ttl.
J\ NEED OF THE NON-AGRICULTURAL QQ-OPERATIVE BANKS i.e. URBAN BANKS.
In India non-»gricultural co-operative banks way be broadly classified as under:-
1) Co-operative Urban Banks,
2) Employee Co-operative Credit Societies &
3) Other special type of credit Societies,
Out of these urban banks and employees credit Socie
ties are more popular.
In India, primary agricultural credit societies, Central Co-operative Banks, State Co-operatives and Co-operative Land Development Banks are engaged in
pooling their resources from various agencies and providing short, medium and long-term credit to the agriculturists.
In their efforts these agriculture Banks are also immense
ly helped by the Government and Reserve Bank of India.
Commercial Banks provide credit to the organised sector of industry, trade and commerce and to ^ig proprietory business.
Thus a large number of urban people of small means and limited resources are left out without any institution
al agency to provide them cheaper and facile credit. They constitute the majority of the urban population and belong to various professions. There are good number of people employed in Government departments, local bodies, wills and private business who reside in the towns and cities.
Then private business who reside in the towns and cities.
Then there are the small traders, artisans, hawkers, and pedlers.
None of these come under the purview of commercial Banks because they do not satisfy the standards followed by them for financing . But they do require credit for various purposes . Small traders and shop-keepers need it for carrying on their operations and small contractors for carrying odt their contracts. In addition all of them and salarised servants require it for acquisition of
houses and other tangible assets and for special demestic expenditures necessiciated by births, marriages, deaths, sicknes and unemployment. All of them have obtained it from money-lenders and have to pay them high rates of interests. These agencies are purely private not guided by any bodes of conduct so that they exploit the urban people. Hence the problem was to evolve an agency which
will replace the private credit and provide credit to t he townsman on easy terms of interest and repayment and
also inculfcate the habit of thrift in them.
Solution of the above problem was found in the Co-operative Urban Banks,
ORIGIN OF URBAN BANKS.
Co-operative Urban Banks owe their drigin to Mr, Her Schulze the Mayor of Delitzsch in Germany,
Mr. Schulze shad* jlovesty and syatpathy for his countryman*
whose poverty and helplessness attracted him. He found that provision of cheap and adequate credit to the poor people was essential to change their economic condition.
Finally he came to the conclusion that no one could
• ..3
-3-
help them unless they organised themselves on the basis of self-help through mutual help.
Schulze, therefore, founded a friendly society in 1849 for relief in sickness. For provision of credit he founded in his native town his first loan Society in
1850. The main featuresmtff Schulze type credit banks were the foliowing: -
The membership of these Banks was mainly confined to the artisans and petty traders and provideo credit facilities to members only. In the begining the liability
•fx
the members was unlimited. Later on limited liability was introduced. These creoit associations raised funds by issuing share capital accepting deposits. Members were given loan in two ways,:-1) By way of a loan and 2) By discounting a trade bill of exchange.
Most of important security was the personal pledge of the members.
Taking into consideration the above characteristics one can understood the need of the Urban Banks. Urban Banks are no doubt , playing vital role in their area of operation to remove the poverty and to raise the standards of living of the Urban peoples. They are top on the right
for providing the loans and advances to miodle class
members, small traders and artisens. Due to their flexible policy,members are getting loans without any complications
as in the case of Nationalisec Banks. Due to the regional and personal attachment management had an ample knowledge
...4
Nationalisation of Commercial Banks,Urban Banks are growing rapidly. They can now easily compete to the Nationalised Banks. The services provided by these Banks are also equal to the Nationalised Banks. So in the future Urban Banks will have good future and better prospects specially in under-developed countries like India.
-5-
-
2}
DEFINITION OF URBAN BANK.Among the non-agricultural credit Societies Urtoan
6o-operative Banks occupy in importance in the non-Agricultu
ral Sectors has recommended that the definition of an Urban Co-operative Bank should include the following
features.
1) A credit Co-operative registered under the State
Co-operative Societies act in Urban or Semi-Urban areas.
2) A minimum paid up capital of Rs.50,000/- and
3) Provision of banking facilities e.g. accepting for the purpose of lending or investment of deposits from members and non-members repayable on demand or otherwise , and withdr
awal by cheque, draft, and order etc.
•. • • ♦
The B,ain objects of the Urban Banks are:-
1) To borrow funds front the members or others to be utilised for loans to members for useful purpose,
2) To act as the agent for the Joint purchases of domes
tic and other requirements of members,
3) To encourfge thrift, self-help and co-operation among the members,
4) To undertake collection of bills drawn, accepted or endorsed by members and constituents and to discount cheques and bills of approved members subject to rules and byelaw* in this behalf,
5) To arrange for the safe custody of valuables and docu
ments of members and constituents,
6) To provide other facilities as provided by commercial Banks.
