1. finance
2. bank
3. bank account

CHAPTER IV
OPERATIONS OF SAMPLE URBAN COOPERATIVE BANKS
The operational performance of the sample urban cooperative banks
depends on the flow of funds in the form of mobilisation of deposits,
creation of reserves and borrowings on one side, and deployment of
credit, effective recovery of loans lent, prudential norms in management
of non-performing assets and managerial efficiency on the other. The
Cooperative Planning Committee felt this: “Urban cooperative banks
qualify by establishing personal and intimate relationship with the people
of urban class as the most suitable agencies for servicing for their credit
needs.”1
INTRODUCTION
The economic development-oriented programmes need a sound and
commensurate policy ensuring better cycle of funds. Membership of urban
cooperative banks is the foundation on which only they operate with the
available of funds. The urban cooperative banks on the principle of
cooperation is ‘discrimination to none and open to all.’ The operational
performance of the sample urban cooperative banks in terms of flow of
funds is examined diligently in this chapter with regards to the sources of
funds and deployment of funds, recovery of loans lent and nonperforming assets including the managerial efficiency. Hence, a humble
104
attempt is made on the sources of funds and the deployment of funds
including recovery of loans lent in this chapter.
MEMBERSHIP
Membership is open to all people who are residing within the jurisdiction
of urban cooperative bank are eligible to become members in it subject to
the fulfilment of the certain stipulated norms. The urban cooperative
banks are rendering valuable services to the people particularly to the
weaker section people who are unemployed or under-employed and would
like to start their micro-business within the jurisdiction-area of an urban
cooperative bank. Membership is obtained either on account to obtain
easy loan on account of neglect by the formal banking institutions or to
protect their savings made in the form of deposits and avail banking
services too.
Membership is open to all and voluntary. The control is vested in the
members but not in capital. This canon is an important of characteristic
feature of ‘discrimination to none and open to all’ of the urban
cooperative banks which is unique universally. From this, a flourishing
principle that emerged from the urban cooperative banks emerged is this:
2
“Man remains his master and cooperative organisation is his servant” is
the opinion of Banquet. Members may come and go but it is purely an act
of voluntary. They can withdraw their membership if they desire so.
Equity is the security of members. The success of Indian cooperative
105
movement
is quietly
and
squarely depending
not
only upon
the
participation of members but their involvement in the designed economic
programme of the urban cooperative banks which is beneficial to both the
urban cooperative bank and the members; which in the long-run edifice
the foundation and strengthen the cooperative movement too. Because of
this, the involvement of people in the economic programmes of the urban
cooperative banks is a most popular and welcoming feature.
The selected sample urban cooperative banks in the City of Bangalore are
Bharath Cooperative Bank, Sri Subramanyaswara Cooperative Bank,
Thyagaraja Cooperative Bank and Amanath Cooperative Bank, now
hereafter, called them in the entire study as Bharath bank, S.S. bank,
Thyagaraja bank and Amanath bank respectively. The membership of
these four sample urban cooperative banks is given in Table 4.1.
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TABLE 4.1
MEMBERSHIP
(‘000)
Year
Bharat
S. S.
Thyagaraja
Amanath
Bank
Bank
Bank
Bank
2005-06
40.13
33.10
24.11
40.89
2006-07
40.29
33.54
24.06
40.67
2007-08
40.36
34.15
24.21
41.08
2008-09
40.43
34.70
35.64
41.98
2009-10
40.32
34.69
26.72
40.90
2010-11
40.85
35.38
26.43
40.25
2011-12
41.04
36.74
26.93
41.76
Mean
40.49
34.61
25.44
41.07
C.V.
8.12
7.64
4.78
3.66
Source: Annual Reports, Sample Urban Cooperative Banks
Table 4.1 shows the details of membership of the four sample urban
cooperative banks. The membership was 40.13 thousand in 2005-06 in
Bharath bank while it is 33.10 thousand in case of S.S. bank, 24.11
thousand in Thyagaraja bank and 40.89 thousand in Amanath bank. This
membership has increased to 41.04 thousand, 36.74 thousand, 26.93
thousand and 41.76 thousand in 2011-12 for the above urban cooperative
banks respectively.
It implies that the annual membership, on an
average is increased by 0.13 thousand, 0.52 thousand, 0.40 thousand
and 0.12 thousand in 2011-12 over 2005-06 which in relative terms
107
accounts for 0.32 per cent, 1.57 per cent, 1.67 per cent and 0.30 per cent
respectively. The reason for this less growth in membership of the sample
urban cooperative banks is:
Ø Because of more membership in the beginning year of the study
period
Ø Growth of membership, though, in all the sample urban cooperative
banks is numerically high; which would shed on the economic
benefit
Ø Growth is medium with less fluctuations
COVERAGE
The participation and involvement of people as members in the economic
programmes of the urban cooperative banks is of the utmost important
and relevance for prospering the economy. This is so essential niche in
the case of urban cooperative banks which is not only an end by
themselves to the total means but is a sign of the participants progress as
well as sound operations financially by the urban cooperative banks. The
study of participation of members in the economic programme of the
urban cooperative banks highlights the visual fact that the interest and
the motto of people joining voluntarily an association as cooperative
urban bank and thereon utilization of its services for the productive
purposes economically in order to promote their welfare in the first
instance and well-being later on.Perhaps, this made the cooperative
108
banks inscribing to fight against poverty and promote the economy being
called through the principle of ‘cooperation’. The proportion of members
to population and member-beneficiaries are presented in Table 4.2. This
fact justifies how effective in the coverage of people by the urban
cooperative banks are?
Table 4.2 clearly discloses the beneficiaries to total members of the
sample urban cooperative banks during the study of period seven years
from 2005-06 to 2011-12. The beneficiaries to the members of urban
cooperative banks is accounted for 68 per cent, 69 per cent, 73 per cent
and 72 per cent in case of Bharat bank, S. S. bank, Thyagaraja bank and
Amanath bank respectively in 2005-06 while the corresponding figures in
2011-12 are 79 per cent, 78 per cent, 83 per cent and 86 per cent; thus
registered by an increase of 11 per cent, 9 per cent, 10 per cent and 14
per cent respectively.
The above fact undoubtedly indicates the awareness of the people in
becoming members of the urban cooperative banks to avail the need
services including credit for their economic promotion and thereon
availing the services each other on the basis of self-help. A participation
with an effective involvement of members in the economic programmes
which is being prepared by the urban cooperative banks and placed
before the members is a ‘sign of good’ for well-being of the members.
