Soyeliya Usha L. [Subject: Account /Commerce] International Vol.

1, Issue: 7, September 2013

Journal of Research in Humanities and Social Sciences ISSN:(P) 2347-5404 ISSN:(O)2320-771X

A study on Co-operative Banks in India

SOYELIYA USHA L.
Assistant Professor,
Commerce Government College, Jamnagar
Gujarat (India)
Abstract:
Banking business has done wonders for the world economy. The simple looking method of
accepting money deposits from savers and then lending the same money to borrowers, banking
activity encourages the flow of money to productive use and investments. This in turn allows the
economy to grow. In the absence of banking business, savings would sit idle in our homes, the
entrepreneurs would not be in a position to raise the money, ordinary people dreaming for a new
car or house would not be able to purchase cars or houses. The government of India started the
cooperative movement of India in 1904. Then the government therefore decided to develop the
cooperatives as the institutional agency to tackle the problem of usury and rural indebtedness,
which has become a curse for population. In such a situation cooperative banks operate as a
balancing centre. At present there are several cooperative banks which are performing
multipurpose functions of financial, administrative, supervisory and development in nature of
expansion and development of cooperative credit system. In brief, the cooperative banks have to
act as a friend, philosopher and guide to entire cooperative structure. The study is based on
some successful co-op banks in Delhi (India). The study of the bank’s performance along with
the lending practices provided to the customers is herewith undertaken. The customer has taken
more than one type of loan from the banks. Moreover they suggested that the bank should adopt
the latest technology of the banking like ATMs, internet / online banking, credit cards etc. so as
to bring the bank at par with the private sector banks.

Keywords: ATMs, Bank’s Performance, Cooperative Banks, Cooperative movement of India,

Credit Cards, Internet/Online Banking, Rural Indebtedness, Lending Practices, Loan, Private
Sector Banks, Usury

1. Introduction
Co-operative banks are small-sized units organized in the co-operative sector which operate both
in urban and non-urban regions. These banks are traditionally centered on communities,
localities and work place groups and they essentially lend to small borrowers and businesses.
The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary
cooperative banks located in urban and semi-urban areas.

These banks, until 1996, could only lend for non-agricultural purposes. As at end-March 2011,
there were 1,645 UCBs operating in the country, of which majority were non-scheduled UCBs.
Moreover, while majority of the UCBs were operating within a single State, there were 42 UCBs
having operations in more than one State. However, today this limitation is no longer prevalent.
While the co-operative banks in rural areas mainly finance agricultural based activities including
farming, cattle, milk, hatchery, personal finance, etc. along with some small scale industries and
self-employment driven activities, the co-operative banks in urban areas mainly finance various
categories of people for self-employment, industries, small scale units and home finance.

26 Online International, Refereed (Reviewed) & Indexed Monthly Journal www.raijmr.com

RET Academy for International Journals of Multidisciplinary Research (RAIJMR)
 Soyeliya Usha L. [Subject: Account /Commerce] International Vol. 1, Issue: 7, September 2013
Journal of Research in Humanities and Social Sciences ISSN:(P) 2347-5404 ISSN:(O)2320-771X

These banks provide most services such as savings and current accounts, safe deposit lockers,
loan or mortgages to private and business customers. For middle class users, for whom a bank is
where they can save their money, facilities like Internet banking or phone banking is not very
important. Although they are not better than private banks in terms of facilities provided, their
interest rates are definitely competitive. However, unlike private banks, the documentation
process is lengthy if not stringent and getting a loan approved quickly is rather difficult. The
criteria for getting a loan from a UCB are less stringent than for a loan from a commercial bank.

2. Objectives of the Study

1. To know the lending practices of cooperative banks in India.
2. To measure and compare the efficiency of Cooperative Banks of India.
3. To study the impact of „size‟ on the efficiency of the Cooperative Banks.
4. To suggest the appropriate measures to improve the efficiency of the Cooperative banks.
5. To know different type of loans preferred by different sets of customers.
6. To know the satisfaction level of the customers from Bank’s lending policies.

3. Review of the Literature

Various studies conducted and numerous suggestions were sought to bring effectiveness in the
working and operations of financial institutions. Narsimham Committee (1991) emphasized on
capital adequacy and liquidity, Padamanabhan Committee (1995) suggested CAMEL rating (in
the form of ratios) to evaluate financial and operational efficiency, Tarapore Committee (1997)
talked about Non-performing assets and asset quality, Kannan Committee (1998) opined about
working capital and lending methods, Basel committee (1998 and revised in 2001) recommended
capital adequacy norms and risk management measures. Kapoor Committee (1998)
recommended for credit delivery system and credit guarantee and Verma Committee (1999)
recommended seven parameters (ratios) to judge financial performance and several other
committees constituted by Reserve Bank of India to bring reforms in the banking sector by
emphasizing on the improvement in the financial health of the banks. Experts suggested various
tools and techniques for effective analysis and interpretation of the financial and operational
aspects of the financial institutions specifically banks. These have focus on the analysis of
financial viability and credit worthiness of money lending institutions with a view to predict
corporate failures and incipient incidence of bankruptcy among these institutions.

