INDUSTRY PROFILE History of Indian banking:

The banking industry was regulated by The Indian Banking Regulation Act of 1949, it define s a banking industry as Any industry which transits banking business in India .Banking means Accepting for purpose of lending all investment of deposits of money from the public repay able on demand or otherwise and withdrawal by cheque or demand draft. Banking one fro m or another was in existence even ancient times. The writings of MANU (the maker of old h indu law)and KAUTILYA (the minister of Chandragupta MAURYA ) contained reference to ban king.

A Banking company in India has defined in the Banking companies Act 1949 as one which tr ansacts the of deposit of money from the public repayable on demand or otherwise and wit hdraw able by cheque, draft order or otherwise.

A Banking Company in India has been defined in the Banking Companies Act 1949 as one whi ch transacts the business of banking which means the accepting of the purpose of lending or i nvestment of deposit of money from the public repayable on demand or otherwise and withd raw able by cheque, draft or otherwise. Banking in India oriented in last decades of the 18th Century. The oldest bank in existence in I ndia is the State Bank of India, a government owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the respon sibility of the Reserve Bank of India, which in 1935 formally took over those responsibilities fr om the then Imperial Bank of India relegating it to commercial banking functions. After Indep endence of India in 1947, the Reserve Bank was Nationalized and given broader powers. In 19 69 the government nationalized the 14 largest commercial banks; and in the year 1980 it nati onalized another 7 commercial banks.

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Banking in three phases:

1. Early phases from 1786 to 1969. 2. Nationalization of banks and up to 1991 prior to Indian banking sector reforms. 3. New phase of Indian banking system with advent of Indian financial and banking sector ref orm after 1991.

The first phase is from 1786 to 1969, in this early phase the bank of India was set up in the ye ar 1786. Next came bank of Hindustan and Bengal bank (1809), in 1865 Allahabad bank establ ished and first time extensively by Indians, Punjab national bank Ltd, was set up in 1894. Bet ween 1906 and 1913 bank of India, Central Bank of India Bank of Baroda, Canara bank, Indian bank and Bank of mysore set up. Reserve bank of India came in 1935

Second phase of nationalization India banking sector reform was carried out in 1980 with seven more bank. This step brought 80%of the banking segment in India under government ownership.

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The following are the steps taken by the Government of India to regulate Bankin g Institution in the country:
1. 2.

1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India. 3. 1960: Nationalization of SBI Subsidiaries. 4. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks.
5. 6. 7.

1971: Creation of credit guarantee corporation. 1975: Creation of region rural banks. 1980: Nationalization of seven banks with deposits over 200 Crores.

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In third new phase of Indian Banking with the advent of Financial and Banking sector reforms, introdu ced many more products and facilities in the bankig sector. In 1991 under the chairman of M.Narasim han, a committee was set up by his which for liberalizes of banking practices.

Structure of Banking Systems in India:

Indian banking systems has been categories into two:

1) Scheduled banks
I. II. State co- operative. Commercial banks.

2) Non-scheduled bank
I. Central co- operative banks and Primary Credit Societies.

II. Commercial Banks.

Commercial banks are further divided into:

I. Indian banks and

II. Foreign Banks.

Indian Banks are further divided into:

I. II. III. IV.

Public Sector Banks. SBI and its subsidiaries. Other Nationalized Banks. Regional Rural Banks.

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Banking in India has its origin from the Vedic times. It is believed that the Transist in from mon ey lending to bank9ing must have accrued even before MANU the great Hindu jurist who has de voted a section of his work to deposits and advances and let down rules relating to rate of interest In the present scenario, service sectors plays an important role in the country, among services sect or banking is one which plays a vital role in economic development. The liberalization and econom ic reference allowed banks to explore new business opportunity rather than generating revenues f rom borrowing and lending. The Banking industry was regulated by The Indian Banking Regulation Act of 1949, it define s a banking industry as Any industry which transits banking business in India. Banking means Accepting for purpose of lending all investment of deposits of money from the public repayable o n demand or otherwise and withdrawal by cheque or demand draft.

