Why Are Co-Operative Banks in India Essential for the Country?

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There are a lot of co-operative banks in India and so long that we are just used to them being there. Have you ever paused and thought why India has so many co-operative banks?  Are they essential for the economy? Are they vital for democracy? If so, you’ll get all the answers right here.


For the uninitiated, a co-operative bank is a financial entity that belongs to the members. The members of such banks are the customers as well as the owners of the bank. Though these banks need to comply with prudential bank regulations, they usually belong to the people who created them. These people often belong to the same professional or local community.


  • The main goal of such banks is not to earn a profit but to provide quality services to all the members and even the non-members.
  • The Board of Directors are elected by the members who have the same voting right. One person, one vote principle, is followed.
  • Most of the profits are usually used to build reserves, but some of them can be allocated to members as well.
  • In India, co-operative banks have short- and long-term co-operative structure.
  • Key types of co-operative banks in India are Primary Co-operative Credit Society, Central Co-operative Banks, State Co-operative Banks, Land Development Banks, and Urban Co-operative Banks.
  • These banks have to abide by the Co-operative Societies Act of 1904.
  • They also need to follow the rules laid down by the Registrar of Co-operative Societies.


  • Rural Financing

These banks play a key role in rural financing which includes but is not limited to providing finances for agriculture, milk, livestock, personal finances, nursery, etc.

  • Urban Areas’ Development

They promote the development of urban areas by facilitating self-employment, personal finance, home finance, consumer finance.

  • Promotion of Small Industries

They also help in the promotion of industries and small-scale units.

  • Promotion of Democratic Values

These banks promote democratic principles because they are created for the people, by the people and are of the people.

In essence, it can be said that co-operative banks in India are essential because they help in the development and welfare of the people and are not just profit-oriented. These banks reach out to those in need of money in rural areas and hence help in the development of remote areas. Though upgrading these banks and managing them better is the need of the hour, eliminating them won’t be a good idea.

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