Bhaskaran and Josh (2000) concluded that the recovery performance of co-operative credit
institutions continues to unsatisfactory which contributes to the growth of NPA even after the
introduction of prudential regulations. They suggested legislative and policy prescriptions to
make co-operative credit institutions more efficient, productive and profitable organization in
tune with competitive commercial banking. Jain (2001) has done a comparative performance
analysis of District Central Co-operative Banks (DCCBs) of Western India, namely Maharashtra,
Gujarat and Rajasthan and found that DCCBs of Rajasthan have performed better in profitability
and liquidity as compared to Gujarat and Maharashtra. Singh and Singh (2006) studied the
funds management in the District Central Co-operative Banks (DCCBs) of Punjab with specific
reference to the analysis of financial margin. It noted that a higher proportion of own funds and
the recovery concerns have resulted in the increased margin of the Central Co-operative Banks
and thus had a larger provision for non-performing assets. Mavaluri, Boppana and Nagarjuna
(2006) suggested that performance of banking in terms of profitability, productivity, asset quality
and financial management has become important to stable the economy. They found that public
sector banks have been more efficient than other banks operating in India.Pal and Malik
(2007) investigated the differences in the financial characteristics of 74 (public, private and
foreign) banks in India based on factors, such as profitability, liquidity, risk and efficiency. It is
27 Online International, Refereed (Reviewed) & Indexed Monthly Journal www.raijmr.com
RET Academy for International Journals of Multidisciplinary Research (RAIJMR)
 Soyeliya Usha L. [Subject: Account /Commerce] International Vol. 1, Issue: 7, September 2013
Journal of Research in Humanities and Social Sciences ISSN:(P) 2347-5404 ISSN:(O)2320-771X

suggested that foreign banks were better performers, as compared to other two categories of
banks, in general and in terms of utilization of resources in particular. Campbell (2007) focused
on the relationship between nonperforming loans (NPLs) and bank failure and argued for an
effective bank insolvency law for the prevention and control of NPLs for developing and
transitional economies as these have been suffering severe problems due to NPLs. Singla
(2008) emphasized on financial management and examined the financial position of sixteen
banks by considering profitability, capital adequacy, debt-equity and NPA. Dutta and Basak
(2008) suggested that Co-operative banks should improve their recovery performance, adopt new
system of computerized monitoring of loans, implement proper prudential norms and organize
regular workshops to sustain in the competitive banking environment.Chander and Chandel
(2010) analyzed the financial efficiency and viability of HARCO Bank and found poor
performance of the bank on capital adequacy, liquidity, earning quality and the management
efficiency parameters.

4. Research Methodology
4.1 Type of Research
Descriptive research is used in this study in order to identify the lending practices of bank and
determining customer’s level of satisfaction. The method used was questionnaire and interview
of the experienced loan officers.

4.2 Collection of data

4.2.1 Primary Data
a. Observation Method
b. Interview Method
c. Structured Questionnaire

4.2.2 Secondary Data

a. Annual reports of the bank
b. Manual of instructions on loans and advances
c. Books
d. Articles and Research Papers
e. Internet

4.3 Sampling Unit

The Study population includes the customers of bank and Sampling Unit for Study was
Individual Customer.

4.4 Sampling Size

200 Respondents

5. Findings of the Study

1. Majority (32% as per the study) of the respondent were having housing loan from this bank.
2. Most (64% as per the study) of the people prefer to take long term loan which is more than
3 years.
3. There is a very simple procedure followed by bank for loan.
4. Easy repayment and fewer formalities are the main factors determining customer’s selection
of loans.
5. Quality of services provided by the staff is satisfactory because bank is catering to a small
segment only and the customers are properly dealt with.
6. Customers are satisfied with the mode of repayment of installments.
7. Average time for the processing of loan is less i.e. approx 7 days.
28 Online International, Refereed (Reviewed) & Indexed Monthly Journal www.raijmr.com
RET Academy for International Journals of Multidisciplinary Research (RAIJMR)
 Soyeliya Usha L. [Subject: Account /Commerce] International Vol. 1, Issue: 7, September 2013
Journal of Research in Humanities and Social Sciences ISSN:(P) 2347-5404 ISSN:(O)2320-771X

The financial performances of Urban Cooperative Banks (UCBs) improved in 2010-11 though
there are some concerns with regard to some of the UCBs reporting negative CRAR. Within the
rural cooperative sector, State Cooperative Banks (StCBs) and District Central Cooperative
Banks (DCCBs) reported profits but the ground level institutions, i.e., Primary Agricultural
Credit Societies (PACS) continued incurring huge losses. The financial performance of long
term cooperatives was found to be even weaker than their short term counterparts. Also, it was
observed that the branch network of cooperatives, though widespread across the country,
continued to be concentrated in certain regions.
Moreover, the network of cooperatives was not broad based in the north-eastern region of the
country. This suggests that efforts need to be taken to improve banking penetration in the north-
eastern part of the country along with improving the financial health of the ground level
cooperative institutions.

