COMPARATIVE STUDY BETWEEN COMMERCIAL BANK AND CO-OPERATIVE BANK

Banking regulation Act of India, 1949 dines banking as accepting from the purpose of lending or investment of deposit of money from the public, repayable on demand or their wish and withdrawable by cheques, drafts, and order or otherwise. Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806. The banks, which perform all kinds of banking business and generally finance trade and commerce, are called commercial banks. Since their deposits are for a short period, these banks normally advance short-term loans to the businessmen and traders and avoid medium-term and long-term lending. These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. The commercial bank also provide secured and unsecured loan. A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts etc.). Co-operative banks differ from stockholder banks by their organization, their goals, their values and their governance. The structure of commercial banking is of branch-banking type; while the co-operative banking structure is a three tier federal one. - A State Co-operative Bank works at the apex level (ie. works at state level). - The Central Co-operative Bank works at the Intermediate Level. (ie. District Co-operative Banks ltd. works at district level) - Primary co-operative credit societies at base level (At village level) The main objective of a Commercial Bank is to accept deposits from public for the purpose of lending to industry and commerce. Main objective of co-operative bank is to accept

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deposits from the members and the public for the purpose of providing loans to farmers and small businessmen with a motto of service. At present 20 Commercial Banks have been nationalized in India. In India Co-operative Banks are not nationalized. The Commercial Banks provide a lesser rate of interest as compared to co-operative banks. The Co-operative Banks provide a little higher rate of interest on deposits as compared to commercial banks. Commercial banks are safer than co-operative banks.

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PURPOSE OF THE STUDY:The basic purpose behind the study was to get detailed knowledge about the Commercial bank and Co-operative bank. The study was basically aimed to know more about the differences between Commercial banks and Co-operative banks.

OBJECTIVES OF THE STUDY: To study about Banks. To study about Commercial banks. To study about Co-operative banks. To study about difference between Commercial banks and Co-operative banks. To study about functions of commercial bank. To study about classification of co-operative bank.

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RESEARCH METHODOLOGY:-

SECONDARY DATA

LIMITATIONS:-

Primary data is not collected. Find

very difficult to collect information on distinguish between commercial bank and co-operative bank.

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1.1 INTRODUCTION OF BANKS

The term bank is derived from the French word Banco which means a Bench or Money exchange table. In olden days, European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging. A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it. Banking is defined as the accepting for the purpose of lending or investment of deposits, money from the public, repayable on demand and with drawable by cheques, drafts, and orders or otherwise. Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as the backbone of modern business. Development of any country mainly depends upon the banking system.

DEFINITION OF BANKS Banking regulation Act of India, 1949 dines banking as accepting from the purpose of lending or investment of deposit of money from the public, repayable on demand or their wish and withdrawable by cheques, drafts, and order or otherwise.

1.2 HISTORY
Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became

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the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.

1.3 CHARACTERISTICS / FEATURES OF A BANK

1. Dealing in Money: Bank is a financial institution which deals with other people's
money i.e. money given by depositors.

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2. Individual / Firm / Company: A bank may be a person, firm or a company. A

banking company means a company which is in the business of banking.

3. Acceptance of Deposit: A bank accepts money from the people in the form of
deposits which are usually repayable on demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of funds of its customers.

4. Giving Advances: A bank lends out money in the form of loans to those who require
it for different purposes.

5. Payment and Withdrawal: A bank provides easy payment and withdrawal facility
to its customers in the form of cheques and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc.

6. Agency and Utility Services: A bank provides various banking facilities to its
customers. They include general utility services and agency services.

7. Profit and Service Orientation: A bank is a profit seeking institution having

service oriented approach.

8. Ever increasing Functions:

of a bank.

Banking is an evolutionary concept. There is

continuous expansion and diversification as regards the functions, services and activities

9. Connecting Link: A bank acts as a connecting link between borrowers and lenders
of money. Banks collect money from those who have surplus money and give the same to those who are in need of money.

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10. Banking Business: A bank's main activity should be to do business of banking

which should not be subsidiary to any other business.

11. Name Identity: A bank should always add the word "bank" to its name to enable
people to know that it is a bank and that it is dealing in money.

1.4 TYPES OF BANKS

1. Saving Banks:Saving banks are established to create saving habit among the people. These banks are helpful for salaried people and low income groups. The deposits collected from customers are invested in bonds, securities, etc. At present most of the commercial banks carry the functions of savings banks. Postal department also performs the functions of saving bank.

