A Study of the Banking System and Urban Co- Operative Banks in India

The Co-operative movement was started in India to ameliorate the condition of that cooperation offers a solution to the difficulties but also by the town man regarding credit as well as other aspects of his business and like. The Mac Lagan Committee on Cooperation pointed out as early as 1915 that, “Urban Credit Societies may serve a useful purpose in training the upper and middle classes to understand ordinary banking principles”. In 1931 the Central Banking Enquiry Committee recommended that “limited liability of cooperative societies generally known as urban banks should be established wherever necessary facilities and conditions exist for the benefit of middle classes of the population. We do not see any objection to special societies for salary earners if these societies are looked upon as thrift societies for collecting and investing the savings of their members. The duty of these urban banks should be to try to do for the small trader, the small merchant and the middle-class population as like what the commercial banks are doing for the big trader and the big merchant.”

Urban Cooperative Banks have a prestigious place in the Cooperative Credit Structure. These banks in our country have been started and promoted by the corporate without government assistance.( Ms. Shachi Pareek) These institutions had a glorious past of being voluntary democratic in management and self-reliant in a financial position with less risk in operations. Even though their growth is heterogeneous, they have a glittering future even in this competitive market situation in the banking industry.

Now, in the new liberalized economic environment, the cooperatives enjoyed special treatment from the Government of India, State Government, Reserve Bank of India and all other policy-making bodies during the last 50 years. Because of the changed economic policies of Indian Governments, the cooperatives have landed in a competitive set-up. In this competitive environment, the survival and the future of the cooperatives depend upon their performance.

There was a decline in the number of UCBs from 1,770 at the end of March 2008 to 1,721 at the end the end of March 2009. This decline was an outcome of the consolidation process. The income tax paid for the last fiscal by 1,780 urban cooperative banks and credit societies, mainly spread across Maharashtra, Andhra Pradesh, Gujarat, Karnataka and Tamil Nadu, was around Rs 1,000 crores. This shows the might of UCBs and their contribution to the people on the one side and the exchequer and the society at large on the other. The urban cooperative banking system has witnessed phenomenal growth during the last one and a half decades. Deposits in UCBs have increased by over 1100 percent from Rs. 8600 crores to over Rs.100, 000 crores, while advances have risen from Rs. 7800 crores to over Rs.65,000 i.e. by 733 percent during 1991-2005. According to National Association for Cooperative Urban Banks (Agale Sudhir Vasantrao), the total deposits & lending of Co-operative Banks is much more than Old Private Sector Banks & also the New Private Sector Banks. The joint stock Banks who had opened in the urban and semi urban areas did not yet cater to these small depositors. This absence of banking and credit facilities forced these groups to go to unscrupulous money lenders and private mortgagers who used to charge exorbitant interests or imposed almost non-repayable terms.

The Cooperative Banks are an important component of the economy of the country and provide financing for small economic activities which include the small traders, transport operators, small scale industries and financial services to the people with small means. The importance of banks to national economies is underscored by the fact that banking is universally a regulated industry and that banks have access to government safety nets. The management of the UCBs is rest with the board of directors mostly who are the elected political leaders and businessmen’s and not possess the required knowledge about banking or laws. It is crucial therefore those banks have strong Corporate Governance. The UCBs have already fixed out a niche for themselves in the banking sector. However, which liberalization and globalization, the UCBs sector has to compete with others who are making roads into their domain. The threat and risks to the UCBs are not going to come from foreign banks or private commercial banks, as much as the threats they face from the growth of Self Help Groups (SHGs) and numerous Non-banking Financial Institutions. The Self Help Groups and Non-banking Financial Institutions such as Chit Funds are getting a poor hold in the market, where the presence of UCBs should have been strong and wide spread. If the UCBs sector had catered to the financial needs of the middle class urban population, there would have been no need for chit funds and self help groups to enter the institutional finance sector. However, the UCBs sector on account of various weaknesses allowed the entry of these players into the market and in many ways competes for the business. The urban co-operative banking sector can still overcome competition by reaching out to the masses that need low cost and efficient financial services. The UCBs sector needs to build up a mass cooperative banking structure which will provide financial services to the common people in the urban areas.

