The financial co-operative institutions, which trace back their origins to the 19th century, were established across jurisdictions with the objective of extending loans at affordable prices to the unbanked population. Amongst such institutions, the services of credit unions are exclusive for their members, who share a common profession, entrepreneurship interests or location. In contrast, co-operative banks offer services to non-members as well. There is immense potential for development and empowerment of farmers, agriculture and rural areas of the country in the cooperative sector, spurring the government agencies to take many unprecedented decisions to empower the sector with the mantra of ‘Sahakar Se Samriddhi’. In just around a year of its existence, many old demands and problems of the cooperative sector have been resolved by the new Ministry of Cooperation.
The rural co-operative credit system in India is primarily mandated to ensure flow of credit to the agriculture sector. It comprises short-term and long-term co-operative credit structures. The short-term co-operative credit structure operates with a three-tier system – Primary Agricultural Credit Societies (PACS) at the village level, Central Cooperative Banks (CCBs) at the district level and State Cooperative Banks (StCBs) at the State level. PACS are outside the purview of the Banking Regulation Act, 1949 and hence not regulated by the Reserve Bank of India. During last one year, RBI has taken important steps to increase credit flow through cooperative banks, announcing three very important policy decisions for the sector.
Firstly, the limit of individual housing loan has been doubled for Urban Co-operative Banks and more than doubled for Rural Co-operative Banks. With this decision, the individual housing loan limit for tier-1 Urban Cooperative Banks (UCBs) has now been increased from ₹30 lakh to ₹60 lakh, for tier-2 UCB from ₹70 lakh to ₹1.40 crore, and for Rural Cooperative Banks (RCBs) these have been increased from ₹20 lakhs and ₹30 lakhs to ₹50 lakhs and ₹75 lakhs respectively. In another major decision, RCBs have been allowed to lend to Commercial Real Estate Residential Housing sector, which will increase the scope of our Rural Co-operative Banks and also give impetus to the resolution of providing affordable houses to the people, facilitating better flow of credit to the housing sector, which caters to the needs of lakhs of people especially from the middle class. In the third major decision, now UCBs will be allowed to provide door step banking facility to their customers like commercial banks.
These decisions have given new impetus to the development of the cooperative sector. The increase in credit flow to the housing sector through co-operative banks will lead to an increase in economic activity, increase in capital formation and employment generation, which will have a multiplier effect on the economy. Now, with these changes made by the RBI, cooperative banks will also get a level playing field in the competitive banking sector. Now one can say that co-operative model can be emulated in various other sectors with a continuous push from the government for boosting the economy of the country.
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