What Is Co-operative Bank? What Are The Functions Of Co-operative Banks?

The word ‘co-operative’ originated from the Latin word ‘cooperari’ or ‘cooperat’ which means worked together, it basically means that individuals come together and help each other for their similar interests. Likewise, co-operative banks are a kind of associations of members who have a common belief in which they come together and cooperate with each other.

Co-operative banks got registered under the Co-operative Societies Act, 1912 and they are governed under the Banking Regulation Act, 1949 and under the Banking Laws (Co-operative Societies) Act, 1965. The RBI regulates and monitors all the co-operative banks.

Co-operative banks are the banks in which the owners are the customers of the bank because of their common interest and common concern. Co-operative banks provide a huge range of financial services to its members. This type of bank is a retail, there are no large scale transactions handled in a co-operative bank, it is largely meant for retail individual customers to the extent it is highly retail and commercial banking is organized in the co-operative manner. Mutual help is the principle of Co-operative Banks.

Definition Of Co-operative Banks

A co-operative bank is known as to be one of the financial entity which belongs to their members and at the same time they are its owners and also are the customers of the bank.

History Of Co-operative Banks

Co-operative Banking started to established in India when the Co-operative Societies Act, 1904 got passed and the main objective of the Act passed was to help in establishing the co-operative credit societies in the country.

The community comes together and purchase shares of capital of the co-operatives.

India is known for the co-operative Banks, we have had several success stories of co-operative banks in capturing the needs of the retail customers in a particular area but they do not have any national level branches.

Objective Of Co-operative Banks

It helps those people who have been less resources or whoever not financially strong. It also promotes a habit of thrift, savings and mutual help. The main focus of co-operative banks is to come up with a low cost financially on the basis of the principal of mutual help.

Earning profit is not a taboo however its motive is non-profit, the motive can not be the profit earning, however, there is no restriction on gaining the profit out of the activities and facilities provided by the Co-operative banks to its customers.

Functions Performed By The Co-operative Banks

Co-operative banks work and function only on one simple rule “One member one vote”. It is more democratic than the commercial banks, co-operative banks perform all the basic functions that a commercial bank performs. Co-operative banks have a federal structure.

Co-operative banks act as an agent to its customers, it accepts cheques and draft from their customers, lends money to other co-operative societies and banks at comparatively less interest rate.

Following are the functions performed by the co-operative banks:

1. Primary Urban Co-operative Bank (PUCBs)

This type of Co-operative banks provide their services to mainly urban areas of India, they mainly provide advances in shares and debentures to the small businessmen and also provide these small businessmen loans with extension in credit facilities.

2. District Central Co-operative Bank (DCCBs)-

These type of banks provide their services to the district or local area. They make and implements the policies at a district level and also provide credit facilities to the PACs and PUBCs.

3. Primary Agriculture Credit Society (PACs)-

PACs are a type of Co-operative bank which provides loans to its customers with less complexity, they also motivate their customers to learn to save their money through deposits. It also provides the benefits and development of the large society.

4. State Co-operative Banks (SCBs)-

SCBs are governed by NABARD and acts as supervisor to the DCCBCs.

5. Land Development Banks (LDBs)-

These banks help in fulfilling the needs and requirements of the agricultural sector and provide credit in local areas and also perform all the general and basic functions of a bank. This type of bank motivates and helps in the increase in agricultural production in our country.


Therefore, co-operative banks play an integral role in our society. They perform all the basic activities that a commercial bank performs but this type of banks help in easy credit facilities to the small businesses and focus on increasing agriculture production.

Co-operative banks are a federal structure and work in more of a democratic way. It believes in equality and not on vote as per share. It has only one motive just to lend their services to the masses.

This article is written by Surbhi Goyal, 3rd year law student at Bharati Vidyapeeth University, Delhi.

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