Difference Between Nationalized Banks and Cooperative Banks

Edited by Diffzy | Updated on: August 27, 2022

       

Difference Between Nationalized Banks and Cooperative Banks Difference Between Nationalized Banks and Cooperative Banks

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Introduction

Do you have any idea about how these banks are managed and what are the differences between them. Banks are handled both privately and by the government. Nationalized banks are owned by the government. While cooperative banks are used for commercial purposes. It is generally regulated by an individual or group of people.

Earlier, banks were only commercial. It was established by an individual or a group of people. Later, the government proposed to nationalize the banks to make them available for all people, especially rural and poor.

Nationalized banks vs cooperative banks

Commercial banks were started in India around the 18th century. Later, all banks were submerged to make a single bank. The first bank established in India was the Bank of Bengal in 1809. Later, this bank was merged with two other banks to form a new one i.e. Imperial Bank of India. This bank was later called the State Bank of India. It was nationalized in 1955.

Nationalization of banks was started to make banks reach the poor and rural people. When the government acquired these banks, banks were available in a few places only. Later, with the help of the government, several branches were opened all over the world. The main focus of these branches was to establish a relationship with the people. This relationship was established by providing high interest on saving accounts and loans at low interest.

Difference between nationalized banks and cooperative banks in tabular form

Table: Nationalized banks vs cooperative banks
Parameters of comparison
Nationalized banks
Cooperative banks
Owned by
Government
Individuals or a group of people (generally customers)
Purpose
To support middle and lower class people
To generate income
benefits
The lower interest rate on loans, easily accessible, higher return rates
Alluring offers, customized services, exclusive benefits, the best for higher income
Private banking
Not available
Available
Registered under
Act of parliament
Banking regulation act
Examples
Bank of India, Punjab national bank, state bank of India
Saraswat Cooperative Bank, Cosmos Cooperative Ban, Shamrao Vithal Cooperative Bank (SVC Bank)
 

What are nationalized banks?

Nationalized banks are a group of banks that are owned by the government. It was established to provide banking services to more and more people. And, the main aim behind making the banks nationalized is to provide the poor people with higher income rates on deposits and low-interest loans. It was done to improve the condition of the poor people.

The reserve bank of India was established in 1935 to manage the system of banking in India. Later, it took all existing banks of that time under regulations. It was first nationalized in 1949 by the reserve bank of India act, 1948. After that, a resolution was passed to give the reserve bank power to regulate, control, and inspect the banks in India.

The nationalization of banks has a long history in India. The first bank that was nationalized was the Imperial Bank of India in 1955. Later, the former Prime Minister, Indira Gandhi, proposed an act to nationalize 14 big banks. Some banks that were nationalized were Allahabad bank, bank of Baroda, Bank of India, Bank of Maharashtra, the central bank of India, etc. It consisted about 85 percent of the total banks in India. Nationalization worked as a revolution in the history of banks. It was snatched from the individuals who were going beyond the limits of the rules. First, it was started in 1969.

The second round of nationalization was started in 1980 again by our former prime minister, Indira Gandhi. In this round, six more banks were nationalized banks. It includes Punjab and Sind Bank, Vijaya Bank, Corporation bank, oriental bank of India, etc.

The reason for nationalization was given credit delivery. In this round of nationalization, around 91 percent of the total bank in India was nationalized. This nationalization gave the government firm control over the banking system in India. Now, the most money of the people was managed by the government. It significantly reduced the risk of failure of the banks. And, the aim was to provide maximum benefit to the people.

However, this aim were not achievable for everyone. And, some government banks reach the position of bank corrupt. In this case, the government sells these banks to private individuals or a group of people (generally customers). Private institutions have a better idea about how to improve the condition of a bank. Thus, the bank is saved by making it private. And, the government generates some income by selling the banks. This process is known as privatization.

This situation was faced a lot after nationalization. Various banks had seized to generate profit. Thus, they drastically fell.

This situation was overcome by the government after liberalization. The liberalization was a remarkable change in the economy of India. It opened up the gate for liberal commercialization and privatization in India.

The main changes that were done in the liberalization of the 1990s are

  • Several small banks got licensed
  • Relaxation in norms for foreign direct investment

These changes in the banking sector boomed the Indian banking sector. Licensing the small banks significantly improved the number of people and amount of money in the banks. It added up new energy in the system. The export and import system was improved. More and more money went into the pockets of people. Thus, more people joined these sectors. Hence, it increased the overall development of the Indian economy.

After liberalization, several banks were formed and then again demolished or merged. The merging of banks happened on a large scale.

The State bank of India amalgamated the state bank of Saurashtra in 2008 and the state bank of Indore in 2009. Later, five other associative banks of the above-mentioned banks and Bharatiya Mahila Bank were also merged in the state bank of India.

In the present day, banks are classified into two categories: scheduled banks and non-scheduled banks. These banks are categorized under the rules of the reserve bank of India.

