comparative between commercial bank and co operative bank

8/13/2019 comparative between commercial bank and co operative bank

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COMPARATIVE STUDY BETWEEN COMMERCIAL BANK AND CO-OPERATIVE BANK

S.I.E.S COLLEGE OF COMMERCE AND ECONOMICS, SION 1

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, andBank of Hindustan,which started in 1790; both are now defunct. The oldest bank in

existence in India is theState Bank of India,which originated in theBank 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
http://en.wikipedia.org/w/index.php?title=Bank_of_Hindustan&action=edit&redlink=1http://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/w/index.php?title=Bank_of_Hindustan&action=edit&redlink=1


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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:-

LIMITATIONS:-

Primary data is not collected.Find very difficult to collect information on distinguish between commercial

bank and co-operative bank.

SECONDARY

DATA


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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 withdrawableby 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 theState Bank of India,which originated in theBank

of Calcutta in June 1806, which almost immediately became
http://en.wikipedia.org/w/index.php?title=Bank_of_Hindustan&action=edit&redlink=1http://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/w/index.php?title=Bank_of_Hindustan&action=edit&redlink=1


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theBank of Bengal.This was one of the three presidency banks, the other two being theBank 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 theState 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'smoney i.e. money given by depositors.
http://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Indian_rebellion_of_1857http://en.wikipedia.org/wiki/Indian_rebellion_of_1857http://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bengal


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2. Individual / Firm / Company: A bank may be a person, firm or a company. Abanking 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 ofdeposits 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 requireit for different purposes.

5. Payment and Withdrawal: A bank provides easy payment and withdrawal facilityto 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 itscustomers. They include general utility services and agency services.

7. Profit and Service Orientation: A bank is a profit seeking institution havingservice oriented approach.

8. Ever increasing Functions: Banking is an evolutionary concept. There iscontinuous expansion and diversification as regards the functions, services and activities

of a bank.

9. Connecting Link: A bank acts as a connecting link between borrowers and lendersof 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 bankingwhich 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
http://kalyan-city.blogspot.com/2010/09/nationalisation-of-banks-in-india.htmlhttp://www.ifciltd.com/http://www.icicibank.com/http://www.idbi.com/http://www.federalreserve.gov/http://www.bankofengland.co.uk/http://www.bankofengland.co.uk/http://www.federalreserve.gov/http://www.idbi.com/http://www.icicibank.com/http://www.ifciltd.com/http://kalyan-city.blogspot.com/2010/09/nationalisation-of-banks-in-india.html


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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, small-

scale 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 ineasy 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 Romethat 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, orother 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 andprivate 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 aninvestment bank arm that is involved in the mentioned activities.
http://en.wikipedia.org/wiki/Italian_languagehttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Letters_of_credithttp://en.wikipedia.org/wiki/Merchant_bankhttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Merchant_bankhttp://en.wikipedia.org/wiki/Letters_of_credithttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Italian_language


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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., nocollateral is involved). These may be available from financial institutions

under many different guises or marketing packages:

Bankoverdrafts Corporate bonds Credit card debt Credit facilities or lines of credit Personal loans
http://en.wikipedia.org/wiki/Secured_loanhttp://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Personal_loanshttp://en.wikipedia.org/wiki/Personal_loanshttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Secured_loan


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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 IndiaScheduled 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
http://finance.indiamart.com/investment_in_india/state_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_bikaner_and_jaipur.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_hyderabad.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_indore.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_mysore.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_saurastra.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_travancore.htmlhttp://finance.indiamart.com/investment_in_india/andhra_bank.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_baroda.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_baroda.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/andhra_bank.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_travancore.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_saurastra.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_mysore.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_indore.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_of_hyderabad.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_bikaner_and_jaipur.htmlhttp://finance.indiamart.com/investment_in_india/state_bank_india.html


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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 secondary functions

Invest ment Dealing in foreign

Function exchange

Credit creation

1. Fixed 1. Safty locker facilityDeposits 2. Transfer of2. Recurring 1. Savings moneyDeposits Bank 3. Travellers cheques

3. Cash 2. Current 1. Collection of cheques, 4. Letter of creditCertificates Account dividends etc. 5. Acting as referees4. Others operations 2. Payment of Rents, 6. Trade information

