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Cooperative Banking: What You Need to Know

cooperative bank

Cooperative banks are institutions within the cooperative banking sector, characterised by ownership and operation by their members, who are also their customers. In today’s financial landscape, cooperative banks have gained significant attention for their unique approach to providing financial services and fostering economic growth. Cooperative banks are owned and operated by their members, who work together to achieve their financial goals. This blog discusses cooperative banking in detail, including its types and the critical role it plays in the Indian economy.

What are Cooperative Banks?

Cooperative banks are financial institutions owned and operated by their members, who are also their customers. These banks operate with the primary objective of meeting the financial needs of their members and promoting mutual welfare. The main characteristic of cooperative banks is that they are customer-focused, with a mission to meet the financial needs of their members. Cooperative banks are based on the principles of self-help, mutual aid, and cooperation. They aim to provide financial services to those who cannot access them from traditional banks.

Functions of Cooperative Banking

The functions of cooperative banks are as follows:

  • Cooperative banks perform various functions, including mobilising savings, providing credit facilities to members, and promoting rural development.
  • These banks help to promote financial inclusion by reaching out to those who traditional banks underserve.
  • One of the primary functions of cooperative banks is to mobilise savings from their members. They offer various types of savings accounts, including fixed deposits, recurring deposits, and savings accounts. Cooperative banks also offer credit facilities to their members, including loans, overdrafts, and cash credits.
  • Cooperative banks also play an important role in promoting rural development. They provide loans for agricultural and allied activities, as well as for small-scale industries and businesses. By doing so, they help to create jobs and stimulate economic growth in rural areas.

cooperative bank


Various types of cooperative banks exist, including urban and rural cooperative banks, state cooperative banks, and national-level cooperatives.

  • Urban cooperative banks: Urban cooperative banks are primarily located in urban areas and provide financial services to people living in those areas, catering to the financial requirements of a diverse clientele.
  • Rural cooperative banks: Rural cooperative banks are in rural areas and cater to the financial needs of those living in those areas. Focused on serving the financial needs of rural communities, especially in the agricultural sector.
  • State cooperative banks: State cooperative banks are established at the state level and provide financial services to the people of that state. The State Cooperative Societies Act governs them.
  • National-level cooperative banks: National-level cooperative banks are established at the national level and operate across the country. They are regulated by the Reserve Bank of India (RBI).

Structure of Cooperative Banking

The organisational structure of cooperative banks in India is different from that of traditional commercial banks. Cooperative banks are owned and operated by their members, who elect a board of directors to manage the bank’s affairs. The board of directors is responsible for the bank’s policies and operations.

In addition to the board of directors, cooperative banks also have a general body of members who meet periodically to discuss the bank’s affairs. The general body of members has the power to elect the board of directors, approve the bank’s annual budget, and make other important decisions.

The structure typically includes three tiers:

  • Primary Agricultural Credit Societies (PACS): These financial cooperatives are usually set up by farmers and other people who work in agriculture to help farms get loans and other services. The Reserve Bank of India oversees them, and the Cooperative Societies Act makes sure they are legal. In rural places, where traditional banks may not be easy to reach, primary agricultural credit societies are often set up. The main goal of these groups is to help members buy the tools and other things they need to run a successful farm by giving them loans, often with low-interest rates. They provide various services that assist farmers in running their businesses, such as crop insurance, storage, and marketing help. The people who belong to these groups pay for them by giving money and time to help the company.
  • Central Cooperative Banks (CCBs): Acting as intermediaries between PACS and the apex level. The Cooperative Societies Act regulates how cooperatives are set up and run, and that includes Central Cooperative Banks (CCBs). These businesses are controlled by the Reserve Bank of India and managed by the State Cooperative Department. Financial services are offered to people in rural and semi-urban areas across the country. Their members can access savings, loans, and other banking services through them. They support and fund farming activities, including crop protection and services that provide inputs. Each person’s savings, deposits, loans, and other sources provide the central cooperative banks with their operating capital.
  • State Cooperative Banks (SCBs): As the name suggests, a state cooperative bank is run at the state level. The Reserve Bank of India (RBI) and the governments of each state keep an eye on them. They help people in rural areas and with low incomes get money all over the country. They are often the only way for small businesses, businesses related to agriculture, and other related activities to get loans. These banks also work with credit unions, dairy cooperatives, and farming cooperatives to help them with their banking needs. SCB gets its operating capital from deposits, funds, loans from the RBI and state governments, and other sources.

