Sources of Funds of an Urban Co-operative Bank

A bank can lend only what it can raise. The funds of an urban co-operative bank come from two broad sources — its owned (internal) funds and its borrowed (external) funds — and it is useful to see them side by side before studying each.

A. Owned funds.

• Share capital — Every member must buy at least the minimum number of shares. The sale of shares gives the bank its foundation capital and, at the same time, makes each customer a part-owner. A borrowing member is usually required to hold shares in proportion to the loan taken (linking of share capital to borrowing).
• Entrance fees — A small, non-refundable fee paid once by every new member on admission, added to the bank's funds.
• Reserve fund and other reserves — A part of every year's profit is, by law and by prudence, set aside as a reserve fund to strengthen the bank and absorb future losses; other reserves (for building, bad debts, dividend equalisation, etc.) are built up similarly.
• Undistributed profit — Profit not paid out as dividend but ploughed back into the business also swells the bank's owned funds.

B. Borrowed funds.

• Deposits — By far the largest source. The current, savings, fixed and recurring deposits described in Section 3 are the main working capital of the bank; a UCB's ability to lend depends chiefly on the deposits it can attract.
• Borrowings from higher institutions — When its own resources fall short, a UCB may borrow from the District Central Co-operative Bank (DCCB) or the State Co-operative Bank, and, for eligible purposes, from NABARD and the Reserve Bank of India.
• Other funds — Sundry receipts such as commission and fees on services, and any grants or subsidies where available, add modestly to its resources. …