During the mogul period, the indigenous bankers played a very important role in lending mo ney and financing foreign and commerce. During the days of the east India company, it was the tu rn of the agency houses to carry on the banking business. The general of India was the first joint s tock bank to establish in the era 1786. The others, which followed were the bank of Hindustan an d the Bengal bank.

According to Sir John Paget, No person or body CORPORATE or otherwise can be a banker who d oes not take the followings:

i.

Deposit accounts

ii. Current accounts iii. Issue and pay cheque iv. Collect cheque, crossed and non-crossed, for his customers.

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In the first half of the 19th century the East India Company Establish: 1. Bank of Bengal in 1809. 2. Bank of Bombay in 1846. 3. Bank of madras in 1843. These three banks also known as presidency banks were independent units and functional well. These three banks were amalgamated in 1920 and new bank, his imperial bank of India was established on 27th January 1921. With the passing of state bank of India at 1955 the undertaking of the imperial ban k of India was taken over by newly constituted state bank of India.

The reserve bank, which is the central, was created in 1935 by passing reserve bank of India Ac t 1934. In the wake of the Swedish movement, number of banks with Indian management were establ ish in country namely, Punjab national bank Ltd, Canara bank Ltd, Indian bank Ltd. On july 19th 1969, major banks of the country were nationalized and in 15th april 1980, seven more commercial banks al so taken over by the government. Today the commercial banking system in India may be distinguished into:

Public Sector Banks:

1. State Bank of India and its associate banks called the state bank group. 2.20 Nationalized banks. 3 .Regional Rural Banks mainly sponsored by public sector banks.

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Private Sector Banks:

1. Old generation private banks. 2. New generation private banks. 3. Foreign banks in India. 4. Scheduled co- operative banks. 5. Non-scheduled banks.

Development Banks:
1. Industrial Financial Corporation of India (IFCI). 2. Industrial Development Banks of India (IDBI). 3. Industrial Credit & Investment Corporation of Indian (ICICI). 4. Industrial Investment Bank of India (IIBI). 5. Small Industrial Development Bank of India (SIDBI). 6. National Bank for Agriculture & Rural Development (NABARD). 7. Export Import Bank of India. 8. National Housing Bank.

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CO-OPERATIVE
Co-operative is self help as well as mutual help. It is the joint enterprise of those who are not financially strong and cannot stand on their own legs, and therefore come together not with a view to getting profits, but to overcome disability arising out of want of adequate financial resources, and thus better economies condition. India is an agricultural country and an industrially backward country. So the develop ment of agriculture and industry is of utmost importance. For the development of agricultu re and industry, finance is indispensable. But there is scarcity of finance. Therefore, the cooperative banks are playing in important role in providing the finance. A co-operative society is a voluntary association of individuals. A person is free to joi n or not to join a co-operative society as its members. A co-operative society is formed prim arily for the purpose of rendering maximum service to its members, and not for earning m aximum profits. Service, not profit is the main aim of co-operative society. Customer helps the bank to improve the services by giving suggestions and recomme ndations. It is the customer who use the facilities provided by the bank, so it is very import ant for the bank to know what are the services expected by customers, types of customer, th eir problems, how effectively and efficiently It is serving the customers, attitude of the custo mers about. Its services, functions etc

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Meaning of co-operative bank

Co-operative bank is the practice of using or operating a co-operative bank or credit union. Co-operative bank, also called as mutual savings and loans exist in the most parts of t he world. They offer financial services on a co-operative basis. Like credit unions co-operat ive banks are owned by their customers and follow the co-operative principle of one person , one vote. Unlike credit unions however, co-operative banks are often regulated under both banking and co-operative legislation. They provide services such as savings and loans to no n-members as well as to members. Many co-operative banks are traded on public stock ma rkets, meaning that they are partially owned by non-members. Co-operative bank systems are also usually more integrated than credit union system of Co-operative banks elect their own boards of directors and manage their own operations, but must strategic decisions req uire approval from the central office. Credit unions usually retaining strategic decision ma king at a local level, though they share back office functions like access to the global payme nt system by federating.

