Defects of Co-Operative Banks or Credit Societies The Co-operative movement in our country could not get the desired success. The Cooperative Banks have been able to solve the problem of rural debts in a very small area. 

The main reason for it, are the defects in co-operative credit societies which are as follows :

1. Illiteracy: In our country major portion of the population is uneducated and they do not understand what is co-operation. 

2. Self Interest of Members: The members of the society provide loans to their friends and relatives because of which other members are not benefitted and do not get the facility of loan. Sometimes it also happens that these loans are not recovered from the friends and relatives of the members. 

3. Improper Functioning: In rural areas, the members responsible for the proper functioning of society do not have knowledge of banking, so they are unable to handle the affairs properly. 

4. Dishonest Members and no proper records are kept: The records of these societies are not kept properly nor they are audited. The members are dishonest and indulge in fraudulent practices. 

5. Lack of Co-operation: The basic principle of co-operative societies is co-operation and coordination among the members, but in India, we find that it lacks among the members. In every village of our country there is groupism, casteism, etc. then under these circumstances how can we expect co-operation and co-ordination among the members. 

6. Lack of Funds: The Indians are poor and they are not able to deposit money with the societies which result in lack of funds with the society. Due to lack of funds, the members are not able to get the loans according to their needs.

7. A problem in getting Loan: The members face problem in getting the loan because before giving the loan, the society checks the credibility of the member and other formalities have to be completed. All this takes a lot of time and the member is unable to get the loan at the time of need. Ultimately they have to take a loan from money-lenders or Mahajan. 

8. Government’s Intervention: The people do not have much faith in societies because of the government’s intervention.in them. The major defect of the Indian Co-operative movement is that it has been implemented by the government requiring the fulfilment of a lot of many formalities and for this reason, the people do not have any interest towards this movement. 

9. The high rate of Interest: The rate of interest charged by these societies is high because they do not have adequate funds and they have to borrow from others. These societies borrow money from Central Co-operative Banks at a higher rate of interest. The rate of interest charged by these societies should be normal So that there is no burden on the members. Generally, the rate  of interest charged by these societies is ranging in between 10% to 14%. 

10. The problem of loan repayment: The loans are not repaid by the members in time. As already told that the societies do not have adequate funds and when the loans are not repaid in time, these societies face an uphill task. The outstanding loans are increasing day by day and major portion of the debts become bad. 

11. Societies only provide financial assistance: The Co-operative societies only provide financial assistance whereas they should also perform the activities of sale and purchase. Multi-purpose co-operative societies can only  take out the people of rural areas from the grip of the Mahajan’s.

12. A very little number of people becoming members: All the persons are unable to become members of society. Thus, only a small number of persons who are financially sound take advantage of society. 

13. Poor Financial Condition: The financial condition of these societies is always very weak. When they do not have adequate funds then how can they provide financial assistance to others? The members do not take much interest in society because their financial needs always remain unfulfilled. 

14. Only influential persons become members: The persons who are wealthy or those who have a political approach become the members of these societies. The poor people do not get any assistance from these societies in spite of the fact that these societies are meant for poor.

15. Political Interference: These societies are now in the grip of the political leaders and the basic principle for the formation of these societies has been defeated by these leaders. In many places, these leaders have formed the co-operative societies which are closed after receiving aid from the government. 

Suggestions for Improving Co-Operative Banks 

Suggestions for improving Co-operative Banks are as follow: 

1. The people should be made educated in order to make them understand the importance of co-operation. 

2. The employees should be taught the banking principles which will help in the proper management of the banks. 

3. Only short term loans should be given so that all the members are benefitted. 

4. The penalty should be imposed if the loans are not repaid in time. 

5. Before giving the loan it should be checked whether the loan is being given for productive needs or not. 

6. The Central Bank should give loan to these societies on a lower rate of interest. 

7. The records should be properly kept by these societies which should be inspected and audited from time to time so that fraudulent practices are minimised. 

8. There should be a maximum limit for granting a loan and no member should be given loan more than the maximum limit. 

9. The principles of co-operative should be made known to the public. 

10. The government should also help these societies according to their needs. 

11. These societies should increase their reserve funds which will make their financial position strong.

12. Instead of competing with these societies, the Commercial Banks should provide assistance to them.

13. In addition to co-operative credit societies, multipurpose cooperative societies should be formed so that they could also help the people in other walks of life.

14. These societies should be kept free from politics and there should be minimum interference of the government.

15. The co-operative societies should try to get deposits so that their financial position will become strong.