Regional Rural Banks Cooperative Banks UNIT IV In

Regional Rural Banks & Cooperative Banks UNIT IV

In this unit you will study about Regional rural and cooperative banks in India-Functions, role of Regional rural and cooperative bank in rural India, progress and performance

Regional Rural Banks • Regional Rural Banks were set up to take banking services to the doorsteps of rural masses especially in remote rural areas with no access to banking service. • These banks were originally intended to provide institution that credit to the weaker sections of the society called “Target Group”. • After the declaration of emergency, Prime Minister Smt. Indira Gandhi announced on July 1, 1975 that 20 point economic programme of the government of India. • One of the points of this programme was the liquidation of rural indebtedness by stages and provide institutional credit to farmers and artisans in rural areas. • The government of India appointed the Narasimhan Committee in July 1975 to set-up the new institution in order to: • Provide employment to the rural educated youth; and • Bring down the cost of rural banks by recruiting their staff on the same sacale of pay and allowances as for the employees of State Government/Local bodies.

It was on recommendations that the first five RRBs were set up on 2 October 1975 under an Ordinance promulgated on 26 September 1975 which was replaced by the regional Rural Banks Act of 1976

Features of Regional Rural Banks Sponsorship Jurisdiction Management Share Capital Functions Rate of interest

Objectives of Regional Rural Banks 1. To provide credit and other facilities particularly to small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs and other weaker sections. 2. To develop agriculture, trade, commerce, industry, and other productive activities in rural areas. 3. To provide easy, cheap and sufficient credit to the rural and backward classes and save them from the clutches of money-lenders. 4. To encourage entrepreneurship. 5. To increase employment opportunities. 6. To reconcile rural business aims and social responsibilities.

Organisational structure of RRB 1. A regional rural bank is sponsored by a commercial bank. 2. Normally, A RRB covers one district but it is also permitted to open its branches in other district. 3. So far the maximum coverage gas been eight district, as in the case of Manipur Regional Rural bank which covers entire state of Manipur. 4. Lok Sabha has passed the Regional Rural Banks (Amendment) Bill, 2014. It was passed by voice vote. This bill amends Regional Rural Banks Act, 1976 and aims to strengthen the RRB and deepen their financial inclusion. 5. Authorized capital: This amendment bill increases the authorized capital of each Regional Rural Bank (RRB) from Rs 5 crore to Rs 2000 crore divided into Rs. 200 Crore of fully paid share of Rs. 10 each. As per the Parent Act The Rs 5 Crore share Capital of RRBs is split into 5 Lakh shares of Rs. 100 Each. 6. Issued capital: It also provides that the authorized capital issued by any RRB’s shall not be reduced below Rs 1 crore and shares in all cases to be fully paid up shares of Rs. 10 each. .

Organisational structure of RRB § Shareholding: The Bill allows RRBs to raise capital from sources other than the central and state governments, and sponsor banks. §Board of directors: The Bill adds provision that any person who is a director of an RRB is not eligible to be on the Board of Directors of another RRB. It is also directed that directors will be elected by shareholders based on the total amount of equity share capital issued to such shareholders. §Tenure of directors: The bill raises the tenure of directors to 3 years from existing 2 years. The Bill also states that no director can hold office for a total period exceeding six years.

Functions/ Role of regional Rural Banks in Rural India • To grant loans and advances to the weaker section of the rural population, especially to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs who are engaged in agricultural, trade, commerce, industry and other productive activities. • To grant loans and advances to cooperative societies, including marketing societies, agricultural processing societies, cooperative farming societies, primary agricultural credit societies or farmer’s service societies for agriculture purposes. • To take the banking services to the doorstep of the rural masses. • To mobilise rural savings by accepting deposits and channelize them for productive activities in the rural areas. • To create supplementary channel for flow of credit from the urban money market to the rural areas through refinances • To generate employment opportunities in rural areas • To bring won cost of supplying credit in rural areas

Progress and performance of RRB’s q. Number of Banks: The first five regional rural banks were started at Moradabad and Gorakhpur in Uttar Pradesh, Bhiwani in Haryana, Jaipur in Rajasthan, and Malda in West Bengal. There are now 196 RRB, covering over 400 districts on the country with 14, 550 branches. The largest number of offices are started in Uttar Pradesh. q. Deposits: The deposits of RRB increased substantially over the years. The total deposits were only Rs. 20 Lac in 1975. They increased to Rs. 25, 430 crore by June 2001. q. Advances: Total advances granted by RRB’s amounted to rs 10 Lac in 1975. The total advances granted increased to Rs. 11, 020 crore in 2000. over 90% of the advances of RRB are direct advances to small and marginal farmers, landless labourers and rural artisans. q. Self-employment schemes: The RRB are making efforts to encourage self-employment schemes.