2. Commercial Banks:Commercial banks are established with an objective to help businessmen. These banks collect money from general public and give short-term loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks provide various services like collecting cheques, bill of exchange, remittance money from one place to another place.

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In India, commercial banks are established under Companies Act, 1956. In 1969, 14 commercial banks were nationalised by Government of India. The policies regarding deposits, loans, rate of interest, etc. of these banks are controlled by the Central Bank.

3. Industrial Banks / Development Banks:Industrial / Development banks collect cash by issuing shares & debentures and providing long-term loans to industries. The main objective of these banks is to provide long-term loans for expansion and modernisation of industries. In India such banks are established on a large scale after independence. They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI).

4. Land Mortgage / Land Development Banks:Land Mortgage or Land Development banks are also known as Agricultural Banks because these are formed to finance agricultural sector. They also help in land development. In India, Government has come forward to assist these banks. The Government has guaranteed the debentures issued by such banks. There is a great risk involved in the financing of agriculture and generally commercial banks do not take much interest in financing agricultural sector.

5. Indigenous Banks:Indigenous banks means Money Lenders and Sahukars. They collect deposits from general public and grant loans to the needy persons out of their own funds as well as from deposits. These indigenous banks are popular in villages and small towns. They perform combined functions of trading and banking activities. Certain well-known indian communities like Marwaries and Multani even today run specialised indigenous banks.

6. Central / Federal / National Bank:Every country of the world has a central bank. In India, Reserve Bank of India, in U.S.A, Federal Reserve and in U.K, Bank of England. These central banks are the

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bankers of the other banks. They provide specialised functions i.e. issue of paper currency, working as bankers of government, supervising and controlling foreign exchange. A central bank is a non-profit making institution. It does not deal with the public but it deals with other banks. The principal responsibility of Central Bank is thorough control on currency of a country.

7. Co-operative Banks:In India, Co-operative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers, salaried employees, smallscale industries, etc. Co-operative Banks are available in rural as well as in urban areas. The functions of these banks are just similar to commercial banks.

8. Exchange Banks:Hong Kong Bank, Bank of Tokyo, Bank of America are the examples of Foreign Banks working in India. These banks are mainly concerned with financing foreign trade. Following are the various functions of Exchange Banks: Remitting money from one country to another country, Discounting of foreign bills, Buying and Selling Gold and Silver, and Helping Import and Export Trade.

9. Consumers Banks:Consumers bank is a new addition to the existing type of banks. Such banks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy installments.

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2.1 INTRODUCTION
The banks, which perform all kinds of banking business and generally finance trade and commerce, are called commercial banks. Since their deposits are for a short period, these banks normally advance short-term loans to the businessmen and traders and avoid medium-term and long-term lending. However, recently, the commercial banks have also extended their areas of operation to medium-term and long-term finance. Majority of the commercial banks are in the public sector. However, there are certain private sector banks operating as joint stock companies. Hence, the commercial banks are also called joint stock banks.

DEFINITION: An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses.

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2.2 HISTORY
The name bank derives from the Italian word banco "desk/bench", used during the Renaissance era by Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth. However, traces of banking activity can be found even in ancient times. In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome that of the Imperial Mint.

The role of commercial banks: Commercial banks engage in the following activities:

processing of payments by way of telegraphic transfer, EFTPOS, internet banking, or other means

issuing bank drafts and bank cheques accepting money on term deposit lending money by overdraft, installment loan, or other means providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures

safekeeping of documents and other items in safe deposit boxes sales, distribution or brokerage, with or without advice, of: insurance, unit trusts and similar financial products as a financial supermarket

cash management and treasury merchant banking and private equity financing traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities.

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2.3 TYPES OF LOANS GRANTED BY COMMERCIAL BANKS

The commercial banks also provide various types of loans. Some of the loans provided bank are as follows:

1. Secured loan:A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower, for example, foreclosure of a home. From the creditor's perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may only satisfy the debt against the borrower rather than the borrower's collateral and the borrower.

