AN ASSESSMENT OF COOPERATIVE BANKING IN INDIA WITH SPECIAL REFERENCE TO

UTTAR PRADESH

THESIS SUBMITTED TO THE UNIVERSITY OF LUCKNOW

FOR THE DEGREE OF

DOCTOR OF PHILOSOPHY

By

Samreen Naqvi

UNDER THE SUPERVISION OF

Dr. Archana Singh

Department of Applied Economics

University of Lucknow Lucknow, India

2014

DECLARATION

I, the undersigned hereby declare that the Research Work presented in

this thesis on '' AN ASSESSMENT OF CO-OPERATIVE BANKING

IN INDIA WITH SPECIAL REFERENCE TO UTTAR PRADESH''

is my original work and being prepared as per the guidance given by my

guide.

I declared that the research work has not been previously submitted to

this or any other university for any Degree or Award.

Samreen Naqvi

Place: Lucknow Research Scholar

CERTIFICATE

I certify that the thesis “An assessment of Cooperative banking in

India with special reference to Uttar Pradesh” was written by Samreen

Naqvi under my guidance and supervision. I further certify that the thesis

is worth submitting for the award of the degree of Doctor of Philosophy

in Economics under the faculty of Commerce. The thesis has not

previously formed the basis for the award of any degree, diploma,

fellowship or other similar title of recognition.

Dr. Archana Singh

Associate Professor

Department of Applied Economics

Faculty of Commerce

University of Lucknow

CONTENTS

Preface i-ii

Acknowledgement iii-iv

List of Abbreviations v-vi

List of Charts and Figures vi

List of Tables vii-ix

CHAPTER PAGE NO.

CHAPTER 1: Cooperative banking in India : an overview 1-35

CHAPTER 2: Research methodology 36-42

CHAPTER 3: Literature review 43-65

CHAPTER 4 : Trends and volume of sources and

applications of funds in DCBs

66-101

CHAPTER 5: Ratio analysis of financial performance of DCBs

in Uttar Pradesh

102-124

CHAPTER 6 : Summary, conclusions & scope for further work 125-146

Bibliography 147-153

Appendices 154-164

PREFACE

The present thesis on “An assessment of cooperative banking in India

with special reference to Uttar Pradesh”, presents the overall performance

of cooperative banks in India, particularly in Uttar Pradesh. The present

study has the objective of assessing and analyzing the performance with

regard to profit and efficiency of cooperative banks in India particularly

in Uttar Pradesh over the period from 2002-03 to 2010-11. The data as on

31st March 2002-03 has been considered as base year, while the

information on various parameters for the period ended as on 31st March

of 2010-11 has been incorporated in the study.

The study is based on secondary data. The DCBs in Uttar Pradesh

constituted the universe of the study. Uttar Pradesh is divided into four

regions namely Eastern, Western, Bundelkhand and Central. We have

selected ten sample banks on the basis of these regions. These sample

banks include Eta, Etawah, Ghaziabad and Moradabad DCBs from

Western region, Azamgarh and Allahabad DCBs from Eastern region,

Lucknow from Central region and Jalaun, Lalitpur and Hamirpur DCBs

from Bundelkhand region. This thesis is sub-divided into six chapters.

The first chapter traces the historical background and concentrates on

identifying the basic issues connected with cooperative banking in India

particularly in Uttar Pradesh.

The second chapter focuses upon the data sources, objectives of the

study, testable hypothesis and organization of the dissertation and will

explore the methodology to be followed by the researcher to test the

hypothesis.

The third chapter of the study examines the available literature related to

the topic.

Chapter four and five form the core of the study. While the fourth chapter

assesses the trends and patterns of sources and applications of funds of

cooperative banking in Uttar Pradesh, the fifth chapter analyzes the

efficiency and profitability of cooperative banking in Uttar Pradesh.

Finally chapter sixth incorporates the major findings and suggestions

drawn from this study.

ACKNOWLEDGEMENT

After all these years of hard work, it is necessary to express my gratitude

to those who in one way or another contributed and extended their

support and valuable assistance in the preparation and completion of this

academic work.

First and foremost, my utmost gratitude to the one above all of us, the

omnipresent only God, for giving me the strength to plod on despite my

desire to give up, thank you so much my Allah, (the) One.

I take immense pleasure in expressing my gratitude to my PhD

supervisor, Dr. Archana Singh, for all I have learned from her and for her

continuous help and support in all stages of this thesis. I would also like

to thank her for being an open person to ideas and for encouraging and

helping me to shape my interest and ideas. She has been a tremendous

mentor for me.

I owe special debt and profound gratitude to Dr. Nazia Jamal, Assistant

Professor, IMS, Lucknow for her grateful guidance, affection, friendly

discussions, suggestions and inspiration. Your advice on both research as

well as on my career have been priceless.

I express my sincere gratitude to Mr. Ashok Kumar Singh, Branch

Manager, NABARD and staff of the regional office of NABARD, who

provided the data regarding my research and gave valuable time from

their busy schedule.

I also want to thank Dr. Nagendra Maurya, Fellow, GIRI, Lucknow, for

his great support and guidance during my research.

I would also like to thank my closest friend, Anshul Srivastava, who was

always a great support in all my struggles in my life and studies. Thanks

to her for questioning me about my ideas, helping me think rationally and

even for hearing my problems.

I would also like to thank all of my friends who supported me in writing,

and incented me to strive towards my goal.

I wish to thank my in-laws for their valuable and unending support

without which it would have been very difficult for me to complete my

research.

Above all, I would like to thank my beloved husband Firoz Haider, the

guiding star of my life, who through his overzealous support and

indefatigable spirit pushed me beyond my comfort zone. He was always

my support in the moments when there was no one to answer my queries.

This project is because of him.

A special thanks to my family. My gratefulness to my parents, above all,

is beyond words. Your prayer for me was what sustained me thus far. It is

because of them that I could reach where I am. A special thanks to my

younger sister Nida and brother Zarik. Words cannot express how

grateful I am to my siblings for all of the sacrifices that they have made

on my behalf. My parents, brother and sister have given me their

unequivocal support throughout, as always, for which my mere

expression of thanks likewise does not suffice.