Features of Cooperative Banking

Cooperative banks have several features that distinguish them from traditional commercial banks.

  • Democratic Control: One of the main features is member ownership. Cooperative banks are owned by their members, who have a say in the bank’s operations and decision-making processes, following the principle of “one member, one vote.” Members have the right to vote on important decisions, such as the election of the board of directors and the approval of the bank’s annual budget. This ensures that the bank’s operations are transparent and accountable.
  • Profit-sharing: As non-profit organisations, cooperative banks’ main goal is to meet the financial wants of their members. Any extra money the bank makes is either given back to the members as a reward or used to increase the bank’s capital base. The surplus generated is distributed among members, fostering a sense of collective ownership. Members also share in the profits of the bank in the form of dividends.
  • Community Development: They are also very important to community growth because they teach people about money, help local businesses, and put money into community projects. They encourage their members to stick together and help each other.


Cooperative banks in India are regulated by the RBI and the National Bank for Agriculture and Rural Development (NABARD). The RBI is responsible for regulating and supervising all cooperative banks in India, while NABARD is responsible for providing credit facilities to these banks. The regulation of cooperative banks is essential to ensure their safety and soundness. Regulators monitor the banks’ financial performance and ensure that they comply with all the necessary regulations and guidelines. They also assist the banks when needed, such as during times of financial distress.

cooperative bank

Advantages of Cooperative Banking

These banks have many benefits, including giving low-service areas access to banking services. Let’s now examine in more detail a few of the main benefits of cooperative banking:

  • Affordable Credit Alternative: Cooperative banking serves as a cost-effective credit alternative for rural communities, offering lower interest rates compared to money lenders. This shields the rural population from the exorbitant interest rates often imposed by money lenders, preventing their monopolistic practises.
  • Fostering Savings Culture and Investment: The advent of cooperative banking has instilled a culture of savings and proactive investment within rural areas. Rather than hoarding money, the rural population now engages in long-term financial planning, facilitated by the services and support provided by cooperative banks.
  • Advancement in Agricultural Practices: With the reduced interest rates on credits from cooperative banks, rural communities can now leverage these funds to adopt enhanced farming techniques. This includes the acquisition of seeds, chemical fertilisers, and other resources, leading to an overall improvement in agricultural methods.

Is Cooperative Bank Government or Private?

One common question that people have about cooperative banks is whether the government or private entities own them. The answer is that while many cooperative banks receive public funding or support, they are ultimately owned by their members. Cooperative banks are established by groups of people who come together to meet their financial needs. These people become members of the bank and own a share of the bank. While some cooperative banks may receive funding or support from the government, they are not owned by the government.


Cooperative banks stand as pillars of financial inclusion, community development, and economic empowerment. Their unique structure, member-focused approach, and commitment to democratic principles make them vital contributors to the financial landscape. In India, the diverse types of cooperative banks, from rural to national level, play pivotal roles in catering to the diverse needs of communities. As regulated entities overseen by the RBI and NABARD, cooperative banks continue to foster sustainable growth, promote savings, and provide crucial financial services to underserved populations, making them indispensable components of the financial ecosystem.


1. Are Cooperative Banks profit-oriented?

Ans.  No, cooperative banks operate as non-profit organisations. Their primary goal is to meet the financial needs of their members, and any surplus generated is either distributed among members or used to strengthen the bank’s capital base.

2. How do Cooperative Banks promote community development?

Ans. Cooperative banks actively contribute to community growth by offering financial education, supporting local businesses, and investing in community projects. They encourage members to collaborate and assist each other, fostering a sense of community spirit.

3. Can anyone join a Cooperative Bank?

Ans. Yes, anyone who shares the common bond or purpose defined by the cooperative bank can become a member. This inclusivity is a key feature, emphasising the cooperative nature of these banks.

4. What sets Cooperative Banks apart from Traditional Banks?

Ans. The democratic control and member ownership distinguish cooperative banks. Members have a direct say in decision-making, adhering to the principle of “one member, one vote,” fostering transparency and accountability in operations.

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