Three tiers carry short-term co-operative credit, and the bottom tier sits outside the Banking Regulation Act

Background

The rural co-operative credit system in India is primarily mandated to ensure flow of credit to the agriculture sector, and it comprises short-term and long-term co-operative credit structures. The short-term co-operative credit structure operates with a three-tier system: Primary Agricultural Credit Societies at the village level, Central Cooperative Banks at the district level and State Cooperative Banks at the State level. Primary Agricultural Credit Societies are outside the purview of the Banking Regulation Act, 1949 and hence not regulated by the Reserve Bank of India. State Cooperative Banks and District Central Cooperative Banks are registered under the provisions of the State Cooperative Societies Act of the State concerned and are regulated by the Reserve Bank. Powers have been delegated to the National Bank for Agricultural and Rural Development under Sec 35 (6) of the Banking Regulation Act, as applicable to co-operative societies, to conduct inspection of State and Central Cooperative Banks. Primary Cooperative Banks, also referred to as Urban Cooperative Banks, cater to customers in urban and semi-urban areas and are registered under either the State Cooperative Societies Act or the Multi State Cooperative Societies Act, 2002 where their area of operation extends beyond one state. Though the Banking Regulation Act came into force in 1949, the banking laws were made applicable to cooperative societies only in 1966 through an amendment, and since then there is duality of control, with banking functions regulated by the Reserve Bank and management functions by the respective Governments.