Chapter 3 Banking Development: India, Maharashtra and Thane 3. Introduction: 54 3.1 Urban Cooperative Banks (UCB) 56 3.2 Brief History of Urban Cooperative Banks in India 58 3.2.1 The Beginning 59 3.2.2 Genesis and Architecture of Urban Cooperative Banks 61 3.2.3 Phase I (1904-1966): = 61 3.2.4 Phase II (1966-93) 64 3.2.5 Phase III: Post 1993 - Scenario: 68 3.3 Structure, Growth and Significance of Cooperatives 72 3.4 Urban Cooperative Banks (Urban Cooperative Banks) & Their Role in Indian Banking 73 3.5 Review of Thane district of Maharashtra 75 3.6 Cooperative movement in Maharashtra with special reference to Thane District: 94 3.7 Development of Banking system in India with Special Reference to Public Sector Banks 150 3.8 Summary: 168 Chapter 3 Banking Development: India, Mahiaraslitra and Thane 3. Introduction: Origin of cooperative thought in hidia is very old. In ancient times, there were cooperative institutions lilce Gramsabha and Jatti. In India the movement was formalised in 1904 with introduction of Cooperative Societies Act, 1904. The main objectives of the act were limited to Primary Agricultural Cooperative Societies (PACs) only: • To provide for the constitution an>u control of cooperative credit societies by enactment specially adopted to their organization and aims. • To confer special statutory privileges and concessions upon them with a view to encouraging their formation and assisting their operation and, • To ensure that they will be cooperatives in names as well as in spirit . 'Cooperation' is worldwide nio\ement: it was introduced in India in llie early years of last century in the wake of famines which had resulted in economic hardship and alarming increase in the indebtedness of the farmers to the moneylenders. It was introduced in India mainly as a defensive organization for dealing with problems of rural indebtedness. The 1904 act was replaced by a more comprehensive Act. The federal character of cooperative society into banking unions has origin in the Cooperative Society Act, 1912. Thereafter states also enacted Acts to promote cooperatives. 54 Phenomenal growth in the number and activities of cooperative societies took place between the years 1906 and 1911. After the modification of the Act 1912, this gave legal recognition for the first time to distribute to societies and to various forms of central organisations. The new act incorporated changes such abolishing the distinction between rural and urban societies and substituting for it the classification of unlimited and limited liability societies." Table 3.1 Objectives of Cooperatives Sr.No State Objective Haryaiia and Andhra 1 Promotion of economic interest of members. Pradesh Maliaraslitra and Tamil Promotion of economic interest and general 2 Nadu welfare of members. Promotion of economic interest and social 3 Punjab standard of members. West Bengal, Bihar and 4 Promotion of economic interest of members. Gujarat Promotion of economic interest and the objective 5 Orissa and Rajastlian not to be inconsistent with social justice Promotion of economic interest of members and 6 Kerala public. Assam. Karnataka and Promotion of economic interest and general 7 Uttar Pradesh welfare of members and public. Sources: compiled from State Cooperative Society Acts of respective states D5 3.1 Urban Cooperative Banks (UCB) Cooperative credit structure in India is characterised by a plethora of institutional segments. Leaving aside the agricultural cooperative credit institutions, in the urban cooperative credit fold itself, there are 3 types of institutions recognised by the Banking Regulation Act 1949 (As Applicable to Cooperative Societies). As discussed elsewhere in the Report, these are: (i) Primary credit societies, who virtually function like banks, but whose networth is less than Rs.l lakh: who are not members of the payment system and to whom deposit insurance is not extended, (ii) Primary cooperative banks, popularly called Urban Cooperative Banks, whose net worth is Rs.l lakh and above; who are recognised as banks, are members of payment system and who enjoy deposit insurance (iii) Cooperative credit societies, who confme their activities to their members alone and who do not perform banking functions'*. Under the provisions of Section 5(CCII) of Banking Regulation Act, 1949 (AACS), a cooperative credit society is defined as a cooperative society, "the primary object of which is to provide financial accommodation to its members and includes a cooperative land mortgage bank." These types of institutions are thrift societies. The distinction between a primary credit society and a cooperative credit society is with reference to their nature of business. The primary object or principal business of a primary credit society is the transaction of banking business. When its paid up capital and reserves attain 56 the level of Rs.l lakh, a primary credit society automatically becomes a primary cooperative bank. However, even after a primary credit society becomes a cooperative bank; it has to apply to RBI for a licence to carry on banking business. But it can carry