109
TABLE 4.2
COVERAGE
Particulars
2005-06
2011-12
Change
1.% of members to population
3.28
3.71
0.43
2. Members (‘000)
3.20
3.85
0.65
68
79
11
22.40
23.80
1.40
5.89
6.15
0.26
69
78
09
1.% of members to population
4.75
5.05
0.30
2. Members (‘000)
6.98
7.65
0.67
73
83
10
12.54
14.95
2.41
7.66
10.04
2.38
72
86
14
Bharat bank
3. % of beneficiaries to 2
S. S. Bank
1.% of members to population
2. Members (‘000)
3. % of beneficiaries to 2
Thyagaraja bank
3. % of beneficiaries to 2
Amanath bank
1.% of members to population
2. Members (‘000)
3. % of beneficiaries to 2
Source: (1) Census Reports 2011 and (2) Annual Reports,
Sample Urban Cooperative Banks
110
SOURCES OF FUNDS
The funds of the urban cooperative banks are broadly grouped into:
Ø Owned funds which consisting of share capital and reserve fund
Ø Borrowed funds comprising of deposits and borrowings from
different institutions sources in the market
SHARE CAPITAL
Share capital is the prima facie fact of the volume of business and the
quality of services rendered to the people who have become members on
their own. An individual who is desirous has an obligation to buy at least
one share of the urban cooperative bank to enjoy the right of membership
as well as the banking services extended by it. However, no member is
allowed to hold 100 shares at any point of time. The urban cooperative
banks secure share capital by the issue of shares to the members. The
urban cooperative banks for the purpose of securing share capital, the
share are grouped into:
Ø The share holders of ‘A’ class share of $ 10 shall be paid on
allotment
Ø The shareholders of ‘B’ class share of $ 1 shall be eligible for
obtaining loans on the pledge of jewels and on the security of
deposits
111
The value of ‘A’ class share shall be paid either in lump sum or instalment
on the allotment. This class of share holders are eligible for availing loan
on the basis of mortgage. No member shall be permitted to withdraw his
share capital held from the urban cooperative bank within three years
after the date taking such share(s). However, after the expiry of this
three years period, a member can withdraw the shares with the consent
of the Board provided he is given at least six months notice of withdrawal.
The share capital of sample urban cooperative banks is presented in Table
4.3.
Table 4.3 reveals the share capital during the period of 2005-06 and
2011-12. The share capital of Bharat bank, S. S. bank, Thyagaraja bank
and Amanath bank are $ 4.54 crore, $ 5.97 crore, $ 5.85 crore and $ 4.98
crore respectively in 2005-06. The corresponding figures in 2011-12 are $
5.56 crore, $ 8.05 crore, $ 7.60 crore and $ 6.06 crore respectively which
registered by an increase of $ 1.02 crore or 22.47 per cent, $ 1.63 crore
or 27.30 per cent, $ 1.75 crore or 29.91 per cent and (-) $ 1.08 crore or
21.69 per cent.
112
TABLE 4.3
SHARE CAPITAL
($ in crore)
Year
Bharath
S. S.
Thyagaraja
Amanath
Bank
Bank
Bank
Bank
2005-06
4.55
5.97
5.85
4.98
2006-07
4.70
6.04
5.95
5.83
2007-08
4.89
7.43
6.50
6.06
2008--09
5.01
8.25
6.75
6.16
2009-10
5.15
8.85
7.12
6.20
2010-11
5.29
9.74
8.24
6.12
2011-12
5.56
8.05
7.60
6.06
Mean
3.17
7.33
6.86
5.91
C. V.
8.05
4.98
4.27
6.86
Growth
9.32
10.45
10.96
3.10
Source: Annual Reports, Sample Urban Cooperative Banks
On the whole, on an average, during the study period, the sample urban
cooperative banks have share capital position of $ 3.17 crore, $ 7.73
crore, $ 6.86 crore and $ 5.91 crore for the urban cooperative banks of
Bharat, S. S. bank, Thyagaraja bank
and Amanath bank respectively
113
during the period from 2005-06 to 2011-12. The annual growth rate in
share capital of Bharat bank, S.S. Bank, Thyagaraja bank and Amanath
bank accounts for 9,32 per cent, 10.45 per cent, 10.96 per cent and 3.10
per cent while the fluctuations of them are accounted for 8.05 per cent,
4.98 per cent, 4.27 per cent and 6.86 per cent respectively. From the
analysis of Table 4.3 on the share capital of urban cooperative banks
some inferences that could be drawn. The drawn inferences are as
follows:
Ø The share capital of all the sample urban cooperative banks in the
first two years of study is less than the average share capital
Ø In the remaining period of study from 2007-08 on words, they have
share capital more than the average during the study
Ø Annual growth is moderate except in Amanath urban cooperative
bank
RESERVE FUND
A strong reserve fund is important not merely from the point of view of
members’ confidence but also that of creditors’ confidence. In other
words, it is the mirror which replaces the financial soundness of the
business of the urban cooperative banks. The motive in creating the
reserve fund is:
114
Ø To meet the unforeseen losses
Ø To give financial strength
Ø To fortify outside confidence
The reserve fund is most important from the point of view of members. It
is a strong factor which gains the confidence of its members. It indicates
the financial soundness of the concern.
3
Eleanor Hough (1966)
has
rightly remarked that “more important from the point of view of members
security is on adequate reserve fund”. The profit earned by the urban
cooperative banks is generally low because service is their main motto
and, as a consequence, the profits earned will remain low. The reserves of
urban cooperative banks form part of owned funds. The bye-laws of the
urban cooperative banks stipulate that 25 per cent of profit earned is
transferable to a separate account called statutory reserve fund.
Reserve fund creation is mandatory and is essential in all the urban
cooperative banks. A strong reserve fund is important not only to tap
more and more deposits but also to acts as cushion against shocks if any
occurred. On examining in detail the working of the urban cooperative
banks, the observation of the Varde Committee (1963)4 is as: “All urban
cooperative banks, when they receive deposits on current account should
carry to reserve fund at least one-fourth of their net profit till its equals to
the paid up share capital and thereafter it may be less.”
115
The efficiency of urban cooperative bank results in higher profits and as
result lower reserve as the profit function is the function of efficiency.
Besides creating a strong reserve fund, the urban cooperative banks can
also create common good fund, building fund, education fund, bad and
doubtful debts fund and so on. Dividend equalisation fund, cooperative
development
fund,
vehicle
fund,
death
relief
fund, welfare
fund,
endowment fund and good assets reserve, etc., are in operation. Data on
reserve fund of the sample urban cooperative banks is presented in Table
4.4.
Table 4.4 discloses that the reserve fund of Bharath bank has increased
from $ 2.36 crore in 2005-06 to $ 2.07 crore 2011-12 with average of $
2.69 crore. The corresponding figures in case of S. S. bank are $ 2.68
crore and $ 4.41 crore with average of $ 3.50 crore respectively while in
case of Thyagaraja the figures are $ 3.56 crore, $ 4.75 crore and $ 4.26
crore and Amanath bank $ 2.88 crore, $ 4.68 crore and $ 3.94 crore
respectively. The annual growth of reserve fund is accounted for 3.69 per
cent, 9.22 per cent, 4.77 per cent and 8.93 per cent for Bharat bank, S.S.
bank, Thyagaraja bank and Amanath bank respectively during the period
of seven years from 2005-06 to 2011-12
116
TABLE 4.4
RESERVE FUND
($ in crore)
Year
Bharat
S. S.
Thyagaraja
Amanath
Bank
Bank
Bank
Bank
2005-06
2.36
2.68
3.56
2.88
2006-07
2.56
2.81
3.98
3.01
2007-08
2.60
3.14
4.05
4.26
2008-09
2.70
3.48
4.30
4.43
2009-10
2.79
3.97
4.65
4.52
2010-11
2.84
4.05
4.71
4.61
2011-12
2.97
4.41
4.75
4.68
Mean
2.69
3.50
4.26
3.94
C.V.
5.14
6.03
4.31
5.65
Growth (%)
3.69
9.22
4.77
8.93
Source: Annual Reports, Sample urban Cooperative Banks
It is understood from the analysis is that that the reserve fund of all
sample urban cooperative banks is at lower position; the reason is due to
better working with good sources of working capital which operationally
117
result in good profit but more of expenditure incurred. It is also found the
coefficient of variation varies with mean level.
The only attributable reason is that they had very meagre reserve even
through earned better profits and contributing less to reserves implying
that they have done the principles of cooperation in conduct of good
business and in earn of earn profit accordingly. But the state of expense
is increased more proportionately is found, for which the factor of less
income or more expenditure indirectly an attributable responsible.
