Background to the Establishment of Cooperative Banks

The cooperative movement in the country originated as a measure against rural poverty, aggravated by the chronic indebtedness of the farmers and practice of usury at its worst by the moneylenders. Agriculture had largely been capital-starved and was exposed to the exploitative tendency of usurious moneylenders. There was an urgent need to evolve a systematic mechanism for enhancing the credit flow to agriculture. Agrarian disturbances in 1875 in the Deccan against moneylenders necessitated the enactment of Taccavi Legislation by the Government, and also led to the concept of the cooperative approach. The Northern India Taccavi Loan Act, 1875, the Land Improvement Loans Act, 1883, the Agriculturist Loans Act, 1884 etcetera were all enacted to facilitate the availability of credit to farmers. In 1892, Sir Federick Nicholson recommended the establishment of rural cooperative credit societies on the German pattern.The Famine Commission (1901) recommended the introduction of cooperatives in the country. In 1904, the Cooperative Credit Societies Act was enacted by the Imperial Government to facilitate the organisation of credit cooperatives and confer upon them special privileges and facilities, the scope of which was subsequently enlarged by the more comprehensive Cooperative Societies Act of 1912. Under the Government of India Act, 1919, the subject of cooperation was transferred to the then provinces, which were authorized to enact their own cooperative laws. Under the Government of India Act, 1935, cooperatives remained a provincial subject.