DEFINITION OF CO-OPERATIVE BANKING:

Derive defines a co-operative bank as a mutual society formed, composed and governed by w orking people themselves for encouraging regular saving and granting small loans on any terms o f interest and repayment. A co-operative Bank is a co-operative organization (I.e. an organization where persons vol untarily associate together as human beings on the basis of equality for the promotions of the eco nomic interest of themselves) engaged in the banking functions of acceptance of deposits and bor

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r o w i n g

o f

f u n d s

o f

l e n d i n g

o f

c r e d i t .

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Characteristic features of Co-operative Banking:

Co-operative banking has certain characteristics features of its own. The important charact eristic features of co-operative banking are: i. Like commercial banking co-operating also is concerned with performance of the banking functions of acceptance of deposits and lending of funds. ii. iii. A co-operative bank is an association of persons and not of capital. Co-operative banks are democratic institutions, in the sense that they follow the principle of One man, one vote in their management. iv. v. vi. vii. Co-operative banking is based on the principle of mutual help. Thrift saving is the essence of the working of co-operative bank. Personalization of credit is the special feature of co-operative banking. That is, in co-operative banking greater emphasis is placed on the credit worthiness (i.e., the repaying capacity) and character (i.e. honesty) of the borrowing members. viii. ix. Service and not profit is the main motto of co-operative bank. The rate of interest charged by co-operative bank is generally low. In fact, to enable the co-operative banks to provide credit as low of interest, the central bank provides financial assistance to co-operative banks at confessional rates.

Objectives or aims of co-operative banking:

The main objectives of co-operative banking system are: i. ii. To promote thrift among the members and thereby, increase the supply of funds. To tap outside sources for the supply of funds.

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iii.

To promote the effective use of credit and to reduce the risk and the granting of credit careful said continuous supervisions of the borrowing numbers.

iv.

To reduce the cost of management through the honorary service of numbers and their by keep the cost of credit as low as possible.

v.

To make the co-operative credit societies or co-operative banks credit worthy and to enable them to raise sufficient funds to finance other co-operative enterprises.

Principles of co-operative banking:

Co-operative banking has certain principles of its own. Some of the important principle of co-operative banking: a. Principle of co-operation and mutual help. b. Principle of service and not profit. c. Principle of one man one vote in management. d. Principle of thrift and savings. e. Principle of personalization of credit.

Co-operative Bank in India:

The co-operative movement was studied in India in 1904 with the object of providing fina nce to agriculturists for productive for productive purposes at low rates of interest, and thereby, r elieving them (i.e. the agriculturists) from the clutches of the money lenders. A large number of a gricultural credit societies were setup in the villages under the co-operative banks and the state c o-operative banks to provide refinance to primary credit societies which could not mobilize fund s by their own efforts. By facilitating formation of central co -operative banks and

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the state co-operative banks, the co-operative societies Act of 1912 gave stimulus to the co-opera tive credit movement in India. The co-operative credit movement made good progress during and after the first world war of 1914-1918. But during the great depression of 1929-1933, it received a serious setback. With the outbreak of the second world war of 1939-1945, the co-operative cre dit movement made considerable progress once again. The number of co-operative credit instituti on has increased, their membership had gone up and their deposits and advances also had increas ed considerably. During the post independence era, much progress has been made in co-operativ e banking thanks to the keen interest shown by the Reserve Bank of India in Co-operative credit movement.

STRUCTURE OF CO-OPERATIVE BANKING SYSTEM IN INDIA:

The Indian co-operative banking structure or system is a three tier system. It consists of thr ee sections viz, 1. Primary credit societies at the base, 2. Central co-operative banks in the middle and 3. The state co-operative banks or Apex banks at the top

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State Co-operative Bank

Central Co-operative Banks

Primary Co-operative Banks

In each state, there is a state Co-operative bank at the apex level in each district, there is a centr al co-operative bank at the base level there are primary credit societies The following diagram provides in a nut shell an idea of the co-operative in India.