ENTRANCE FEE AND OTHER FEES
The urban cooperative bank collects an amount of rupees five per share
towards entrance fee at the time of admission of people into the urban
cooperative bank as all the members except the State Government. The
sale of application forms is another source of income to the urban
cooperative bank. It also collects a transfer fee of rupees five per share
transfer. The sample urban cooperative banks have collected sufficiently a
large sum of amount of $ 1.68 lakh each by March 2012. It is a good sign
on the working of urban cooperative banks as the people have been
approaching towards for availing the need services.
OWNED FUNDS
The ability of urban cooperative banks to honour the demand of its
depositors depends on the financial strength of its owned funds. The
118
debtors ability to know their creditors demand is hinged upon the extent
of own resources which are possessed by the former. The ability of urban
cooperative banks to honour their depositors demand depends upon on
the owned funds. Further, to borrow funds by the urban cooperative
banks from the institutions, the financial strength becomes a basis for the
former. Talwar is of the opinion which is this: “The generation of selfreliance at the grass-root level will bring entrepreneurship which in turn
will bring success to the business venture.” 5
The participation of owned funds in the loaning programme of the urban
cooperative banks by means of in deploying credit to the economically
viable and viably commercial programme tending their operations as
more viable and also stronger in business since the owned funds are less
or no cost. Besides, the level of overheads coupled with poor internal
funds which will certainly affect the free-flow of credit. In a nutshell, the
owned funds serve as ‘first-line-of-defence’ to the urban cooperative
banks.
Therefore, it is perceptibly felt the need to know the position of owned
funds and their involvement in the loaning programmes of the urban
cooperative banks. The more the owned funds, the less is the overdue. As
long as the owned funds are more than the overdue, the stock of overdue
is easily observed and the flow of credit is paralyzed not at all. Data on
the owned funds of the urban cooperative banks and their relation with
119
others funds during the period under study reference is presented in
Table 4.5 (Fig.4.1).
TABLE 4.5
OWNED FUNDS AND THEIR RELATION
($.in crore)
Particulars
Bharat
05-06
06-07
07-08
08-09
09-10
10-11
11-12
Mean
Bank
6.91
7.26
7.49
7.71
7.94
8.13
8.53
6.57
13.00
11.71
10.81
10.37
10.67
10.38
10.82
9.38
3.85
3.61
2.98
3.37
3.98
4.04
4.86
3.80
8.96
7.68
6.15
6.81
7.57
8.51
7.54
7.60
8.65
8.85
10.57
11.65
12.82
13.79
12.46
11.25
10.10
9.29
9.582
8.88
9.60
9.55
8.42
9.28
8.54
7.67
8.21
9.38
9.13
8.88
8.97
8.68
10.42
11.38
10.21
12.75
10.68
11.73
12.80
11.42
(1) Owned
funds
% of (1) to
Credit
% of (1) to
WC
% of (1) to
Overdues
S. S. Bank:
(1) Owned
funds
% of (1) to
Credit
% of (1) to
WC
% of (1) to
overdues
120
Thyagaraja
Bank:
9.41
9.93
10.55
11.05
11.77
12.95
12.35
11.14
10.14
13.52
11.26
11.35
11.77
11.88
11.12
11.51
4.80
4.16
4.44
4.75
5.33
5.45
5.67
4.94
7.01
8.19
8.22
9.72
9.99
10.67
11.79
9.37
Owned funds
7.86
8.93
10.32
10.59
10.72
10.73
10.74
9.98
% of (1) to
3.65
4.18
5.46
5.88
6.03
6.99
6.90
6.40
3.47
3.63
4.61
4.46
4.24
3.54
3.86
3.97
9.40
10.46
11.20
11.65
12.85
13.00
13.89
11.78
(1) Owned
funds
% of (1) to
Credit
% of (1) to
WC
% of (1) to
overdues
Amanath
Bank:
Credit
% of (1) to
WC
% of (1) to
overdues
Source; Annual Reports, Sample Urban Cooperative Banks
Table 4.5 discloses that the position of owned funds which accounted for $
6.91 crore, $ 7.26 crore, $ 7.49 crore, $ 7.71 crore, $ 7.94 crore, $ 8.13
crore and $ 8.53 crore in seven period from 2005-06 to 2011-12
respectively in case of Bharat bank. This growth of owned funds (i) to
deployment of credit, (ii) to working capital and (iii) to overdues are
121
122
accounted for 13.00 per cent, 3.85 per cent and 8.96 per cent
respectively in year 2005-06 while they in year 2011-12 account for
10.82 per cent, 4.86 per cent and 7.54 per cent respectively. In relative
terms, this growth in 2011-12 over 2005-06 is accounted for 23.44 per
cent, (-) 16.77 per cent, 26.23 per cent and (-) 15.85 per cent
respectively.
The owned funds in the case of S. S. cooperative bank are $ 8.65 crore, $
8.85 crore, 10.57 crore, $ 11.65 crore, $ 12.82 crore, $ 13.79 crore and
12.46 crore respectively during seven years period ended by 2011-12. In
2005-26, the owned to deployment of credit, working capital and
overdues accounts for 10.10 per cent, 8.54 per cent and 10.42 per cent
respectively in 2005-06 while they in 2011-12 are accounted for 8.42 per
cent, 8.97 per cent and 12.80 per cent respectively. The registered
growth is worked out at 44.04 per cent, (-) 16.63 per cent, 5.03 per and
22.84 per cent in 2011-12 over 2005-06 respectively.
So far concerning the owned funds of Thyagaraja cooperative bank is
concerned, it is $ 9.41 crore, $ 9.93 crore, $ 10.55 crore, $ 11.05 crore, $
11.77 crore, $ 12.95 crore and $ 12.35 crore during the period from year
2005-06 to year 2011-12 respectively. The owned funds of it (i) to
deployment of credit, (ii) to working capital and (iii) to overdues are
accounted for 10.14 per cent, 4.80 per cent and 7.01 per cent
respectively in 2005-06 while they in 2011-12 account for 11.12 per cent,
5.67 per cent and 11.79 per cent respectively. The growth registered in
123
the bank is worked out at 31.24 per cent, 9.66 per cent and 18.12 per
cent and 66.05 per cent in 2011-12 over 2005-06 respectively.
In the case of Amanath cooperative bank, the owned funds are $ 7.86
crore, $ 8.93 crore, $10.32 crore, $10.59 crore, $10.72 crore, $ 10.73
crore and $ 10.74 crore during the period from 2005-06 to 2011-12
respectively. The owned funds (i) to deployment of credit, (ii) to working
capital and (iii) to overdues are accounted for 3.65 per cent, 3.47 per
cent and 9.40 per cent respectively in 2005-06 while they in 2011-12
account for 6.90 per cent, 3.86 per cent and 13.89 per cent respectively.
The occurred growth is worked out at 36.64 per cent, 89.04 per cent,
11.24 per cent and 47.76 per cent in 2011-12 over 2005-06 respectively.
From the analysis of Table 3.5, the logical inferences that can draw on the
owned funds and their relation with other financial issues of the sample
banks are that:
Ø The owned funds to credit and working capital in all the sample
urban cooperative banks are increased
Ø The owned funds to overdues are decreased due to more increase in
overdues than proportionate of owned funds
Ø The owned funs to credit and working capital have decreased due to
higher increase in the latter.
