Business Development Strategies in DCCB (Dr. Rajiv P. Kumar)
“Business Diversification Strategies in cooperative
Submitted To Submitted By
Sh. D.V. Deshpande Dr. Rajiv Kumar
Faculty-VAMNICOM Roll No. – 5418
VAINKUTH MEHTA NATIONAL INSTITUTE OF COOPERATIVE
MANAGEMENT, PUNE (MAHARASHTRA)
MINISTRY OF AGRICULTURE AND FARMERS WELFARE, GOVT. OF INDIA
1. Introduction to Cooperative Banks
2. History of Cooperative Banks
3. Objective of cooperative banks
4. Importance of co-operative banks
5. Cooperative Banks and Economy
6. Challenges before Cooperative Banks
7. Difference between Cooperative Bank and Commercial Bank
8. Concept and Meaning of Business Diversification in Cooperative Banks
9. Cooperative Banks Diversification Strategies
10. Benefits of Diversification
11. Disadvantages of Diversification
12. Types of Business Diversification in Cooperative Banks
1. Concept and Role of Cooperative Banks in India.
2. Importance and Need of Business Diversification in Cooperative banks
3. Advantages & disadvantages of Business Diversification in banks
4. Business Diversifications strategies in Cooperative Banks and its examples
Co-operative banks refer to small financial institutions that provide loans to
small businesses in both urban and non-urban areas. Co-operative banks usually
provide various types of banking and financial services to their members such as
lending, depositing money and bank account etc. Co-operative banks differ from
commercial banks based on their organization, objectives, values and governance. It is
noteworthy that the primary goal of the cooperative bank is not to earn maximum profit.
Rather it is to provide the best products and services to its members. Co-operative banks
are owned and controlled by members, who democratically elect a board of directors.
They are regulated by the Reserve Bank of India (RBI) and come under the Banking
Regulation Act, 1949 as well as the Banking Laws Act, 1965. Co-operative banks are
registered under the Co-operative Societies Act.
Difference between co-operative bank and commercial bank
Commercial banks are joint-stock banks, while cooperative banks are cooperative
Commercial banks are under the control of the Reserve Bank of India. Co-operative
banks are subject to the rules set by the Registrar of Co-operative Societies.
Co-operative banks have less capacity to offer a variety of banking services than
The scope of commercial banks in India is wider than that of cooperative banks.
Co-operative banks have higher interest rates than commercial banks.
History of cooperative banks
The cooperative movement in India was started with the aim of promoting
savings to help the development of farmers, artisans and other sections of the
The history of Indian cooperative banking began in the year 1904 with the
passage of the Cooperative Societies Act. The purpose of this Act was to establish
cooperative credit societies.
During the first 3 years after independence, till the year 1949, nothing important
was possible from the point of view of cooperative banking.
However, by then, the immediate Indian leaders had recognized the role of
cooperative banks in strengthening the roots of the country, and for this reason
different provisions were made in the initial five-year plans to strengthen the
cooperative structure of the country.
It is noteworthy that despite the provision related to cooperative banking in the
early five-year plans, its excessive development was not possible, due to which a
need for more attention was felt.
The Sixth and Seventh Five Year Plans played an important role in the expansion
and development of the cooperative structure of the country.
Purpose of cooperative banks
For rural financing and micro financing.
To free common citizens from exploitation of middlemen and moneylenders.
To provide loans to the farmers and poor people of the country at a cheaper rate
to improve their socio-economic condition.
To provide financial assistance to the needy people and farmers in rural areas.
To provide personal financial services to small scale industries and people
engaged in self-employment activities in both rural and urban areas.
Importance of cooperative banks
Cooperative banks have played an important role in the progress of the country
by connecting the common people with banking in the villages and towns.
The main objective of the country's cooperative credit structure is to provide the
general public a better alternative to traditional credit sources and cooperative
banks have performed better in achieving this objective. Co-operative banks
protect rural credit and the less educated population from the clutches of
It is noteworthy that the traditional lenders in the country have dominated for
decades. And they are still exploiting the poor people by imposing high rates of
interest on the loan.
Co-operative banks provide loans to their customers at relatively cheaper interest
rates, as they aim to provide good services to their members rather than making
Co-operative banks have also encouraged savings and investment by developing
savings habits among farmers.
Co-operative bank and economy
The growth of the country is hidden only in the economic growth of the citizens of
the country and the economic development of the members is first in the main
principles of all the cooperative structures working around the world.
Cooperative banks in India are also acting as lifeline for many people.
Today, cooperative banks across the country are working with commercial banks
and playing an important role in providing need-based finance to people engaged
in agriculture and agro-based operations.
However, it cannot be denied that the country's co-operative banks are in need of
major changes over time.
Challenges faced by cooperative banks
Reports of some societies show that cooperative banking has failed to win the
trust of farmers in the country despite its long history and that is why only a
small part of the loans taken by most farmers in rural areas are taken from
cooperative banks. .
So far it has failed to meet the needs of small farmers.
Overdue is a major problem at all levels.
Statistics show that the membership of cooperatives in rural areas is only 45
percent, which means that 55 percent of the rural people have not yet been able
to connect with cooperatives. The Banking Commission constituted in the year
1972 had attributed the following reasons to it:
Inability of people to provide fixed security for loans.
Mismanagement of land records.
Inadequacy of the prescribed credit limit.
Disqualification of member in repaying loan.
Several studies have revealed that some cooperative banks in the country have
become defunct and some are only on paper.
Most cooperative banks are also facing a lack of professional management.