2. Unsecured loan:Unsecured Loans are monetary loans that are not secured against the borrower's assets (i.e., no collateral is involved). These may be available from financial institutions under many different guises or marketing packages:

Bank overdrafts Corporate bonds Credit card debt Credit facilities or lines of credit Personal loans

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2.4 SCHEDULED COMMERCIAL BANKS IN INDIA

The commercial banking structure in India consists of:

Scheduled Commercial Banks in India Unscheduled Banks in India

Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches.The scheduled commercial banks in India comprise of State bank of India and its associates (8), nationalised banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank". "Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank .

The following are the Scheduled Banks in India (Public Sector):

State Bank of India State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore

State Bank of Saurashtra State Bank of Travancore Andhra Bank Allahabad Bank Bank of Baroda

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Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Overseas Bank Indian Bank

Oriental Bank of Commerce Punjab National Bank Punjab and Sind Bank Syndicate Bank Union Bank of India United Bank of India UCO Bank Vijaya Bank

The following are the Scheduled Banks in India (Private Sector):

ING Vysya Bank Ltd Axis Bank Ltd Indusind Bank Ltd ICICI Bank Ltd South Indian Bank

HDFC Bank Ltd Centurion Bank Ltd Bank of Punjab Ltd IDBI Bank Ltd Jammu & Kashmir Bank Ltd.

The following are the Scheduled Foreign Banks in India:

American Express Bank Ltd. ANZ Gridlays Bank Plc. Bank of America NT & SA Bank of Tokyo Ltd. Banquc Nationale de Paris Barclays Bank Plc Citi Bank N.C.

Deutsche Bank A.G. Hongkong and Shanghai Banking Corporation

Standard Chartered Bank. The Chase Manhattan Bank Ltd. Dresdner Bank AG.

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2.5 FUNCTIONS OF COMMERCIAL BANKS

Functions of commercial banks

Primary functions
Acceptance of Deposits

secondary functions

Invest ment Function

Dealing in foreign exchange General Utility Services

Time Deposits 1. Fixed Deposits 2. Recurring Deposits 3. Cash Certificates 4. Others

Demand Deposits 1. Savings Bank 2. Current Account operations

Credit creation

Advancing of Loans 1. Over draft 2. Cash Credit 3. Discounting of Bills 4. Loans and Advances 5. Other advances

1. Safty locker facility 2. Transfer of Agency Services money 3. Travellers cheques 1. Collection of cheques, 4. Letter of credit dividends etc. 5. Acting as referees 2. Payment of Rents, 6. Trade information Insurance premiums etc. 7. ATM facility 3. Purchase & sales of 8. Credit cards Securities 9. Underwriting 4. Acts as trustees, 10. Gift cheques executers etc. 11. Advice of 5. Acts as correspondent financial matter 6. Preparation of Income 12. Others Tax returns etc. 7.Others

1) Accepting Deposits:
The most significant and traditional function of commercial bank is accepting deposit from the public. In case of current deposits, no interest is paid by the bank but the depositor can withdraw his money anytime he likes without notice. Savings deposits are paid a small rate of interest and the bank imposes certain restrictions on the withdrawal of money. Fixed deposits are made by the persons who have idle money with them. They can withdraw their money only after the expiry of the fixed period of time. These

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deposits carry the highest rate of interest that depends on the period for which the money is deposited.

2) Providing Loans:
Banks provide loans against approved securities to the public and companies. Loans can be granted in the form of cash credit, short term loan, overdraft, discounting of bills and demand loans. Under cash credit system, borrower is sanctioned a credit limit up to which he can borrow from the bank. The interest is calculated on the amount actually withdrawn. Short term loans are given as personal loans against some security. The interest is payable on the entire sum of loan granted. In case of Overdraft, a person is allowed to overdraw his current account to a certain limit as specified by the bank. The interest is paid on the amount outstanding against his balance and not on the amount of loan sanctioned. A bill of exchange is drawn by a creditor on the debtor specifying the amount of debt and the date on which it is payable. Before the maturity of the bill, a debtor can get it discounted from the bank paying a very small interest.

3) Credit Creation:
A bank can be called the factory or the manufacturer of the credit. In the process of accepting and depositing money, banks multiply credit in the economy. It depends on cash reserve ratio.

4) Transfer of funds:
Commercial banks can transfer funds of a customer to other customer's accounts in the same or the different bank through cheques, drafts, mail transfers, telegraphic transfers etc.

5) Agency Functions:
Collection of bills, drafts etc. Collection of interest, dividends etc. on the behalf of the customers.

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Payment of interests, installment of loans, insurance premium etc.Purchase and sale of securities. Banks also executes the will of their customers after their deaths.

