What a PACS is, and what it can do with your deposit

Someone from the village society has offered to take your savings. It lends to farmers, it has been there for years, and the building may even say bank over the door. Before you hand anything over, it is worth knowing what kind of institution a Primary Agricultural Credit Society actually is — because it is not the kind most people assume.

What a PACS is in law

A Primary Agricultural Credit Society, or PACS, is a village-level co-operative. The Banking Regulation Act, 1949 describes it by its purpose: a co-operative society whose primary object or principal business is "to provide financial accommodation to its members for agricultural purposes", and whose bye-laws do not admit other co-operative societies as members.

It sits at the bottom of the rural co-operative credit chain. Above it is the district central co-operative bank, which the National Bank for Agriculture and Rural Development Act, 1981 defines by its job: its primary object is "the financing of other co-operative societies in that district". The PACS borrows from that bank and lends on to its members. The co-operative credit structure explains the chain in full.

A PACS is not a bank

This is the point that matters to anyone depositing money.

The banking law does not apply to it. The Banking Regulation Act says in terms that "this Act shall not apply to" "a primary agricultural credit society". The Reserve Bank states the consequence: PACS "are outside the purview of the Banking Regulation Act, 1949 and hence not regulated by the Reserve Bank of India".

Its deposits are not insured. The DICGC is plain about it: "Primary cooperative societies are not insured by the DICGC." Deposit insurance is built for banks, and a PACS is not one.

A PACS is registered and supervised under its state's co-operative law, by that state's Registrar of Co-operative Societies. That is real oversight — but it is not banking regulation and it is not deposit insurance. Our guide to whether a co-operative is a bank or a credit society sets out why those are different things.

The name can say "bank" and still mean PACS

Do not settle the question from the signboard. Kerala's Co-operative Societies Act, 1969 defines a Primary Agricultural Credit Society to include "a Service Co-operative Society, a Service Co-operative Bank, a Farmers' Service Co-operative Bank and a Rural Bank" whose principal object is agricultural credit.

So in Kerala, an institution called a Service Co-operative Bank can be, in law, a PACS — outside the Banking Regulation Act and outside deposit insurance. That is one state's law, and it does not tell you how other states name their societies. What it does show is that the word "bank" in a name is not evidence of banking status anywhere.

What a PACS may do

More than people expect. On 5 January 2023 the Ministry of Cooperation circulated model bye-laws to every state and union territory, framed to turn PACS into multi-service centres. The Ministry describes them as enabling more than 25 business activities: custom hiring centres, dairy, fisheries, godowns, procurement of foodgrains, fertiliser and seed, fuel and LPG distributorship, short and long-term credit, fair price shops, community irrigation, business correspondent work for banks and common service centres.

The model also lets a society act as a business correspondent or "Bank Mitra" for banks, and as an agency for insurance and social security schemes. A PACS that does this is acting for a bank — which is different from being one.

A model is not a rule for every society. The Ministry circulated the bye-laws "for their adoption by PACS after making suitable changes as per respective State Cooperative Acts". What a particular PACS may do is set by the bye-laws that society has actually adopted, under its own state's law.

What the model says about deposits

The model bye-laws are specific. A society "shall accept deposit from its members only", and the interest it pays "shall not be more than 2% over the corresponding deposit interest rate of DCCB" — the district central co-operative bank above it. The society is to make separate deposit rules approved by its board.

Two things follow for a depositor. Membership comes first: under the model, a PACS takes deposits from its members, not from the public at large. And the deposit sits outside deposit insurance whatever the rate, because the insurer does not cover primary co-operative societies.

What to check before you deposit

1. Whether it is a PACS or a bank. Ask for a banking licence from the Reserve Bank. A PACS will not have one, whatever its name says. The is it a bank or a society checklist turns this into questions for the counter.
2. Whether you would be a member, and what kind. The model restricts deposits to members, and it also defines a nominal member as someone "admitted to the membership of the Society for a specific purpose" who "shall have no voting right". Ask which class you would be placed in, and what rights come with it.
3. The society's own bye-laws and deposit rules. Those, not the national model, govern your money.
4. Which Registrar it is registered with. That is the office that supervises it and the route for a complaint.
5. That protection works differently here. Is my deposit protected explains what deposit insurance covers, and why a society's deposits fall outside it.

What Pigmity could not establish

• Whether "members only" includes nominal members. The model restricts deposits to members and separately defines a nominal member, but it does not say whether a nominal member counts as a member for accepting deposits. We have not resolved that, and it may differ by state and by a society's own bye-laws.
• How widely the model has been adopted. Figures circulate for the number of states and union territories that have adopted it; we did not find one in the Ministry's release we read, so none is given here.
• What each state calls a PACS. Kerala's Act names its forms. We did not locate the equivalent term in Karnataka's Act, and have not read the Acts of other states.
• Whether any PACS runs a branded daily-deposit scheme. We have looked and not found one. That remains an absence of evidence, not proof.

This page describes a category of institution. It is not a view about any society, and it does not tell you where to keep your money.