LIST OF ABBREVIATIONS

C.D. ratio Credit Deposit Ratio

CAGR Compound Annual Growth Rate

CASA ratio Current and Saving Accounts Ratio

CCBs Central Cooperative Banks

CEO Chief Executive Officer

CRR Cash Reserve Ratio

DCBs District Cooperative Banks

DCCBs District Central Co-operative Banks

DTL Demand and Time Liabilities

G.M Geometric Mean

GDP Gross Domestic Product

NABARD National Bank For Agriculture And Rural

Development

NAFSCOB National Federation of State Cooperative

Banks Limited

PACS Primary Agricultural Credit Cooperative

Societies

PCARDBs Primary Cooperative Agriculture &

Rural Development Banks

RBI Reserve Bank Of India

Rs. Rupees

S.D. Standard Deviation

SCARDBs State Cooperative Agriculture & Rural

Development Banks

SLR Statutory Liquidity Ratio

ST CCS Short-Term Cooperative Credit Structure

StCB State Cooperative Bank

TDCCB Tirunelveli District Central Co-Operative

Bank

U.P. Uttar Pradesh

w.e.f. With Effect From

LIST OF CHARTS AND FIGURES

Sl. No.

Chart no. Chart name Page

No. 1. 4.1 Share capital of selected DCBs 71

2. 4.2 Compound annual growth rate (%) of share capital of selected DCBs 73

3. 4.3 Reserves & other funds of selected DCBs 75

4. 4.4 Compound annual growth rate of Reserves and other funds (CAGR %) 76

5. 4.5 Current Deposits of selected DCBs 78 6. 4.6 Savings Deposits of selected DCBs 78 7. 4.7 Term Deposits of selected DCBs 79 8. 4.8 Total Deposits of selected DCBs 79

9. 4.9 Compound annual growth rate (%) of deposits of selected DCBs 81

10. 4.10 Borrowings of selected DCBs 83

11. 4.11 Compound annual growth rate (%) of borrowings of selected DCBs 84

12. 4.12 Cash in hand and at bank of selected DCBs 88

13. 4.13 Compound annual growth rate (%) of Cash in hand and at bank of selected DCBs 89

14. 4.14 Loans and advances of selected DCBs 91

15. 4.15 Compound annual growth rate (%) of Loans and advances of selected DCBs 93

16. 4.16 Coefficient of correlation (r) between loans and advances and profits of selected DCBs 94

17. 4.17 Investments in securities of selected DCBs 96

18. 4.18 Compound annual growth rate (%) of Investments in securities of selected DCBs 97

19. 4.19 Trend line Overdues to Loans of selected DCBs 99 Sl. No. Figure name Page

No. 1. 1.1 Structure of Cooperative Credit Institutions in India

(as on 31st March 2011) 10

2. 1.2 Percentage decadal growth rate of population 34

LIST OF TABLES

Sl. No.

Table no. Table name Page

No. 20. 4.1 Progress Of District Cooperative Banks in India from

2002-03 to 2010-11 68

21. 4.2 Share capital of selected DCBs from 2002-2003 to

2010-2011 71

22. 4.3 Compound annual growth rate (%) of share capital of

selected DCBs from 2002-03 to 2010-11 72

23. 4.4 Reserves and other funds of selected DCBs from

2002-03 to 2010-11 74

24. 4.5 Compound annual growth rate (%) total reserves and

other funds of selected DCBs from 2002-03 to 2010-

11

76

25. 4.6 Deposits of selected DCBs from 2002-03 to 2010-11 77

26. 4.7 Compound annual growth rate (%) of total deposits of

selected DCBs from 2002-03 to 2010-11 81

27. 4.8 Total Borrowings of selected DCBs from 2002-03 to

2010-11 82

28. 4.9 Compound annual growth rate (%) of borrowings of

selected DCBs from 2002-03 to 2010-11 84

29. 4.10 Coefficient of correlation between borrowings and

profits 86

30. 4.11 Cash in hand and at bank of selected DCBs from

2002-03 to 2010-11 87

31. 4.12 Compound annual growth rate (%) of Cash in hand

and at bank of selected DCBs from 2002-03 to 2010-

11

89

32. 4.13 Loans and advances of selected DCBs from 2002-03

to 2010-11 91

33. 4.14 Compound annual growth rate (%) of Loans and

advances of selected DCBs from 2002-03 to 2010-11 92

34. 4.15 Coefficient of correlation between loans and advances

and profits 94

35. 4.16 Total Investments in securities of selected DCBs from

2002-03 to 2010-11 95

36. 4.17 Compound annual growth rate (%) of Investments in

securities of selected DCBs from 2002-03 to 2010-11 97

37. 4.18 Percentage of over dues to loans of selected DCBs

from 2002-03 to 2010-11 98

38. 4.19 Cost of Management of selected DCBs from 2002-

2003 to 2010-2011 99

39. 4.20 Cost Of Management Per Employee from 2002-2003

to 2010-2011 100

40. 5.1 Credit to Deposit ratio of selected DCBs from 2002-

03 to 2010-11 104

41. 5.2 Borrowings to deposits ratio of selected DCBs from

2002-03 to 2010-11 106

42. 5.3 Owned funds to borrowed funds ratio of selected

DCBs from 2002-03 to 2010-11 108

43. 5.4 Liquid assets to demand and time liabilities ratio of

selected DCBs from 2002-03 to 2010-11 111

44. 5.5 Current and savings deposit to total deposits ratio of

selected DCBs from 2002-03 to 2010-11 113

45. 5.6 Term or fixed deposit to total deposit ratio of selected

DCBs from 2002-03 to 2010-11 115

46. 5.7 Owned funds to working Funds ratio of selected

DCBs from 2002-03 to 2010-11 117

47. 5.8 Deposits to working funds ratio of selected DCBs

from 2002-03 to 2010-11 119

48. 5.9 Borrowings to loans ratio of selected DCBs from 121

2002-03 to 2010-11

49. 5.10 Investments to deposits ratio of selected DCBs from

2002-03 to 2010-11 123

CHAPTER- I

COOPERATIVE BANKING IN INDIA: AN OVERVIEW

1.1 The Co-operative Movement in India: an introduction

The co-operative movement in India was introduced with the main object

of helping the poor classes, especially the vast majority of agriculturists,

who were under the burdens of debts. Agriculture, like any other industry,

requires short term, medium term and long term credit. But it is small

scale, wide scattered and highly unorganized. Moreover agriculturists

don’t have enough property to offer as security for getting loans.

