Functions and Role of Co-Operative Banks

In this article we will see all about Co-operative Banks: What are they, functions and role of Co-operative Banks.

What is Co-operative Bank?

Co-operative banks are small-sized banks organized in the Co-operative sector which have the ability to operate in both urban and non-urban areas. Co-Operative banks in India are registered under the Co-operative Societies Act.

The Co-operative bank is regulated by the RBI. Apart from that it is also governed by the:
a. Banking Regulations Act, 1949
b. Banking Laws(Co-operative Societies) Act, 1965

The major contributions of Co-operative Banks are mostly in rural areas here they play the most significant role in rural financing and micro-financing. Co- Operative banks are traditionally centered around communities, localities, and workplace groups and they essentially lend to small borrowers and businesses.

Characteristics of Co-operative Banks

1. Small in Size
2. Managed by Co-operative Sector
3. Depends on Governement and RBI
4. Receives Support from Government
5. Organised and managed on principles of Co-operation
6. Focus on Social Objectives

1. Small in Size
   Normally the size of Co-operative banks is small as compared to commercial banks. The Co-operative banks are not so huge in size as commercial banks are in different aspects like deposits, loans and advances, funds, branches, etc.

2. Managed by Co-operative Sector
   These banks are managed by the Co-operative sector. Thus its commercialization is not possible. These kinds of banks more focus on rural areas and small finance to farmers and small traders as well.

3. Depends on Governement and RBI
   The Co-operative Banks are run with the support of the government. These banks have limited funds. So, they procure funds from especially government, RBI, and NABARD for lending money to farmers and needy people.

4. Receives Support from the Government
   The Co-operative banks receive financial assistance and funds from the government. They also get perks of government subsidies and technical assistance as well.

5. Organized and managed on principles of Co-operation
   The Co-operative banks are organized and managed on principles of co-operations, self-help, and mutual help. They are functioning on the basis of cooperation.

6. Focus on Social Objectives
   These banks focus on social objectives. Co-operative banks function on a “no profit, no loss” basis.

Role of Co-operative Banks

Co-operative banks another component of the Indian banking organisation, originated in India with the enactment of the Co-operative Credit Societies Act of 1904. Actually, this act was formulated for structuring Co-operative credit societies. Under this act, a number of Co-operative credit societies were started.

The following were the chief functions of these banks:

• Attractive deposits from non-agriculturists

• Using excess funds of societies temporarily to make up for shortages in other

• To supervise and guide the affiliated societies

Overall, Most of the Co-operative banks are unscheduled banks like Maharashtra State Co.op Bank Ltd. But some of them are scheduled banks, for instance, Saraswat Co-operative Bank.