URBAN COOPERATIVE BANKS

The definitions of Urban Cooperative Banks given by different individuals and committees are given below. In general Urban Cooperative Bank can be defined as, “A voluntary association of individuals with unrestricted membership and collectively owned resources formed by small businessman, professionals and / or wage earners, conducted on a democratic basis under joint management and for mutual service by accumulating the savings of the members and granting them credit on easy terms of interest and repayment, surpluses being placed to reserves or distributed between depositors and shareholders, the association also using the joint responsibility of its members as a security for loans obtained for its members from outside sources” The Mehta Bhansali Committee (1939) defined Urban Cooperative Banks, as “All Urban Credit Societies having paid-up share capital of Rupees 20000/- and over and accepting deposits of money on current account or otherwise subject to withdrawal by cheque, draft or order, come within the category of urban cooperative banks”. Madhav Das Committee has defined urban cooperative banks as “a Primary Cooperative Bank and is defined a cooperative society other than the Primary Agricultural Credit Society”, having:- a. The paid-up share capital and reserves of which are not less than Rs. One Lakh and b.(Chander Ramesh and Chandel Jai Kishan) The bye laws which do not permit admission of any other cooperative society as a member, The category of Primary Cooperative Banks also includes salary earner’s societies having paid-up share capital and reserves of Rs. 1/- Lakh or more and the byelaws of which provide for acceptance of deposits from non-members”. The Cooperative Planning Committee (1946) has defined Urban Cooperative Banks “Urban banks receiving deposits on current account should have  Paid –up share capital of at least Rs. 20000/- ii) Maintain fluid resources on the scale prescribed by the Registrar of Cooperative Societies; and iii) Carry to the reserve fund at least one third (1/3) of their net profits till it equals the paid-up capital and thereafter one fourth (1/4) of the net profits. The reserve fund should be invested in gilt-edged securities or deposited in banks approved by the Registrar and should not be used for the business of the bank”.

Swati Raju (2018) the study focused on the measurement of the efficiency of Urban Cooperative Banks in conduct of core banking and Off-balance sheet activities. It was concluded that UCBs showed more mean efficiency in core activities as compared to off balance sheet activities. The major determinants of efficiency were deposits and loans disbursed, which were identified on basis of Tobit Regression Model.

A. Venkatesulu (2018) the study observed the current status of urban cooperative banks, problems faced by them and their future growth factors. It identified what developments are being needed to raise the performance of banks and to have better economic development. Further suggested to have expansion of Bank branches and improvement of customer services, It was concluded that due to lower capital base, low profitability, growing NPAs its operational efficiency is low. Banks were not able to meet the growing credit requirement and newer demands of its customer.

 B. Sudhakara Rao, Dr. D. Suryachandra Rao (2017) this paper highlights the key role of the Urban banks in in India, how they cater to the needs of weaker section of the society. It brought into notice the evolution of the Urban Banks and their current. Though lot of challenges are faced by the bank like poor professional management, absence of modern technology low capital base, poor governance and mismanagement, etc. It was concluded though bank had gone through lot of turmoil over the years but still they are focusing on various parameters to regain the confidence and to fulfill their objectives.

Dr. P. Sanjeevi, Mr. P. Manoj Babu (2017) observed the operational and financial performance of the UCBs. Operational tools like Credit Deposit ratios, Investment deposit ratios are being analyzed. It helped out in managing Urban Banks as well as the areas where banks can focus to have sustainable growth. It is observed that operational performances of non-scheduled banks are fluctuating as compared to scheduled banks in the study period. It is suggested that by efficient utilization of its capital, assets, borrowings, deposits and improving the productive efficiency of employees, urban cooperative banks can focus on generating more profits.

Siddhartha S Vishwam, Dr. B. S. Chandrashekar (2017) in their study attempted to judge the financial performance of Urban Cooperative Banks in India along with the state Page | 35 of Karnataka. The study was based on secondary data. Statistical data used for analysis were ANOVA, Mean and Standard deviation. The study concluded that scope of operations of UCBs had expanded over the years in number, volume and size of business.

 Dr. Anjum Mehtab Kathawala (2017) study observed profit earning capacity of the Urban Cooperative Banks in Udaipur. The Udaipur Urban Cooperative Bank is growing in its banking operations at consistent rate. The study concludes that the profitability of Urban Cooperative banks differs from one another significantly.

