CO-OPERATIVE AND COMMERCIAL BANKS IN INDIA

Commercial Banks

Co-operative

Banks

COMMERCIAL BANKSA commercial bank (or business bank) is a type

of bank that provides services, such as accepting deposits, giving business loans and basic investment products.

Commercial bank can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to individual members of the public (retail banking).

CO-OPERATIVE BANKSA 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)

FUNCTIONS

WHAT IS COMMERCIAL BANKS ?

• Commercial banks are the most important source of institutional credit in the money market.

• Commercial bank is a profit-seeking business firm, dealing in money or rather dealing in claims to money.

• Moreover, deposits in a commercial bank circulate as money, while deposits in other financial institutions do not.

FUNCTIONS OF COMMERCIAL BANKS

1. PRIMARY FUNCTIONS

These are the original functions of a bank whichare obligatory in nature. Each bank must perform these functions.

Acceptance of deposits from the public:

Savings Bank Deposits:

Current Account deposits:

Fixed Account Deposits:

Recurring Account deposits:

CONTD…

2. LOANS AND ADVANCES:

Overdraft facility:

Cash credit facility:

Discounting bills of exchange:

Direct loans:

3. CREDIT CREATION:

“Banks are not merely the manufacturers of money , but also in an important sense manufacturers of money”.

SECONDARY OR NON-BANKING FUNCTIONS:

In addition to the above mentioned banking functions, the commercial banks performs a number of non-banking functions such as :

Agency Service

Collection

Payments

Trustee Executor And Attorney

UTILITY FUNCTIONS

Draft facility

Locker Facility

Underwriters

Letter of Credit

Travellers Cheque

Providing ATM facilities

CATEGORIES OF CO-OPERATIVE BANKS

• Short term lending oriented CO-OPERATIVE BANKS

• Long term lending oriented CO-OPERATIVE BANKS

STRUCTURE OF CO-OPERATIVE BANKS

• Primary Agricultural Credit Societies : The Primary Co-operative Credit Society is an association of borrowers and non-borrowers residing in a particular locality.

• District Central Co-operative Banks : These are the federations of primary societies in a district.

CONTD…

• State Co-operative bank : the state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state.

• Land Development Banks : The land development banks are organised in 3 tiers namely state, central and primary level and they meet the long term credit requirements of the farmers for development purposes.

IMPORTANCE

IMPORTANCE OF COMMERCIAL BANK

• Capital Formation

• Banking & Investment

• Banking & Industry

• Banking & Agriculture

• Banking & Trade

CONTD…

• Geographical expansion

• Deposit expansion

• Service to customer

• Technology

IMPORTANCE OF CO-OPERATIVE BANK

• Integral Part

• Credit To Agriculture

• Important instrument

• Small scale operation

CONTD…

• Main operation

• Extensive branch network

• Traditional importance

CUSTOMER RELATION

MANAGEMENT

RELATIONSHIP BETWEEN BANK AND CUSTOMER• In India, banks face a challenge of providing services to a broad

range of customers, varying from highly rated corporates and high net worth individuals to low-end depositors and borrowers.

• Banks usually place their customers into certain categories so that they are able to (a) develop suitable products according to customer requirements and (b) service customers efficiently.

• While banks are competing with each other to attract the most profitable businesses, financial inclusion is increasingly becoming part of their agenda.

CUSTOMER RELATIONSHIP MANAGEMENT• RBI has set up a full-fledged Customer Service Department with a

view to making banks more customer-friendly.

• Customers of commercial banks can also approach the RBI with their grievances.

• In February 2006, RBI set up the Banking Codes and Standards Board of India (BCSBI) as an independent autonomous watchdog to ensure that customers get fair treatment in their dealings with banks.

• The BCSBI has published the "Code of Banks' Commitments to Customers "(the Code)" which sets minimum standards of banking practice and benchmarks in customer service for banks to follow.

STRATEGY FOR EXPANDING CUSTOMER BASE

Driven by competition, banks are increasingly making their services customer-friendly. There are three key components of strategies to expand and retain the customer base:

• Product life cycle strategy

• Appropriate targeting

• Expanding product portfolio

COMMITTEES ON CUSTOMER SERVICE

• Banks are required to constitute a Customer Service Committee of their respective Boards and include experts and representatives of customers as invitees to enable improvements in the quality of customer service.

• Further, banks have to establish Customer Service Committee at branch level.

• Each bank is also expected to have a nodal department / official for customer service in the Head Office.

CUSTOMER RELATION MANAGEMENT OF CO-OPERATIVE

BANKS• The process of maintaining a lasting relationship with

customers relationship management(CRM).This process brings the customers & the company closer together.

• Maintaining good relationship with customers lie at heart of success in business. It is a strategy for the company and tool for the employees

CRM IN CO-OPERATIVES

• According to Dr. O.R krishnasamy, co-operation is a ‘value-laden’ concept.