The nationalization was proved a boon for the banks as well as for the poor people. Since the main purpose of these banks are not to generate profit, rather to provide services to the people at a cheap rate. These banks are similar to commercial and cooperative banks. However, money security is higher in nationalized banks as compared to the other banks.

What are cooperative banks?

Cooperative banks are commercial form of banks generally managed by individuals or institutions (of customers). The main purpose of these banks is to generate income. It lends money on the higher interest rate and offers a comparatively lower return rate than nationalized banks. However, it offers alluring offers that prove to be beneficial in the long run. These banks are found everywhere in the world. Also, benefits are more in cooperative banking.

A group of people meet up and form a cooperative bank with or without the association of a bank. It provides loans to non-members and generates income. It is easily accessible by everyone. Rules are also quite liberal to meet the needs of individuals.

It is an initiative to empower people on the ground level. It doesn’t require much paperwork and get money easily. The bonds, money, and even equities are available at a wholesale rate. Even, some cooperative banks invest in the stock market to get more income. These are owned by non-members. It can be diluted and made rigid according to the need of people. Hence, it is sometimes called semi-cooperative banks.

As the name suggests, the main focus of these banks is benefits to the people. It doesn’t have piles of sets of rules. Even, these rules are misused to meet the needs of individuals. However, to do this, the individual needs the cooperation of the whole team members. It is considered as one of the most important demerits of cooperative banks.

This initiative was started to meet the needs of the rural people to provide easily accessible loans. It was proved a boon for them. Through it, people were able to avail easily accessible and lower interest loans. The government also launches beneficiary schemes from time to time for it.

Credit loans are less integrated than cooperative banks. And, the board of directors is also chosen to be mutual understanding. They are generally local people. The main aim of this board of directors is to do things for the welfare of the bank. However, the final decision always remains with the central unit. This feature is quite opposite to the credit unions in which most decisions are usually taken at the local level.

The cooperative bank was first started in India when the cooperative societies act was first passed in 1904. After this, several cooperative institutions were established in India. Many institutions were also opened to manage the work of cooperative credits. However, the progress of these cooperative societies and cooperative credit remains unsatisfactory in the pre-independence time.

During that time, the cooperative credits were categorized into two parts: agricultural credit and non-agricultural.

Agricultural cooperative credits

This is the most dominating part of cooperative credit. It covers around 75 percent of the total cooperative banks. And, the finances can be provided both in both short and long-term agricultural credit institutions. The main aim of short-term agricultural credit is to provide short-term financial needs. While long-term agricultural cooperative credits to long-term financial needs.

The selection of the type of agricultural cooperative credits depends on the type of crop. If the crop type is perennial, then it is better to consider long-term agricultural cooperative credit. Rest, short-term cooperative credit is the best option.

It acts as a link between the official banks and cooperative banks. The cooperative bank can provide the surplus funds that were inaccessible to major rural populations without cooperatives.

However, cooperative banks are not financed by the government or any other financial institution. Rather, it arranges its working capital by the interest share difference. The interest share difference is the rate of interest an institution charges on loans and the interest that it pays for the deposits.  

Cooperative banks are generally managed by the cooperative society. It is not controlled by the government or any other institution. Rather, it is controlled by a non-governmental organization. It works with different firms to provide more and more opportunities to the rural and poor people.

However, cooperative banks have their opportunities and problems. Since it is not managed by an authorized organization, several risk factors work on it. It has several pending loans and the interest rate is also not frequent.

Difference between nationalized banks and cooperative banks (in points)

  • Nationalized banks are owned by the government. However, these banks are not started by the government itself. Rather, it takes authorization over existing commercial banks. Whereas, cooperative banks are owned by a group of people, especially customers.
  • In nationalized banks, people put their money in banks and withdraw when they need it. They don’t know how their money is being utilized. However, in cooperative banks, money is kept by the customer itself and it can decide how it wants to utilize its money.
  • Nationalized banks offer lower interest rates on loans and higher interest rates on returns. Thus, overall it is beneficial for the customers. Whereas, cooperative banks fluctuate the interest rate. Being a personalized space, rules are often ignored here.
  • Nationalized banks are available everywhere all over the country. It can be found easily anywhere because its branches in all over the world. Cooperative banks are also found everywhere. But no two cooperative banks are related to each other. Hence, the person needs to confide in a single place to get the benefits of cooperative banks.
  • Nationalized banks offer assured returns and they know how to make the people To pay their bills. However, these features are missing in cooperative banks.

Conclusion

Both nationalized banks and cooperative banks amazing options. But they are completely different from each other. However, their sole aim is to provide services and money to poor people. But their way is different.

Nationalized banks are owned by the government and they work under the government. While cooperative banks are independent of any institutions.

Both options entertain different workspaces. Hence, getting engaged with any two will give a different experience.

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"Difference Between Nationalized Banks and Cooperative Banks." Diffzy.com, 2022. Thu. 29 Sep. 2022. <https://www.diffzy.com/article/difference-between-nationalized-banks-and-cooperative-banks-4>.



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