Ø The owned to working capital is increased in all four sample banks
due to higher increase in the former
124
Ø The financial position of the urban cooperative banks is not adverse
but is within the norm of discipline
DEPOSITS
Mobilization of deposits is an important tool for resource mobilization from
two aspects. Firstly, mobilization surplus income from savers themselves
from spending spurious consumption implying encouragement of savings
by means inculcating the habit thrift and secondly effective use of such
savings in deployment in the economic productive purposes. Mobilization
of deposits, thus, is a welcome sign for sound loaning operations initiating
economic operations and helps further in more capital formation.
Considering all the aspects it should form an integral part of credit
planning. The success or otherwise of the deposits mobilization of the
institutions hinges on the sound prudent business operations of the
management. In other words, the prosperity of a lending institution
depends on its capacity to generate its own resources which not only
make it strong and viable but also avoids the reliance on external
financing. Deposits mobilization is governed by three factors viz.
Ø Quality and range of services
Ø Net work of the branches
Ø Rate of return
125
Mobilisation of deposits is the major aspect of financial management in
any banking concern particularly in the cooperative banks. The effective
functioning and rendering of priceless services in mobilising surplus
income from myriad people to the credit needy and deserved depends
upon degree of deposit mobilization. Deposits mobilisation forms an
integral part of planning and it avoids dependency on borrowings.
Nakkiran (1980) says that “the deposit is an important indicator of the
6
success and efficiency of credit agency.” The more the deposits is the
base for more the public confidence. The urban cooperative banks are
termed as self-reliant institutions. With relevant data presented in Table
4.6, it is examined (Fig.4.2).
Table 4.6 reveals deposits mobilization is fairly good and moving in an
upward trend year-by-year. The sample urban cooperative banks deposits
mobilized are accounted for $ 64.71 crore, $ 114.97 crore, $ 127.61 crore
and $ 159.84 crore in ca se of Bharath bank, S. S. bank, Thyagaraja bank
and Amanath bank in 2005-06 respectively while the corresponding
figures in 2011-12 are $ 109.51 crore, $ 188.01 crore, $ 148.02 crore and
$ 179.13 crore respectively. They, thus, registered an annual increase of
$ 6.4o crore, or 9.89 per cent, $ 10.43 crore or 9.07 per cent, $ 8.63
crore or 6.76 per cent and $ 2.76 crore or 1.72 per cent respectively in
2011-12
over
2005-06.
These
sample
urban
cooperative
banks
respectively achieved an annual growth of 3.07 per cent, 4.50 per cent,
2.80 per cent and 0.65 per cent during the study period which could
126
possible with fluctuating trend of 8.00 per cent, 6.00 per cent, 8.00 per
cent and 5.00 per cent respectively.
TABLE 4.6
DEPOSITS OF URBAN COOPERTIVE BANKS
($ in crore)
Year
Bharat
S. S.
Thyagaraja
Amanath
Bank
Bank
Bank
Bank
2005-06
64.71
114.97
127.61
159.84
2006-07
82.66
136.70
100.03
150.92
2007-08
92.48
151.19
124.09
158.319
2008-09
98.67
174.31
135.92
164.04
2009-10
99.22
175.40
140.31
173.15
2010-11
103.81
182.55
146.48
174.80
2011-12
109.51
188.01
148.02
179.13
Mean
93.00
160.44
131.78
166.02
CV
8.00
6.00
8.00
5.00
Growth (%)
3.07
4.50
2.80
0.65
Source: Annual Reports, Sample Urban Cooperative banks
127
128
Nevertheless, the growth rate of the urban cooperative banks should be
considered against the background of certain constraints with regard to
mobilization of deposits in contrast to commercial banks. The commercial
banks with their well organizational set up and wide geographical
coverage stand in an advantageous position to explore potential and
repose a better image among the public for mopping up deposits. But the
mobilisation of deposits in small scale may not be conducive to perform
bigger operations competing the commercial banks.
In the urban cooperative banks, the scope for mobilization of deposits is
relatively limited due to their restricted operational limits. From this
angle, the pragmatic observation that could made is that the urban
cooperative banks have lagged behind in mobilizing required deposits; but
have an edge of useful role in tapping surplus savings of the public as
deposits.
BORROWINGS
The urban cooperative banks borrow funds as and when internal sources
are insufficient to meet the growing demand for funds. It is a common
feature of the banking. The volume of borrowings depends upon paid up
share capital and reserves fund development. As a rule, the borrowings
are limited to eight times the aggregate paid-up share capital plus reserve
fund. In practice, no sample urban cooperative has resorted to borrow
funds from higher-up agencies and all the sample urban cooperative
129
banks are depended self-reliantly for conduct of their business is learnt
during the course of discussion with the officials of urban cooperative
banks.
LOAN BUSINESS
Credit Polity: A sound loan policy in channelling credit to weaker
sections in the urban society will certainly safeguard their economic
interest. Productive use of credit is the crucial aspect of the policy. A
conducive loan policy and procedure should be followed by the urban
cooperative banks. The credit policy should be adhered to meet the credit
demands of every deserved weaker section person because the inflation
cost of inputs as is increasing in the society.
Catering credit timely is critical and crucial issue as the deployed credit
should meet the intended input or services to the borrowers. This helps,
further, in proper supervision which is the foremost factor. Absence of
supervision over the utilization of credit can be said to the major factor
responsible for misutilization of credit and overdues. Sufficient number of
outdoor supervisors with adequate persuading skills for which an effective
training would certainly help in watching the credit utilization to the
purpose for which it is granted.
The urban cooperative banks have authority to frame both policies and
procedure under its bye-laws. But, they abide to the terms and conditions
laid down by the higher-tier organizations as the former depend heavily
130
for financing upon the latter. Taking into stock the volume and magnitude
of the programme in the recent past, there has been a constant attempt
made by the Reserve bank of India and the NABARD to envisage more
and more for progressive expansion in lending activities forcing the urban
cooperative banks to concentrate mainly on financing the tiny-enterprises
for uplifting the owners of them started by the weaker sections of the
society.
The urban cooperative banks use all the resources mobilized for
deployment of credit to the credit needy urban poor people for starting
micro-entrepreneurial units in order to promote their socio-economic
condition. The primary motto of these banks is not only effective use of
funds optimally but for optimum efficiency too. The efficiency of urban
cooperative banks lies in the quality of right lending in right time to the
right borrower who puts it in economic promotion and, as result, prompt
repayment.
The urban cooperative banks are under the statutory obligation of
maintaining cash reserves and liquid assets as per the provisions of the
Banking Regulations Act of 1949. As per Banking Regulations Act of 1949,
the cash reserves and liquid assets are required at a level not less than
5.00 per cent and 25.00 per cent of their total demand and time liabilities
respectively. Further, they also follow the State Enactments imposing
certain restrictions for the investment of reserve funds and provident fund
of staff outside the business.
131
The efficiency of an urban cooperative bank always depends upon the
optimum deployment of funds. The question that arises here is that how
best an urban cooperative bank can deploy its resources focussing in the
process of achievement of the stated objective. Therefore, the optimum
level of credit is the point at which the urban cooperative banks fulfil both
the objective and the secure the desired profit as well.
Along with the lending credit to the weaker sections people of urban
areas, the urban cooperative banks are also need to lend credit to the
priority sector on priority basis adopting the provisions of Reserve Bank of
India framed from time to time. The management of urban cooperative
banks inevitably adopt and approve such provisions; and put them in the
bye-laws for implementation subject to the terms and conditions laid
down by the Registrar of Cooperatives Societies which act as procedure.