Dr. R K Patel (April 2016) study observed that there is uneven spread of Urban Cooperative Banks in India. Seventy-Five percent of banks are located in five states of India that is Karnataka, Gujarat, Maharashtra, Goa, Andhra Pradesh and Tamil Nadu. It was suggested that steps are to be taken to have spread of banks all over the country. It was concluded that government should motivate the urban banks to expand their functioning in other states. Corporate governance should be adopted by the management of the Urban Banks.

Varalakshmi P. Venkateswarlu (2016) in this paper they had attempted to analyse the deposits, CD Ratios and Credits of Krishna DCCB to study their growth and performance. The study finally concludes that reserves and borrowings had increased one and half times in the study period. It suggested that bank should formulate customer friendly policies and should improve customer services to face competitions.

Bilas S. Kale, Dr. C. N. Chobe (2016) the research paper highlights the current structure and financial position of Urban Cooperative Banks and their contribution in the economic development of the country. In this they had studied the growth and performance of Devgiri Urban Cooperative Bank in Aurangabad. The operating efficiency of the bank is being analyzed. As per ratios being analyzed it had been concluded that bank should try to upgrade the technology and to frame out friendly policies for customers so that they can face the competitions with other commercial banks.

Vivek Rajbahadur Singh (2016) the study focused on the status of Non-Performing Assets, understanding about NPAs, trend of NPAs in Commercial Banks, reasons of high impact of NPAs on Commercial Banks in India and their recovery through various modes. Though NPAs had already created large problems for the banks in India, The study concludes that extent of NPA is very high as compared to Public Sector Banks. Number of steps was taken by the government but still lots more are needed to overcome this problem. For the growth of economy these NPAs are not good as they are continuously killing the profits of the bank.

G. Satish (2016) study highlights the pre and post stage sanction of loan process of credit in Tamil Nadu. Paper focuses on the extent to which loan Portfolio Management is being followed in the urban banks and the area of their growth and improvement in the near future. It concludes that if rules, regulations, process are strictly followed then the bank would be financially strong and competent. If processes are implemented in right way, then it will certainly benefit the Urban Cooperative Banks.

Bharati R. Hiremath (2016) in their paper analyzed the financial performance of Cooperative banks. Profitability ratios were used to analyze the performance. It concludes that in order to attract more customers and investors bank had to improve its operational strategy. This study was helpful for bankers in decision making. The study suggests that banks must use modern technology and recovery mechanism for improving the performance of banks.

Dr. B.S. Chandrashekar (2015) the research paper highlights the financial performance and growth status of schedule and non-scheduled Urban Cooperative Banks. The study was based on secondary data. UCBs have occupied major place in the Indian Financial system. It concludes that the growth financial inclusion of bank depends on adoption of corporate governance, technology and high-quality customer service. RBI also had provided regulation support to these banks.

Harpreet Kaur (2015) paper highlights the functioning of cooperative banks including financial, administrative and supervisory functions. Customer has taken more than one type of loan from banks. Article attempted some successful cooperative banks in India for the purpose of study. It concludes that most people prefer personal loan as compared to education and other loans. As per requirement of client facilities provided by bank were not satisfactorily. It was finally concluded that cooperative banks are overall good for India.

Jayaraman and Srinivasan (2014) in their research paper evaluated the performance of banks in India using revenue, cost and profit models of Data Envelopment Analysis (DEA). As per study it was concluded that DEA approach provides reasonable way of ranking the banks. It had been observed that banks which are effective under one model not necessarily to be efficient under another model.

Divekar. D.A. (2013) observed that the UCBs of our country in general and UCBs from Pune in particular need to realize that they need to quickly adopt CBS else they will be unable to keep pace with the technological advancement happening around, especially in Banking and financial sector of India (BFSI). Government of India and RBI have observed of CBS, UCBs do not integrate well in banking system of India and therefore, RBI has issued a circular to UCBs directing to complete CBS implementation before 31St Dec 2013. The Scenario of CBS implementation in Pune based UCBs in encouraging over 60 percent UCBs are yet to go for CBS, Same is the case with introduction of E-delivery Channels and Para-Banking service. Meeting line-line specified by RBI itself would be gigantic task due to complexity of the CBs project. Introduction of E-delivery Channels would be possible only after successful implementation of CBS. It is high time that management of UCBs in Pune have their strategies in Pune to introduce CBs in their respective banks either through their own resources or through financial assistance from NABARD, NCDC etc. They can even comes together to set-up common data centre and disaster Recovery site in order to minimize investment of setting- up of such infrastructure and share computing as well as human resources to manage such advanced it infrastructure.