FUNCTIONS OF BANKS.
One of the main functionsof Urban Co-Operative Banks accepting various kinds of deposits from members and non
members.
The second main function of the Urban Banks is to
lend to members for various useful purposes. Loans are also given to the non-members on the security of their deposits.
The Urban Banks may undertake to purchase and supply essential consumer goods to their members on agency basis.
But this is not generally done ,
♦ * •.7
7-
These Banks collect the bills and cheques of their membe
rs and approved constituents. They may effect receipts and pay -ments on behalf of members and constituents.
These are agency functions performed by them.
Urban Banks also undertake the discounting of bills.
To sum upy the principal functions of Urban Banks are to promote thrift by attracting various kinds of deposits from members and non-members abb to advance loans on
personal security or on mortgtge of house property or land property. On pledge of gold , and silver produced merchan
dise, Government securities, fixed deposits, recripts, life insurance policies* Bank debentures . Inspite of the Urban Co-operative must play the important role in respect of the following points:*
l) The Urban Banks must organise and bring together middle and working classes in Urban and Send Urban areas and incl
udes in them the habits of thrift and self-help and acquaint them with the elements of ordinary banking principles.
25 The mobilizations of savings by Urban Co-operative Banks and the consequent drawing ar Urban resources into appex and Central Co-operative Banks which are in need of funds to finance the rural industrial and other functi
onal Co-Operatives which can contribute to general economic development.
3) By providing credit »on reasonable terms to the middle classes they can rescue them from the exploitation of
money lenders.
4) By financing individual industrialist and artisian
working in Urban areas, they can make a significant contribution ...8
such as remittance of funds et«» Available in areas which may not be considered suitable for commercial Banking
and to per on who may not be able to get such facilities from Commercial Banks,
6) They can provide intelligent experienced and active leadership aAd the Co-operative movement including the Central and appex Co-operative Banks which in view of their federal character draw their directors from members institutions.
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if> ROLE OF URBAN COOPERATIVE BANKS.
Co-operative Banks, the important component of the Indian Banking structure, organised in India with the enactment of the co-operative credit societies act 1904 which provides for the formation of co-operative credit societies. Co-operative credit societies represent a democratic form of organisation. They were formed for
encouraging self help, thrift, and for increasing the habit of saving among the members. The main object for starting
such societies was to save tbt small man from the tlutches of money lenders who were charging penal rates of interest and exploiting him in the absence of a suitable organisation to help him in the hour of his need. Savings of members
are mobilised by such societies which are utiliseo mainly for granting loans for their members for meeting their legitimate credit needs wuch as redemption of petty debts
and consumption expenditure viz, marriage, thread ceremony etc, and also for educational, medical expenses, housing trade etc. Co-operative credit societies were formed in rural areas as well as Urban areas predominantly for the benefit of the poor man.
Co-Operative credit societies however cannot accept deposits from the non-members. But then the size of the
...
10Urban Co-operative Credit Society become large it aspires to become an urban bank to serve a wider section of the people and consequently to enlarge its operations. It inva
riably endeavours to extend wider range of Banking service to its existing clientele, such as , clearing house facility issuence of demand drafts etc.
This is ihow urban banks came into existance. More and more urban banks were subsequently formed from 1930 onwards by social workers and public spitited men* Scale of operation of the urban banks increased to substantially by 1966, that certain provisions of the Banking Regulation Act 1949 were made applicable to them with the effect from. 1st March 1966, The operations of Urban Banks also were brought under the control of Reserve Bank of India. Urban Banks were asked to amend there bye-laws to dismember co-operative socities as a measure of discipline to conform to the three-tire structure. In a matter such as registration, constitution management amalgamation winding up etc. The control* con
tinued to be vested in the Registrar of Cooperative Societies. A dichotomy jfcof control thus ensureo since March 1966.
DISTINCTIVE FEATURES OF URBAN BANKS.
1) Urban Banks are truly democratic organisation managed by elected representatives from amongst the members of the
Banks. The members have one vote each as against one vote per share under the capitalism.
m
...11
u
The general body is the supreme body which takes all important decisions,
2) There is ceiling on return on capital i.e. dividend*
Urban Banks do banking business on the lines of the commercial Banks ,but adopt the Co-operative principles.
3) By and large the resources of individual urban banks are small as compared to the resources of jigger commercial Banks by the very nature of their clientele who are drawn from the middle and lower classes.
4) The unit of deposits and advances is smaller as com
pared to the units of commercial Banks.
5$ Loans are given for traditional purpose via: loans for repayment dtjk debts, to meet expenses of marriage, different types of ceremonies, medical treatment, education*
al housing etc. Production loans are comparatively small part of their total advances portfolios. The following table
shows the loans and advances portfolios.