6) Other Functions:
i) Payment of credit letters and travelers cheques, gift cheques, bank draft etc. ii) Banks also provide locker services for the valuable securities of their customers and charge a very nominal fee. iii) Banks also deals in foreign exchange. Such banks are usually called foreign exchange banks.

There are various other functions that the bank performs but they cannot be cited here as some of the functions differ from bank to bank. For example, some banks provide the facility of credit cards and online banking whereas many other do not. These are some of the modern functions of the bank. Commercial banks are the backbone of any economy, be it India or America. Industries and agriculture flourish due to these banks. These banks mobilize the savings of people that results in capital formation.

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3.1 INTRODUCTION
A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts etc.). Co-operative banks differ from stockholder banks by their organization, their goals, their values and their governance. Co-operative banking is retail and commercial banking organized on a co-operative basis. Cooperative banking institutions take deposits and lend money in most parts of the world. Co-operative banking, includes retail banking, as carried out by credit unions, mutual savings and loan associations, building societies and co-operatives, as well as commercial banking services provided by manual organizations (such as co-operative federations) to co-operative businesses. The structure of commercial banking is of branch-banking type; while the co-operative banking structure is a three tier federal one. - A State Co-operative Bank works at the apex level (ie. works at state level). - The Central Co-operative Bank works at the Intermediate Level. (ie. District Co-operative Banks ltd. works at district level) - Primary co-operative credit societies at base level (At village level)

DEFINiTION: A Co-operative bank, as its name indicates is an institution consisting of a number of individuals who join together to pool their surplus savings for the purpose of eliminating the profits of the bankers or money lenders with a view to distributing the same amongst the depositors and borrowers.

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3.2 ORIGIN OF CO-OPERATIVE BANKING

The beginning co-operative banking in India dates back to about1904, when official efforts were made to create a new type of institution based on principles of co-operative organization & management, which were considered to be suitable for solving the problems peculiar to Indian conditions. The philosophy of equality, equity and self help gave way to the thoughts of self responsibility and self administration which resulted in giving birth of cooperative. The origin on co-operative movement was one such event-arising out of a situation of crisis, exploitation and sufferings. Co-operative banks in India came into existence with the enactment of the Agricultural Credit Co-operative Societies Act in 1904. Co-operative bank forms an integral part of banking system in India. Under the act of 1904,a number of co-operative credit societies were started. Owing to the increasing demand of co-operative credit, a new act was passed in 1912, which was provided for establishment of co-operative central banks by a union of primary credit societies and individuals. Co-operative Banking Co-operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are g o v e r n e d b y t h e B a n k i n g R e g u l a t i o n s A c t 1 9 4 9 a n d B a n k i n g L a w s ( C o - operative Societies) Act, 1965. The origins of the cooperative banking movement in India can be traced to the close of nineteenth century when, inspired by the success of the experiments related to the cooperative movement in Britain and the cooperative credit movement in Germany, such societies were set up in India. Now, Co-operative movement is quite well established in India. The first legislation on co-operation was passed in 1904. In 1914 the Maclagen committee envisaged a three tier structure for co-operative banking viz. Primary Agricultural Credit Societies (PACs) at the grass root level, Central Co-operative Banks at the district level and State Co-operative Banks at state level or Apex Level. In the beginning of 20th century, availability of credit in India, more particularly in rural areas, was almost absent. Agricultural and related activities were starved of organized, institutional credit. The rural folk had to depend entirely on the money lenders, who lent often at usurious rates of interest.

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3.3 OPERATION OF CO-OPERATIVE BANKING

Establishments:
Co-operative bank performs all the main banking functions of deposit mobilization, supply of credit and provision of remittance facilities. Co-operative Banks belong to the money market as well as to the capital market. Co-operative Banks provide limited banking products and are functionally specialists in agricultural related products. However, co-operative banks now provide housing loans also. UCBs provide working capital loans and term loan as well.

The basic principles on which a Co-operative bank works are:

A co-operative character of activities and trait of mutual aid of credit granted. Catering for collective organizations and their members. Restriction on the number of individual votes. As a result, during 2007-08, the Primary Cooperative Agriculture and Rural Development Banks have again started lending for the Non-Farm Sector including Jewel Loans. Aiming at high rates on deposits and low rates on lending. Limitation of dividends out of profits and bonus to depositors and borrowers or grants to cultural or co-operative endeavour.These banks are constituted of voluntary association, self-help and mutual aid, one share one vote and non-discrimination.