Therefore, they had to rely upon private agencies viz., the village

mahajan or sahukars, professional and non professional money lenders,

landlords, friends and relatives. Due to the lack of bargaining power and

risk of lending, these private agencies had been charging exorbitant rates

of interest, leading further indebtness of agriculturists and resulting after

generations to carry the burden of indebtness. It is no exaggeration to say

the “Indian farmer is born in debt, lives in debt and dies in debt.”

The agriculturalists and small farmers were ignored by the banking

system as they had no tangible property to offer as security. It is this void

in the banking system which co-operative banking seeks to fulfill. So

during that time the need was felt for such an agency which could provide

credit to agriculture sector at reasonably low rates of interest on easy

terms and conditions, so as to provide adequate agricultural finance both

for working as well as initial capital.

These problems of agriculturists attracted the attention of the

government and the Indian leaders. So Mr. F.A. Nicholson was deputed

on the task of finding the solution. After studying the agricultural credit

organizations of Europe & America, submitted his report (in 2 volumes),

in which he summed up his findings in the words “Every village must find

Raiffeisen”, that led to the establishment of co-operative societies and

banks in India.

The main objective of setting up of co-operative credit societies is to

promote thrift & mutual help amongst the members who primarily

owned these co-operative institutions. Co-operative credit societies

cater not only the credit requirements of the members but also various

services related with it like input supply, storage & marketing of produce

etc. Several committees, after considering the contribution of co-

operatives in the rural credit scenario, have emphasized their role in

dispensation of credit & allied services in the rural areas.

A cooperative is generally viewed as a social economic organization that

can fulfill both social and economic objectives of its members. A

cooperative is based on certain values and principles of its own, which

distinguish it from other forms of organizations. The very motto of

cooperation, 'each for all and all for each', signifies loyalty, trust, faith

and fellowship. A cooperative is a perfect democratic institution of the

members, for the members, and by the members, and is based on the

'one member, one vote' system of decision making. Indian economy is

rural in character. This is evident from the fact that a very high

proportion of the population is living in rural areas. Although agriculture,

including allied activities, accounted for only 14.1 per cent of the GDP at

constant (2004-5) prices in 2011-12, its role in the country's economy is

much bigger with its share in total employment according to the 2001

census, continuing to be as high as 58.2 per cent (economic survey 2011-

12).That means a higher level of achievement could be achieved with

the available natural, human, material and financial resources in the

country. If the goals of rural development are to be achieved it is

necessary that the rural people be organized within an institutional

structure that gives them access to the economic and social resources. In

India, cooperatives are the most commonly found form of people’s

organization.

1.2 Meaning and concept of co-operatives

“A cooperative is an autonomous association of persons united

voluntarily to meet their common economic, social and cultural needs

and aspirations through a jointly-owned and democratically controlled

enterprise”.

They are business entities where people work together to solve common

problems, seize exciting opportunities and provide themselves with

goods and services. A cooperative is managed on the basis that the

customers of a business are also the owners of the business. Each

customer is entitled to become a member of the cooperative society,

thereby receiving the benefit of success via a dividend payout.

The beginning of this great movement is dated back to 1844, when a

group of men known as the ‘Rochdale Pioneers’ began trade in grocery

produces in England, based on a ‘new’ principles of fair prices for reliable

quality goods. These organizations are better recognized worldwide, for

their non-profit character and root level social functioning on voluntary

basis. Voluntary and open membership, democratic member control,

member economic participation, autonomy and independence,

education, training and information, cooperation among cooperatives

and concern for community are the principles of cooperatives. Self help,

self responsibility, democracy, equality, equity and solidarity are the

values of cooperative organizations. In the tradition of its founders, the

movement also follows such ethical values as honesty, openness, social

responsibility and caring for others. Needless to say, it is a social

movement and its growth will unanimously result in the wholesome

growth of the society.

1.3 Definitions by eminent thinkers on co-operation

Dr. C. R. Fay from the socio-economic standpoint defines co-operative

society as “an association for the purpose of joint trading, organizing

among the weak & conducted always in an unselfish spirit, on such terms

that all who are prepared to assume the duties of membership may share

in its rewards in proportion to the degree in which they make use of their

association.”

According to Mr. Herrick “Co-operation is the act of persons

voluntarily united, of utilizing reciprocally their own forces, resources, or

both under their mutual management to their common profit or loss.”

The most recognized definition is that of Mr. H. Galvert, “Co-operation

is a form of organization wherein persons voluntarily associated together

as human beings, on a basis of equality for the promotion of economic

interest of themselves.”

Late Shri V. L. Mehta, veteran co-operator of India , looked upon co-

operation in wider context of voluntary improvement of economic

condition of the people by the people themselves, & as described it as :

“Co-operation is only one aspect of a vast movement which promotes

voluntary association of individuals having common needs who combine

towards the achievement of common economic need.”

According to the Co-operation Planning commission (1946), “Co-

operation is a form of organization in which persons voluntarily

associate together on a basis of their economic interest. Those who come

together have a common economic aim which they cannot achieve by

individual isolated action because of weakness of the economic position

of a larger majority of them. This element of individual weakness is

overcome by the pooling of their resources, by making self help group

effective through mutual aid, & by strengthening the bonds of moral

solidarity between them.”

I.L.O defines a co-operative society as “an association of persons

varying in number who are grappling with some economic difficulties &

who voluntarily associate on a basis of equal rights and obligations,

Endeavour to solve those difficulties, mainly by conducting at their own

risk an undertaking to which they have transferred one or more economic

functions as correspond to their common need and by utilizing this

undertaking in Joint Co-operation for their common material and moral

benefit.”

1.3.1 The Statutory definition of co-operative banks

The passing of the banking laws (application to co-operative societies)

Act 1965, was an epoch making event in the annals of the Co-operative

Banking System in India. This has enabled to extend some of the

important provisions of the former Banking Companies Act 1949 (now

Banking Regulation Act) and the Reserve Bank of India Act 1934 to the

Co-operative Bank as well.