Progress and performance of RRB’s q. Creation of local employment opportunities: RRB’s have been taking active steps to create employment for the local people and achieved good success. q. Participation in various programme: During the last 22 years regional rural banks have been active participants in programmes designed to provide credit assistance to weaker section. q. Assistance to physically handicapped persons: Physically handicapped persons are provided finance for purchase of artificial limbs, hearing aids, wheel chairs, etc. q. Farmers societies: RRB have also sponsored and financed 90 Farmers societies. q. Integrated Rural development programme (IRDP Scheme): Regional Rural Banks have been taking active parts in the integrated rural development programme. q. Assistance by NABARD: During 2002 -03, The NABARD sanctioned Rs. 1, 406 crore as short-term credit limits for seasonal and non-seasonal agricultural operations to RRB’s. It sanctioned medicum-term loans to RRBs amounting to Rs 3 Crore.

Special Concessions to RRBs §Statutory Liquidity Ration to be maintained is fixed at 25% as against 38% by commercial banks §Regional rural banks are allowed to pay half per cent higher interest to its depositors over the interest rate offered by commercial banks §Cash-reserve requirements of 3% to be maintained with RBI as against 10% by commercial banks §They are allowed to draw refinance from NABARD to the extent of 0% or more depending upon the type of advances of the eligible outstanding loans at a concessional interest rate of 7%per annum. §The RRB’s are registered as insured banks with Deposits insurance and credit guarantee corporation of India. All deposits up to Rs. 30, 000 in each bank are accordingly insured with the DICGC thus providing protection to the depositors.

Problems of regional Rural Banks s id rec Poor ove rie s ive ct t fe dit en De cre ym o pl n oa h L ion Hig nsact tra cost Ha ph Bra azar Exp nc d an h sio n Erosi profi on of tabili ty de Re Def cr ec Po uitm tive lic e y nt Rig rm No Weak ase al B Capit Constraints in Deposits Mobilisation

Suggestions to improve RRB’s § To improve working of RRS’s, the Dantwala Committee (1978), the Kelkar Committee (1986) and Khusro Committee (1989) have made a number of suggestions. Some of these are enumerated below: §To improve the viability of RRB’s, the Khusro Committee recommended that the RRB’s should be merged with commercial banks. The Merger would solve the problems of accumulated losses, insolvency and the in-built non-viability of the majority of RRB’s. But it is wrong to presume that after merger with sponsor banks, the RRBs will be viable because many branches of commercial banks are incurring huge losses. Therefore, the suggestions made by the Kelkar committee should be implemented. They are the bifurcation of unwieldy RRB’s and the amalgamation of small RRB’s §In order to strengthen the capital structure of RRB’s, the Kelkar committee recommended the raising of issued capital of RRBs from Rs. 25 Lac to Rs 100 Lac and the authorised capital from Rs 1 Crore to Rs. 5 Crore.

Suggestions to improve RRB’s §As the very purpose of establishing RRB’s is to transfer funds from urban money market to rural centres, the State Government should permit the Panchayats and other Quasigovernment bodies functioning in rural areas to keep their funds with the RR branches functioning within their areas of operations. §The State government should either re-organise agricultural credit societies or establish new Farmer’s service societies through which RRB’s can provide production credit on a large scale and thereby the cost of servicing will be reduced considerably. §The sponsor banks should play a more active role in advising and helping their RRBs in managing funds, in appraising loan schemes, in making proper end-use of credit and in providing staff for internal audit of RRBs. §The sponsor Banks should charge a lower interest rate on the refinance to RRB’s and involve themselves less in RRB’s short term and non schematic loans. §New RRB’s should be reopened in areas where SC/ST population predominates.