on banking business until it is granted a licence or notified that a licence cannot be granted to it . Urban Cooperative Banks provide banking and credit facilities to urban and semi urban population. As of March, 2013 1606 Scheduled Urban Cooperative Banks are functioning in the India. They mobilize deposits from the public and extend credit facilities for specified purposes. Their lending operations include provision of credit facilities to small traders, artisans and persons belonging to low and middle income group for purposes ranging from housing, business, education, consumer and other non-farm sector activities. Credit cooperatives are the oldest and most numerous of all the types of cooperatives in India. The cooperative credit institutions in the country may be broadly classified into urban credit cooperatives and rural credit cooperatives. There are about 2090 urban credit cooperatives and these societies together constitute for about 10 percent of the aggregate banking business and therefore regarded as an important segment of the banking system. The Co-operative Banks function in India on State Levels. Most of the Rural Co-operative banks function on Three- Tier and the Urban banks function on Two-Tier. At the National Level there is NABARD to organise the Agricultural Co-operatives. Also there is National Co-operative Union of India, as an apex insdtution at National Level. The Reserve Bank of India controls and regulates the Co-operative Banks that fall 57 under the Banking Regulation Act. The basic difference between cooperative society and cooperative bank is, co-operative societies are usually having a limited amount of capital (both deposits and share capital), and when it increases beyond a limit the society becomes a co-operative bank. 3.2 Brief History of Urban Cooperative Banks in India The term Urban Co-operative Banks, though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas. These banks, till 1996, were allowed to lend money only for non-agricultural purposes. This distinction does not hold today. These banks were traditionally centred around communities, localities work place groups. They essentially lent to small borrowers and businesses. Today, their scope of operations has widened considerably. The origins of the urban cooperative banking movement in India can be traced to the close of nineteenth century when, inspired by the success of the experiments related to the cooperative movement in Britain and the cooperative credit movement in Germany such societies were set up in India. Cooperative societies are based on the principles of cooperation, - mutual help, democratic decision making and open membership. Cooperatives represented a new and alternative approach to organisation as against proprietary firms, partnership firms and joint stock companies which represent the dominant form of commercial omanisation. 58 3.2.1 The Beginning The first known mutual aid society in India was probably the 'Anyonya Sahakari Mandali' organised in the erstwhile princely State of Baroda in 1889 under the guidance of Vithal Laxman also known as Bhausaheb Kavthekar. Urban co-operative credit societies, in their formative phase came to be organised on a community basis to meet the consumption oriented credit needs of their members. Salaiy earners" societies inculcating habits of thrift and self help .olayed a significant role in popularising the movement, especially amongst the middle class as well as organized labour. From its origins then to today, the thrust of Urban Cooperative Banks, historically, has been to mobilise savings from the middle and low income urban groups and purvey credit to their members - many of which belonged to weaker sections. The enactment of Cooperative Credit Societies Act, 1904, however, gave the real impetus to the movement. The tn-st urban cooperative credit society was registered in Canjeevaram (Kanjivaram) in the erstwhile Madras province in October, 1904. Amongst the prominent credit societies were the Pioneer Urban in Bombay (November 11. 1905), the No.l Military Accounts Mutual Help Co­ operative Credit Society in Poona {.lanuary 9, 1906). Cosmos in Poona (January 18, 1906), Gokak Urban (February 15, 1906) and Belgaum Pioneer (February 23, 1906) in the Belgaum district, the Kanakavli-Math Co-operative Credit Society and the Varavadc Weavers" Urban Credit Society (March 13. 1906) in the South Ratnagiri (now Sindhudurg) district. The most prominent amongst the early credit societies was the Bombay Urban Co-operative Credit 59 Society, sponsored by Vithaldas Thackersey and Lallubhai Samaldas established on January 23, 1906. The Cooperative Credit Societies Act, 1904 was amended in 1912, with a view to broad basing it to enable organisation of non-credit societies. The Maclagan Committee of 1915 was appointed to review their performance and suggest measures for strengthening them. The committee observed that such institutions were eminently suited to cater to the needs of the lower and middle income strata of society and would inculcate the principles of banking amongst the middle classes.