Cooperatives are successful business organisations all over the world and have a presence in almost all spheres of economic activities, including banking and financial services. The success of cooperatives shows that it is possible to simultaneously pursue both economic viability and social responsibility through equitable, democratic, and people-centric organisations. However, in India, due to various reasons, the Primary (Urban) Cooperative Banks (UCBs) have not been able to achieve their full potential. The UCB sector is highly heterogeneous in terms of asset size and faces several challenges relating to the business model, governance, and professional management. Following the amendments (2020) to the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), Reserve Bank has recently constituted an expert committee to provide a roadmap for strengthening the sector. This paper focuses upon the key issues faced by the UCB sector and suggests a future direction.

  1. Introduction

The cooperative philosophy rooted in its members’ economic and social well-being is a globally successful business model. Key principles of cooperation, namely, self-help, independence, members’ economic participation, concern for community, and cooperation amongst cooperatives, have been the hallmark of its success. Based on the world cooperative monitor (2020) of International Cooperative Alliance (ICA), the world’s top 300 cooperatives operate in several economic spheres, which mainly includes insurance (33.7 percent), agriculture (34.7 percent), wholesale and retail trade (19.0 percent), banking and financial services (7 percent), and several other areas. ICA defines a cooperative as ‘an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise’. India’s Gujarat Cooperative Milk Marketing Federation and Indian Farmers Fertiliser Cooperative Limited (IFFCO) are the world’s topmost cooperative organisations based on their turnover per capita GDP. In the financial sector, France’s Groupe Credit Agricole, and Groupe BPCE, Germany’s BVR, Netherland’s Rabobank, Austria’s Raiffeisen Bank International, Canada’s Mouvement Desjardins, USA’s Navy Federal Credit Union, Switzerland’s Raiffeisen Group, etc are some of the major cooperative financial institutions across the world. To strengthen the cooperative financial institutions, the Raiffeisen and Delitzsch institutions, which previously operated in the rural and urban areas of Europe respectively, were merged in 1972.

As evident from the global success of the cooperative model, besides the consumer and producer cooperatives, there is also a great potential in cooperatives to further the cause of financial inclusion and cater to the savings and funding requirement of retail and small business segments. However, despite some successful cooperative banking models, so far, cooperative banking in India, especially the UCB sector, has not been able to achieve its full potential and scale on account of various reasons. The UCB sector is highly heterogeneous in terms of asset size and faces several challenges relating to the business model, governance, and professional management. Following the amendments (2020) to the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), Reserve Bank has constituted an expert committee on February 15, 2021, to provide a roadmap for strengthening the sector. This paper focuses upon the key issues faced by the UCB sector in India and suggests a future direction for urban cooperative banks.

 
 
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