For the 1st time in the banking history, a statutory definition of a Co-

operative Bank has been laid down in the act (clauses of section 2 of the

Reserve Bank of India Act 1934).

a) Central Co-operative Banks mean the principal co-operative society in

the district in a state, the primary object of which is the financing of other

co-operative societies in that district.

Provided that in addition to such principal society in the district, the state

government may declare any one or more co-operative societies carrying

on the business of financing other co-operative societies in that district to

be a central co-operative bank or banks within the meaning of this

definition.

b) Co-operative Bank means a state Co-operative Bank, a Central Co-

operative Bank and a Primary Co-operative Bank.

c) Primary Co-operative Bank means a co-operative society, other than a

primary agriculture credit society,

i.) The primary object or principal business of which is the

transaction of banking business;

ii.) The paid-up share capital & reserve of which are not less than

one lakh of rupees; &

iii.) The bye-laws of which do not permit admission of any other co-

operative society as a member.

d) State co-operative bank means the principal co-operative society in the

state, the primary object of which is the financing of other co-operative

societies in the state:

Provided that in addition to such principal society in a state or where

there is no such principal society in a state, the state government may

declare any one or more co-operative societies carrying business in that

state to be a state co-operative bank or banks within the meaning of this

definition.

1.4 Principles

The co-operative principles are guidelines by which co-operatives put

their values in to practice.

1.4.1 Voluntary and Open Membership

Co-operatives are democratic organizations controlled by their service

and willing to accept the responsibilities of membership, without gender,

social, racial, political and/or religious discrimination.

1.4.2 Democratic Member Control

Co-operative is democratic organization controlled by their members,

who actively participate in setting their policies and making decisions.

Men and women serving as elected representatives are accountable to the

membership. In primary co-operatives members have equal voting rights

(one member, one vote) and co-operatives at other levels at also

organized in a democratic manner.

1.4.3 Member Economic Participation

Members contribute equitable to, and democratically control, the capital

of their co-operative. At least part of that capital is usually the common

property of the co-operatives. Members usually receive limited

compensation, if any, on capital subscribed as a condition of membership.

Members allocate surpluses for any or all of the following purposes:

developing their cooperative, possibly by setting up reserves, part of

which at least would be indivisible; benefiting members in proportion to

their transactions with the co-operatives and supporting other activities

approved by the membership.

1.4.4 Autonomy and Independence

Co-operatives are autonomous, self-help organizations controlled by their

members. If they enter into agreements with other organizations,

including governments, Or else capital form external sources, they do so

on terms that ensure democratic control by their members and maintain

their co-operative autonomy.

1.4.5 Education, Training and Information

Co-operative provides education and training for their members, elected

representatives managers and employees so they can contribute

effectively to the development of their co-operatives. They inform the

general public – particularly young people ad opinion leaders – about the

nature and benefits of co-operation.

1.4.6 Co-operation among co-operative

Co-operatives serve their members most effectively and strengthen the

co-operative movement by working together through local, national,

regional and international structures.

1.4.7 Concern for Community

Co-operatives work for the sustainable development of their communities

through policies approved by their members.

1.5 The Structure of Cooperative Credit Institutions in India

The Cooperative Credit Structure in our country has two separate

structures. The short term credit structure and the long term credit

structure. Here we are concerned with the short term credit structure

only.

Source: Developments in Cooperative Banking, RBI publication, 2011

Figure-1.1 Structure of Cooperative Credit Institutions in India

(As on 31st March 2011)

The long term cooperative credit structure consists of the State

Cooperative Agriculture & Rural Development Banks (SCARDBs) and

Primary Cooperative Agriculture & Rural Development Banks (PCARDBs)

which are affiliated to the SCARDBs.

The cooperatives in India generally have three-tier structure in most of

the states with primary agricultural credit cooperative societies (PACS)

with farmers as their members at the base level, districts cooperative

banks (DCBs) as the intermediate federal structure with PACS as

principal affiliated members, and the state cooperative bank (SCB) at the

apex state level with DCBs and other cooperatives as its principal

members. This three-tier cooperative credit structure is popularly known

as the short-term cooperative credit structure (ST CCS). The ST CCS

functions as a three-tier structure in 16 states; while in 13 smaller states &

union territories, PACS are directly affiliated to the SCB and the ST CCS

functions as a two tier structure. In 3 states, a mixed structure, i.e., two

tier in some districts, and three-tier in the other districts operates. (RBI

Report 2012).

1.6 District Cooperative Banks

District Cooperative bank is a federation of primary societies and other

functional societies and for the SCB, the members are the affiliated

DCBs. The DCB serves as a link between State Cooperative Banks and

Primary Agricultural Societies. District Co-operative Banks finance

primary societies. In some cases, they attract the surplus funds of certain

primary societies, to supply the same to others. Thus, Central Co-

operative Banks Act as balancing centers to the primary societies. The

DCBs form an important part in the short-term structure of Co-operative

Credit Institutions.

As at March 2011 there were 371 district co-operative Banks with 13327

branches in various states in India. The total deposits of DCBs as at end

March 2011 amounted to Rs. 161308.8 crore as compared to Rs. 72394.4

crore in March 2003.

A District Co-operative Bank obtains its funds from share capital, reserve

funds, deposits (current, fixed, savings, recurring) and loans from the

State Co-operative Bank or other joint stock banks. The DCBs also

borrow money from NABARD for their operations.

Sometimes primary societies deposit their surplus funds with the District

Co-operative Banks to which they are affiliated and this forms another

source of funds for the District Co-operative Banks.

The Board of the DCB comprises elected Chairmen of PACS,

representative of the State Government and the State Cooperative Bank

apart from the CEO of the DCCB who would be the member secretary.

The board meets periodically to review the performance of the bank and

provide policy guidance.

All District Central Cooperative Banks are registered under the Banking

Regulations Act and are under the regulatory control of the Reserve Bank

of India. The banks are expected to follow the various relevant provisions

of the Banking Regulations Act and are subjected to periodical

supervision to ensure that they function as per the provisions of law and

with prudence. In case of DCBs, National Bank for Agriculture and Rural

Development has been designated as the supervisor along with Reserve

Bank of India. However, as a matter of convention, Reserve Bank usually

does not exercise its powers to inspect these banks.