Insurance premiums etc. 7. ATM facility3. Purchase & sales of 8. Credit cards

Securities 9. Underwriting

1. Over draft 4. Acts as trustees, 10. Gift cheques2. Cash Credit executers etc. 11. Advice of3. Discounting of Bills 5. Acts as correspondent financial matter4. Loans and Advances 6. Preparation of Income 12. Others

5. Other advances 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

Acceptance of Deposits

Advancing of Loans

A enc Services

General Utility ServicesTime Deposits Demand

Deposits


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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 andsale 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. Co-

operative 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 ofindividuals 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 co-

operative. 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-opera tive Socie ties Act. The cooperative bank

is also regulated by the RBI. They are g ov er ne d by th e Ba nk in g Re gu lat io ns

Act 1949 and Banking Laws (Co-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 thebeginning 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- oper a t i ve Banks be l ong t o t he money mar ke t a s we l l a s t o t hecapital market.

Co-operative Banks provide limited banking products and are functionally specialists inagricultural 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 :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.

Customer'sownedentities

Co-operativeBankingmembers

Democratic

membercontrol

Profitallocation


25/39


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3.6 CLASSIFICATION OF CO-PERATIVE 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.

CLASSIFICATION OF CO-OPERATIVEBANK

Urban co-operatives

banks

Rural co-operative

bank

Short- term rural

co-operatives

State co-

operative

bank

Central

co-

operativebanks

Primary

agricultu

ral

sector

Long -term

rural co-

operatives

State co-

operative

agricultraland rural

developm

ent bank

Primaryco

-operative

agricultraland rural

developm

ent bank


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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. Short-term Rural Co-operatives,II. 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 co-

operative 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 asthe 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 publicsector 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 havea 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 tocommercial 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 oncommercial 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 includingdepositors in cooperatives other than cooperative banks.

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

3) Providing a cap of 25% on government equity in cooperatives and limiting participationin 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 theParallel Act (wherever enacted)

5) Withdrawing restrictive orders on financial matters.

6) Permitting cooperatives in all the three tiers freedom to take loans from any financialinstitution 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 ofupper 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

Quick customer serviceThe 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 tasksReducing redundant tasks meant more resources available for recovery. So,

customer was getting quick facilities.

1. Quick customer service

2. Reduced redundant tasks

3. New delivery channels

4. Funds transfer made easy

5. Multiple delivery channels

6. Extended Transaction Hours


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New delivery channelsThe 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 easyThe 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 channelsThe 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 HoursSUCO 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 & CO-

OPERATIVE BANKS

COMMERCIAL BANKS CO-OPERATIVE BANKS

1. Registration

In India, the Commercial Banks are

required to be registered under

Banking Regulation Act, 1949.

In India, the Co-operative

Banks are required to be

registered under the Co-

operative Societies Act, of the

concerned state.

2. Main Objective

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 this bank is

to accept deposits from the

members and the public for

the purpose of providing loans

to farmers and small

businessmen with a motto of

service.

3. Availability of Funds

Massive funds are available at the

disposal of Commercial Banks.

Limited funds are available at

the disposal of Co-operativebanks

4. Area of Operation

Commercial banks operate over a

larger area. Some commercial banks

even have branches in foreign

countries.

The area of operations of Co-

operative Banks is limited and

mostly confined to State. They

do not operate at national level

nor international level.

5. Nationalization At present 20 Commercial Banks

have been nationalized in India.

In India Co-operative Banks

are not nationalized.

6. Merchant Banking

Services

Commercial Banks provide

merchant banking services such as

advising the companies regarding

the public issue of shares.

Co-operative Banks do not

provide merchant banking

services.


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7. Mutual Funds

Commercial Banks in India such as

Canara Bank, Bank of India, State

Bank of India, do operate mutual

funds.

At present co-operative banks

in India do not operate mutual

funds.

8. Basis of operation

Commercial bank operates on the

commercial principles. They operate

to earn a profit.

The basis of operations is on

co-operative lines, i.e. service

to its members and the society.

9. Rate of Interest

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.

10.Risk Commercial banks are safer than co-

operative banks.

Co-operative banks are more

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 bestjustification 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 co-

operative 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 IndiaFunctioning and Reforms- Amit Bhasak

WEBSITES:-

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

comparative between commercial bank and co operative bank

Documents