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3.4 ROLE OF CO-OPERATIVE BANKING 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 a lower cost and service without exploitation. It has gained its importance by the role assigned to them, the expectations they are supposed to fulfill, 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 the 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 of credit was inadequate, and money lenders would exploit the poor people in rural areas providing them loans at higher rates. So, Co-operative banks mobilize deposits and purvey agricultural and rural credit with a wider outreach and provide institutional credit to the farmers. Co-operative bank have also been an important instrument for various development schemes, particularly subsidy-based programmers or poor. The Co-operative banks in rural areas mainly finance agricultural based activities like: Farming Cattle Milk Hatchery Personal finance

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The Co-operative banks in urban areas finance in activities like: Self-employment Industries Small scale units Home finance Consumer finance Personal finance Some of the forward looking Co-operative banks have developed sufficient core competencies to such an extent that they are able to challenge state and private sector banks. The exponential growth of Co-operative banks is attributed mainly to their much better contacts with the local people, personal interaction with customers, and their ability to catch the nerve of the local clientele. The total deposits and landings of Co-operative banks are much more than the Old Private Sector Banks and the New Private Sector Bank.

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3.5 CO-OPERATIVE BANKS SHARE SOME COMMON FEATURES FOR THEIR CUSTOMER BENEFIT

Customer's owned entities Cooperative Banking members

Democratic member control

Profit allocation

Customer's owned entities :

In a co-operative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both. As a consequence, the first aim of a co-operative bank is not to maximize profit but to provide the best possible products and services.

Co-operative Banking members:

Some co-operative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services.

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Democratic member control:

Co-operative banks are owned and controlled by their members, who democratically elect the board of directors. Members usually have equal voting rights, according to the co-operative principle of "one person, one vote".

Profit allocation:
In a co-operative bank, a significant part of the yearly profit, benefits or surplus is usually allocated to constitute reserves. A part of this profit can also be distributed to the co-operative members, with legal or statutory limitations in most cases. Profit is usually allocated to members either through a patronage dividend, which is related to the use of the co-operatives products and services by each member, or through an interest or a dividend, which is related to the number of shares subscribed by each member.

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3.6 CLASSIFICATION OF CO-PERATIVE BANKS

CLASSIFICATION OF CO-OPERATIVE BANK

Urban co-operatives banks

Rural co-operative bank Long -term rural cooperatives Primary agricultu ral sector State cooperative agricultral and rural developm ent bank Primaryco -operative agricultral and rural developm ent bank

Short- term rural co-operatives

State cooperative bank

Central cooperative banks

The Co-operative banking structure in India comprises of: 1. Urban Co-operative Banks 2. Rural Co-operatives Some co-operative banks are scheduled banks, while others are non-scheduled banks. For instance, State Co-operative banks and some Urban Co-operative banks are scheduled banks but other co-operative banks are non-scheduled banks. Scheduled banks are those banks which have been included in the second schedule of the Reserve bank of India act of 1934.The banks included in this schedule list should fulfill two conditions. 1. The paid capital and collected funds of bank should not be less than Rs. 5lac.

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2. Any activity of the bank will not adversely affect the interests of depositors.

Every Scheduled bank enjoys the following facilities. 1. Such bank becomes eligible for debts/loans on bank rate from the RBI 2. Such bank automatically acquires the membership of clearing house.

[A] Urban Co-operative Banks:

Urban Co-operative Banks is also referred as Primary Co-operative banks by the Reserve Bank of India. Among the non-agricultural credit societies urban co-operative banks occupy an important place. This bank is started in India with the object of catering to the banking and credit requirements of the urban middle classes. The RBI defines Urban Co-operative banks as small sized co-operatively organized banking units which operate in metropolitan, urban and semi-urban centers to cater mainly to the needs of small borrowers, viz. owners of small scale industrial units, retail traders, and professional and salaries classes. Urban Co-operative banks mobilize savings from the middle and lower income groups and purvey credit to small borrowers, including weaker sections of the society.