The Central Co-operative Banks are considered as a nerve centre to

control all the co-operative activities in a particular area of operation,

usually a district. Central Co-operative Banks play a very important role

in the development of agriculture and the rural people.

1.7 History of Co-operative movement

The indebtness of the farmers, accompanied with illiteracy, has further

deteriorated their economic condition during British rule. The basic

approach of the British was to make maximum use of India’s natural

resources for the economic progress and prosperity of England.

In the absence of any institutional facility to finance agriculturists, the

individual money lenders were the main source of agricultural finance

and credit system for them, who used to charge exorbitant rate of

interest, leading further indebtness of farmers, resulting after

generations to carry the burden of indebtness. In short, the farmers

suffered the untold miseries and agony. They were helpless and restless.

The discontent among the farmers spread far and wide. There were

Deccan riots by the farmers. It was a warning to the then government.

The growing agitational environment forced the then government to

take relief measures to give an impression to the public that it was

aware of the sufferings of the peasantry. “Deccan agriculturists” Relief

Act of 1879 was the first legislation by the colonial government of

Deccan (south) for the regulation of long term co-operative credit to the

poor farmers or agriculturists at reasonable rates for the agricultural

purposes.

In 1882 Sir William Wedderburn suggested the establishment of an

agricultural bank for providing capital to the agricultural classes on

reasonable rates. Although the schemes fell through yet it helped in

arousing government’s interest in co-operative form of organization.

Along with that the government also enacted Land Improvement Loans

Act of 1883 and the agriculturalists loans act of 1884, relating to the

loans to farmers on short term credit. But in spite of all these efforts, the

government could not succeed in solving the problem and making

substantial improvement in the situation.

In 1891, a co-operative society was started in Punjab which functioned

until 1922, when the land was partitioned. Another co-operative society

started in that province in 1895 covered 22 villages and hamlets. In 1892

Sir F. A. Nicholson was deputed by the government of Madras to study

the working of co-operatives in Europe and suggest measures for

introduction of co-operative movement in India. In 1894 agricultural

banks were introduced in Mysore. By 1898, 64 banks had been started in

Mysore.

In 1899 Sir F. A. Nicholson submitted his report (in 2 volumes) to the

Madras government. In his report he emphasized on finding the

Raiffeisens who could organize and manage the co-operatives in India.

He summed up his report in two words “find Raiffeisens.”

By that time some 200 co-operative societies and Nidhis in Uttar

Pradesh and Madras had already come into existence. These societies

were registered under the ordinary company law which was unsuitable

for the operations and management of co-operative societies and the

very basic objects of co-operation. Therefore there was a need for the

registration of separate law, keeping in view the spirit and aims of co-

operation.

In 1901, Famine Commission recommended the establishment of rural

Agricultural Banks, so as to provide credit facilities to the farmers for the

agricultural purposes. However, the recommendation could not be

materialized to establish the agricultural bank.

Following the recommendation of Famine commission the government of

India appointed in 1901, a committee under the president ship of Sir

Edward Law to report on the steps to be taken on the establishment of co-

operative credit societies in the country. This committee recommended

the establishment of co-operative societies on the Raiffeisen Model. It

was on the basis of this report that the Co-operative Credit Societies Act

of 1904 was passed. The Co-operative Credit Societies Bill, based on the

recommendations of the Edward Law committee, was enacted on 25

March 1904. The Co-operative Credit Societies Act of 1904 was the first

attempt to institutionalize co-operatives. The Act of 1904 provided for the

organization of primary credit societies and stress was laid on the

promotion of agricultural credit only. This act was based on the principles

of “simplicity” and “elasticity”. This, perhaps, was the first attempt to

have an institutional arrangement for agricultural credit with a separate

legal status. Small and simple societies were to be organized under the

Act to meet the credit of the people both in rural and urban areas.

1.8 Evolution of Co-operative Movement in India

The history of the origin and growth of the co-operative movement in

India can be divided into following stages:

1.8.1 First stage (1904-11)

The first stage was essentially an experimental one. The Indian organizers

of the movement had little experience and scarce knowledge of the

imported idea of Co-operation. Their task was made more difficult by the

fact that they were required to spread a new idea among the uneducated

rural people.

The Act of 1904 provided for the organization of primary credit societies

and stress was laid on the promotion of agricultural credit only. Local

officers were also instructed that the organization of rural credit societies

should be their first concern. By 1912, 8177 societies with a membership

of over 4 lakhs and working capital of Rs. 335.7 lakhs had been

organized.

The characteristic feature of this period was the Act of 1904 and the legal

reorganization of the co-operative societies that were in existence.

The important features of the Co-operative Societies Act (1904) were as

follows:

1. Any ten persons living in the same village or town could form a co-

operative society for the encouragement of thrift and self-help among

the members.

2. The main subject of a society would be to raise funds by deposits

from members, and also loans from non members, Government and

other co-operative societies and to distribute these funds as loans to the

members or with the special permission of the Registrar to offer co-

operative credit societies.

3. The co-operative credit societies in each province would be under the

control and administration of a special Government officer called the

"Registrar of Co-operative Societies".

4. The accounts of every society were to be audited by the Registrar or

by a member of his staff free of charge.

5. The co-operative societies were classified as rural and urban, four

fifths of the members of rural societies were to be agriculturists and of

urban societies non agriculturists.

6. The members of a rural society were bound to have unlimited

liability, except with special sanction by local Government. In case of

urban society the liability of members might be either limited or

unlimited.

7. In case of rural societies dividends were not to be paid to 'the

members and the surplus funds were to be deposited in the reserve

fund, although when this fund had grown beyond certain limits fixed

under the Bye laws, a bonus might be distributed to members.

8. In urban societies, no dividend would be paid to the members, until

one-fourth of the profit in a year had been deposited into the reserve

fund.

9. The societies could advance loans only to the members on personal

as real security.

10. Anyone member's interest, in the societies share capital was strictly

limited. No member could hold shares for more than Rs. 1,000.

