LITERATURE REVIEW

RIYAS.PK

ROLL NO: 38

SEM 4 MBA
 LITERATURE REVIEW
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 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.

Since the inception of cooperative banking, there has been an increasing interest in
performance studies of these institutions. A number of studies have been conducted the world
over to see the functioning of cooperative banking in the country and abroad. However, the
literature on the issue of State Cooperative banking in the North East India is found more or
less absent. Some of the related literatures of reviews are as follows.
Rao, Krishna and Rao (1990) undertook a case study of Vijayawada District Central
Cooperative Bank in which they studied the factors affecting deposits, advances and profits of
that bank. They tried to ascertain the extent of the impact of certain important factors on the
key financial indicators of the bank under study with the object to identify the strong and
weak factors of growth.
Dayanandan and Kumar (1993) evaluated the performance of Central Cooperative Banks of
Kerala state. They found that though the central cooperative banks achieved better
performance in terms of share capital, membership, deposits and reserve funds, there was no
corresponding achievement in the net profits during the study period. The reason was high
over dues of the banks.

Chellani (2008), in a case study, analysed the pattern and composition of deposits of Baroda
District Central Cooperative bank Ltd. He found that the share of deposits from individuals in
total deposits remained around only 1/5th till 2000. But it is raised up to 2/5th at the end of the
year 2007. He also concluded that the proportion of fixed deposits in total deposits had been
around 4/5th.
Singh, V. (2008) appraised the financial performance of the Rohtak Central Cooperative bank
Ltd. (Haryana). He analyzed the deposits, advances and profitability position the bank. He
found that the aggregate deposits of the bank increased with low growth rate and bank did not
make good performance in terms of credit advanced to the beneficiaries.
Misra, B. S.(2009) examines the performance of PACSs and observed that government's
contribution to the share capital of PACS is found to be detrimental to their recovery performance.
He also observed that growth of membership size in the PACSs is another factor
for the detrimental of the recovery performance.
Sakthivel and Aranganathan (2010) examined the working funds, loans portfolio, recovery
performance and solvency position of the Salem and Cuddalore District Central Cooperative
Banks. They found that there was no much difference in the extent of volatility in short term
loans they also used loans between these banks while the medium term issued of SDCCB has
been highly inconsistent as compared to that of CDCCB. They also used Altman Model (Z
score) to study the solvency position of these two banks.
Das, S. K. & Chaudhury, Dr. S.K. (2011) examines the performance of SCBs in the NER and
also make a comparative study on the growth and financial performance of SCBs. They
observed that SCBs in NER is not performing well at par with all India level. The SCBs in the
NER suffers from low profitability and high NPAs which hinders the growth of SCBs in
North East.
Hooda, Vijay (2011) examines the performance of SCBs and Schedule Commercial Banks
and forwarded comparative assessment between them through some selected financial ratios.
He observed that SCBs and Scheduled Commercial banks differ significantly as per these
selected ratios during the years of study. In another study, Hooda examines the financial
performance of DCCBs in India & found that all the financial variables increased with higher
growth rate during the study period.

The Cooperative Banking Model: Performance and Opportunities

The study entitled ‘The Cooperative Banking Model: Performance and Opportunities’ shows that , By
comparison with European Shareholder Value banks, European Cooperative banking groups (ECBGs)
appear to have been dealt only a glancing blow by the immediate effects of the credit crisis. Financial
indicators show that they escaped relatively unscathed from the crisis and did not need large-scale
government support. In this article, we look for possible explanations for their relatively good
performance and achievements in recent years. To this end, the unique differentiators and the resulting
visible market manifestations of financial Cooperatives are explored. Special attention is devoted to
their corporate governance with member ownership and influence. Subsequently, theoretical, practical
and empirical insights are combined to investigate how ECBGs are positioned for the coming years. This
question is discussed against the background of imminent changes in the rules of the game, the business
principles and business models in the global financial system. A new dataset for leading ECBGs is used to
underpin the descriptive and qualitative considerations. It is concluded that the winners emerging from
the most recent crisis will be those banks that are able to offer good products and services at fair prices
with highly efficient operations in the long run, that put the customer first, and that are well-capitalised
with moderate risk profiles. Another important conclusion is that ECBGs contribute to diversity in
banking, and, consequently, to the stability of national financial systems.