Purpose-wise classification of advances as ons 3oth June 1977.
Purpose Percentage.
Small scale industries. 7,47b Transport Operations. 2.0%
Education . 0.9%
Housing. 11.0%
Expenses for conducting ceremonies. 3.4%
Consumption expenses, 12.3%
Small traders & Shop keepers
3i.o%
...12
Others. 32.0%
Total. 100
.
00%
Commerce 'December 1977*
6) The urban Banks do not depends on the higher financing agencies for their resources by way of refinance or other loans but mobilise their own resources based on the owned funds and deposits mobilised by then*.
7) Members of the Managing Committee and staff have intimate knowledge of the people they serve and have a better feel of the local conditions.
8) ?bre By and large the dpea operational efficiency of the banks is unfortunately not up to the mark with
the result that quite a few banks have beconte weak or on the way of becon.ing so.
The general picture of Urban co-operative banking is one ofthe financially sound expanding and useful framework of banking institutions that have their owe place of importance in the banking structure of India. They have been doing useful work in mobilising
saving of relatively weaker sections of the community and financing the small borrowers consisting of indus
trialists, artisans, professionals ,retailers and so on.
The Urban credit movement in Indian
had
its begining in the year 1889 when the first Mutual Aid Society was starteo in the Baroda, with the confer
ment of legal status under the co-operative credit societies
n
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Act 1904 . The first Urban Credit Society was regis
tered in October 1904 at Canjevarm in the Madras State.
A few credit societies came up afterwards. The deve
lopment of these Societies received attention in 19(15 when the Macgiagan Committee refered to the potentialities
for the organisation of such societies especially in Urban localities to meet the requirements of the middle
class people. Thereafter many Urban Credit Co-operative Societies were organised mostly in the Bombay and Madras provices during the period 1919-1938*
Later during the period 1939-1945 there was rapid growth not dnly in the number tff the banks but also in their activities. Artisans small businessmen and small traders looked to these Banks for financial assistances*
A numbers of Committees such as Co-operative planning Committee (1946),the study group on credit co-operatives in the Non-agricultural Sector (1963) and the working group on industrial finance through Co-Operative Banks
(1948) that had gone into the working of Urban Co-opera
tive Banks and allied matters have recognised the use
fulness of these banks for fianoing artisans, small traders, factory workers and Urban middle class people.
As on March 1966 i. e. the date of Extension of the Banking Regulation Act 1949 to t he Urban Banks
there were 1091 Primary Co-operative Banks in the country*
©ut of them 403 were Urban Banks and 688 were salary
earner societies classified as Primary Co-Operative Banks.
Following
the
advice of the Reserve Banks to these societies ...14to go tout of the purview of the Banking Regulation Act. About 400 societies opted out of the said Act.
However there was steady increase in the number of Urban Co-Operative Banks, The number of Urban Co-Oper
ative B nks which stood at 403 in 1566 increased to 1,206 by Tune 3o, 1978. The increase was mainly due to the attaining of status of primary Banks by a number of primary credit Sooieties after reaching the paid -up
share capital and resovrves of Rs.l Lakh.
The increase in the number of Banks was mainly due to the State of Gujrat, Karnataka, Maharashtra, and Tamil-Nadu. As many as 75% of the total number
of Banks as on 3oth June 1978 were concentratec in these four states. The number of Urban Cooperative Banks in States like Assam, Haryana, Madhya PradAsh ,Orissa, Punjab and Uttar Pradesh are quite negligible. Even in the four States of Maharashtra, Karnataka and Tamil-Nadu and Gujrat,there are regional imbalances e.g. in Mahara
shtra ,out of 331 Banks as on June 1979,293 Banks mere in Western Maharashtra, 28 Banks in VidArbha and 10 in Marathwada Region, and only Kolhapur District, from 36 Urban Co-Operative Banks.
The paid-up share capital of Urban Banks in the Country which stood at Rs. 41 crores by June 3o,1967 increased to Rs.78 crores by June 30,1978. The percen
tage of increase* recorded was over these years as 90*
• • • 15
-15-
The increase in t he share capital was mainly due to the increase in the number of members and also increase in the share value.
The membership of the Banks which stood at 36,32 lakhs in 1967 had increased to 53.12 lfkths by June 3of 1978*
The Urba n Banks bare also also taking steps to increase their owned funds which included in addition to the share
capital and their reserves. There was substantial increase to Rs.65 Crores
in the reserves from Rs. 17 Crores^during the period 1966-1967 to 1977-1978.