11. The societies which were formed under the Act were exempted

from payment of income-tax, stamp duties and registration fees.

1.8.2 Second stage (1912-18)

Though to begin with, the government was by no means sure of the

success of movement, early achievements outstripped all expectations.

The act of 1904 was found insufficient to cope with the expanding

movement. With the passing of this Act, the movement entered on the

second stage of its progress. The important changes brought about by

the new Act were as follows:

1. Any society (credit or otherwise) which aimed at the promotion of

the economic interest of its members in accordance with the co-

operative principles, could now he established.

2. The new Act enabled, for the first time, the registration of a federal

society like the Central Bank.

3. The liability of the central societies was to be limited while that of the

members of the rural credit societies was to be unlimited.

4. After carrying 1/4th of the annual profits to the reserve fund, 10 per

cent of the balance could be spent for charitable purposes.

5. Local Governments were permitted to use their discretion in moving

rules and Bye-laws of the societies.

6. The term 'co-operative' may not be used as a part of the title of any

business concern not registered under the Act, unless it was already

doing business under the same before the Act came into effect.

7. Shares or interest in co-operative societies are exempt from

attachment.

8. The other provisions of the Act of 1904 were retained as they were.

The new Act was thus a great improvement over the provision Act of

1904 and after its enactment, the movement started with a renewed

promise. It helped the growth of co- operative movement. New types of

societies of the sale or produce, purchase of silk and manure, cattle

insurance and milk supply etc. were created. The number of co-

operative societies, their membership and working capital grew rapidly.

Before fostering further growth, the government wanted to be sure that

the movement was developing on sound lines and appointed the

Maclagan Committee to review the movement.

1.8.2.1 Maclagan Committee

With a view to ensuring that the co-operative movement was

developing on sound lines, the Government of India appointed a

committee under the chairmanship of Sir Edward Maclagan, l.C.S., in

October, 1914. The task before committee was to review the progress of

the movement and report whether the movement was progressing

along the right lines.

The Maclagan Committee submitted its report in 1915. The committee,

in its report, made suggestions for constructive proposals for healthy

development of the co-operative movement.

The Committee observed that the impression of the people was that the

co-operative societies were Government agencies and therefore, the

committee emphasized that the urge for establishment of co-operative

societies should be, as far as possible, spontaneous. The Committee also

stressed the need for a thorough audit and supervision of the movement

for increasing confidence among the people. The Committee suggested

the following classification of societies:

(a) Primary societies;

(b) Co-operative unions;

(c) D.C.C. Banks; and .

(d) Provincial co-operative banks.

The Committee laid down the following conditions for the success of

rural credit societies:

1. Every member should have knowledge of the cooperative principles

and the members’ proper selection should be made, i.e. they should be

honest.

2. As regards the dealing of the society, it should lend to its members

only.

3. Careful scrutiny should be made before granting loans and it should

be given for productive purposes or for necessaries, as essential of daily

life. They can fairly be classed as productive.

4. The borrower should satisfy other members about repayment of his

loan through increased productive capacity.

5. Democratic Management.

6. Adopting 'one man one vote' principle.

7. Building of strong reserve fund.

8. The main object of the society should encouragement of thrift among

its members.

The valuable suggestions made by the Maclagan Committee remained

on paper. Most of the recommendations of the Committee are as valid

today as they were at the time they were first made. Failure of the co-

operative movement in many parts of the country was largely due to the

neglect of the wise suggestions advocated by Sir Edward and his

colleagues.

In 1919, there were 29,000 societies with 11 lakh members and Rs. 15

crore as working capital. This progress was said to be quite rapid but the

qualitative aspect was not very bright.

1.8.3 Third stage (1919-29)

After the conclusion of World War I, the Reforms Act of 1919 was

introduced. Under the Reforms of 1919, co-operation became a

provincial subject and was placed under the charge of minister in each

state. During the early years, progress was quite rapid in many states.

The provinces, where co-operative movement had made, considerable

progress found the Act of 1912 inadequate. For achieving many-sided

development several provinces appointed committees of enquiry and

co-operative acts were passed. Bombay gave a lead by passing a special

Act in 1925 incorporating amendments to suit local conditions. It was

followed by Madras in 1932, Bihar and Orissa in 1935, Coorg (Karnataka)

in 1937 and Bengal in 1940, Tripura in 1948, Mysore in 1948, United

States of Gwalior, Indore and Malwa in 1948, Assam in 1949, Vindhya

Pradesh in 1940, Orissa Co-operative Societies Act in 1951, Hyderabad

Act in 1952, Rajasthan Act in 1953, The Punjab Act in 1953, Himachal

Pradesh Act in 1956, then Bhopal, Jammu & Kashmir.

The post-war boom and rising prices improved the conditions of co-

operative societies during the decade ending 1929-30. The rapid

expansion in this period was characterized by the well known non-

official co-operator Mr. Ramdas Pantalu as "unplanned expansion".

During this period different kinds of cooperative societies in the field of

credit, supply, distribution, better farming, mortgage, and banking were

started.

In spite of this rapid expansion, the proportion of rural families brought

within co-operative fold was very small. The lowest percentage was 1.8

per cent in the United Provinces, 2.3 per cent in the Central Provinces,

2.3 percent Assam, 3.1 percent in Bihar and Orissa, 3.8 per cent in

Bengal. The highest percentage was between 8 to 10 percent in Bombay,

Madras and Punjab.

Working of the co-operative movement during this period was examined

by Royal Commission on Agriculture, the Central Provincial banking

Enquiry Committee and the Oakden Committee of the United Provinces

of Aglil and Oudh, the King Committee of the Central Provinces, the

Townsend Committee of Madras and the Calvert Committee of Burma.

Valuable contributions were made by these Committees to cooperative

thought and practice.

In 1927, the Royal Committee on agricultural, with Mr. Calvert as its

chairman, examined the problems relating to agriculture and stressed

the need of co-operation for implementing the programme of

agricultural development. The commission brought out strong as well as

weak points in the movement. According to the commission the main

cause of failure of the co-operative movement was "the lack of the

requisite education and of adequate supervision and guidance” Report

of the Royal Commission on Agriculture (1948). The Commission

sounded a note of warning in these words, "If co-operative fails, there

will fail the best hope of rural India".