[B] Rural Co-operatives:

Rural Cooperative Banking plays an important role in meeting the growing credit needs of rural population of India. It provides institutional credit to the agricultural and rural sector. One important feature of providing agriculture credit in India has-been the existence of a widespread network of rural financial institutions. The Rural Co-operative structure has traditionally been bifurcated into two parallel wings, i.e. I. II. Short-term Rural Co-operatives, Long-term Rural Co-operatives. There is a larger network of co-operative banks in the rural sector, consisting of 29 State Co-operative Banks and 367 District Central Co-operative Banks, with 13,025 branches. The RBI Governor's proposals should, therefore, encompass the entire Co-operative banking system.

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I. Short-term Rural Co-operatives:

The short-term rural co-operatives provide crop and other working capital loans to farmers and rural artisans primarily for short-term purpose. These institutions have federal three-tier structure. At the Apex of the system is a State Co-operative bank in each state. At the middle (or district) level, there are Central Co-operative Banks also known as District Co-operative banks. At the lowest (or village) level, are the Primary Agricultural Credit Societies. i. State Co-operative Banks: State Co-operative Banks are the apex of the three-tier Co-operative structure dispensing mainly short/medium term credit. It is the principal society in a State which is registered or deemed to be registered under the Government Societies Act, 1912, or any other law for the time being in force in India relating to co-operative societies and the primary object of which is the financing of the other societies in the State which are registered or deemed to be registered. The State Co-operative Banks receive current and fixed deposits from its constituent banks as well as savings, current and fixed deposits from the general public and from local boards, other local authorities, etc. Further, they receive loans from the RBI and NABARD. ii. Central Co-operative Banks: Central Co-operative Banks form the middle tier of Co-operative credit institutions. These are the independent units in as much as the State Co-operative Banks have control to control or supervise their affairs. They are of two kinds i.e. pure and mixed. The pure type of Central Banks can be seen in Kerala, Bombay, Orissa, etc., while the mixed type can be seen in Andhra Pradesh, Assam, Tamil Nadu, etc. The main function of Central Co-operative Banks is to finance. Central Co-operative Banks are acting as intermediaries between the State Co-operative Banks and Primary societies The central co-operative banks are located at the district headquarters or some prominent town of the district. These banks have a few private individuals also who provide both finance and management. The central co-operative banks have three sources of funds, Their own share capital and reserves Deposits from the public and Loans from the state co-operative banks

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iii.

Primary Agriculture Credit Societies: Primary Agricultural Credit Societies is the foundation of the co-operative credit system on which the superstructure of the short-term co-operative credit system rests. It deals directly with individual farmers, provide short and medium term credit, supply agricultural inputs, distribute consume articles and also arrange for the marketing of products of its members through a c-operative marketing societies. The success of the cooperative credit movement depends largely on the strength of these village level societies. The major objective of Primary agricultural Credit Societies is to serves the need of weaker sections of this society. Government has promoted multi-purpose societies in tribal areas for the benefit of people living there. Challenges faced by these societies, apart from improving resources mobilization, are the following: Improving volume of business Reducing cost of management. Correcting imbalances in loan outstanding. Improving skill of the staff and imparting professionalization Strengthening Management Information System (MIS).

II. Long-term Rural Co-operatives:

The long-term rural co-operative provide typically medium and long-term loans for making investments in agriculture, rural industries and, in the recent period, housing. Generally, these co-operatives have two tiers, i.e. State Co-operative Agriculture and Development Banks (SCARBDs) at the state level and Primary Co-operative Agriculture and Rural Development Banks (PCARDBs) at the taluka or tehsil level. However, some States have unitary structure with the state level banks operating through their own branches. i. State Co-operative Agriculture and Development Banks (SCARBDs): State Co-operative Agriculture and Development Banks constitute the upper-tier of long term co-operative credit structure. Though long term credit co-operatives have been allowed to access public deposits under certain conditions, such deposits constitute a relatively small proportion of their total liabilities. They are mostly dependent on borrowings for on-lending. The main objective of the Co-operative State Agriculture and

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Rural Development bank is to finance primary agriculture and rural development banks. The bank undertakes the following functions to achieve the above objectives: Floatation of Debentures, Receiving Deposits; Grant of loans to primary cooperative agriculture and rural development banks for purposes approved by the National Bank for Agricultural and Rural Development and Registrar of Cooperative Societies; To function as the agent of any cooperative bank subject to such conditions as the Registrar may specify.

ii. Primary Co-operative Agriculture and Rural Development Banks (PCARDBs): Primary Co-operative Agriculture and Rural Development Banks are the lowest layer of long term credit co-operatives. It is primarily dependent on the borrowings for their lending business. They provide credit for developmental purposes like minor irrigation, cultivation of plantation crops and for diversified purposes like poultry, dairying and sericulture on schematic basis. They get requisite financial assistance from the Cooperative State Agriculture and Rural Development Bank. In order to widen their scope of lending to compete with other financial agencies, the primary cooperative agriculture and rural development banks have been permitted to finance artisans, craftsman and small scale entrepreneurs. They have also been permitted to issue loans to small road transport operators in rural areas for purchase of goods carriers and passenger vehicles.