The procedure is like pathway which helps in carrying out the business.
On mobilization of surplus funds Reddy, C.R., and Srinivasulu, B., (1986)
have conducted a survey and opined this: “Mobilising the small savings of
common man and deploying them to the weaker sections are a dual role
of the urban cooperative banks.”8 Table 4.7 (Fig.4.3) indicates the
business of deployment of credit by the sample urban cooperative banks.
132
TABLE 4.7
CREDIT DEPLOYMENT
($ in crore)
Bharat
S. S.
Thyagaraja
Amanath
Bank
Bank
Bank
Bank
2005-06
53.17
85.67
92.83
95.11
2006-07
61.99
95.25
73.47
98.62
2007-08
69.27
110.37
93.66
100.10
2008-09
74.35
131.18
97.39
102.11
2009-10
74.42
133.49
100.03
103.79
2010-11
78.32
144.42
108.99
106.07
2011-12
78.85
148.01
111.04
108.41
Mean
70.05
121.20
96.77
102.03
C. V.
10
14
15
8
Growth (%)
6.90
10.39
2.80
2.15
Source: Annual Reports, Sample Urban Cooperative Banks
Table 4.7 indicates the position of credit distribution to the borrowers for
undertaking the projects. The deployment of credit in case of the Bharath
bank is $ 53.17 crore in 2005-06, $ 61.99 crore in 2006-07, $ 69.27 crore
2007-08, $ 74.35 crore in 2008-09, $ 74.42 crore in 2009-10, $ 78.32
133
134
crore in
2010-11 and $ 78.85 crore in 2011-12 with average of $ 70.05
crore achieved a growth of 6.90 per cent with standard deviation of 10
per cent.
Likewise, the figures in case of S. S. bank are $ 85.67 crore, $ 95.25
crore, $ 110.37 crore, $ 131.18 crore, $ 133.49 crore, $ 144.42 crore and
$ 148.01 during the above period-years respectively with average of $
121.20 crore achieved a growth of 10.39 per cent with standard deviation
of 14 per cent.
The corresponding figures in case of Thyagaraja bank are $ 92.83 crore, $
73.47 crore, $ 93.66 crore, $ 97.39 crore, $ 100.03 crore, $ 108.99 crore
and $111.04 crore with average of 96.77 crore achieved a growth of 2.80
per cent with standard deviation of 18 per cent respectively. The figures
in case of Amanath bank are $ 96.11 crore, $ 98.62 crore, $ 100.10 crore,
$ 102.11 crore, $ 103.79 crore, $ 106.07 crore, and $ 108.41 with
average of $102.03 crore achieved a growth of 2.15 per cent with
fluctuations of 18 per cent respectively.
It implies that the urban
cooperative adopted financial discipline but the progress is at lower level.
OPTIMUM CREDIT RELATION
Having accurate balance and distributing optimum funds is a task to the
urban cooperative banks. The question therefore, arises as to how best an
urban cooperative banks cn deploy its resources, endeavouring in the
process for th4e achievement of the objective for which it is and for
135
maximum profitability. So optimum level of loan is the point which fulfils
both the objective for which the urban cooperative bank conducts
business and the securing profitability.
The urban cooperative banking in the country has been doing banking
services including deployment of credit fulfilling the optimum level. This
was due to a major shift in the banking policy after nationalisation of
commercial banks in the country. The banking policy has been influenced
very much by the objective of restoring the sector-wise balance with
provision of urban cooperative banks’ credit. This implicitly made it clear
the preamble to the Banking Company Acquisition Act of 1969 leading to
the nationalisation of commercial banks. The optimum level of credit
deployment of the urban cooperative bank is determined as:
Optimum Funds Deployment = 70 % of Deposits + 75 % of Owned
Funds + 100 % of Borrowings
The optimum level of credit is examined for the four sample urban
cooperative banks and the relevant data are presented in Table 4.8.
136
TABLE 4.8
OPTIMUM CREDIT RELATION
Year
Bharat bank
S. S. Bank
Optimum
% to credit Optimum
% to credit
2005-06
49.98
(-) 3.19
86.97
(-) 1.30
2006-07
63.30
(-) 1.13
102.33
(-) 7.08
2007-08
70.36
(-)1.09
113.76
(-) 3.39
2008-09
74.85
(-) 0.50
130.76
(-) 0.42
2009-10
75.40
(-) 0.98
132.40
(-) 1.22
2010-11
78.76
(-) 0.64
138.12
(+) 4.63
2011-12
83.06
(-) 4.21
140.95
(+) 3.57
Mean
70.03
(+) 0.02
120.75
(+) 0.45
Conti. Table 4.8
Year
2005-06
Thyagaraja bank
Amanath Bank
Optimum
% to credit Optimum
% to credit
96.39
(-) 3.56
117.78
(-) 2.67
2006-07
77.47
(-) 4.00
112.34
(+) 1.28
2007-08
94.62
(-) 0.96
118.56
(-) 4.56
2008-09
103.43
(-) 6.04
122.77
(-) 4.66
2009-10
107.05
(-) 7.82
129.24
(-) 1.55
2010-11
112.25
(-) 3.26
131.81
(+) 2.74
2011-12
113.17
(-) 2.13
133.44
(-) 1.03
Mean
100.65
(+) 3.88
123.69
(+) 1.02
Source: Annual Reports, Sample Urban Cooperative Banks
137
Table 4.8 shows the role of urban cooperative banks in loan deployment
with reference to the optimum level of loans. The Bharat banks have
provided has deficit loans deployment to optimum level. The deficit loans
ranges to the position of optimum level at (-) 3.19, (-) 1.31, (-) 1.09, (-)
0.50, (-) 0.98, (-) 0.64 and (-) 4.21 during seven years from 2005-06 to
2011-12 respectively with overall position in deployment during this
period is accounted for (+) 0.20. The corresponding figures in case of
S.S. bank are (-) 1.30, (-) 7.08, (-) 3.38, (-)0.42, (-)1.22, (+) 4.63 and
(+) 3.57 respectively with position for the entire period from 2005-06 to
2011-12 is (+) 0.45.
In the case of Thyagaraja bank, the figures are (-) 3.56, (-) 4.00, (-)
0.96m (-) 6.04, (-) 7.82, (-) 3.26 and (-) 2.13 respectively with the
location (-) 3.88. The figures are (-) 2.67, (+) 1.28, (-) 4.56, (-) 4.66, (-)
1.55, (-) 2.74 and (-) 1.03 respectively during the above period in case of
Amanath bank which achieved a positive position in providing loans in
excess of optimum level. The phenomenon of fulfilling the norm of
optimum level of loans has not been done in almost all sample urban
cooperative banks. The reason for this is ineffective use of funds in
contrast to sources of funds.
FINANCING PRIORITY SECTOR
As powerful instrument in achieving the socio-economic objectives, the
urban cooperative bank plays an instrumental role in alleviation of
138
poverty and promotion of living standard of people. A remarkable change
that emerged after nationalisation of commercial banks in the country is
towards
the
economic
development
on
equity.
Since
the
urban
cooperative banks are under the guidance and control; and administered
by Banking Regulations Act of 1949 on par with the commercial banks in
the sense the former has equal status to that of latter. Under this
approach, a rational in credit distribution and rendering the need services
to people is the main thrust. Among them, financing of the priority sector
in order to improve its economic progress is one.