To popularize the co-operative movement and to promote a sense of

responsibility among the members of the society, the Central Banking

Inquiry Committee recommended that the official control, that then

existed, was to be slackened. Expansion of the movement till 1929 was

quite satisfactory as is clear from the following table:

Year No. of Societies in

thousands

Membership in lakhs Working Capital Rs in

crores

1920

1929

28.4

94

11.3

37

15

75

1.8.4 Fourth stage (1929-38)

The most significant feature of this period was the Great Depression.

The Great Depression of the thirties gave a big jolt to co-operative

activity, and stalled further progress of the movement. The economic

crisis resulted in a catastrophic fall in prices, particularly of agricultural

commodities, which very adversely affected the economic conditions of

the farmers. Owing to the large percentage of credit societies; funds

with the movement were invested in loans to agriculturists. Recoveries

of loans became extremely difficult. There were heavy accumulations of

overdues and freezing of society’s assets, liquidation of societies had to

be resorted, in, certain areas. The proportion of overdues to loans

outstanding which was only 20 per cent in 1927-28 rose to 40 per cent in

1931-32, in Bombay.

In some provinces such as the Central Provinces, and Berar, Bihar,

Haryana, Orissa and Bengal the co-operative movement collapsed. Many

central co-operative banks had to be closed as they were unable to carry

on banking operations and many societies were liquidated. In Bombay,

as many as 15,000 cases were referred to arbitration. By 1937-38 the

percentage of overdues was about 93 per cent of loans. The number of

societies in the state which stood at 5,896 in 1930-31 came down to

4,837 in 1935-36. During this period 50 per cent of the societies were in

liquidation in Uttar Pradesh.

1.8.4.1 Land Mortgage Banks

Finding that the agriculturists were raising huge funds on the mortgage

security of their lands, land mortgage banks were started on co-

operative basis. The first central land mortgage banks was established in

Madras in 1929. Ten primary and one provincial land mortgage bank

were established in Bombay in 1935. These banks saved not a few

cultivators from the hands of money-lenders, by advancing loans for the

redemption of lands and for other long-term needs.

1.8.4.2 Reserve Bank of India

A rather very important event of this period was the establishment of

the Reserve Bank of India in 1935. The agricultural Credit Department

was also set up simultaneously, to study agricultural credit problems and

give financial accommodation to co-operative credit structure. In 1937,

statutory report on the co-operative movement was presented by

Reserve Bank of India in which it gave advice on various matters of co-

operative practice. It suggested re-organization of the movement on

viability basis. It also stressed the importance of organizing multi-

purpose co-operative societies which would embrace the whole life of

agriculturists.

By 1939, the signs of recovery began to appear, especially due to dose

supervision, better security scrutiny of loans proposals and effective

steps towards recovery of outstanding loans, e.g. the amount of

overdues in case of agricultural credit societies fell from 13.00 crore in

1932-33 to 11.36 crore in 1936-37 while the percentage of overdues to

the loans outstanding fell from 47 to 43 during the same period.

A beginning of participation of Reserve Bank of India in the development

of co-operative movement is, perhaps, a notable feature of this period.

1.8.5 Fifth stage (1939-46):

It is a well known fact that the Second World War, acted as a boon to

the agriculturist class as prices began to rise. It naturally improved their

repaying capacity. A special feature of this period is (in addition to credit

societies) the development of non-credit societies (till then, non-credit

activity was almost monopolized by the private sector). From 1939

onwards, prices began to rise as a result of which the movement got a

good fillip. As a result of high prices most of the overdues, which had

accumulated during the period of depression, were cleared off.

Overdues fell by 60% during this period. Demand for further loan also

decreased greatly. So much so that the co-operative banks, including the

land mortgage banks, were almost starving for want of business and

were faced with the problem of surplus funds. Deposits in primary

societies also increased from Rs. 25 crores in 1939-40 to Rs. 54 crores in

1945-46.

In 1944, the Government of India appointed a sub-committee under the

chairmanship of Mr. D.R. Gadgil. The object of this committee was to

suggest ways in which indebtedness could be reduced and finance, both

short-term and long-term, provided under the efficient control [or

agricultural and animal husbandry operations. The committee

recommended "We are in general agreement with the view that the

spread of co-operation would provide the best and the most lasting

solution for the problem of agricultural credit in particular and rural

economy in general".

It is interesting to note that by 1946, the proportion was: credit 77 per

cent and noncredit 23 per cent. The multi-purpose co-operative

Societies were also developed during this period, e.g. in the Bombay -

province. There were 264 multi-purpose societies as on December 1946.

In short, war period, provided incentives for consumer co-operatives,

industrial co-operative societies etc. and the co- operative movement

started having a broader base.

1.8.5.1 Control Period

Due to the imposition of controls on the distribution of commodities,

distributive co-operatives began to be organized all over the country.

There was a marked growth of marketing societies also. Thus the co-

operative movement, which was almost entirely a credit movement so

far, started diversifying its activities.

1.8.5.2 Advancement of co-operative though

An important landmark of this period of this period was the setting up of

the co-operative planning committee, which drew up plans for

development of co-operative movement in various spheres. It fixed

targets of bringing 50% of villages and 30 % of population into the fold of

co- operation in 10 years period. It also fixed the target of marketing

25% of agriculturalist marketable surplus through co-operative

marketing societies.

1.8.6 Observation on Co-operative Movement in Pre Independence

Period

At this stage, it is worthwhile to note some prominent characteristic

features of co-operative movement in pre-independence period.

1. Unplanned and uneven growth;

2. Official sponsorship of the movement;

3. Largely confined to credit;

4. Financial involvement of the Government was negligible (hardly 2

per cent of the total working funds).

Further, the following causes of the slow growth of cooperative

movement, noticed in the study, are mentioned below:

1. Lack of knowledge of co-operative principles;

2. Lack of careful selection of members;

3. Lack of effective supervision inspection

4. Lack of efficient management;

5. High over dues;

6. Lack of co-ordination between various co-operative Institutions;

7. Unlimited liability of societies;

8. Laissez faire policy of the state;

9. Other important factors

(a) Negligence in recovery;

(b) High rate of interest;

(c) Inadequacy of finance provided.