Support Rendered by NABARD to RRBs §In order to bring about an attitudinal change in the mindset of RRB employees and to improve their motivational level, NABARD has initiated a non-conventional training intervention known as Organisational Development Intervention (ODI) in 120 RRB’s in collaboration with SWISS Agency for Development and Corporation. NABARD is also supporting 147 RRB’s with computers and software to develop their management information system. §NABARD is permitting the RRBs to re-locate their loss-making branches to good business location/ centres keeping in view the objective of building up sustainable rural financial institutions. §For ensuring unity of command, the sponsor banks have been entrusted with full managerial operational responsibilities. RBI and NABARD will deal with matters of regulatory and supervisory nature only, besides, monitoring he performance of RRBs. §Pursuance of the monetary and credit policy for the year 2002 -03 announced by RBI, RRB’s are now requested to maintain their entire SLR holding in government and other approved securities only.

Support Rendered by NABARD to RRBs §Micro-Finance and group lending continue to be NABARD’s priority area. NABARD issued guidelines for strengthen the self help group linkage programme and most of the RRBs are now participating in the programme. RRB’s are also identified as Self-help promoting institutions for giving an impetus to micro-finance. §NABARD deputes its senior officials to guide the sponsor banks in various review meetings of sponsor banks for RRBs on issues relating to staff matters, investment policy, turnaround strategies, etc. §NABARD through its regional offices is regularly monitoring the performance of RRB’s on a half yearly basis and take-up the issues which need policy correction. §Under NB-SDC-HID-VIII Project, NABARD has firmed up a detailed strategic plan on training intervention for RRB’s identified under the project (120 RRBs) §In order to disseminate the best practices in RRBs. NABARD has arranged exposure visits for RRBs personnel within the country and abroad

Service Area Approach (SAA) §The concept of SAA had been suggested by the National Credit Council study group in their report on the Organisational Framework for the implementation of social objectives, submitted in 1969. §The council recommended that depending upon area of social objectives, submitted in 1969. The council recommended that depending upon the areas of operation and location; commercial banks should be assigned a particular district on an area, where they should work as pace-setters, providing integrated banking facilities. §The Reserve Bank of India introduced SAA to rural lending on 1 April 1989. It was the committee under the chairmanship of P. D. Ojha, Deputy Governor of RBI. §The Service Area Approach (SAA) introduced in April 1989, in order to bring about an orderly and planned development of rural and semi-urban areas of the country, was extendee

Service Area Approach §The scheme has been reviewed by Reserve Bank of India and it has been decided to dispense with the restrictive provisions of the scheme, while retaining the positive features of the SAA such as credit planning and monitoring of the credit purveyance. According the following changes has been made in the scheme. Which will be effective from 8 December 2004. §The allocation of villages among the rural and semi-urban branches of banks shall not be applicable for lending, except under government sponsored schemes. While the commercial banks and RRBs will be free to lend in any rural and semi-urban area, the borrower will also have the choice of approaching any branch for their credit requirements. §Consequently, the requirements of obtaining “No Due certificate” from the service area branch for lending by Non-service area branch would also stand dispensed with. However, banks at their discreation may take steps considered necessary to avoid multiple financing.

Advantages of SAA §Optimum utilisation of the growth potential of the identified service areas, contributing thus to increased production and income levels. §Minimisation of diffusion of efforts of banks over wide areas. §Making the lending activity of banks easily amenable to supervision and control. §Introduction of micro-level planning based on potential assessment and credit needs of small compact areas and helping in the identification of area-specific and resource specific activities for development within a cluster of villages. §Ensuring proper coordination among financing banks and other development agencies by involving the latter in planning, implementation and monitoring of credit programmes. §Encouraging people’s participation and involvement in credit planning and dispensation.

Guidelines and Implementing SAA §Identification and allocation of Service area. §Survey of village. §Preparation of credit Plan Village Credit Plan Branch Credit Plan & Village Credit Plan §Co-ordination and monitoring Block Credit Plan District Credit Plan

National Bank for Agriculture and Rural Development NABARD

NABARD §In the light of the recommendations of the committee to review arrangements for institutional credit for agriculture and rural development (CRAFICARD), and the GOI set up the National Bank for Agriculture and Rural Development (NABARD) on July 12, 1982, to act as an agency for promoting integrated rural development and to provide all sorts of production and investment credit for agriculture and rural development. §NABARD is set up as an apex development bank with a mandate fr facilitating credit flow for promotion and development of agriculture and small scale industries. §It has also mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. §Providing refinance to lending institutions in rural areas. §Bringing about or promoting institutional development §Evaluating, monitoring and inspecting the client banks.

