Once the backbone of India’s rural finance, cooperative banks today find themselves overshadowed by commercial and regional rural banks in the flow of agricultural credit.
Over decades, their share in short-term farm lending has steadily declined—from about 65.93% in 1995–96 to 59.02% in 2021–22, according to NABARD’s Working Paper on Institutional Credit to Agriculture, 2022.
This erosion is more than a statistical trend; it signals a weakening of grassroots financial institutions that were designed to empower farmers, especially small and marginal ones. Recognizing this drift, the Ministry of Cooperation (MoC) recently convened a meeting with NABARD to discuss the declining share of cooperative banks in agricultural credit and to explore strategic measures to reverse this trend.
Chairing the meeting, Dr. Ashish Kumar Bhutani, Secretary, Ministry of Cooperation, emphasized the need for strengthening the cooperative credit structure, enhancing digital and institutional capacities, and promoting policy interventions to increase the flow of agricultural credit through cooperatives.
The meeting — attended by senior Ministry of Cooperation officials including Pankaj Kumar Bansal, Additional Secretary and Raman Kumar, Joint Secretary and Shaji K. V. , Chairman, NABARD — focused on strengthening the cooperative credit architecture through digital upgrades, institutional capacity building and targeted policy interventions.
The data: a structural slide, not a short-term wobble
Long-term analyses and NABARD’s own reporting points to a persistent redistribution of agricultural lending away from cooperatives toward commercial banks and regional rural banks (RRBs). Studies covering recent years show cooperative banks’ share in crop loans and short-term agricultural credit has fallen sharply from earlier decades; in some analyses cooperative share dropped into the mid-teens while commercial banks and RRBs expanded their footprints.
NAFSCOB in one of its papers mentions that introduction of Priority Sector concept by RBI, nationalization of major private sector banks in 1969 & 1980 and establishment of Regional Rural Banks (RRBs), the share of cooperative banks in agriculture credit has come down significantly from 60%-70% in mid 1960s to 12% presently.
The decline is a structural shift in agency-wise credit distribution.
Why the decline has happened — five interacting causes
- Expansion of commercial banks and priority-sector push.
- Refinancing patterns and incentives.
- Governance and balance-sheet stresses at grass-roots levels.
- Digital lag and product modernisation.
- Heterogeneity across states.
MoC-NABARD Discussion
What the MoC–NABARD conversation rightly focuses on Dr. Bhutani’s stated priorities — strengthening the cooperative credit structure, enhancing digital and institutional capacities, and exploring policy interventions to boost agricultural credit flows via cooperatives — align with the evidence.
Targeted policy action is needed on multiple fronts simultaneously: recapitalisation and performance-linked financing of PACS and DCCBs; technical assistance to implement digital loan origination and KYC; faster, conditional refinance linked to outreach and lending to small/marginal farmers; and governance reforms that professionalise management without diluting cooperative ownership.
Bottom line
The MoC–NABARD meeting is a timely recognition that cooperative banks remain a critical institutional channel for inclusive farm finance — but reversing a decade-long relative decline requires a systematic plan.
