How much safe is your Co-Operative Bank?

What will happen when you have emergency need of cash from your co-operative savings bank account and suddenly bank curtail your withdrawal or limit it to mere Rs.1,000 per day?

This is what happened recently with customers of one local co-operative bank of Bangalore. So it is very important to understand the risk involved in banking with such co-operative banks. Before proceeding further let us first understand what is co-operative bank.

Co-operative banks are small scaled banks which mainly operate in rural as well as urban areas of India to cater the banking need of social groups, small businessman or small borrowers. Co-operative banks are registered under the Co-operative Societies Act. They are regulated by RBI, Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. Basically their are two types of Co-operative banks.

1) Rural Co-operative Banks-These banks are basically formed to lend financial help to agriculture related activities. For example, farming, cattle, milk, personal finance, some small scale business and to industries.

2) Urban or Semi-Urban Co-operative Banks-These banks are basically formed to lend financial help to small scale industries, business and for home loans.

Other than above two main categories their are below mentioned categories also exists.

  • Primary Urban Co-operative Banks
  • Primary Agricultural Credit Societies
  • District Central Co-operative Banks (DCC Banks)
  • State Co-operative Banks
  • Land Development Banks

Now why few feel it best to bank with Co-operative banks?

  • The foremost reason is, these Co-operative banks offer higher interest rates than the other public sector or some private sector banks.
  • As these banks are operated and managed by local people, it is convenient to prove your financial health than other banks.
  • When you are illegible to loan from public sector banks or private banks then you have high possibility that you will get loans easily. Because their rules are not that much stringent.
  • Banking may be comfortable and bit easy than other banking formats.

What are the risks involved?

  • As usual return on your deposits are high means risk is also high from such banks.
  • To give you high returns option for such Co-operative banks are to lend their money at higher interest rate. Who will take such high interest loans? Obviously borrowers whose financial track record is not good or other banks rejecting their loans.
  • Your deposits are insured to the tune of Rs.1,00,000 only. To know more about this feature read “Bank FDs-Is your Bank have Deposit Insurance and Credit Guarantee (DICGC)?”. Apart from this Govt will not help you by the bailouts like what happened during the time of UTI, IFCI or Indian Bank.
  • As these co-operative banks usually managed by local directors, it is high probability that they may use these banks for any political or caste based gains. I saw one bank in my home town whose president belongs to one particular political party. Staff members too belong to that particular party and always they encash this advantage to their political motives. Like lending to their political workers or snatching borrowers to their political party.
  • Now about the case of withdrawal limit which I mentioned in first few lines of this post, reason for such limit is as per RBI guidelines!!!. RBI will put forth such limits when any such co-operative bank’s NPA (non performing assets or in simple words bad loans) crosses more than 50% of it’s advances. To rehabilitate and infuse more funds to bank, usually RBI restrict such withdrawal limits. If after such rehabilitation will not work for 2 years too then bank may either liquidated or merged with any of the strong nationalized bank.
  • DICGC will come into picture when their is bank liquidate issue.  During this period depositor need to submit relevant documents to prove their deposit. If assets are worth to pay all depositors then it will be get paid else proportionate to bank’s asset will be distributed among depositors.
  • But time frame to get bank your money in case of liquidation is lengthy so you need to wait and watch for action.

Considering few positive and more negative points, it is very difficult for common man to understand the health of such co-operative banks. Hence it is always prudent to avoid your  banking activity for the gain of few rupees.




34 Responses

  1. Exactly happened today to guru Raghavendra Sahakara cooperative bank the RBI imposed a limit and they made so tight rules because of NPA

    One question how long we need to wait to get our money back now rule is more then 35000 we can’t withdraw

  2. I think your article contains few true points but most of the points are invalid or false.. Because the state cooperative banks are there in which keeping deposit is safe and Rbi has exercised same crar norms on these banks unlike other nationalised banks. So better gain proper knowledge on this cooperative banking section before writing such articles as cooperative banks are playing vital role in development of rural and Agriculture areas of all parts of India.

    1. Dear Nilakshi,
      Thanks for your views 🙂 Now, coming back to state run co-operative banks. Let me know the NPAs numbers. Let us compare those values with other Nationalized or Private Banks, then let us take a call. What do you say?

  3. Hello Mr. Basu

    First of all that you for your opinions for all type of financial queries. i would like to know your view about Adarsh Credit Cooperative Society (Multi state). Is it safe to invest in fix deposits offer by them ?

  4. Why does the rib pose restrictions on Dist cocoperative banks in Kerala which has a valid rib license and ifs code etc vinod

  5. Mr. Basavaraj. Thank you for the informative article. Can you please comment on the financial status of Sri Guru Raghavendra Sahakara Bank Niyamitha. In your opinion can you rate the best cooperative banks in Bangalore which offer safety with reasonably good returns

  6. I have a huge sum of money in PMC bank as FDs from 2010 n had not faced any problems with the Bank . Should I continue with it?

  7. I just read your blog regarding the Co-Operative Banks in India. Has there been any rules & regulations that RBI has paased to make Co-operative banks safer. Your article is dated 2013 and in these 3 years has there been any change which has taken place ? I am a retired teacher and am contemplating if I should have a deposit in Cooperative bank which is giving 1.25% higher interest rate than Nationalised banks.

    1. Sofia-As per me, there is no such rulings after this old post of me. However, you can check the quality of the bank with their NPA and balance sheet. If you are not able to understand, then the best way is to go for Nationalized Banks.

  8. Sir, if anybody has safe deposit locker in cooperative bank and bank goes off, does his sahe deposit lockers valuables are safe, can he be allowed to open it, one more question if cooperative bank NPA is above 7 percent it is safe bank?

    1. Dev-Forget about co-operative bank, even if you have safe deposit locker with nationalized bank and there is robbery, then they too not take responsibility of it. Many don’t know the rules. But it is reality with safe deposit lockers. NPA at 7% is high.

  9. Hi Basu,
    I have done one FD 1 lakh, RD 10,000.00 for 13 months and 1 lakh FD in TGMC Bank ( Tumkur Grain Merchants Co-operative Bank) .

    Is this a risk investing in TGMC bank.

    1-2 years- 9% and 2-5 years -9.5% Interest which this bank provides.

  10. Sir is there any limit to the loan amount that urban cooperative banks give to the customer. And another one can a manager or Secretary of urban co operative bank take 4lakhs loan in Karnataka state

  11. Sir,
    I just read your blog regarding the Co-Operative Banks in India.
    Please see the below details, will this also comes in the same Category as mentioned by you?
    Please advise.

    Thiruvananthapuram District Co-Operative Bank Ltd
    Kerala State
    [email protected]

  12. Excellent sir, I am experiencing this now. We were banking with The Karnataka State Industrial Co operative Bank limited from past 40 years.

    Now the bank transactions have been stopped by RBI fingers crossed on our deposits.


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