Co-operative Credit and Banking Institutions
What the exam tests here
The structure of rural co-operative credit, the functions of each tier, and the regulatory framework. Expect questions on PACS–DCCB–StCB linkage, long-term vs short-term credit, and dual regulation.
The three-tier short-term structure
- Primary Agricultural Credit Society (village): mobilises deposits, gives short-term crop loans, distributes inputs, and links members to Kisan Credit Card limits; it is registered under State law and does not hold a banking licence.
- District Central Co-operative Bank (district): refinances PACS, serves urban and salaried members; most Maharashtra districts have one DCCB.
- State Co-operative Bank (State): apex institution, balances the system and borrows from NABARD.
- Long-term credit: earlier Land Development Banks; the State Co-operative Agriculture and Rural Development Bank structure now handles term loans for land development, minor irrigation and farm machinery.
Regulation
- Co-operative banks (StCB, DCCB, urban co-operative banks) are licensed and regulated jointly: RBI under the Banking Regulation Act, 1949 as applied to co-operative societies (Section 56) and the Registrar of Co-operative Societies under the State Act - the classic "dual control" problem. The 2020 amendments to the Banking Regulation Act strengthened RBI's powers over management, board composition and supersession of co-operative banks.
- Deposits are insured by DICGC, with cover raised to ₹5 lakh per depositor.
Worked example
A farmer borrows ₹1,00,000 as a crop loan at 7 per cent. On prompt repayment he gets 3 per cent interest subvention, so the effective rate is 4 per cent and his interest is ₹4,000, not ₹7,000. Write the arithmetic and then note that the subvention is routed through the PACS and its refinancing DCCB - a linkage question often combined with this calculation.
Traps that cost marks
- Calling a PACS a "bank" with a banking licence.
- Confusing DCCB with the Land Development Bank structure.
- Forgetting that urban co-operative banks and rural credit societies sit under different licensing regimes.