Alagu Pandian and R.K. Sharma (2013) aptly observed that the analyzed data shows that there is no significant difference between all sample selected variables of District Cooperative Banks and Urban Cooperative Banks in Dehradun. The reference period is 2007-08 to 2011-12, during this period both the bank results registered uniformity. Even though, among the two samples selected banks many years in difference sample selected variables registered negative growth also. It is not much influence to the impact of significance difference between DCB and Urban Cooperative Bank in Dehradun. Because, when result fit through Mann – Whitney – U- Test and based on that given rank number, the researcher easily assess the significance difference between two banks. The growth rate of interest income, total income, interest expended, total expenditure, and net profit of DCB in Dehradun and Urban Cooperative Bank in Dehradun.

Dr. Padmaja, B., Dr. BhanuKiran, C. and Dr. Rama Prasada Rao, C. H (2013) I observed that The Anantapur Urban Co-operative Bank has witnessed decrease in membership during this period 2005-06 to 2009-10 with a negative growth rate of 13.33 percent and the share capital during this period shows -5.41 percent of negative compound rate, with a not significant value. So H1: There is no significant growth of Share Capital in the Anantapur UCB. is accepted Deposit mobilation Is an important activity of the bank. The deposits have increased from Rs.1246 lakhs to Rs.2653 lakhs, with 112.92 percent during these 5 years. The deposits of Anantapur Urban Cooperative Bank increased by 2 times, The total deposits of the Anantapur Urban Co-operative Bank have shown a high growth. The fixed deposits and special deposits constitute 90 percent in its total deposits. The increase in the volume of deposits during the decade has been higher due to the adoption of daily saving deposit scheme; the deposits have increased by 2 times in 5 years. The proportion of saving deposits has grown considerably, and the recurring deposits and the current deposits have recorded a marginal growth rate. The total deposit of Anantapur Urban Co-operative Bank represents 93 percent to 95 percent of its working capital. It recorded a compound growth rate of 16.31 with a more significant’ value, So H2: There is no significant growth of deposit mobilization during study with regard to Anantapur Urban Cooperative Bank Is rejected. During this period, it has been witnessed that the Anantapur UCB is self reliant, and has not depended upon outside sources. As far as the total advances are concerned Jewel loans form the highest percentage followed by mortgage loans and deposit loans. The other loans form a small percentage of total loans and advances. The percentage of jewel loans increased during the period.

The study is based on both primary and secondary data. The primary data was collected through personal visits made at the different Urban Co-operative Banks in uttar prdesh. Interviews were also held with Urban Co-operative Banks managers, Chairmen and directors, auditors and shareholders of the selected banks for eliciting their opinions and information.

The Secondary data constitute Commission Reports, working group reports, broachers, seminar papers, Monthly Bulletins of Reserve Bank of India, basic statistical returns, of federations at state and national level. The data with regard to the bank in uttar prdesh are collected from the Annual Reports of these banks and also from other journals like urban credit brought out by National Federation of Urban Co-operative Banks and Credit Societies Ltd. In addition various manuals, official circulars and auditors’ reports have also been collected to study the different banking variables and the legal and administrative frame work of the Urban Co-operative Banks in uttar prdesh.

TOOLS OF ANALYSIS

The data collected from different sources will be properly classified, tabulated and analyzed using appropriate statistical tools to draw meaningful conclusions. Simple statistical techniques such as ratios, percentages and averages are used for the study. Besides these various statistical tools and techniques have been applied for analysis and interpretation of data,

Ø To analyze the growth in variables, linear growth rates (LGR) is used to portray the trends of the individual Urban Co-operative Banks and compound growth rates (CGR) is used for making a comprehensive analysis of the banks.

Ø To analyze the trends in growth and the fluctuations in their development, the application of standard deviation and co-efficient of variation are used.

Ø To study the comparative trends among the Urban Co-operative Banks, the tools like ANOVA are also used.

