In the starting of 20th century, availability of credit in India, mostly in rural areas, was almost missing. Agricultural and other linked activities cannot access organised and institutional credit. The rural people were forced to depend completely on the money lenders, who lent them money at high rates of interest often.

The co-operative banks emerged in India in the starting of 20th Century with an objective to make a new type of institution depending on the principle of co-operative organisation and management. They are suitable to address problems specifically related to Indian conditions. These banks were considered as alternatives for money lenders, to offer short-term and long-term credit at reasonable rates of interest.

Co-operative Banks are managed on the principal of co-operation and mutual help. They function with the guideline of "one member, one vote". They follow "no profit, no loss" strategy. As a principle, co-operative banks do not follow the objective of profit maximisation.