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Small financial institutions known as Co-Operative Banks provide lending options to small businesses in both urban and rural areas. The Banking Regulations Act of 1949 and the Banking Laws Act of 1965 govern these, which are supervised and regulated by the Reserve Bank of India (RBI). Because they support processing, housing, warehousing, transportation, dairy, and other rural businesses with 46% of the net funding, cooperative banks have a significant impact on small businesses because they are present in 67% of villages. In India, there are four types of cooperative banks:
1. Cooperative Central Banks - There are two kinds of these banks, which are organized and run at the district level:
a. Co-operative Banking Union
b. Mixed control Co-operative Bank
In the first, only co-operative societies are members of the bank. However, in the second, both individuals and co-operative societies may be members. The affiliated primary societies receive the majority of the money that the central co-operative banks lend, with typical loan terms ranging from one to three years.
2. Cooperative State Banks - These banks are at the top of the co-operative credit structure because they are organized and run at the district level. The RBI provides funding for cooperative institutions with the assistance of State Co-operative Banks (SCBs). Additionally, these banks receive loans at interest rates that are one to two percentage points lower than the typical bank rate.
3. Primary Credit Unions - These provide credit services in cities and semi-cities. As a result, they are not considered credit societies for agriculture. In order for Primary Co-Operative Banks to provide housing loans and other types of loans that can be used by small businesses, they occasionally receive concessional refinance services from the RBI and IDBI.
4. Banks for Land Development - There are three levels of land development banks: primary, state, and central. These provide farmers with credit services for development purposes. They were previously governed by state governments and the RBI. However, the National Bank for Agricultural and Rural Development (NABARD) has recently assumed this responsibility.