Scheduled Commercial Banks

The Scheduled Commercial Banks (SCBs) in India comprise of State Bank of India & its Associates, Nationalized Banks, Foreign Banks, Private Sector Banks, Co- operative Banks and Regional Rural Banks.

As on last Friday of September, 2009 the share of Nationalized Banks in total deposits as well as credits of the State was around 50 per cent whereas that of SBI & its associates, it was 15.5 per cent in total deposits and 17.7 per cent in total credits. Credit Deposit ratio of SBI & its associates was highest (0.98), followed by other SCBs (0.93). The total deposits of Nationalised Banks as on last Friday of September, 2009 shows considerable rise of 36.3 per cent over the same period of previous year and that of SBI & its associates shows rise of 25.5 per cent. As on last Friday of September, 2009 the per capita deposits and per capita credits of SCBs in the State were Rs. 93,857 and Rs. 80,075 respectively. The corresponding figures for all India were Rs. 35,047 and Rs. 24,625. The details of bank group wise SCBs are given in Table 3.5. As on last Friday of September, 2009, Mumbai accounted for 23.7 per cent branches of all SCBs in the State, while its share in total deposits and credits of SCBs in the State were 79.4 per cent and 86.3 per cent respectively.

Table 1 Performance of SCBs

Table 2 Financial Position of lucknow district Co-operative Bank

b) DISTRICT CENTRAL CO-OPERATIVE BANK

District Central Co-Operative Bank is federal Society of all primary Societies in the district. The bank provides the financial accommodation to village primary societies that required finance for providing it further to their members. In this way DCC Bank fulfills the needs of it member’s societies.

The DCC Banks function through it branches located in all parts of the district. These branches play an  important roll in implementing all  policies and program decided  by  DCC  Bank.  Therefore,  functioning  of  these  branches  has  their  own importance. The branches of the DCC Bank work in accordance with the organizational setup created for their working.

In the above three tier credit system, the Credit Co-Operative societies (CCS) derive their financial strength from the DCC Bank. The  DCC Banks fulfills the financial requirements of the CCS. The Maharashtra State Co-Operative societies Act 1960, section 70 mention that every society has to maintain its account in the DCC bank. All surplus money and deficit of working Capital are balanced by the DCC bank.

The success of the co-operative credit movement depends on their strength. The main objective of the DCC Bank is to arrange the supply of finance as per the requirements of the constituents. The DCC Bank plays a vital role in the sector of the co-operative credit requirements of their members; they take the financial help from the DCC Bank with a regular flow of credit.. The CCS is affiliated to the DCC Bank. The primary credit society is at the base level of co-operative credit structure. Basically, the DCC Bank performs pure banking and Agency banking functions. In addition to these functions the DCC Bank plays a crucial role for the CCS.

PROGRESS OF URBAN CO-OPERATIVE BANKS

The Progress of Urban Co-operative Banks is shown in Table

Table 3 Progress of Urban Banks and Primary Co-operative Banks

It is observed from Table that there is expansion of urban banks from 815 in 1948-49 to 1239 in 1988-89. It should be noted that with the introduction of Banking Regulation Act 1949 with effect from March 1966 urban banks with paid up share capital and reserves of Rs 1 lakh and above have been classified as primary co-operative banks. The Reserve Bank of India introduced scheme of rehabilitation of weak primary co-operative banks. Accordingly, 68 primary co-operative banks were rehabilitated in 1977-78. Recent Development Over the years, primary (urban) cooperative banks has registered a significant growth in number, size and volume of business handled. As on 31st March, 2003 there were 2,104 UCBs of which 56 were scheduled banks.

Urban cooperative banks in India must place a high value on following Reserve Bank of India (RBI) regulations to protect their depositors' money and maintain the country's economic health. Moreover, local participation stands out as an important aspect in deciding success. Stronger client connections and greater success are often the result of a bank's efforts to become deeply embedded in the communities it serves. Adapting to technological changes is crucial to enhancing productivity and delighting customers. In order to maintain competitiveness and grow their service offerings, urban cooperative banks might benefit from digital transformation. Therefore, it is crucial to prioritize the development of cutting-edge financial technology and the provision of accessible digital channels. Future prosperity also relies on prudent risk management. Financial institutions that thrive in this area are better able to reduce non-performing assets and weather economic storms. Maintaining financial security requires a thorough evaluation of risks and the implementation of preventative actions.