Objectives of NABARD §To give undivided attention and purposeful direction to integrated rural development. §To act as a centre piece for the entire rural credit system at the national level. §To act as a provider of supplemental funding to rural credit institutions. §To arrange for investment credit to small industries, village and cottage industries, handicraft and other rural crafts, artisans and farmers. §To improve the credit distribution system by institutional building, rehabilitation of credit institutions and training of bank personnel. §To provide refinance facilities to SLDBs, SCBs, RRBs and commercial banks for development purposes in rural areas. §To coordinate the working of different agencies engaged in development work in rural areas at the regional level, or to have liaison with Government of India, RBI, State governments and other policy making institutions at the national level. §To inspect monitor and evaluate projects refinance from the NABARD.

Organisational and structure of NABARD §The NABARD is managed by a Board of Directors, consisting of §A Chairman §Managing Director § 2 Directors from amongst experts in rural economics, rural development, etc. § 3 directors from out of the working of cooperative banks. § 3 Directors from out of the directors of the RBI § 3 directors from amongst the officials of the GOI, and § 2 Directors from among the officials of state government. They are appointed by the Central Government.

Subsidiaries of NABARD q. Nabcons: NABARD Consultancy Services (NABCONS) is a wholly-owned subsidiary promoted by National bank for agriculture and rural Development (NABARD) and is engaged in providing consultancy in all spheres of agriculture, rural development, and allied areas. q. NABFINS: NABARD Financial services limited is a subsidiary of NABARD with equity participation from NABARD, Government of Karnataka, CANARA Bank, Union Bank of India, Dhanlakshmi Bank and Federal Bank The main objective of the company are to provide financial services in two broad areas of agriculture and microfinance. q. Banker’s Institute of Rural Development (BIRD): Established in 1983, at Lucknow, is an autonomous institute promoted and funded by NABARD. BIRD was established primarily to cater to the training needs of RRB personnel. The institute has since 1 April, 1992 has been catering to the training and information needs of rural bankers through its tropical training programmes.

Functions of NABARD Development Credit Distribution Regulatory Functions of NABARD

Credit Distribution Short Term Credit: It provides short-term credit to State Cooperative bank( SCB’s), Regional Rural Banks (RRBs), and other financial institutions approved by the RBI for the following purposes: §Seasonal agriculture operations §Marketing of agriculture produce §Marketing and distribution of such inputs as pesticides, fertilizers etc. §Other activities related to rural/ agriculture sector. §Real Commercial trade activities Medium Term Credit: The NABARD provides medium Term Credit to SCBs, LDBs, RRBs and other approved institutions for a period ranging from 18 months to 7 years.

Credit Distribution Long-Term Credit: The NABARD provides Long Term Credit to SCBs, LDBs, RRBs and other approved institutions. Facilities for changes and Re Arrangement: The NABARD provides refinance facilities to SCBs and RRBs in the event of changes and re arrangement of credits when there is drought, famine or other natural calamities, army operations, enemy operations etc. , such facilities are also provided to loans given to artisans, small industries etc. The duration of such refinance facilities is not more than 7 Years. Refinancing of Industries in Rural Areas: The NABARD provides refinancing facilities to all small, village and cottage industries in rural areas.

Major activities of NABARD Production Credit Seasonal Agricultural Operations Financing the weavers Financing of other than seasonal agricultural operations Refinance for marketing of crops Refinance for procurement, stocking and distribution of chemical fertilizers. Minor Irrigation Schemes/ Project with cultivable command area less than 2, 000 hectares of land are classified under Minor irrigation category Plantation and Horticulture Plantation and Horticlulture broadly cover development of fruit crop. Land Development, Soil Conservation and Water Management • • • Soil and Water Conservation Watershed Development Water Management Land Reclamation Production of Organic Manures etc. Animal Husbandry Development of Fishery Sector Research and Development Activities

