Cooperative Banking: Meaning, Structure & Advantages

Cooperative Banking: Meaning, Structure & Advantages
Sukanya4 January 2024

Anyonya Sahayakari Mandali Co-operative Bank, the first one in India, was established in 1889 with 23 members and INR 73 to save Baroda’s residents from exploitation by moneylenders.

True to its name, cooperative banking is a small financial institution that operates on the principles of cooperation, mutual assistance, and shared ownership among the members. Group members commonly start cooperative banking to cater to the capital needs of a specific community.

The members own, operate, and are responsible for all the activities executed through the cooperative banks, and the board members are democratically elected to manage operations. 


The main motive behind establishing such institutions was to address the problem of rural or local credit and cater to the capital needs of artisans, farmers, daily wage laborers, and anyone with limited means. The Indian government amended the Cooperatives Societies Act in 1912 to include organizations to audit and supervise the supply of cooperative credit. These organizations were: 

  • A union that consists of primary societies 
  • The central banks of India 
  • Provincial Banks of India 

Currently, 31 cooperative banks in India are under the direct supervision of the RBI and are required to adhere to the regulations as per the Banking Regulation Act 1949 and Banking Laws Act 1955. 

Structure of Cooperative Banks 

Cooperative banks differ from traditional commercial banks’ ownership structure, governance, and primary objectives. 

Operation and Services of Cooperative Banks
  • Membership and Ownership
    Members of cooperative banks are often the people, businesses, or groups using the bank's services. Anyone can join a cooperative bank if they meet the membership requirements, typically by buying shares or making a certain deposit. Each cooperative bank customer has the same voting power regardless of how much money they have on deposit. Additionally, consumers who deposit or borrow money from cooperative banks are typically cooperative members. 
  • Governance and decision-making
    The cooperative banks are governed by a board of members, who the members democratically elect to oversee the bank’s operation and management. However, for important decisions, all members’ opinions are considered. Final decisions are made based on mutual agreement through majority votes. 
  • Focus and Involvement
    The primary goal of cooperative banks is to provide affordable financial services, including savings and credit facilities, to their members, thereby promoting financial inclusion and local economic development. Most cooperative banks focus on supporting local economic development initiatives. They provide credit to local businesses, farmers, and entrepreneurs, helping stimulate economic growth and job creation in the communities they serve.
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