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3.7 FUNCTIONS OF CO-OPERATIVE BANKS

They also perform the basic banking functions of banking but they differ from commercial banks in the following respects: Commercial banks are joint-stock companies under the companies act of 1956, or public sector bank under a separate act of a parliament whereas co-operative banks were established under the co-operative societys acts of different states. Commercial bank structure is branch banking structure whereas co-operative banks have a three tier setup, with state co-operative bank at apex level, central /district co-operative bank at district level, and primary co-operative societies at rural level. Only some of the sections of banking regulation act of 1949 (fully applicable to commercial banks), are applicable to co-operative banks, resulting only in partial control by RBI of co-operative banks. Co-operative banks function on the principle of cooperation and not entirely on commercial parameters.

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3.8 REFORMS IN CO-OPERATIVE SOCIETIES ACT

As making legal amendments is time consuming process, the state governments may issue Executive Orders under the existing powers to bringing the desired reforms which will relate to:

1) Ensuring full voting membership rights on all users of financial services including depositors in cooperatives other than cooperative banks.

2) Removing state intervention in all financial and internal administrative matters in cooperatives.

3) Providing a cap of 25% on government equity in cooperatives and limiting participation in the Boards of cooperative banks to only one nominee. Any state government or a cooperative wishing to reduce the state equity further would be free to do so and the cooperative will not be prevented from doing so.

4) Allowing transition of cooperatives registered under the CSA to migrate under the Parallel Act (wherever enacted)

5) Withdrawing restrictive orders on financial matters.

6) Permitting cooperatives in all the three tiers freedom to take loans from any financial institution and not necessarily from only the upper tier and similarly placing their deposits with any regulated financial institution of their choice.

7) Permitting cooperatives under the parallel Acts (wherever enacted) to be members of upper tiers under the existing cooperative societies Acts advice-versa.

8) Limiting powers of state governments to supersede Boards.

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3.9 BENEFITS of co-operative banks

1. 2. 3. 4. 5. 6.

Quick customer service Reduced redundant tasks New delivery channels Funds transfer made easy Multiple delivery channels Extended Transaction Hours

Quick customer service

The bank was able to substantially decrease the time a customer spends at the counter as the software provides a single view of all accounts of the customer. Which made the bank better as per their customers?

Reduced redundant tasks

Reducing redundant tasks meant more resources available for recovery. So, customer was getting quick facilities.

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New delivery channels

The bank was able to achieve business success because of the operational efficiency made possible by technologies such as Internet Banking, Touch Screen Banking, and Mobile Alerts to its customers. Due to which customer were very happy.

Funds transfer made easy

The bank was able to introduce EFT Scheme in urban c-operative banks to affect remittances on behalf of their customers to various places in the country. Under this service, funds are transferred from one place to another within a short time. This facility was made available to the customers of co-operative banks recently. The scheme also enabled better customer service to rural and semi urban customers.

Multiple delivery channels

The bank was able to provide Any Branch Banking service to its rural and semi urban customers since 1997 by using high-end software and hardware equipment and network. The people at SUCO Bank appreciate the value of time and energy of the customers. By introducing Tele-banking facility, SUCO Bank has ensured that the customers can access their account details through telephone lines without leaving the comfort of their home and not having to travel long distances.

Extended Transaction Hours

SUCO Bank is the only bank to initiate transaction facilities beyond the regular banking transaction hours. This amply displays the commitment of the bank to customer service.