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Co-operative system in India

State Co-operative Bank (APEX)

Central co-operative Bank (district)

Agricultural Credit

Non-Agricultural C redit

Primary Agricultu ral Credit Societies

Grain Banks

Farmers Service s ocieties

Urban Co -operative Banks

Employees C o-operative c redit Societie s

The co-operative provides short terms and medium term credit. They are agricultural and non-agr icultural credit societies. There are primary agricultural credit societies and functioning in towns and cities. In addition, th ere are farms service societies and grain banks. For providing long term agricultural credit there are primary and central land development banks.

1)

PRIMARY

AGRICULTURAL

CREDIT

SOCIETIES(PACS):

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PACS lie at the root of the co-operative credit structure of the country, they all at the local or base level. In rural areas, there are primary agricultural credit societies, which cater to the shor t and medium term credit needs of the farmers. The directly dial with the farmers. The PACS grant short term, medium loans only to numbers against the personal security a nd mortgage security. The rates of interest charged by them vary from state to state. They deposit their reserve funds with the co-operative banks.
2)

CENTRAL CO-OPERATIVE BANKS:

The CCBs are federation of primary credit societies belonging to a specific district. The CCB are of 2 types: i. ii. Pure Mixed.

3)

STATE CO-OPERATIVE BANKS:

The State co-operative Banks (SCBs) are formed by federating all district central co-oper ative banks in a particular state. The SCB is the apex bank of co-operative sector in the st ate. The SCB raise its funds by way of share capital deposits from the public, surplus funds of the affiliated CCBs reserves funds, loans from the state bank of India, other commercial banks and inter bank borrowing. They are also supported by the Reserve Bank. Anywher e

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between 50-90% of the working capital of the SCBs are contributed by the Reserve Bank

.
4)

URBAN CO-OPERATIVE BANKS:

Co-operative credit societies established in urban areas are referred as urban co-operative banks. Urban co-operative banks usually meet the needs of specific types or groups of members pertaining to a certain trade profession, community or even locality.

5)

LAND DEVELOPMENT BANKS:

The LDBs provide long term loans to the agriculturists for permanent improvements on l and. They usually charger 90% interest, they grant loans against the security of land or ot her agricultural property. Loans are usually given on the first mortgage and sometimes ev en on the second mortgage of land or agricultural property. Generally thy given loan up t o 50% of the market value of the mortgaged property.

6)

SCHEDULED CO-OPERATIVE BANKS

As on June 30, 1988, there were 1,371 primary co-operative banks of which urban co-ope rative banks numbered, 1,276 As at the end of June 1987 the number of licensed central co-operative banks increased b y 1 to 37 However the number of licensed SCBs remained unchanged at 9, during the year.

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Following the recommendation of the national Federation of Urban co-operative Banks, th e RBI has decide to include in the 2nd schedule of RBI act, 1934, all licensed urban co-operative. Banks whose total deposits are Rs. 50 crores and above and whose methods of operation and wor king all satisfactory.

A. BUSINESS OF CO-OPERATIVE BANKS

FORMS OF BUSINESS IN WHICH CO-OPERATIVE BANKS MAY ENGAGE; In addition to business of banking, a co-operative bank may engage in any one or more of t he following forms of business, namely. The borrowing, raising, or taking up of money, the lendi ng or advancing of money either upon or without security, The drawing, making, accepting, disc ounting, buying, selling collecting and dealing in bills of exchange, hundis, promissory notes cou pons, drafts, bills of lading in bills of lading, railway receipts, warrants debentures, certificates, s cripts and other instruments and securities whether transferable or negotiable or not, the granting and issuing of letter of credit, travelers cheque and circular notes, bu ying, selling and dealing in bullion and specie, the buying and selling of foreign exchange including foreign bank notices, th e acquiring, holding, issuing on commission undertaking an dealing in stock, shared, funds, debe ntures, debenture stock, bonds, obligations, securities and instruments of all kinds, the purchasin g and selling of bonds, scripts or other forms of securities on behalf of constituents or others, the negotiating of loans and advances. The receiving of all kinds of bonds, scripts or valuables on de posit or for safe custody or otherwise, the providing of safe deposits values the collecting and tra n s m i t t i n g o f m o n e y a n d s e c u r i t i e s .