Major activities of NABARD Investment Credit: NABARD provides investment credit in form of medium term and long term refinance activities to institutions and agencies that are engaged in agriculture financing activities. Eligible Institutions §State Cooperative Agriculture and Rural Development Banks §Regional Rural Banks §State Cooperative Banks §Commercial Banks §State Agricultural Development Finance Companies §Primary Urban Cooperative Banks

Co-operative Banks §Co-operative banks came under the purview if the Banking Regulations Act only in 1966. §Urban cooperative are supervised by the reserve Bank; While rural cooperative credit societies are supervised by the NABARD. §A cooperative is run for the benefits of a group of members of the cooperative body. §A co-operative bank distributes only a small portion of its profit as dividend, retaining a major portion of its business. §Cooperative banks in this country are a part of vast and powerful; structure of cooperative institutions which are engaged in tasks of production, processing, marketing, distribution, servicing, and banking in India. §Co-operative banks in India are registered under the Co-operative Societies Act. The Cooperative Bank is also regulated by the RBI. They are governed by the Banking Regulation Act, 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Objectives of Co-operative Banks §To facilitate rural credit §To promote thrift and self help among the economically weaker sections of the society §To safeguard the interests of its members, and §To provide financial assistance to those who are unable to get financial help from other institutions.

Features of Co-operative Banks §They are organised and managed on the principles of co-operation, self help, and mutual help. They function with the rule of “One Member, One Vote”. §They function on “No profit, no loss” basis. For commercial banks also, profitability is no longer the main objective, but in their case this change has been brought about as a result of social or public policy, while co-operative banks, by their very nature, do not pursue the goal of profit maximisation. §Cooperative banks performs all the main banking functions of deposit mobilisation, supply of credit and provision of remittance facilities. §Co-operative banks do banking business mainly in the agricultural and rural sector. §Co-operative Banks are perhaps the first government-sponsored, government-supported, the government-subsidised financial agency in India. §Co-operative banks belong to the money market as well as to the capital market. Primary agricultural credit societies provide short-term and medium term loans.

Features of Co-operative Banks §Co-operative banks are financial intermediaries only partially. The sources of their funds (resources) are: Central and State Government, The RBI and NABARD, Other Co-operative Institutions, Ownership Funds, Deposits or debenture issues. §Co-operative banks have a federal structure of three-tier linkages. Further, their operation is of mixed banking type. §Some co-operative banks are scheduled banks, while others are non-scheduled banks. §Co-operative banks accept current, saving, and fixed or time deposits from individuals and institutions including bank. Some UCBs numbering about 40 in 1989 are allowed to open and maintain NRI accounts in rupees but not in foreign currency. Deposits mobilised by them in a given area are used for financing activities in that locality. §The Co-operative banks are subject to CRR and liquidity requirements as other scheduled and non-scheduled banks are. However, they are required to maintain the CRR and SLR only at the level of 3% and 25% respectively, at present.

Principles of Co-operative Institutions Voluntary Organisations Democratic Organisations Equitable Contribution Benefits to members Sustainable Development

Types/ Structure of Co-operative Banks State Cooperative Banks Primary Cooperative Central/ District Cooperative Banks Urban Cooperative Banks Long Term Co-operative Credit Structure

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 purpose of cattle fodder, fertilizers, pesticides, etc. §The primary agricultural credit societies are meant to help nation, drive for increasing agricultural production by making available to the farmer adequate credit in cash and in kind. §PACS provide both short-term and medium-term loans to their members. §The management of PACS is vested with a committee elected by its members. The managing committee shall consist of president, secretary, treasurer and a few directors. The supreme authority of a PACS is the general body. §Sources of Funds are share capital, reserve funds. , membership fees, deposits from members and non-members, and §Loans from cooperative banks, government and other agencies.

Central/ district 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 bank consists of share capital, deposits, loans and overdraft from state cooperative banks, and joint stock. §The chief object of DCCBs is to meet the credit requirements of the member societies. They work as an intermediary to link the primary societies with the money market. §The management is generally vested in a Board of Directors consisting of 12 to 15 members. The board has the following key personnel: §The Manager, The executive officer, chief accountant, a special officer. §Share capital reserves, deposits from public, loans from SCB’s , RBI and the Government.

