A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, arranging credit at competitive rates, and providing so many other financial services to its members.
The Co-operative Credit Institutions in India can be classified as under a three-tier structure.
(i) Primary Credit Societies at the bottom
(ii) Central Co-operative Bank at the middle
(iii) State Co-operative Bank at the top
The primary societies are functioning in the various towns and villages, the Central Banks at the district headquarters and the State Co-operative Banks at the state capitals forming the apex of the system.
The Reserve Bank of India assists the co-operative structure by providing concessional finance through NABARD in the form of General Lines of Credit for lending to agricultural & allied activities. Thus, the whole system is integrated with the Banking structure of the country.
Let us have a discussion about these institutions one by one.
(i) The Primary Agricultural Credit Societies:
A primary society is an association of borrowers and non-borrowers residing in a particular locality and taking interest in the business affairs of one another. As membership is practically open to all inhabitants of a locality, people of different status are brought together into the common organization.
(ii) Central Co-operative Banks:
A Central Co-operative Bank is a federation of primary societies in a specified area. Where membership of a Central Co-operative Bank is restricted to primary societies only, it is known as a 'banking union'. Nowadays, individuals are also admitted as members of almost all Central Co-operative Banks.
(iii) State Co-operative Banks:
At the top of the co-operative banking, there are State Co¬operative Banks, organized with the object of attracting deposits from the rich urban classes. These Banks are also more suitably equipped to serve as channel between the co-operative movement and the joint stock banks.
Cooperative Credit: An Evaluation
The major deficiencies in the working of the cooperative societies are as follows:
• The essence or basic features of cooperative banking system must be a larger reliance on resources mobilised locally and a lesser and lesser dependence on higher credit institutions. However, many PACSs are at present dependent on CCBs and have failed miserably in mobilising rural savings. Heavy dependence on outside funds has, on the one hand, made the members less vigilant not treating these funds as their own and on the other led to greater outside interference and control. Overall, this has made the cooperatives a "mediocre, inefficient and static system".
• The cooperative credit institutions are plagued by the problem of high level of over-dues. These over-dues have clogged the process of credit recycling since they have substantially reduced the capacity of cooperatives to grant loans.
• The rural cooperative institutions have a high level of NPAs
• A large number of rural cooperative credit institutions have incurred substantial losses.
• The Primary Agricultural Credit Societies is the most important link in the short-term cooperative credit structure. However, most of them are too small in size to be economical and viable. Besides, several of them are also dormant while some are defunct.
• Because of their strong socio-economic position and grip over the rural economy, big landowners have cornered greater benefits from cooperatives. This is the opposite of what the planners intended.
• There are considerable regional disparities in the distribution of credit by cooperative societies with six States (Gujarat, Maharashtra, Karnataka, Kerala, Punjab and Tamil Nadu) accounting for 70 per cent of the short- term loans provided by the PACSs as of end-March 2010.
• The powers which vest in the government under the cooperative laws and rules are all-pervasive. Over the years, State has come to gain almost total financial and administrative control over the cooperatives, in the process stifling their growth. Instead of strengthening the base, a weak base was vastly expanded as per plan targets and an immense governmental and semi-governmental superstructure was created.