Banks in India can be broadly classified under two heads — Commercial
banks and co-operative banks.
Commercial banks are established with a profit making motive (
Nationalised banks, State Bank group, private sector banks, foreign
banks and regional rural banks) account for an overwhelming share of
the banking business.
Cooperative banks were set up to supplant indigenous sources of rural
credit, particularly money lenders, today they mostly serve the needs
of agriculture and allied activities, rural-based industries and to a
lesser extent, trade and industry in urban centers.
Co-operative banks have a three tier structure —
- Primary (agriculture or urban) credit societies,
- District central co-operative banks and at the apex level,
- State co-operative banks.
They work under the "No Profit No Loss" model.
Primary (urban) credit societies that meet certain specified criteria
can apply to RBI for a banking license to operate as urban
co-operative banks. Primary (urban) co-operative banks are registered
and governed by state governments under the respective co-operative
societies acts of the concerned states. This is because as per our
Constitution "Cooperation" is defined under the State list.
Since they are also covered by the provisions of the Banking
Regulation Act, 1949, they come under the control of the RBI as well.
While the managerial aspects of these banks are controlled by the
state governments, matters related to banking are governed by RBI
directives. Traditionally, the area of operation of primary (urban)
co-operative banks is confined to metropolitan, urban or semi-urban
centres and caters to the needs of small borrowers.
However, there is no formal restriction as such and today UCBs can
conduct business in the entire district in which they are registered,
including rural areas. Well managed primary UCBs with deposits of over
Rs 50 crore are also allowed to operate in more than one state subject
to certain norms. These banks are also included in the Second Schedule
of the RBI Act 1934.
They are registered under the Central Registrar of Cooperatives and
become Multi State scheduled banks.
District central co-operative banks and State co-operative banks
Primary Agriculture credit societies operate at village level and are
affiliated to DCCB's. DCCB operate at district level and are
affiliated to SCB.
Earlier these two tiers were also under the supervision of the RBI.
However, following the establishment of the National Bank of
Agriculture and Development (NABARD) in 1982, the supervisory function
of these banks has been passed on to NABARD.
These meet the long term credit needs of agriculture sector. The main
objective is to develop land, agriculture and increase
productivity. They too have a dual supervision structure.
They are of two types:
- Central LDB: Operating at state level
- Primary LDB: Operating at district or taluka level.
Primary LDB's are affiliated to the Central LDB at state level.
The sources of funds of State LDB’s are:-
1. Share capital.
2. Issue of debentures
3. Loans from NABARD
4. Reimbursements of subsidies from the Govt.
5. Other funds.
Issue of debentures is the main source of funds for
Debentures is a `Bond’ conveying and
acknowledging the debt and also containing the provision of promise
for payment of interest at stipulated rate and return of the
Land Development Banks are now called (State
Co-operative) Agriculture and Rural Development Banks (ARDBs) since
they are providing long-term funds for various agriculture related
projects besides development of land.