PERFORMANCE EVALUATION OF DCCBs IN INDIA - A STUDY

A co-operative bank is a financial entity which belongs to its members, who are at the same time
the owners and the customers of their bank. Co-operative banks are often created by persons
belonging to the same local or professional community or sharing a common interest.
Cooperative
banks generally provide their members with a wide range of banking and financial
services (loans, deposits, banking accounts etc.). Co-operative banks differ from stockholder
banks by their organization, their goals, their values and their governance. Present paper attempts
to examine the growth of DCCBs in India through selective indicators, it analyzes the Deposits,
Credits and C/D Ratios of DCCBs. This paper also studies the growth of investment, working
Capital and Cost of Management position in DCCBs. To achieve the objectives of the paper data
has been collected from various secondary sources and analyzed by using various statistical
tools.

INTRODUCTION OF CO-OPERATIVE BANKS

A co-operative bank is a financial entity which belongs to its members, who are at the
same time the owners and the customers of their bank. Co-operative banks are often created by
persons belonging to the same local or professional community or sharing a common interest.
Co-operative banks generally provide their members with a wide range of banking and financial
services (loans, deposits, banking accounts etc.). Co-operative banks differ from stockholder
banks by their organization, their goals, their values and their governance. In most countries,
they are supervised and controlled by banking authorities and have to respect prudential banking
regulations, which put them at a level playing field with stockholder banks. Depending on
countries, this control and supervision can be implemented directly by state entities or delegated
to a co-operative federation or central body.
Co-operative banking is retail and commercial banking organized on a co-operative basis.
Co-operative banking institutions take deposits and lend money in most parts of the world.
Cooperative
banking, includes retail banking, as carried out by credit unions, mutual savings and
loan associations, building societies and co-operatives, as well as commercial banking services
provided by manual organizations (such as co-operative federations) to co-operative businesses.

The structure of commercial banking is of branch-banking type; while the co-operative banking
structure is a three tier federal one as follows,
1. A State Co-operative Bank works at the apex level (ie. works at state level).
2. The Central Co-operative Bank works at the Intermediate Level.
(ie. District Co-operative Banks ltd. works at district level)
3. Primary co-operative credit societies at base level (At village level).

REVIEW OF LITERATURE
Enugandula et al. used different financial ratios to evaluate performance of Karimnagar
District co-operative central bank, Andhra Pradesh, and he concluded that the Bank had not
maintained a reasonable level of solvency position and was unable to cover its medium and long
time obligations. The credit deposit ratio declined which indicated a better deposit mobilization.
The gross ratio for the study period was 108.8, which reflected a higher level of expenditure over
the gross income leading to losses for the bank. The net worth decreased over the years and the
net capital ratio was unity indicating that the assets of the bank were not sufficient to cover its
liabilities
C.R. REDDY, has conducted a survey on “Working of the Primary cooperative
agricultural Development Banks. He expressed the view that linking of credit with marketing of
crops is an essential ingredient in supervision and follow up action. It safeguards against
overdues.
Dr. C. S. Rathod has attempted to study the “Management of Cooperative Banks” which
dealt with the management of CCBs in Gujarat state , in terms of management of funds
mobilization of resources, and purpose-wise financing and various sections of cooperative
activities.
A study titled “performance of Cooperative banks in supply of loans to farmers in
Karnataka” was undertaken by Sri B.N. Ganvir, Sri D.L. Sale and Sri N.L. Kale with the
objective to know the performance of different cooperative Banks in respect of distribution of
short-term, medium-term and long term loans. The study concludes that there was considerable
increase in loans, outstanding loans and also overdues.
A study has been made by Dr. Lakshmanan and A. Dharmendran entitled “financial
performance of DCCB in Tamil Nadu” taking into account some selected financial indicators
namely deposits, loans and advances and over dues of DCCBs in Tamil Nadu for a period of
seven years. The study revealed that deposits, loans and advances, and annual growth rate are
positive and the total over dues is negative annual growth rate.

