Co-operative banks – Client friendly

If investor are looking to park his surplus funds in a fixed deposit or is eager to take that loan, he must check out the schemes at co-operative banks. Investor may land up with the best deal, not only on the interest rate front, but also in the terms and conditions.

One of the frontrunners in offering double digit interest rates on deposits, when the ‘high rate party’ began in the recent past, was a co-operative bank. When investor borrows money from a co-operative bank, he is most likely to pay a lower interest cost than what investor would have paid, to a private or public sector bank.

Co-operative banks that were set up on the principal of ‘co-operation’ that is mutual help are indeed leading the pack when it comes to deposits and lending. Not only are their rates the most attractive in the industry, the products meted by them are also equipped with customer friendly terms.

These banks offer some of the highest rates on fixed deposits. For instance, the country’s largest co-operative bank, Saraswat Co-operative Bank, offers an interest rate of 9.5 to 10 per cent on its 15 to 24 month term deposit. However, the rates differ from bank and bank and investor need to scout around to zero in on a co-operative bank that offers the best rate for the term he wants to place the money for.

For all types of borrowing, right from housing loans, auto loans to education loans, co-operative banks might come as a boon. The following factors go on to justify how investor stand to gain by taking a loan from a co-operative bank as against any other public or private sector lending institution.

* Lower rate of interest: Firstly, the key consideration while taking a loan, i.e., the interest rate concerned, is lower in the case of a number of co-operative banks. For example, the Jankalyan Sahakari Bank charges 10.5 per cent on a housing loan for 5 years tenure or more.

* Terms of borrowing: Co-operative banks are less strict when it comes to lending. For instance, when investor takes an education loan from one of these banks, investor may not be required to undertake the studies from a recognized university, in order to avail of the loan. Moreover, these banks usually calculate the interest on the loan using the ‘daily reducing balance’ method. Under this method, the interest outgo is the lowest from investor’s end and investor stand to benefit by way of a lesser interest burden.

No penalty for prepayment of loan:

Co-operative banks, generally do not levy a prepayment charge, when investor retires his debt before the projected tenure. On the contrary, some of these banks offer an incentive of around 1 per cent when an investor makes prepayment on the loan.

Even though co-operative banks help investor save costs by offering attractive rates and flexible terms, there are a few fundamental checks investor should perform before investor selects a co-operative bank for a deposit or a loan.

To begin with, the website of the Reserve Bank of India (RBI) gives overall financial status of the bank to know whether it is a strong or a weak bank. Apart from accessing the RBI’s site, investor can scan for financial information of the bank on its official website as well as in the leading publications.
Usually, a bank that is relatively large in its size is considered safe. Go in for a bigger co-operative bank which has deposits of at least Rs 250 crore in total. Check the total value of the Non- Performing Assets of the bank. The higher this value the greater the risk of dealing with such a bank.

Ascertain the profitability of the bank and make sure that the bank has been profit making since the last 3 years or more.
Products are concerned, compare the deposits and loans across 3-4 banks and select the one that suits investor’s needs the best.
Co-operative banks will come to investor’s rescue during his search for suitable deposit and/or lending schemes. However, do not forget to conduct a check on the bank before dealing with it. There are a large number of co-operative banks in the country. Ascertain the credibility of the bank before getting lured by their tempting rates.