State Co-operative Banks §This 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 overdraft. §Its funds are obtained from share capital, deposits, loans, and overdrafts from the RBI. §The fundamental objective of an SCB is to act as a balancing centre, clearing house, and a financing agency of the cooperative institutions working within a state. §The Management, like other co-operative institutions, is vested in the general body. It meets once in a year and deals with the following items of business. §Receives and approves a report of the year’s work accompanied by a financial statement. §The state co-operative banks derive their working capital from the following sources: Share Capital, Reserve Fund, Loans from Commercial Banks including the State Bank of India §Deposits from members and non members, borrowings from RBI, the state government, and others.

Long Term Co-operative Credit Structure §These Banks are organised 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 over see, the primary land developmental banks situated in the districts and tehsil areas in the state. §They are governed both by the state government and reserve bank of India. §Recently, the supervision of land developmental 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. §The agriculturist need three types of credit: Short term loans, Medium term loans, Long-Term Loans.

Urban Co-operative Banks §The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative 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, till 1996, were allowed to lend money only for non -agricultural purposes. §This distinction does not hold today. These banks were traditionally cantered on communities, localities. Workplace groups. §They essentially lend to small borrowers and businesses. Today, their scope of operations has widened considerably. §Sources of funds: Share capital, Retained earnings, deposits and borrowings.

Role of co-operative banks in India §Co-operative banks are much more important in India than anywhere else in the world. The distinctive character of this bank is service at lower cost and service without exploitation. §It has gained importance by the role assigned to them, the expectations they are supposed to fulfil, their number, and the number of offices they operate. §Co-operative banks role in rural financing continues to be important day by day, and their business in the urban areas also has increased phenomenally in recent years mainly due to sharp increase in the number of primary co-operative banks. §In rural areas, as far as the agricultural and related activities are concerned, the supply and credit was inadequate, and money lender would exploit the poor people in rural areas providing them loans at higher rates. So, co-operative banks mobilise deposits and purvey agricultural and rural credit with a Wider outreach and provide institutional credit to farmers.

Functions of Co-operative Banks §Primary Credit societies (PACs) approve short- and medium term credit facilities to its members. These members can enjoy cash credit facilities from District Co-operative Central Banks (DCCBs) and from some commercial banks. §State Co-operative banks controls and provides funds to the DCCBs and serves as a link between NABARD and DCCB’s and state –Cooperative banks. Several rural development programme of NABARD are channelized towards PACs through SCBs. §Short-term and medium-term credit facilities are provided by SCBs and DCCBs to some cooperative societies out of their own funds. In this case SCBs and DCCBs can charge a relatively higher rate of interest, as compared to the case where they are refinanced by NABARD. §Productive and different income generating activities get help from PACs. The entrepreneurial talents in rural areas are activated by the workings of these banks and societies. §Co-operative societies can help rural people by freeing them from the grips of rural moneylender. This can be done by inculcating organising capabilities among rural people.

Importance/Benefits of Co-operative Banks §They have provided cheap credit to farmers. They are discouraged unproductive borrowings. §They have reduced importance of money-lenders. More than 60% of the credit needs of agriculturist are now met by co-operative banks. Thus. Cooperative banks have protected the rural population from the clutches of money-lenders. §Small and marginal farmers are being assisted to increase their income. §They have promoted savings and banking habits among the people, especially the rural people. Instead of hoarding money, the rural people tend to deposit their savings in the co-operative or commercial banks. §They have undertaken several welfare activities. They have also taken steps to improve the morals, polity and education.

Disadvantages of Co-operative Banks §For several reasons, a huge number of PACs operating in rural India became economically nonviable. They have become financially weal to provide productive credit to rural producers on time. They started to incur losses continuously. §Like LDBs, several PACs were also overburdened with bad debts due to the poor recovery rate. This poor recovery rate of loans made PACs unable to take fresh loans from DCCBs. Since PACs are directly under DCCBs and DCCBs with SCBs while SCBs are directly linked with NABARD, failures of PACs were affecting the DCCBs and SCBs also. §Co-operative credit societies were established with an expectations that they could help rural poor people. But paradoxically these societies were under control of some big landowners due to their high political influence and economic power. Hence these societies could not help the poor but they helped these rich landowners more in many cases. These big landowners used the funds and other resources to satisfy their own interest.