CONCLUSIONS
The financial performance of the District Central Co-operative banks in India is analyzed
using different statistical techniques. From the above analysis, it is concluded that the growth of
No.of DCCBs and their branches have negative trend up to certain period later there is negligible
positive trend where as the membership in cooperatives have been increasing. The capital,
reserves, and borrowings increased almost double during the study period, with a nominal
percentage of variation. The cooperative banks have been maintaining on an average 78.15% of
C/D ratio. The cost of management per employee has been increasing during the study period
due to decrease in number of employees, the management of DCCBs have to concentrate on
cost of management. The DCCBs have been showing maximum growth in investment. It is
suggested that government should formulate specific policies and they should be implemented
for the upliftment of District Central Cooperative Banks in India. DCCBs should try to upgrade
technology and should formulate customer friendly policies to face competition with commercial
banks.

A study on Cooperative Banks in India with special

reference to Lending Practices
 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.

C
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.
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.
II. OBJECTIVES OF THE STUDY
To know the lending practices of cooperative banks in India.
To measure and compare the efficiency of Cooperative Banks of India.
To study the impact of „size‟ on the efficiency of the Cooperative Banks.
To suggest the appropriate measures to improve the efficiency of the Cooperative banks.
To know different type of loans preferred by different sets of customers.
To know the satisfaction level of the customers from Bank‟s lending policies.
OPERATIONAL AND FINANCIAL
PERFORMANCE ANALYSIS OF
MEGHALAYA COOPERATIVE APEX BANK.
SANJAY KANTI DAS*
Developments in Co-operative Banking
Over recent years, the financial health of the urban co-operative sector has shown an
improvement.
In 2011-12, the sector showed an increased return on assets and a further fall in the ratio of Non-
Performing Assets (NPAs). As per the new CAMELS rating model, 61 per cent of the UCBs,
accounting for about 78 per cent of the total banking business of the UCB sector, had ratings of
‘A’ and ‘B’, indicating the good financial health of this sector. As regards rural co-operatives,
State Co-operative Banks and District Central Co-operative Banks showed some signs of
improvement in profitability and asset quality in 2010-11, partly attributable to the prudential
regulatory reforms and implementation of the revival package for the short-term rural co-
operative sector. However, long-term rural co-operatives, such as State and Primary Co-
operative Agriculture and Rural Development Banks, showed very weak financial health. Going
forward, it is necessary to persevere with recapitalization and regulatory reforms so that the rural
co-operative sector can lend support to financial inclusion and agriculture.

Introduction
Co-operatives account for a relatively small share in the bank-dominated Indian financial
system; however, given their geographic and demographic outreach, they hold a key position
in the system1. Geographically, co-operatives have been instrumental in extending formal
financial services to villages and small towns in India.
Demographically, these institutions have enabled access to financial services to low and
middleincome groups in both rural and urban areas.
Notwithstanding their role in enhancing the inclusiveness of the financial system, these
institutions have been marred by weak financial health, partly on account of operational and
governance-related concerns. Hence, there has been an ongoing effort to revitalise these
institutions by means of various development and regulatory initiatives. In the case of urban co-
operatives, the Reserve Bank has moved towards a more unified regulatory framework
consequent to its Vision Document of 2005 aimed at creating a consolidated
and stronger urban co-operative banking sector.
As regards the short-term arm of rural cooperatives, the application of prudential regulations
followed by recapitalisation has paved the way towards improving the financial health of these
institutions. Apart from these ongoing initiatives, several new policy measures have been
introduced with regard to the co-operative sector in 2011-12,
which are discussed in Chapter 3.
In light of these policy initiatives, this chapter analyses the performance of co-operatives
in 2011-12, drawing time-series as well as crosssectional comparisons with other segments of the
financial system, where necessary. As data on rural co-operatives are available with a lag of one
year, the analysis for these institutions only goes as far as 2010-11. The analysis covered in this
chapter broadly pertains to 1,618 Urban Cooperative Banks (UCBs) and 94,531 rural
cooperatives, including short-term and long-term co-operatives, as given in Chart V.1.