Poverty constitutes as root-cause for all the economic-ills disturbing the
economic prosperity of a nation. Aid of finance squarely needs to uplift
the peasant community in terms of social and economy which embedded
in the ‘20 Point Economic Programme.’ The term priority sector means
that sector having a considerable potential importance economically but
sluggish due to inadequate financial aids and other services. The priority
sector is to provide at the concessional terms and conditions including
rate of interest. The concept, priority sector which was formulated for the
first time in 1972 was formulated by the Working Group.9 According to it
the priority sector consists of:
Ø Agriculture
Ø Small scale industry
Ø Industrial estates
Ø Road and transport
139
Ø Retail trade and small business
Ø Self-employment
Ø Education
Ø Housing loans to weaker sections
Ø Pure consumption
Ø Micro-credit
Ø Agro and food processing units
Ø Venture capital
At any point of time, however, a particular sector may be important than
other or others from the point of view of realisation of national aims such
as increasing production, generating employment opportunities and
boosting up of economy. Then, such sector is included in the concept of
priority sector. Therefore, the definition of priority sector is no longer
exhaustive. Thus, the underlying objective of the priority sector lending is
related to ensure the financial assistance with the needy services by the
banking sector with an increasing flow.
The provision of regulation and direction is essentially being routed by the
Reserve Bank of India as a premier institute safeguarding the economy of
the country. In order to mitigate the ill-effects in terms of low-profit
margin which is admittedly a confronting risk, the National Bank for
Agricultural and Rural Development (NABARD) made it mandatory to
provide ‘refinance’ facility to the urban cooperative banks. Data on the
priority sector finances are presented in Table 4.9
140
TABLE 4.9
PRIORITY SECTOR CREDIT
($. in crore)
Year
Bharat
Bank
S.S.
Bank
Thyagaraja
Bank
Amanath
Bank
2005-06
36.15
50.54
51.05
55.25
(68)
(59)
(55)
(48)
31.00
59.05
36.00
60.22
(50)
(62)
(49)
(53)
41.56
69.53
55.26
68.40
(60)
(63)
(59)
(60)
43.87
70.84
56.48
64.96
(59)
(59)
(58)
(57)
44.65
74.75
62.01
56.18
(59)
(59)
(62)
(49)
47.77
79.43
65.39
72.28
(60)
(60)
(60)
(56)
50.46
88.81
67.73
76.80
(60)
( 61)
(58)
35.78
70.42
56.27
64.87
(59)
(60)
(58)
(54)
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
(63)
Mean
Source: Annual reports, Sample Cooperative Urban Banks
Figures in parentheses are percentages to total credit
141
Table 4.9 discloses the share of priority sector credit in the total credit.
The priority sector financing accounts for $ 36.15 crore, $ 31.50 crore, $
41.56 crore, $ 43.87 crore, $ 44.65 crore, $ 47.77 crore and $ 50.46 crore
which tot total credit is accounted for 68 per cent, 50 per cent, 60 per
cent, 59 per cent, 60 per cent, 61 per cent and 64 per cent respectively
with average of $ 35.78 or 51 per cent of total average credit.
The corresponding figures in case of S.S. bank are $ 50.54 crore, $ 59.05
crore, $ 69.53 crore, $ 70.84, $ 74.75 crore, $ 79.43 crore and $ 88.81
crore thus registered to total credit at 59 per cent, 62 per cent, 63 per
cent, 54 per cent, 56 per cent, 55 per cent, and 60 per cent with average
credit of $ 70.42 crore or 58 per cent respectively.
The figures are $ 51.05 crore, $ 36.00 crore, $ 55.26 crore, $ 56.38 crore,
$ 62.01 crore, $ 65.39 and $ 67.73 crore recorded at 55 per cent, 49 per
cent, 59 per cent, 58 per cent, 62 per cent, 60 per cent and 61 per cent
of total credit with average of $ 56.27 crore or 58 per cent 59 per cent
respective in case of Thyagaraja bank. The figures in case of Amanath
bank are $ 55.25 crore, $ 60.22 crore, $ 68.40 crore, $ 64.96 crore, $
56.18 crore, $ 72.28 crore and $ 76.80 crore achieved a relative position
to total credit at 48 per cent, 53 per cent, 60 per cent, 55 per cent, 44
per cent, 56 per cent and 58 per cent respectively during the above
period with average loan of $ 64.87 core or 48 per cent.
142
PURPOSE-WISE PRORITY SECTOR CREDIT
The rule of urban cooperative banks in fulfilling the provision of priority
sector credit is examined with the help of data presented in Table 4.10.
TABLE 4.10
PURPOSE-WISE PRIORITY SECTOR CREDIT
($ in crore)
Purpose
Bharat Bank
05-06
Agriculture
11-12
S. S. Bank
05-06
-
SSI
2.89
Water transp
-
Transport
1.86
Self-empl
11-12
-
Thyagaraja
bank
05-06 11-12
-
Amanath Bank
05-06 11-12
-
4.88
3.18
8.25
1.53
3.68
1.96
1.74
-
4.07
5.43
2.44
2.25
1.43
2.12
3.74
1.98
8.10
1.44
2.26
1.90
1.65
2.68
3.14
4.89
6.18
1.28
1.98
1.01
1.42
SC/ST
2.98
2.02
1.95
1.06
1.22
3.21
-
2.32
Education
2.49
5.26
4.90
5.23
2.02
4.40
1.25
2.08
House loan
2.87
5.42
10.76
10.98
3.78
6.87
1.68
2.30
Consumption
4.29
3.52
7.65
7. 65
4.34
9.28
1.30
2.61
8.50
11.52
10.88
16. 92
11.29 10.67
2.19
3.68
28.56
39.50
50.26
69.80
29.34 44.60
12.72
55
48
Agro-food
processing
Total
% to priority
sector loan
68
63
59
60
61
19.92
58
Source: Annual reports, Sample Cooperative Urban Banks
143
Table 4.10 shows of the total credit of sample urban cooperative banks,
to the purpose-wise priority sector. Of the credit provided to the priority
sector purposes, the agro & food processing, consumption, house loan,
education, small scale industries purposes got a lion’s share
$ 18.17
crore or 76.62 per cent in case of Bharath cooperative bank in 2005-06
and $ 30.60 crore or 77.47 per cent in 2011-12.
The corresponding
figures in case of S. S. bank are $ 28.37 crore or 56.45 per cent and $
49.03 crore or 70.24 per cent; in case of Thyagaraja the figures are $
22.96 crore or 78.25 per cent and $ 34.90 crore or 78.25 per cent; and in
case of Amanath bank, the figures are $ 8.58 crore or 65.88 per cent and
$ 12.41 crore or 62.30 per cent. From the discussion made from the
analysis given in Table 4.10, the logical conclusions that could be drawn
are that:
Ø The urban cooperative banks are taking efforts for the development
of agro & food processing, consumption, house loan, education,
small scale industries. The satisfactory finance in terms of relative
towards individual finance is because of the refinance facility
available to the urban cooperative banks under section 17(2)(b)
read with Section 17(4)(c) of the Reserve Bank of India Act, 1934
for financing 22 broad groups of cottage and small scale industries
recognised for the purpose.
Ø The provision of credit to agricultural activity is not encouraging
which is due to the fact that the urban cooperative banks are not
144
equipped with expertise in agriculture and agriculture credit which
result in difficult of supervision. It also disturbs the cooperative
discipline too.
Ø The provision of consumption loans, in the past to minimum extent
to meet the livelihood during the period of gestation in the case of
weaker sections has been granted. Reserve Bank of India did
recognise in its manual stresses the need for productive-oriented
lending.