• The core values of co-operation are spontaneity, homogeneity, universality,mutuality,equality,equity,democracy,automany,participation and frugality.

• The principles and values of co-operation make the co-operatives unique organisations.

CRM IN CO-OPERATIVES

• The Members and Customers.

• Member Institutions.

• The Method Used for CRM.

• The Principles of CRM.

• RETENTION of CUSTOMERS.

EVOLVING TRENDS

EVOLVING TRENDS IN COMMERCIAL BANKS

There are a number of trends evolving in modern banking, the most important of which relate to :

1. TECHNOLOGY

Banks in India have started using technology in a proactive manner. The huge number of bank customers and their myriad needs are being met in increasingly sophisticated ways such as :

• Internet Banking - Through its website, a bank may offer its customers online access to account information and payment and fund transfer facilities.

• Mobile Banking Transactions - Some banks have started offering mobile banking and telebanking to customers. The expansion in the use of mobile phones has created new opportunities for banks to use this mode for banking transactions

• Point of Sale (PoS) Terminals - To use smart cards/debit cards/credit cards for the purchase of an item or for payment of a service at a merchant's store, the card has to be swiped in a terminal (known as Point of Sale or POS terminal) kept at the merchant's store. POS terminal is a relatively new concept.

2. FINANCIAL INCLUSION

Financial Inclusion implies providing financial services viz., access to payments and remittance facilities, savings, loans and insurance services at affordable cost to those who are excluded from the formal financial system. There are various initiatives taken by the RBI such as :

• Basic banking 'no-frills' account

• Use of Business Facilitators and Correspondents

• Micro Credit

• Self-Help Groups (SHGs)

3. OUTSOURCING OF WORK BY BANKS

Outsourcing represent utilization of services of another entity or outside service provider to perform certain functions/activities, continuously which otherwise would have been normally undertaken by the bank itself. This may be through an affiliated entity (say a subsidiary) or an external entity like a marketing agent. The outside service provider is an entity undertaking the outsourced function on behalf of the bank. Outsourcing enables them to economize their cost of operations. It however involves certain risks.

RECENT TRENDS IN COOPERATIVE BANKS

• India’s cooperative banking sector has been suffering in the last many years due to poor management and capital shortage.

• During 2000-2010, 132 banks had their licenses cancelled and 62 merged with other banks.

• There are over 1,650 UCBs with close to 7,000 branches in the country.

• About 45 Indian co-operative banks with combined deposits of Rs.35,600 crore face penal action by the Reserve Bank of India (RBI), including possible prohibition on their operations, if they fail to meet a 30 June deadline to achieve minimum capital and reserve requirements.

• Of the 45 cooperative banks, 23 do not even have licences but these together have Rs.7,600 crore deposits.

• Of these, 16 are in Uttar Pradesh, three in Maharashtra, three in Jammu and Kashmir and one in West Bengal.

• The 16 banks in Uttar Pradesh together have a deposit base of Rs.2,900 crore and will require Rs.1,400 crore of capital to meet the 4% CAR stipulation. The three banks in Maharashtra have about Rs.3,000 crore of deposits.

• These 23 banks will require about Rs.2,100 crore of capital to achieve 4% capital adequacy ratio, according to NABARD’s estimates.

• The remaining 22 of the 45 cooperative banks have licences but were served notices by the central bank two months ago for non-compliance with its stipulations.

• Of these, seven are in Kerala. These banks have to raise their capital adequacy to 4% by the end of June and to 7% by March 2014. All cooperative banks have to gradually migrate to 7% capital adequacy by March, 2014.

• In March 2011, the total deposits of all district cooperative banks stood at Rs.1.61 trillion and the advances at Rs.1.2 trillion.

CONTRIBUTION IN

ECONOMIC DEVELOPMENT

BY BANKS

ECONOMIC DEVELOPMENT BY BANKING SECTOR

• Capital formation

• Development of Agriculture sector

• Investment in new enterprise by banking

• Promotion of trade and industry

CONTD…

• Balance development of Different region

• Influencing economic activity

• Implementation of monetary policy

• Export promotion cells

DISTINCTION

CO-OPERATIVE BANK

Federal structure in nature i.e at the top level State Co-operative Banks ,and at the village level primary Co-operative credit Societies

COMMERCIAL BANK

They are functioning on branch banking and the branches are located in all areas rural, urban,etc. the head office contain branches through Zonal Office

They are generally concentrating on rural credit and provide credit facilities to agricultural and rural activities.

In Co-operative Banks the borrowers are usually their members.

They are mainly concentrating on the requirements of trade and industry.

Borrowers can be any including individuals institutions.

At present co-operative banks in India do not operate mutual funds.

The Co-operative Banks provide a little higher rate of interest on deposits as compared to commercial banks.

Commercial Banks in India such as Canara Bank, Bank of India, State Bank of India, do operate mutual funds.

The Commercial Banks provide a lesser rate of interest as compared to co-operative banks.

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