Another important problem arises from the duality of control over cooperative
banks, as they are regulated and controlled by the RBI but administered by the
Cooperative Banks Diversification Strategies
Diversification is an act of an existing entity that delves into a new business
opportunity. This corporate strategy enables the entity to enter a new market
segment that is not already operated. The decision to diversify can prove to be a
challenging decision for the entity as it can lead to extraordinary rewards with
Following are the reasons why co-operative banks opt for diversification:
To increase business operations
To ensure optimum utilization of existing resources and capabilities
After gaining knowledge on the concept of diversification, let us have a look at the
advantages and disadvantages of the same.
Following are the benefits of diversification:
1. As the economy changes, the way people spend varies. Diversity in many
industries or product lines can help create equilibrium for the unit during these
2. There will always be unpleasant surprises within a single investment. Being
diverse can help balance such surprises.
3. Diversification helps maximize potential reduced resource utilization.
4. Some industries may fall down to a certain time frame due to economic factors.
5. Diversification provides momentum away from activities that may fall.
Following are the disadvantages of diversification:
1. Entities fully involved in profit making sectors will enjoy profit maximization.
However, a diversified entity will be lost due to limited investment in the
specific segment. Therefore, diversification limits growth opportunities for an
2. Diversifying into a new market segment will demand new skill sets. The lack
of expertise in the new field may prove to be a setback for the unit.
3. 3. An incorrectly done diversification or excessive ambition can be more than
expanding in many new directions at the same time. In such a case,
insufficient resources and lack of attention will cause damage to all old and
new areas of the unit.
4. 4. A widely diversified company will not be able to respond quickly to market
changes. The focus will be on operations, thereby limiting innovation within
Types of Business Diversification in Cooperative Banks
1. HORIZONTAL Diversification: This strategy of diversification refers to banks
offering new services or developing new products that appeal to the current
customer base of cooperative banks.
2. VERTICAL DIVERSIFICATION: This form of diversification occurs when
cooperative banks go back to the previous or next phase of their production
3. CONCENTRIC Diversification: In this form of diversification strategy, the
unit introduces new products with the aim of fully utilizing the prevailing
technologies and capabilities of the marketing system.
4. CONGLOMERATE Diversification: In this form of diversification, an entity
launches new products or services that have no relationship to current
products or distribution channels. A firm can adopt this strategy to appeal to
an all new group of customers.
5. Return on investment in high growth zones and new market segments may
prompt a company to take this option.
6. Lack of corporate governance is a very important issue in the cooperative
banking system, which needs to be dealt with at the earliest.
7. In the cooperative banking system there is a need to make watchdogs or
auditors more accountable, because there have been many cases where people
have been scammed despite the presence of auditors and investigative
8. As soon as a big banking scam comes to the fore, the bank's depositors face a
problem and they have to wait a long time to withdraw their own money. In
the Madhavpura Mercantile Cooperative Bank scam that took place in the
year 2001, about 45000 depositors of the bank were asked to withdraw their
9. Experts believe that former deputy governor R.K. The suggestions of the
Empowered Committee on Urban Cooperative Banks constituted under the
chairmanship of Gandhi should also be noted.
The main recommendations made in the committee's report are:
RBI should have more powers over cooperative banks.
There is a need to empower RBI to take decisions like closing banks and
providing liquidity to them.
If urban co-operative banks voluntarily want to convert into small finance
banks as well as all the norms of the central bank if all the criteria are met,
then they should be allowed to do this.
The need for cooperative banks in the country cannot be denied, because through these
we have been able to spread the banking system in the country to the people, but in view
of the scams related to cooperative banks, it is also necessary that the cooperative
banking structure of the country itself Make some basic changes in The problem of
control duality is the biggest problem facing the cooperative banks, to deal with it, it is
necessary that the RBI and the state government work on the same table and work in a
coordinated manner so that the cooperative banks are able to contribute to the
development of the country.
i. Bagchi SK: Agriculture and rural development are synonymous in reality-
suggested role of cas in accelerating process, The Chartered Accountant, J.
Institute of Chartered Accountants of India, 54(8):1162-66.
ii. Gunnar Myrdal: Asian Drama- An Enquiry Into The Poverty of Nations, The
Twentieth Century Fund, INC, Bombay, Vol-II, 1968, p-124.
iii. Kanda Mohan (1996) Parameters of well managed credit system for agricultural
development, Indian Cooperative Review, p-202.
iv. Sinha SK (1998) Rural Credit And Cooperatives In India , Suneja Publications,
New Delhi, ,p 1-32.
v. Subramanium C (1984) A Strategy for Rural Development in Ajit K.Danda(ed)
Studies on Rural Development Experiences and Issues, Inter-India Publications,
New Delhi, p-29.
vi. NABARD: Development In Cooperative Banking accessed from www.nabard.org.
vii. Verma Ravi S, Reddy Bhagwan B (2000) Analysis of causes of overdues in
Cooperatives under SWCCDS, Cooperative Perspective, 35(1).
viii. Subrahmanyam B ( 1998) Cooperative Credit Structure: A Perspective for 2000
A.D, Cooperative Perspective, p-25.
ix. V Sharda, Theory of Cooperation, Himalaya Publishing House, Bombay,1986, p-
x. Singh RP, NABARD (1983) Organization, Management and Role , Deep and Deep
Publications, New Delhi, p-386.
xi. Reports on the Committee of Cooperative Land Development Banks, Agricultural
Credit Department of RBI, Bombay, 1976, p-11.
Dr. Rajiv Kumar