Ø As custodians of public deposits and therefore utilise these funds for
such loans to be recoverable without difficult serving the public
interest, the urban cooperative banks should see that credit to
unproductive purpose should not exceed 15 per cent of their
advances. In the study it is found that all urban cooperative banks
advanced consumption loans more than 15 per cent of their
advances. The main reason is the income bond of urban cities is
ever expanding and therefore finds a change in the life-styles and
eating-styles.
REPAYMENT CAPACITY
The scale of financing is concerned not only with the supply of credit to
the weaker section member-borrowers of the urban society but also the
repaying capacity of the credit taken. The banker has to reply on certain
principles before granting loan to the member which will indicate the
ability of him to repay the loan on which certain canons can be developed.
145
These principles7 can be grouped into the three ‘R’s of credit and the
three ‘C’s of credit. The ‘R’s of credit are the return, the repayment
capacity and the risk-bearing capacity. The ‘C’s of credit are the
character, the capacity and the capital
Both the ‘R’s of credit and “C”s of credit are equally important tools on
which one can depend for better recovery of credit. On the basis of this
principle, the banker has to examine carefully as well as cautiously the
‘economic ability on which credit sanctioned to the borrower. The success
or otherwise of recovery of credit of the financing institution hinges on the
responsive-results of the pilot study which consist of the following
questions. The response to these questions is ‘yes’, then it is sound to
advance the loan. The questions are:
Ø Will the investment produce sufficient return?
Ø Will the borrower has sufficient income?
Ø Does the borrower the capacity to meet the risk and uncertainties
which will arise during the process of utilizing the loan and raising
the produce?
It is presumed that the loanee of the urban cooperative bank will has to
pay off his loan immediately after the harvest due to sales proceeds. It
has been decided that the repaying capacity is equal to half of the total
estimated income of the loanee. The gross income is the result of
146
investment function of inputs. From this amount, the cost of inputs
purchased for raising business is deducted. Symbolically,
Ni = (Gi + Bi) – (Ci)
Where,
Ni= Net income
Gi = Gross income excluding by-products income
Bi= By-products income
Ci= Cost of inputs
Therefore, the repaying capacity is after assuming half of the net income
towards family maintenance. The repaying capacity (RC) is equal to net
income divided by 2. Symbolically, the repaying capacity is as
RC= Ni/2
RECOVERY
Bank’s success, be cooperative or commercial largely depends upon the
willingness of officials as well as borrowers in giving and repaying the
loan. The concern is to assess the interactions to be effected in between
the give the repay which helps to form a sound credit structure.
In
nutshell, recovery is an efficiency indicator which discloses effectiveness
of management. Better recovery is better lending. Otherwise, it would
travail the entire credit structure.
147
Besides, immobilising credit structure of the cooperative and jeopardising
the interests of regular payers, overdues cramp the style of cooperative
lending, the members, the creditor and, finally affect the very cooperative
thrust itself. This view is expressed by the Report of the Study Team on
Overdues in Cooperative Credit Institutions (1974),10 Dadhich, C.L.,
(1979),11 Rajendra Singh, H.N., (1979)12
Recovery
is
an
efficiency
indicator
which
discloses
an
effective
management. Recovery of loan is primary task of the credit lending
institution in planning the loaning programme. Malhotra, R. N., is of the
opinion that “the recovery position of the bank advances in general and of
agricultural advances in particular is a matter of concern.”13
The efficiency measurements in terms of recovery play an important role
in evaluating the achievement of firm’s goals, compensating managers
and
developing
strategies.
With
ever
increasing
competition
and
technology recoveries play an important role in dictating the future of the
urban co-operative society.
14
Recovery of loans lent is as important as advance of loans to any credit
institution. Parthasarathy says that “the prompt recovery of loans is one
15
of the essential factors for the efficiency of banks operations.”
Nelson
and Murray are of the view that “consideration of repayment aspect of
16
credit deserves more attention than it usually receives.”
148
The recovery, an indicator of efficiency plays an important role in the
formation of sinking fund and to go ahead with future sound disbursement
of credit. To any credit institution, prompt and proper loans can fulfil the
obligation
of
sound
credit
disbursement
and
as
a
consequence
maintaining sinking fund out of annual recoveries. In other words, poor
recovery of loan freezes the credit institution fluidity, cripples the
operations of it, and chocks up the lending channel. This tendency leads
the credit needy out of credit provision and makes him to resort to the
usury.
The phenomenon of lending depends on recovery hinges on lending.
Reddy, C.R., says that “give and take interactions of the banker and the
borrower
would
play
a
dominant
role
in
rural
17
economy.”
This
phenomenon is more so in the case of the urban co-operative banks
whose financing is supported by self reliance. “Cooperative credit
18
structure lingers upon the credit recovery ratio.”
collected
the
entire
loaning
structure
gets
If the loan is not
diluted.
The
recovery
performance of the sample urban cooperative banks is discussed with
data given in Table 4.11.
149
TABLE 4.11
RECOVERY PERFORMANCE
year
Bharat Bank
($. in crore)
S. S. Bank
Demand
Recovery Overdue
Demand
Recovery
Overdue
2005-06
27.40
18.70
(68.25)
8.70
(31.75)
28.63
20.58
(71.88)
8.05
(28.12)
2006-07
42.56
26.60
(62.80)
15.96
(37.20)
60.18
34.94
(58.06)
25.24
(41.94)
2007-08
69.14
47.12
(69.00)
22.02
(31.00)
63.10
43.22
(68.49)
19.88
(31.51)
2008-09
68.30
40.02
(58.59)
28.28
(41.41)
71.35
41.86
(58.69)
29.52
(41.31)
2009-10
70.64
42.38
(60.00)
28.26
(40.00)
72.92
42.08
(57.71)
30.82
(42.29)
2010-11
74.02
45.31
(61.21)
28.71
(38.79)
74.86
53.16
(71.01)
21.70
(28.99)
2011-12
78.15
48.71
(62.33)
29.44
(38.67)
76.42
48.26
(63.15)
28.16
(36.85)
Mean
61.46
38.41
(62.50)
23.05
(37.50)
63.92
40.59
23.33
(63.50) (36.50)
Conti. Table 4.11
year
Thyagaraja Bank
Amanath Bank
Demand
Recovery Overdue
Demand
Recovery
Overdue
2005-06
41.40
28.98
(70.00)
12.42
(30.00)
42.63
28.56
(67.00)
14.07
(33.00)
2006-07
48.13
32.74
(68.02)
15.39
(31.98)
60.18
39.54
(65.70)
20.64
(34.30)
2007-08
59.14
38.05
(64.40)
21.03
(35.40)
89.08
61.02
(68.50)
28.06
(31.50)
150
2008-09
52.56
34.09
(64.85)
18.47
(35.15)
104.35
60.52
(59.00)
43.83
(41.00)
2009-10
55.03
32.60
(59.24)
22.43
(40.76)
105.10
62.58
(59.54)
42.52
(40.46)
2010-11
59.92
36.17
(60.36)
23.75
(39.64)
106.49
62.16
(58.37)
44.33
(41.63)
2011-12
60.10
41.58
(69.18)
18.52
(30.82)
108.42
66.56
(61.39)
41.86
(38.61)
Mean
53.74
34.89
(64.92)
18.85
(35.08)
88.04
54.42
(61.81)
33.62
(38.19)
Source: Annual report of the Sample Cooperative Urban Banks
Figures in parentheses are percentage to demand
Table 4.11 reveals that the recovery of sample urban cooperative banks
in the universe. The recovery of Bharath bank is accounted for $ 18.70
crore which in relative terms accounted for 68.25 per cent while overdue
at 31.75 per cent in 2005-06. The corresponding figures in 2011-12 are $
29.44 crore accounting 62.33 per cent and overdue at 37.67 per cent.