There was significant increase in the deposits of the Banks. The deposits which stood at Rs. 153 Crores as on June
30, 1987, had increased to Rs. 627 Crores by June 3of 1978.
i.e. by 31% . The increase in deposits was mainly due to several measures taken by the Banks such as introduction of new Schemes opening ofBank hrahches etc,,
The outstaading loans and advance of Urban Banks raised from Rs. 167 crores as on 3oth June 1967 to fts.497 crores
as on 3oth June 1978 representing an increase of about 200%
during the period. The Urban Banks had taken several measures to diversify their loan portfolio and advances more to produ
ctive purposes.
Thus the Urban Co-Operative Banks in the Country have
• • •
recorded impressive performanceduring the last 15 years.
The growth of Urban Banks in Maharashtra was more impressive.
The number of Urban Banks which stood at 84 as on March 1, 1966 had increased to 331 by June 3o# 1979. The membership of these Banks stood at 11.77 lakhs as on 3oth June 1979*
...16
The share capital and reserves of these Banks stood at Rs. 5,872 lakhs. The total deposits of the Banks were Rs, 38,353,11 lakhs as on June 3o, 1979, The loans and advances of the Banks stood at Rs,25,317,74 lakhs. On the same day the working capital stood at Rs, 48,087,90 lakhs.
With the growth in the number of co-operative Banks, the Banks have takes several measures to reerient
their policies and streamline their working. They are now working as any other commercial Banks and rendering all types of services including issue of drafts on all India- basis. Two of the Banks have been authorised to deal in
foregin exchange also. Some of the Banks have got branches covering more than two states. The Urban Banks have built up a net-work of branches. More and more small scale indu
strialists are looking forward to the Urban Banks for fin
ancial assistance heeded by them. The Urban Co-Operative Bansks are one of the main sources for providing finance to transport operation who are playing an important role in the transport of goods from one state to another. Thus theUrban Co-Operative Banks have been playinga vital role in providing finance to small scale industries, transport operations, small businessmen,self-employed pad persons and assisting in the gtowth of the economy in Country.
A stage has now been reached then the working of Urban Co-Operative Banks hhould be streamlined and woven
in the economic fabric of the Country. Insjiite of alisation of Commercial Banks and their being proi
-17-
pay adequate attention to small man and weaker sections of the community, The Urban Co-Operative Banks and other Urban credit institution with their pattern of growth and roots in these areas are ideal institutions to cater to the needs of the Urban poor and saddle class, petty traders and sntall and cottage industries. The potential of the Urban Banks in this field has unfortunately not been
fully exploited. To make the Urban Banks more effective and fnilay a bigger role in the economic system of the
dra
Country,, • well-teeewn up plan of growth is necessary as was done in the case of agricultural credit institution
after the All India Rural Credit Survey.
♦ e e •
5 ) STRUCTURE OF URBAN BANKS.
Generally, Urban Co-Operative Banks have got unitary structure and not a federal structure like the agriculture -1 Banks. It was supposed that the Urban B»nka will be affiliated to the District* Central Co-Operative Banks and that there was bo necdssicity of organising separate district and appex Banks for Urban Co-Operatide Banks.
However, in actual practice most of the Urban Banks were self sufficient and did not require any substantial borrowing from the District Central Co-Operative Banks, Wherever, they were weak and could not tap sufficient
deposits, they looked for help to the Central Co-Operative Banks. In fact some of the Urban Banks were stronger
than the Central Co-Operative B|nks, Demand dor the separate appex Bank for the Urban Bank was strongly voiced in
Maharashtra . In t is connection the Central Banking Enquiry Committee observed the followings-
"As far as possible , the Central financing agencies should act as financing agencies and balancing centres for Urban Banks., or where the latter do not meet the special requirements of Urban Bank, Urban Banks should
be allowed to deal directly with the Provincial Co-Operative Banks. It might be necessary if there is a considerable
development of Urban Banks, that the latter should have their own Centr 1 Bank, different from the Central
Bank of Agricultural Credit Societies. But it will be unde
sirable to have a separate appex Banfc, There should only
e • • 19
19-
be one Provincial Bank, apart frost the Provincial Land*
Mortgage Corporation".
The argument against the formation of separate finan*
cing Agency of Urban Banks were that the Central Bo-Opera
tive Banks Slight lose the surplus funds tapped frost Urban Bansk after sieeting their desiands frow out of such funds.
As veil as organisation at the district level and will
result in diffusion of funds avail ble for the Co-Operative siovesient and slight creat a dearth of honourary workers to sianage the Co-Operative institutions.
• • • • +
S) MANAGEMENT OF THE URBAN 00-OPERATIVE BANKS.
