Cooperative Banks in India

Cooperative banks are member-owned financial institutions operating on cooperative principles such as one member, one vote. Unlike commercial banks, their primary objective is financial inclusion and affordable credit, not profit maximisation. They mainly serve small farmers, rural households, small traders, self-employed persons, and urban middle- and lower-income groups. Owing to their deep grassroots presence, India has one of the largest cooperative banking networks in the world.

Historical Background

The cooperative banking movement in India emerged from rural distress and lack of access to institutional credit. Its foundations were inspired by European cooperative models developed by Raiffeisen and Schulze, which aimed to provide credit to the poor and small producers excluded from formal banking.
In India:

• The Cooperative Credit Societies Act, 1904 laid the legal foundation for cooperative credit institutions.
• The Cooperative Societies Act, 1912 expanded the movement to non-credit cooperatives.
• Committees such as the Maclagan Committee (1915), Royal Commission on Agriculture (1928), and Rural Credit Survey Committee (1954) highlighted the importance of cooperatives in rural credit.
• Post-Independence, cooperative banks became a key pillar of India’s planned development and rural finance strategy.

Broad Structure of Cooperative Banking

India’s cooperative banking system is uniquely divided into two major segments:

• Rural Cooperative Credit Institutions
• Urban Cooperative Banks (UCBs)

Scale of the Network (as of 2025)

• 1,457 Urban Cooperative Banks
• 34 State Cooperative Banks (StCBs)
• 351 District Central Cooperative Banks (DCCBs)
• Over 95,000 Primary Agricultural Credit Societies (PACS)
• One Industrial Cooperative Bank (Tamil Nadu)

This vast structure gives cooperatives an unmatched last-mile presence, especially in villages.

Rural Cooperative Credit Institutions

Rural cooperative banks mainly serve agriculture and allied activities. They follow a federal and hierarchical structure that channels credit from the state level to villages. In most states, this system follows a three-tier structure for short-term agricultural credit.

Primary Agricultural Credit Societies (PACS)

PACS are the grassroots institutions of the cooperative credit system, operating at the village level. A PACS usually covers one or more villages and consists of farmer and rural resident members. These societies provide short-term and seasonal credit essential for agricultural operations.

Key facts about PACS:

• First point of contact for rural institutional credit
• Provide crop loans, input loans, and seasonal finance
• Registered under State Cooperative Societies Acts
• Not directly regulated by RBI
• Over 90,000 PACS operate across India

District Central Cooperative Banks (DCCBs)

DCCBs form the middle tier of the rural cooperative structure and operate at the district level. They act as federations of PACS and play a crucial intermediary role between village societies and the state cooperative bank.

Key facts about DCCBs:

• Operate at district or group-of-districts level
• PACS are members of DCCBs
• Accept public deposits and extend credit
• Under dual regulation of RBI/NABARD and State RCS

State Cooperative Banks (StCBs)

State Cooperative Banks are the apex institutions of the short-term rural cooperative credit structure. Typically, each state has one StCB, which mobilises funds and supports DCCBs.

Key facts about StCBs:

• Apex cooperative banks at the state level
• Federations of DCCBs
• Handle inter-district and inter-cooperative transactions
• Receive refinance support from NABARD

Some states follow a two-tier model. For example, Kerala merged all DCCBs into the State Cooperative Bank in 2019, forming Kerala Bank.

Long-Term Cooperative Credit Institutions

Apart from short-term credit, a separate cooperative structure exists in some states to provide long-term rural credit for land development, irrigation, farm mechanisation, and rural housing.

This structure includes:

State Cooperative Agriculture and Rural Development Banks (SCARDBs)

SCARDBs operate at the state level and form the apex institutions in the long-term cooperative credit structure. They provide long-term finance for agriculture and rural development activities such as land improvement, irrigation, farm mechanisation, and rural housing.
SCARDBs mobilise resources through borrowings, government support, and refinance from NABARD, and extend credit either directly or through affiliated primary institutions. In several states, their role has weakened or been merged with short-term cooperative structures due to operational and financial constraints.

Primary Cooperative Agriculture and Rural Development Banks (PCARDBs)

PCARDBs function at the district, block, or taluka level and act as the grassroots institutions of the long-term cooperative credit system. They provide long-term loans to farmers and rural households for purposes such as purchase of land, farm equipment, wells, irrigation systems, and construction of rural houses.
PCARDBs are usually affiliated to the State Cooperative Agriculture and Rural Development Bank and are registered under State Cooperative Societies Acts.

In several states, this structure has weakened, and many functions have been merged with short-term cooperatives.

Urban Cooperative Banks (UCBs)

Urban Cooperative Banks operate in urban and semi-urban areas and primarily meet non-agricultural credit needs. They function similarly to small commercial banks but retain cooperative ownership and governance.

Key facts about UCBs:

• Serve urban middle and lower-middle income groups
• Smaller scale compared to commercial banks
• Can be single-state or multi-state
• Multi-state UCBs are registered under the Multi-State Cooperative Societies Act
• Some UCBs have converted into Small Finance Banks

Regulation and Supervision

Cooperative banks in India function under a dual control system, which has historically been a major challenge.

• Reserve Bank of India (RBI): Licensing, capital adequacy, prudential norms, audit, and banking supervision
  • NABARD: Inspection and refinance support for rural cooperatives
• Registrar of Cooperative Societies (RCS): Registration, management, board elections, and administration

This duality often led to weak governance and regulatory gaps.

Key Reform

The Banking Regulation (Amendment) Act, 2020 significantly strengthened RBI’s powers over cooperative banks. RBI can now:

• Supersede boards
• Appoint administrators
• Enforce mergers or reconstruction
• Act decisively to protect depositors

This reform followed failures such as PMC Bank (2019).

Role and Importance

Cooperative banks play a critical role in financial inclusion and rural development:

• PACS provide last-mile credit to farmers
• UCBs serve urban populations often underserved by commercial banks
• Cooperative institutions account for a small share of banking assets but dominate in terms of outreach and presence
• They support agriculture, MSMEs, self-employment, and community-based finance
• India’s cooperative network has over 200 million members and deep penetration in villages.

Challenges

Despite their importance, cooperative banks face persistent issues:

• Governance challenges and political interference
• Limited capital-raising ability
• Higher NPAs in some regions
• Weak recovery mechanisms
• Skill gaps and slow technological adoption

Recent reforms focus on consolidation, computerisation of PACS, and stronger supervision.