.org/training/bolpur.asphttp://www.nabard.org/training/mangalore.asphttp://www.nabard.org/training/mangalore.asphttp://www.nabard.org/training/bolpur.asphttp://www.nabard.org/training/bolpur.asphttp://www.nabard.org/training/mangalore.asphttp://www.nabard.org/training/mangalore.asphttp://www.nabard.org/training/bolpur.asphttp://www.nabard.org/training/mangalore.asp -
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NABARD TODAY
Initiates measures toward institution-building forimproving absorptive capacity of the credit deliverysystem, including monitoring, formulation ofrehabilitation schemes, restructuring of credit
institutions, training of personnel, etc.Coordinates the rural financing activities of all theinstitutions engaged in developmental work at the fieldlevel and maintains liaison with the government ofIndia , State governments, the Reserve Bank of Indiaand other national level institutions concerned with
policy formulation