A Co-Operative enterprise like other forms of business organisation is subject to universally accepted principles of Management pecular feature of a co-operative organisation
is that combined judiciously the principles of a
management with the principlesof co-operative. The co-opera- tivBs has to keep in view social consideration because of their democratic nature. So that the management problems of co_0peratives do not merely pertain to the process within the Organisation but also to the nature of inter-relation
ship with other relatbe external co-operatives. In the co-operative organisation,the co-operative principle of
"Co-Operation within Co-Operatives" has to be practisised with due importance on the basis of efficient management of resources to get the best possible results for all the participating co-operative organisation.
Traditional
axgani
management style is an organisation makes for decision-making by the elected board while the technical necessities require decision-making by experiences, qualified executives. Co-operatives are being compelled to enlarge their size of operation, by expanding the structure and also through integration of
of operations, regionally,nationally and even internationally.
$
...21
21
Modern co-operatives would find this transaction of international bias with the new style of management.
It will enable them to attract,hold and utilise most
•mmpetent personnel in a creative and dynamic organi
sational plan. This will ensure not only survival but continued progress of their organisation. They cannot meet competition more effectively in a changing society.
The Co-Operative Urban Banks must reflect both n
Cooperative and business character in their fianeial operations. A larger portion of their deposit ^resources must come from co-operatives. Similarly, loaning policy will also be in favour to the co-operative sector with
out sacrificing the principles of security and liqdidity.
The concept of profit is anot of predominant importance in co-operative organisations although, adequate, surplus must eaterge in order to financial growth and development of the organisation itself. It will also be clear that emphasis on and attention to co-operative character of business does not come in conflict with the universally accepted principles of Management including financial and operational management . Total planning of Banking business and its day-to-day conduct must be done in relation to the accepted basis of goals and objectives.
The financial Management of co-operative Banks there
fore needs to receive concerted attention of both the office bearers and the executives in theCo-operative Banks. As per the commercial Banks,co-operative Banks are dealing
and credit.
They mobilise Deposits from members and non-members f individuals and institutions at a cost. They must promote the thrift. Concept Co-Operative Banks Management would have to make special efforts for attracting deposits from the open market in the face of growing competitions.
In case of the loans and advances, their borrowers consist* of only members, residing in their area of operation . Although, this may appear to be a limitation on business of a co-operative Bank , but it must be under
stood that it is inherent in a Co-Operative forms of organisation by virtue of its typical set-up. All the time, a greater coverage of borrowers from different spheres of economic-activities on a continued basis would still promise substantial business to them. They have failed to exploit the already existing potential available to them. Annually increasing drawals of credit by them are going to finance their almost stagnant
membership. Greater attention to financing* marketing*
Industry, Processing, Retail trading activities would provide ,because to their loaning operations and contri
bute to stability to their revenue receipts. The Urban Banks can do a lot in fringing about balanced integrated Co-Operative development in their respective Urban Aieas.
The Management of Urban Co-Operative Bank do not
fail to remember that they are bound with the function of mobilising small savings from the small people and in
advancing loans to the small people to ibeet their immediate consumption and production requirements. The management should
...23
23
pay wore attention towards the small artismn,the small industrialist, the small professionals, the service people, salary earners etc.,
STRUCTURE.QE.-IHS..MANAGEMENT.
OF THE URBAN CO-OPERATIVE §ANK.
As per the other Co-Operative Banks, the Management of an Urban Bank vests in a Board Director, who are elected by the General Body, consisting of all the members.
The final authority in all matters rests with the General Body ,but the actual conduct of the affairs of the Bank rests with the Board of Directors and the Secretary
or Manager of the Bank. The following organisation chart gives a clear idea ofthe Management structure.
*
1---
*
-,r*
#
*
Members i.e.
General Body
... ... —jt
*
*r
1* Board of *
~k
Directors. '*■
*
★
■'rr- Chairman. *
*
-Ki General *
# Manager.
* *
A k "
Assist. Manager.
#
* Branch Managers.
*
# ...
Employees.
The membersof the director board are elected by the members. The usual practices are to hold elections each year
■ •
-25
or once in three years or each year by rotation ior one third members oft the Board.
The holding of elections every year has not found
favour as the same is expensive ,takes up time and energy.
One more drawback of this system and that is, the directors have harily any time to get themselves acquainted with the
functioning of the institutions before freeh elections are held. The advantage of holding elections once in three years are that expenses are kept at the minimum and the Board of Director has time to learn the working of the Bank* In some states, however, experts are in favour of election by rotation as the smme also ensures a certain amount of stability and continuity as only one- third of the directors are elected each year* The Chairman of AhB the Bank elects once in a three year either directly by members or indirectly by member of Board of Directors,
Usually the electors are taken as per the rules and regulation formed by the State. Special rules
regarding election are also sometimes formed by big
Urban Banks with the approval of the Registrar. In order to ensure the Management of these institutions by persons who have soma statues in the Bank and who passess other qualifications, it is necessary that at least good Urban -Banks prescribe a minimum standard of share holding or deposits for election as directors. The Management of Urban Banks requires the services of expert in the field of Banking. Hence care should be taken to bring on the Board competent persons with sufficient expert knowledge and experience of Banking and finance.
