1. The vital link in the co-operative credit system namely, the Primary Agricultural Co-operative Societies, themselves remain very weak. They are too small in size to be economical and viable; besides too many of them are dormant, existing only on paper.
2. With the expanding credit needs of the rural sector, the commercial banks have come in actively to meet the credit requirements of this sector, and this has aggravated the difficulties of co-operative banks. The theory that cooperative banks would be buoyed up by the competition from other financial institutions does not appear to have worked.
3. Co-operative banks are not doing well in all the states; only a few account for a major part of their business. For example, 75 per cent of total deposits mobilised by State C-operative Banks was from only seven states in 1987 Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Tamil Nadu, and Uttar Pradesh.
4. These banks still rely very heavily on refinancing facilities from the government, the RBI, and NABARD. They have yet not been able to become self-reliant in respect of resources through deposit mobilisation.
5. They suffer from dangerously low or weak quality of loan assets, and from highly unsatisfactory recovery of loans. They suffer from infrastructural weaknesses and structural flaws. They do not look like banks and do not inspire confidence in the potential members, depositors and borrowers.
6. Poor resource base is main constraint of these banks. Relatively low per capita base and less equity base due to non-participations of the members in the financial activities and limited area of operation is becoming a permanent obstacle in the progress of this sector.
7. Poor profit position and burden of huge accumulated losses of several cooperative banks has threatened the very survival of these banks. The amount of cost of management of this sector has adversely affected its profitability.
8. Most of the Co-operative banks are suffering from the lack of professional management. In the deregulated environment and stiff competition in the banking sector, do to lack of the professionalism in carrying out banking activities, the weakness of these banks has become more prominent.
9. Many co-operative banks even now continue to follow age-old system and procedures, which are not conductive in the present technologically driven banking environment. Except some Co-operative banks, technological development in Information Technology or computerized data management is conspicuously absent.
10. There is a lack of proper governance. Corporate Governance has great relevance in the present environment. As there is no formal system of corporate governance in co-operative banks, many banks have become the hot bed of political patronage, unscrupulous financial practice and gross mismanagement.
11. Another problem arises out of the duality of control over them i.e. these banks are organized under dual control of RBI and as well as respective state government. Apart from the intervention of the apex bodies, the Government is also found to exercise control in various ways on these banks.
Government intervention in the management, administration and business operation of co-operative banks has made the institution lose his own distinct character.
12. They suffer from too much officialisation and politicisation. Undue governmental interventions have prevented them from developing steadily as a self-reliant and resilient credit system. Most of them are headed by politicians.
13. They unduly depend on government capital rather than member capital. There is no active participation of their members in their working, which can come about if they work with members' money rather than government largesse.