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CHAPTER 4: DISTINGUISH BETWEEN COMMERCIAL BANKS & COOPERATIVE BANKS

COMMERCIAL BANKS CO-OPERATIVE BANKS

In India, the Commercial Banks are In India, the Co-operative 1. Registration required to be registered under Banks are required to be Banking Regulation Act, 1949. registered under the Co-

operative Societies Act, of the concerned state. The main objective of a Commercial Main objective of this bank is 2. Main Objective Bank is to accept deposits from to accept deposits from the public for the purpose of lending to members and the public for industry and commerce. the purpose of providing loans to farmers and small

businessmen with a motto of service. Massive funds are available at the Limited funds are available at 3. Availability of Funds disposal of Commercial Banks. the disposal of Co-operative banks Commercial banks operate over a The area of operations of Co4. Area of Operation larger area. Some commercial banks operative Banks is limited and even have branches in foreign mostly confined to State. They countries. do not operate at national level nor international level. 5. Nationalization At present 20 Commercial Banks In India Co-operative Banks have been nationalized in India. 6. Merchant Banking Services Commercial Banks are not nationalized.

provide Co-operative Banks do not merchant banking

merchant banking services such as provide advising the companies regarding services. the public issue of shares.

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Commercial Banks in India such as At present co-operative banks 7. Mutual Funds Canara Bank, Bank of India, State in India do not operate mutual Bank of India, do operate mutual funds. funds. Commercial bank operates on the The basis of operations is on 8. Basis of operation commercial principles. They operate co-operative lines, i.e. service to earn a profit. to its members and the society. Co-operative Banks

The Commercial Banks provide a The 9. Rate of Interest

lesser rate of interest as compared to provide a little higher rate of co-operative banks. interest compared banks. on to deposits as

commercial

10.Risk

Commercial banks are safer than co- Co-operative banks are more operative banks. risky than commercial banks.

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CHAPTER 5: CONCLUSION
Banking has a part & parcel of our day-to-day life. Banking is a service industry. Indian banking system, over the years has gone through various phases after

establishment of RBI in 1935, during the British rule, to function as central bank of the country. On July 19, 1969, the government promulgated banking companies (Acquisition & Transfer of Undertakings) Ordinance 1969, to acquire 14 bigger commercial banks with paid up capital of Rs. 1813 crore and with 4134 branches accounting for 80% advance. Subsequently in 1980, six more banks were nationalized which brought 91% of the deposits & 84% of advances in public sector banking. Commercial banks in India where half of the 19th century started during the latter. Three presidency banks dominated the banking space i.e. Bank of Bengal, Bank of Bombay & Bank of Madras. These were set up by special charter of the British government. The government continued to handle the issuance of currency notes and coins until the central bank i.e. Reserve Bank of India were set up in 1935. Now, it is very much clear that co-operative banks have very much importance in national development. Without the help of co-operative banks, millions of people in India would be lacking the much needed financial support. Co-operative banks take active part in local communities and local development with a stronger commitment and social responsibilities. These banks are best vehicles for taking banking to doorsteps of common men, unbanked people in urban and rural areas. Their presence in the social, economic and democratic structure of the country is essential to bring about harmonious development and that perhaps is the best justification for nurturing them and strengthening their base. These banks are sure to win in the race because they are from the people, by the people and of the people. Now a day Co-operative Banks are started functioning like the Commercial Banks. Hence, there is lots of competition in between Commercial & co-operative banks.

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RECOMMENDATIONS
Commercial banks are primarily profit making institution. All their activities are therefore directed towards the making of profit. So for the some reason this bank has to make new innovations in providing loans, deposits, their products for attract the customers. It is apparent that the mountain overdue has become a major problem of most of the cooperative banks and their performance in managing Non-performing Assets is not satisfactory. Firm measure should be followed to make credit appraisal, documentation, disbursement, monitoring, etc These banks can also go for such schemes for opening of saving bank and other accounts treated as low cost deposit base as well as clientele base of the banks will take remarkable shape. In this respect, banks can introduce effectively various innovative deposit schemes like womens savings, childrens savings, savings scheme for youth, daily collection etc. Some Co-operative banks particularly which are small banks not having sufficient branch network are suggested to enter into tie-up arrangements with commercial banks like ICICI Bank, HDFC Bank, etc and in this way these banks could expand their business.

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BIBLIOGRAPHY
BOOKS: Indian Banking in New Millennium - G.V.R Manian

Banking Development In India -Niti Bhasin

Banking Theory and Practice - K.C. Shekhar and Lekshmy Shekhar

Co-operative Banks in India Functioning and Reforms - Amit Bhasak

WEBSITES: www.indiatimes.com en.wikipedia.org/wiki/Cooperative_banking. www.banknetindia.com/banking/cintro.html.

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