26
That will help the Bank in attracting deposits.
The day- to- day management of the Banks requires qualified and trained staff. In this respect the example of commercial Banks is worth enulating. But the problem
is how to attract efficient and trained hands.
These banks cannot pay salaries as given by the Commercial Banks. Care should be taken to select qualified local
pepple. They should be trained in the co- operative Training Centres.
jj z)
PROBLEMS OF URBAN OQ-» OPERATIVE BANKS.urban Co-operative Banks were started in India for the promotion of thrift among members and for providing credit on easy terms to the small and low
income group persons living in the urban and semi Urban Centres* Adhering to the objective and the
co-operative priniiple they have grown and have undertaken a veriety of Banking functions done by commercial Banks.
They have succeeded in keeping alive the hereditary traditional professional. By their simplicity
intimate contracts and local involvement they have gained the confidence of the local people which can be evidenced from the growth in their deposits every year.
Increasing the activities, but at the same time restric
ting them for the benefit of the small man in consonance with the objectives, they have made a significant headway to occupy a prominent place in the State economy. It has been recognised by several committees that the Urban Banks are best suited to provide credit to small enterpreneure engaged in cottage and small scale industries and to give assistance to small man in general and hence this field was reserved for the activities of urban co-oprative
-Banks, Urban Banks have cleared all the hurdles in the way of their establisho»ent and have shown in impressive
progress in mobilising deposits and promoting thrift among the public.
In view of the urgency $<fr accelerated growth of the economy pentration by other institutions has permitted in the fields so far reserved for co-operatives which nowposes
28
.
a challange as co- operatives have to face competition front stronger institutions. Small ventures like urban Co-opera
tive Banks will now have hard time in competing with the better organised Commercial Banking Sector. However since Urban
- Co-Operative 8anks have become reached a developed stage and have become an economic force with large number of
persons brought up in the fold it should not be difficult to meet the challenge successfully, provided the short
coming inn their working are eliminated and they are treated per with commercial Banks.
A few points mentioned belows-
1) Commercial Banks have entered the field of weaker Section do far reserved for co-operatives and advance
loans on the basis of viability of prohects and very margin stipulations. Urban Banks should be allowed to act similarly.
The Societieshave privieledged protection in section 49 of the Maharashtra State Co-operative Societies Act 1960 in recovery from salarised persons., but the impact of
amendment to Civil Prodedure code may have adverse effedt in executing steps for recovery.
2) The Co-Operative Banks are subjected to multiplicity of controlling agencie* in the shape of Reserve Bank of India, Registrar Co-Operative Societies and members. The Government Policy restricts the deposit mobilisation of
...29
-29-
Urban Banks from trusts, and other afluent institutions like Colleges, Universities and local Bodies,
3) Membership is essential for obtaining credit facilities from Co-operative Banks and further the borr
owings being required to be linked up with the share
holdings, it leads to the dire hardships to the prospect
ive borrowers whereas in the absence of such a condition in the case of commercial Banks, they are placed at a ventage pasition in entertaining loan proposals,
4) A very low ceiling limit is fixed in the case of Co-Operative Banks for making unsecured advances to a single individual concern and hence larger proposals, however good, are required to be abandoned,
5) For investment of surplus funds co-operative Banks are required to take prior permission of the Co-ope
ratives Department although they have been authorised by the Reserve Bank of India to transact in the money markets established at various centres on par with other
financial institutions.
6) Facility reimbursement of certain advances is not easily available to co-operative Banks on the same lines as it is available to commercial Banks.
7) Guarantees of Co-Operative Banks are not accepted by Government and semi-Government authorities.
To sum up , since co-operative Banks are now transacting all tupes of banking business ,that are undertaken by commercial Banks and are also Governed
by the Banking Companies Regulation Act, they would be able ...30
Commercial Banks.
The Urban 6o-0perative Banks are mainly expected to develop a locality by financing the various constituents in that locality. They are expected to play a two fold role. 1) Deposit mobilisation and,2) Its utilisation in developing the small scale industries and the earning capacity and standard of living of the various personnel who are either self-employed or employed in various orga
nisations like Governments and Semi-Governments Departments and private firms. It is generally expected that each co
operative Banks should serve some special purpose like merchants, weaker section women and so on. The main idea is that there should not be competition between the Co- Operative Banks and Nationalised Banks and Scheduled
Banks whose fields are demarcated by special acts of Pariiament.