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B. DRAWBACKS OF CO-OPERATIVE BANKING.

Co-operative banking has, no doubt, enjoys several merits. But it is not free from defects. I t suffers from the following limitations. i. Co-operative banking structure is weak. A top heavy structure of co-operative banking is built on very filmy foundations. ii. Co-operative banks are not able to mobilize adequate recourses from numbers as well as non-members for one reason or other therefore; they have to depend upon the central bank for refinance facilities to a large extent. iii. There is utter reliance on honorary services of members even for day to day management in the case co-operative bank at the bottom level. This has resulted in efficiency in management. iv. Most of the co-operative banks at the bottom level i.e. the agricultural primary credit societies, are in the hands of influential people of the villages. This has led to indiscriminate advancement of loans without looking into the character and repaying capacity of the borrowers and the purposes of credit. This result is poor recovery of advances from the borrowers. v. The limited managerial talent available with the co-operative banks and the ineffective post credit supervision employed by the co-operative banks are also responsible for the poor recoveries of advances greater incidence of bad debts and loss of funds. vi. Due to lack of honesty and integrity of persons in charge of the day to day

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vii.

administration, cases of deflation and embezzlement of funds are quite common in the case of many co-operative credit societies. This has resulted in the unsuccessful working of many co-operative credit societies particularly in rural areas.

viii.

Co-operative banks i.e. primary credit societies in rural areas, suffer from stiff competition. From village money lenders, this has also contributed to the unsuccessful working of many village co-operative credit societies.

ix.

The official machinery of the government, which is expected to provide guidance, raise the tone of the administration of the co-operative credit societies and take timely steps to present mismanagement, has proved ineffective. This has made the co-operative banking system weal an inefficient.

x.

The particular nature of the agricultural industry and the literacy and heavy indebtedness of the farmers have also contributed to the inefficient and unsuccessful working of many primary co-operative credit societies.

MEASURING TO BE TAKEN FOR THE IMPROVEMENT OF CO-OPER ATIVE BANKING: Some of the measures would be taken for improvement of co-operative banking ar e:1. The primary co-operative credit society which is the pivot of the whole co-operative banking system should be reconstituted on sound co-operative lines. 2. There should be greater emphasis on the inculcation of co-operative spirit, honesty and the habit of thrift among the members of the co-operative credit society should also be

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3. made to understand the importance of building up of own funds and also the needs for ensuring all sided development of agriculture. 4. Proper training should be given to the staff of the co-operative credit societies in cooperation, rural economics and theory and practice of banking. 5. Co-operative credit societies should be made to grant loan strictly for productive purposes keeping in view the honesty and repaying capacity of the borrowers. This could prevent the members of credit societies from misusing the co-operative credit and living beyond the means. This could also help the credit society in effective recovery of advances. 6. Step should be taken to separate the overdue and long term loans to bring them down to a level at which the borrower could be which would be reasonably expected to repay them out of their agriculture surplus within a reasonable period of time. 7. The co-operative bank should build up enough reserve out of their profit for overcoming the shortage of funds and for withstanding financial stress and strains. 8. The official machinery of the government should provide timely guidance and raise the tone of administration of credit co-operative society. The co-operative credit movement should be made a movement of the people, and not a moveme nt of government. This is, the co-operative credit societies should be setup only where the people need them and have the required co-operative discipline to run them successfully. They should n ot be imposed on the people, whether they

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Measuring the results of a firm's policies and operations in monetary terms. These results are refl ected in the firm's return on investment, return on assets, value added, etc.

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