Cooperative Banks V/s Scheduled Commercial Banks in India

1) Area of Operation:

Commercial Banks can cater to the customer in multiple locations as compared to Cooperative Banks, which are concentrated to limited locations and service customers in that region only. Eg: Saraswat Bank (one of the biggest Cooperative Banks) has presence in 6 states with 281 branches only.

2) Small Capital Base:

Urban Cooperative Banks can start with a capital base of Rs 25 lakh, compared to Rs 100 crore for Small Finance Banks, leading to greater risk. However, the AU Bank network is more than Rs 3,000 Crores.

3) Closure of Cooperative Banks:

In 2013, RBI directed Pune-based Rupee Cooperative Bank to not allow depositors to withdraw more than Rs 1,000 from savings account or deposit accounts. In 2019, PCM Bank has come under this radar from RBI, restricting withdrawal to Rs 1000/- only. Such instances of shutting banks by RBI does not happen for Commercial Banks, as per the past data available.

4) DICGC Claim Settlement:

In the last fiscal, the Deposit Insurance and Credit Guarantee Corporation of India (DICGC) has had to settle deposit insurance claims of only cooperative banks. Since each depositor is insured only up to Rs 1 lakh, people who had higher amount of deposits have had to take massive haircuts when cooperative banks were wound up and liquidated. (Details available on In fact, if the data for last 10 years is looked at, the only claim settlement has been for co-operative banks which hints at their faulty/ riskier operations.

5) Customer Protection:

In the era of digitization, RBI released guidelines for Customer Protection - Limiting Liability of Customers in Unauthorised Electronic Banking Transactions which is applicable only to Scheduled Commercial Banks. Therefore, electronic banking transactions are secured with zero liability for customers only with commercial banks.

6) Regulatory Overview at Cooperative Banks:

RBI’s supervision of Cooperative Banks is not as stringent as that of Commercial Banks. Typically, the state government audits Cooperative Banks while RBI inspects their books once a year. The central bank barred district Cooperative Banks from accepting or exchanging the withdrawn Rs 500 and Rs 1000 notes due to risk involved in operation at such banks.

7) Emphasis in Monetary Policy Statement:

Rarely has RBI focused on growth of operations of Cooperative Banks in its monetary policy statements. The main focus remains on Commercial Banks and their contribution to the economy.

8) Conversion of UCBs to SFBs:

Considering efficacy and success of the SFB Model, RBI vide circular dated September 27, 2018 issued guidelines for allowing voluntary transition of UCBs to SFBs provided UCBs satisfy criteria such as – a minimum net worth of Rs 500 million, maintaining 9 per cent CRAR as well as other eligibility conditions.

9) Lack of Transparency:

Data on Cooperative Banks is not available in public domain for the depositor/analysts to review the risks in keeping funds with them. Data of commercial banks is available in the public domain.

10) Limited Lending:

Cooperative Banks can lend only to its members, whereas Commercial Banks’ lending is based on credit due diligence.


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