But ifc» it is observed that there are lot of mis
givings about the Co-operative movements amongst masses, which results in obstructing the full and free growth of such co-operatives. The general impression is that the co-operative Banks are under the control of Political
e
leaders and the^fore thereis not full and free flow of deposits towards the Urban Banks.
While considering the finances of small scale sectors, earlier the limit of loans of individuals allowed to the co-operative Banks was restricted to Fts.iO laktos which has been now increased to 15 lakhs. This means that the co-operative Bank would mature a newly set up industrial undertaking in the begining bttfT after this. Alhtter&pKing had
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reached its trreakdeaii even,]bbe bank was unable to finance additional needs of few lakhs rupees of such a Unit.
One of the weakest point of the Co-Operative Bank is non-availability of technology qualified staff due to the emoluments which a re very poor as compared to those paid up in other banks. This results in flow of qualified
staff from the co-operative Banks to the other categories of the Blinks.
The Co-Operative Banks are not generally allowed to accept deposits of the public trusts as also of government and Semi-Government,industrial undertakings. Further,
the various statutory and other corporations do not encourage the Co-Operative Banks . In many cases they haven not accept the demand drafts of the Urban Co-Ope
rative Banks, which has a demoralising effect, not only on those who run the Bank but also on shareholders and depositors . The Co-Operative Banks are kept away from the clearing house facilities and the other categories of Banks even heavy charges for collecxing cheques of their deposi
tors from the Co-Operative Banks even if they are situated in the same locality.
It is not understood why when the Deposit Insurance and Credit Guarantee Co-operation of India is guaranting the deposits the of the Co-operative Banks to the same extent as in the other categories of the Banks, such
Banks should not be treated on par with other institutions by the Government and private persons.The public trusts
...32
interest from Banks are not billowed to keep deposits with co-operative Banks where they would iearn one percent more interest as compared to other co-opera
tive Banks. The Zilla Parishad, Muncipal Corporations and such other bodies, whose main income arises in a particular locality also do not deposit their funds,
in
paxixKMkaxxlagaiityxalsai
the normal course with the Co-Operative Banks. So thit it is defeating the very purpose of the Co-Operative Banks, which are supposed to cater for the development of the particular locality in which they are established.
It is a general feeling in public, researcher come to the conclusion after taking the interview of loan-holders of the Co-Operative Banks that they should approach the co-operative Banks for loan where they are available without much stress and strains, and for deposits they should go to the other categories of the Banks.
The Co-Operative Act provides that onljr simple interest should be charged on the loans while it is common knowledge that the other categories of Banks are charging coa«pound interest. This results in redu
cing the profitability of the Co-Operative Banks as compared to the other Banks.lt is high time that this disparity which is adversely affecting the growth of Co-Operative Banking should be reconsidered.
t « » •33
33-
But it is not correct that Co-Operative Banks should charge compound interest., instead of that other cat
egorised Banks should be prohibited frost charging cdmpound interest.
There are two wain authorities which control and regulate the Urban Co-operative Banks.
1) The Co-Operative Department of the State, and 2) Reserve Bank of India. The registration of the Banks is done by the local officer of the Co-Opera
tive Departsient. He dictates the regulation, which should be included in the by-laws. There is something like s*odel by-laws, which are pretty old and do not include the changes which have last few decades. If the suggestion siade by him are not incorporated
in the bye-laws, the Bank cannot be registeredand as such it cannot come into existence.The Promoters who have collected lakhs of ruppees duiing a period of time and have compiled with the other formalities of the Co-Operative Department, cannot afford to
wait further and as such they are in a mood to accept]*
whatever ibtl fxp departmental officers suggest with a view to obtain the registration certificate. Another disability of the promoters is that being a conti
nuing authority controlling and directing of the func
tioning of the Co-Operative Bank, they have necessarily
• a a34
comes in the way of challenging the guidance of the departmental officers. The obstacles race starts from obtaining the permission from the departmental officer to open the account inthe name of proposed bank, in the District Central Co-Operative Bank,
till the registration is obtained. Further, for efficient working of the bank ,it is necessary to oppn an account in the State Bank and other Banks where the permission is necessary, it is normally
granted for such a small amount that to take advantage of the facilities of the State Bank become impossible.
In short, the director, who are responsible for the day to day functioning of the Bank have to depend upon the good sence of the departmental officer who has no practical experience of the working of the Bank, A newly set-up Bank has to face tnese all obstacles.
The Agricultural Credit Department of the Reserve Bank of India, has its own norms which it is
reluctant to amend through convinced of the need, They^uote a single example, the linki-ng of shares with the loan sanctioned. It is prescribed, that when
various types of loans are sanctioned by the Bank
•
a particular percentage there should be collected from the loanee towards share capital. This provision
.,,35
ttRR
'•?. uBiur
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was brought -in to enable the Co-operative Banks to raise their share-capital to adequate amount. This
was necessary when people were not prepared to participate in a Co-operative Bank. The days have changed . The Bank have be n established and such ratios have become absurea for the developed Banks.