During the study period from 2005-06 to 2011-12, the average recovery
is of $ 23.05 crore thus accounted for 62.50 per cent of demand and the
remaining 37.50 per cent overdue.
In case of S.S. bank the recovery, percentage of recovery to demand and
percentage of overdue to demand are $ 414.07 crore, 67.00 and 33.00
respectively while the figures in 2011-12 are $ 41.86 crore, 61.39 and
38.61. In case of Thyagaraja bank, the figures are $ 12.42 crore, 70.00
and 30.00 respectively in 2005-06 whereas in 2011-12, the figures are $
18.85 crore, 64.92 and 35.08 in 2011-12 respectively. Table 4.11 further
151
shows that Amanath banks the recovery, percentage of recovery to
demand and percentage of overdue to demand are $42.63 crore, 67.00
and 333.00 respectively in 2005-06 while the figures in 2011-12 are $
108.43 crore, 61.39 and 38.61 respectively. It is inferred from the
analysis is that on an average all most all the urban cooperative banks
have maintained recovery around 63 per cent with a little variation among
them.
CAUSES OF OVERDUES
An attempt has been made to know the difficulties which were faced by
the urban cooperative banks in recovery of dues from the borrowers by
interviewing the staff as well as the respondents during survey of data
collection period. The major constraints’ derived in course of interview are
as under
Inadequate Staff
Adequate staff with efficiency besides intimate knowledge of the proposed
borrowers makes disbursement of loan in time and recovery of dues
promptly. It is observed during course of study that the loan sanction and
disbursement, and the recovery of dues amount occurred in many cases
at a time. Both the activities, disbursement and recovery did not get full
support by the staff which manes neither they were in a position to
perform the recovery at their full strength nor they clear off disbursement
of loans/instalments in time, Hence, adequate staff should be recruited
152
pertaining to recovery as well as disbursement in order to avoid delay in
disbursement of loan and delay in recovery of lent loans.
Security
As is observe from the preceding discussion that financing projects of
small nature is based on production which means in financing them the
anticipated value of the project to which loan is to be sanctioned, will be
taken as a security. However, the traditional concept of credit-worthiness
i.e. matching every loan with asset security can be seen in the operations
of the urban cooperative banks. Borrowers generally have no security.
The urban cooperative bank in admitting the borrowers so as to avail of
credit by them demanding satisfactory basis of security.
Lack of Willingness
Willingness of the personal in performing their duties and the borrowers
to become pay-masters is the ‘core’ of every credit institutions to become
effective. In other words, the management of the urban cooperative bank
on one hand and the energies of the staff at different levels on the other
may foster prompt recovery. The Rural Credit Reviews Committee has not
found any easy solution for better recovery of loans and for reducing
overdues. However, it stated that “what is required is a whole change in
the climate of relevant attitudes and promotion of recovery mind at all
levels continuing services.”19
153
The Board of Directors of National Cooperative Union of Federation of
State Cooperative Banks have prepared a memorandum at its meeting on
December 23, 1980 and submitted to the then Prime Minister in
memorandum
expressing
that
“lack
of
will
and
discipline
among
responsible borrowers to repay the loan are the principal responsible
factors for the prevalence of overdues in the cooperatives.”20
Lack of Rational Approach
The urban cooperative banks have not developed a rational approach in
the sense that review of loaning policies and procedures, scientific
approach; and economic viability in finding out repayment capacity of the
borrowers. Added, the cooperative philosophy should be educated among
the staff as well as the member-borrowers.
Management
The management of urban cooperative bank vests in the hands of the
President who elected by the Board of Directors, whose in turn elected by
the members. In the study, it is noted that the urban cooperative banks
has been managed by the people who belong to upper caste of the
society and supporters of the political leaders. Further, it is learned,
favouritism and redtapism in sanctioning loans and in recovery of lent
loans have shown deferring the legal proceedings against the defaulters.
154
Political Elite
In recovery of lent loans, political intrigue is not least. In other words, the
above said points do favour for better functioning of the urban
cooperative banks but politicisation stands on the way. Politics often
makes statements in the public meetings which affect recoveries. In brief,
the political individuals have been enjoying the cooperatives. Reddy, C.R.,
is of the view that “to the increase of overdues, the present democratic
role, directly or indirectly, is major responsible factor.”21 With a view to
be
elected
or
re-elected,
the
political
sabotages
the
cooperative
machinery for their political or personal advancement making the urban
cooperative banks to give loans liberally and to postpone the recovery as
well.
No wonder to say that the cooperative credit institutions have been la
basis for the politician for their development. In the words of Dey, S.K.,
“cooperatives were the happy hunting grounds for the Government.” 22
To sum up the functioning of the urban cooperative banks, it is observed
that the overdue position was a disquieting feature of it. The raising trend
of overdues has had a critical impact on expansion of urban cooperative
banking. The problem of overdues, therefore, deserves a comprehensive
and analytical study for finding the precise reasons thereof and for
suggesting corrective and preventive measures.
155
REFERENCES
1. Government of India, Cooperative Planning Committee, 1954, pp.5660.
2. Banquet G., The Cooperative Sector, Manchester: Cooperative Union,
1951, p. 77.
3. Hough, E.M., The Cooperative Movement in India, London: Oxford
University Press, 1966, p.72
4. Government of India, Report of the Study Group on Credit
Cooperatives in Non-agricultural sector, New Delhi, Ministry of
Community Development and Cooperative, 1963, p. 52.
5. Talwar R. K., Key Note Address on Seminar Agricultural Development
Banking, Hyderabad 1973, p. 6.
6. Nakkiran, S. Agricultural Financing and Rural Banking in India - An
Evolution, Coimbatore: Rainbow publications 1980, p. 293.
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Management, Vol. 21, No.9, September 1982, p.29
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Banks - A Case Study”, Urban Credit, Vol. VIII, No. 1, March, 1986, p.
15.
9. Reserve Bank of India, Report of the Working Group on Industrial
Financing through Cooperative Banks, Mumbai: Agricultural Credit
156
Department, 1968, p. 51.
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11. Dadhich, C.L, op.cit,
12. Rajendra Singh, H.N., “A Study of Overdues in Cooperatives”, Indian
Cooperative Review, Vol.XXI, No.1, 1979.
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Bangalore: September, Friday 13, 1985, p 7.
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311-312
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16. Aaron, G. Nelson and William, G. Murray, Agricultural Finance, USA:
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17. Reddy C.R., “Overdues Appraisal and Management in Banking,“ Indian
Cooperative Review, Vol. XXII, No. 1, July 1985, p. 77.
18. Palaniappa Mudaliar, A., “Mounting Overdues in Agricultural Credit
Cooperative Not an Intractable Problem”, The Tamilnadu Journal of
157
Cooperation, Vol. 71, No. 1, July 1979, p.4.
19. Reserve Bank of India, Report of All India Rural Credit Review
Committee, Mumbai: 1972, p.792.
20. Editorial, “Writing-off Agricultural Dues”, The Tamilnadu Journal of
Cooperation, Vol.72, No.11 may, 1981, p.651.
21. Reddy, C.R., “Democratic Management in Cooperatives”, The
Cooperator, Vol. XXI, No.9, March 1, 1984.
22. Dey, S.K., Cooperative Common Wealth Sahakari Samaj, Mumbai;
Asia Publishing House, 1988, p.27.
158