6. Increased Inter-linkages between UCBs and Commercial Banks

In recent years, the integration of cooperative banks with the financial sector has increased
following the inclusion of UCBs in Indian Financial Network (INFINET) and Real Time Gross
Settlement System (RTGS) from November 2010. Further the annual policy statement of the
Reserve Bank for 2010-11 envisages inclusion of financially sound UCBs in the Negotiated
Dealing System (NDS) and opening up of internet banking channel for UCBs satisfying certain
criteria. An analysis of deposits and advances base wise distribution of UCBs revealed that
banking business was predominantly concentrated in favour of larger UCBs. UCBs with larger
deposit base (more than or equal to `500 crore), though accounted for only 4 per cent of total
number of UCBs, contributed almost 53 per cent of total deposits Balance sheet of UCBs
expanded at a rate of 15 per cent at end-March 2011 over the previous year. This expansion in
balance sheet was largely attributed to borrowings on the liabilities side and loans and advances
on the assets side.

7. Problems faced by cooperative banks

1. The cooperative financial institution is facing severe problems which have restricted their
ability to ensure smooth flow of credit
i. Limited ability to mobilize resources.
ii. Low Level of recovery.
iii. High transaction of cost.
iv. Administered rate of interest structure for a long time.
2. Due to cooperative legislation and administration, Govt. interference has become a regular
feature in the day–to-day administration of the cooperative institution. Some of the problem area
that arises out of the applicability of the cooperatives legislative is:
Deliberate control of cooperatives by the government.
Nomination of board of director by the government.
Participation of the nominated director by the government.
Deputation of government officials to cooperative institution etc.
3. The state cooperative banks are not able to formulate their respective policies for investment
of their funds that include their surplus resources because of certain restrictions.
4. Prior approval of RBI is mandatory for opening of new branches of SCBs. The SCBs are
required to submit the proposal for opening of new branches to RBI through NABARD, whose
recommendation is primarily taken into consideration while according permission.

8. Suggestions
1. The banks should adopt the modern methods of banking like internet banking, credit cards,
ATM, etc.
29 Online International, Refereed (Reviewed) & Indexed Monthly Journal www.raijmr.com
RET Academy for International Journals of Multidisciplinary Research (RAIJMR)
 Soyeliya Usha L. [Subject: Account /Commerce] International Vol. 1, Issue: 7, September 2013
Journal of Research in Humanities and Social Sciences ISSN:(P) 2347-5404 ISSN:(O)2320-771X

2. The banks should plan to introduce new schemes for attracting new customers and
satisfying the present ones.
3. The banks should plan for expansion of branches.
4. The banks should improve the customer services of the bank to a better extent.

9. Limitations
1. The study is based on the data of past three or four years only.
2. The data for study mainly based on a single bank.
3. As majority of the customers are employees of the bank, they might be biased in giving the
information
4. The time period of the research was limited.

References
1. Austin, Granville (1999). Working a Democratic Constitution – A History of the Indian
Experience. New Delhi: Oxford University Press. p. 215. ISBN 0-19-565610-5.
2. Barot, Himashu K. & Nilesh B. Gajjar (2013). Role and Growth of Financial Derivative in
the Indian Capital Market. International Journal of Research in Humanities and Social
Sciences Vol. 2, Issue: 6, June: 13. (IJRHS) ISSN: 2320-771X, Pp. 47-51.
www.raijmr.com Pp. 1-23.
3. Cooke, Charles Northcote (1863). The rise, progress, and present condition of banking in
India. (Printed by P.M. Cranenburgh, Bengal Print. Co.), pp.177-200.
4. Desai, Dhaval S. (2013). Performance Evaluation of Indian Banking Analysis. International
Journal of Research in Humanities and Social Sciences Vol. 1, Issue:6, August:13
(IJRHS) ISSN:2320-771X, Pp.30-36.www.raijmr.com
5. Sharma, Rajiv G. (2013). A Study of World Role and the World Bank’s Plan of Action in
India. International Journal of Research in Humanities and Social Sciences Vol. 1,
Issue: 5, July:13 (IJRHS) ISSN:2320-771X, Pp. 47-51. www.raijmr.com

30 Online International, Refereed (Reviewed) & Indexed Monthly Journal www.raijmr.com

RET Academy for International Journals of Multidisciplinary Research (RAIJMR)