Another example that can be cited is of sanctior.ing the opening of branches of the Co-operative Banks.
The State Bank of India,nationalised Banks and Sebfe- duled Banks are generally allowed to open branches in a small locality, which is not evenbusiness loca
lity, But when a Co-Operative Bank approaches the Reserve Bank , it is a task, impossible to achieve And a number of hurdles are placed in the way of the Co-Operative Bank. The same is true about obta
ining permission for dealing inforeign exchange
ixm
even for established Banks* managed by experts in the Banking field.
In pdint of view agout the hyrdles in the growth of Urban Bank a well-known authority Mr.S.P.Adarkar, a Chairman of Saraswati Co-Operative Bank Ltd.,said,
"Urban Banks suffer from a number of disadvantages vis- a vis the commercial Banks. It will ce seen from the foregoing that the UrbanBanks when they attaina certain size and volume of operations operate exactly iikeany small sized commercial Bank except that thfy are run on CorOperatibe principles. However,
• • •36
the cheques of Urban Banks are net accepted by certain orgaisations , such as the Indian Oil Corporation and rubber-tyrecompanies. All companies bawhile approaching the investing public and subscribing to their shares or debentures insist on payment by cheques on a scheduled Bank. Their guarantees are not accepted by Government and Semi-Government bodies. Urban Banks which are direct members of the elearing bouses are denied over
draft facility against Government and trustee secu
rities by the Reserve Bank of India with the result that they have to maintain large balance with Reserve Bank of India to meet adverse clearing. The untenable
argument offered in support of this denial is that the Reserve Bank of India Act 1934 does not permit such a
facility."
37-
OONVERSION OF QO-OPERATIVE CREDIT SOCIETIES INlXI tHE URBAN BANKET
India, a democratic, is basically an Agricultual Country with a large augment of its population con
fined to rural areas and hence it is the sector of community which needs to be attracted towards the development schemes sponsored by the Government.
Any assistance naturally cannot be given individually.
It is not feasible to obtain such assistance, people need to bfe organised for a definite programme. Co-
Operative organisations by their very nature are the proper agencies for this as they are suited for the
task. In developing dountry, like India,the Govern
ment has to undertake measures of economic planning by formulating policies to increase the productivity and raise the national income and further influence
the distribution pattern in such a way that it would be favourable to lower income groups. In a democratic siiiii state , the task of planning the whole economic and social development has to be done within the frame
work of democracy.Such planning and its implementation requires the goodwill and assistance of its citizens for whom and through whom the planned development has to be undertaken.
Ecomomic development oil democratic lines offers a vast field for the operation of co-operation. Hence,
• • *38
counting on the experience in the other countries, Co-operatives credit Societies were formed in
India mainly to deal with the need of agricultural community and the agricultual secthr was reserved for Co-operative organisations. In India Co-opera
tive movement was not spontaneous, it was rather superimposed by the Central Government with the State officials directing the controlling the fun
ctions of credit societies as the funds for meeting the needs were provided by the State Governments,
The basic principle of a Co-operative Society is the principle of voluntary chosen besides help for agriculture.Common men grom low income groups staying even in Urban areas needing assistance for tneir various requirements of daily needs for which they were at the mercy of the money lenders. Hence With a view to free them from the clutches of money lenders,self-reliant Co-operative Societies were
formed to provide them financial aid. Such Urban Co-operative Societies having more then Rs.20,000 as their share-capital were termed as Urban Banks and were authorised to collect deposits from non
members too. This many of the Co-Operative Credit Societies can be converted into the Urban Banks after
...39
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the necessary procedure. Viz, by takingifa into consideration the progress done by the society, loans and advances granting capacity of the socSty^
The ability of the Management,need of the particular area, profit earned by the Society. The social
science shown by the Society etc.,
In the area which is oovered by the researcher there
im
one Tahsil in which there is not a single Urban Bank working even in the year 1980. Potentiality is there but due to the absence of proper leader
ship , Urban Bank cannot be establishec. But there are four big Co-Operative Credit Societies which can
be converted into the Urban Banks.In Kolhapur District, many Urban Banks are at begining working as Primary Creait Co-operative Societies and then
after they are converted in the Urban Banks.
Researcher wants to give one unique example that in the Gadhinglaj city the turnover profit of Sane
Guruji Teachers Credit Co-Operative Society is higher that that of Shrii Shivaji Sahakari Bank Ltd., so if by ill means, Credit Co-Operative Society shows the
be
higher eligibility , they can^free to convert their Society into the Urban Banks. So they can serve better
to their members.