The co-operative movement could not achieve much success before

independence on account of the above mentioned reasons.

The 15th conference of Registrars of Co-operative Societies which met in

1947 approved many of the recommendations of the-Co-operative

Planning committee. In this conference, it was realized for be first time

that there should be effecting' linking of credit was Marketing,

assistance for construction of godowns and setting up processing plants

by grant of liberal loans and subsidies. The necessity for training of

expert staff was also stressed. The consensus was that provincial co-

operative banks should be recognized to give greater assistance through

central banks to primary societies.

By 1947, the co-operative movement had attained, at last in some areas,

certain significant dimensions. In fact, an official body, the Co-operative

Planning Committee referred to the role of the co-operatives. In their

terms, "The co-operative society has an important role to play as the

most suitable medium for the democratization of economic planning. It

provides the local unit which can fulfill the dual function of educating

public opinion in favour of a plan and executing it." This was a significant

pointer to the potential role of the co-operatives in an independent

India.

In due course political expediency also led to laxity in ensuring quality of

credit and its repayment. The Government of India's 1989 scheme for

writing off loans of farmers, greatly aggravated the already weak credit

discipline in the cooperative system and led to the erosion of its financial

health. It also set up an unhealthy precedent and spawned a series of

schemes by the State Governments, announcing waivers of various

magnitudes, ranging from interest write off to partial loan write-offs.

The competitive populism adopted by the political class has severely

impaired the credibility and health of the cooperative credit structure.

The State has used co-operatives to channel its development schemes,

particularly subsidy-based programmes for the poor. As these

institutions have a wide reach in the rural areas and also deal with

finances, the choice was natural. The trend, however, also made

cooperatives a conduit for distributing political patronage. This and the

sheer magnitude of resources and benefits channeled through the

societies, makes control of decision-making and management attractive

to parties in power, for accommodating their members, to influence

decisions through directives, and for individual politicians to be on the

management boards of the cooperatives.

Concerns about these trends and the need to overcome them began to

be voiced around this time. The Agriculture Credit Review Committee

(Khusro Committee, 1989) for the first time talked of the importance of

encouraging members' thrift and savings for the cooperatives. It also

emphasized the need for better business planning at the local level and

for strategies to enable cooperatives to be self sustaining. To this end,

the Committee was also in favour of serving non-members, if it made

business sense. In a sense, there were larger macro economic changes

on the anvil in the economy. The 1990s witnessed more concerted

attempts both by the government and by non-official organizations and

cooperators, to explore ways to revitalize the cooperatives.

1.8.7 1990s and onwards

During the last fifteen years, there has been an increasing realization of

the destructive effects of intrusive State patronage, politicization, and

the consequent impairment of the role of cooperatives in general, and of

credit cooperatives in particular, leading to a quest for reviving and

revitalizing the cooperative movement.

Several Committees (notably those headed by Chaudhry Brahm Prakash,

Jagdish Capoor, Vikhe Patil and V.S. Vyas) were set up to suggest

cooperative sector reforms during this period. The Brahm Prakash

Committee emphasized the need to make cooperatives self-reliant,

autonomous and fully democratic institutions and proposed a Model

Law. Subsequent Committees have all endorsed this recommendation

and strongly supported replacing existing laws with the proposed Model

Law. They have also recommended revamping and streamlining the

regulation and supervising mechanism, introducing prudential norms

and bringing cooperative banks fully under the ambit of the Banking

Regulation Act, 1949. To facilitate the implementation of these reforms,

they proposed that governments provide viable cooperative credit

institutions with financial assistance for recapitalization.

Progress in implementing these suggestions has been very tardy because

of the States' unwillingness to share in costs and their reluctance to

dilute their powers and to cede regulatory powers to the Reserve Bank

of India (RBI). The passage of the Mutually Aided Cooperative Societies

Act by the Andhra Pradesh government in 1995 however, marked a

significant step towards reform. Following the example of Andhra

Pradesh, eight other States (viz., Bihar, Chhattisgarh, Jammu and

Kashmir, Jharkhand, Karnataka, Madhya Pradesh, Orissa and

Uttaranchal) have passed similar legislation to govern and regulate

mutually aided cooperatives.

In all cases these new laws provide for cooperatives to be democratic,

self-reliant and member-centric, without any State involvement or

financial support. They provide for cooperatives registered under the old

law to migrate to the new Act. The old Acts were not repealed nor was

there any serious effort to encourage and facilitate the conversion of old

co-operatives to come within the purview of the new Act. Most existing

cooperatives, therefore, continued to adhere to the old law.

The new law, however did lead to the emergence of a “new generation

autonomous financial cooperatives”, albeit slowly and unevenly across

the country. While the number of cooperatives registered under the

new liberal Act is slowly picking up, the conversion from the old law to

the new Act has largely been in the arena of commodity cooperatives.

The reason for the slow pace at which both credit cooperatives and the

primary agricultural credit societies (PACS) are adopting the new law is

largely because they are not eligible for refinance under the existing

legal and structural arrangements.

These developments have not made much of an impact on the way

cooperatives function. The movement has continued to deteriorate and

reached the point that necessitated the appointment of the Task Force,

which has been entrusted with the task of coming up with an

implementable action plan for carrying the reforms forward which led to

the setting up of the Task Force on Revival of Cooperative Credit

Institutions, appointed by the Government of India in 2004

[Vaidyanathan 2004]. The committee recommended an action plan for

reviving and revitalizing the rural credit cooperative institutions through

legal measures necessary for facilitating this process. The task force

submitted its report in February 2005, and after extensive discussions

the revival package was implemented across the country in January

2006. The NABARD was made the implementing agency for the purpose.

The revival package was a combination of legal and institutional reforms,

capital infusion and technical support for capacity building. The

implementation of the action Plan [ADB 2010] of the revival package was

perceived to result in the emergence of a strong, self-reliant and well-

knit network of rural cooperative credit system.

In a developing country like India with huge deficits in terms of quality

and quantity, the state has to shoulder the primary responsibility of

providing credit through co-operatives. Considering the low living

standards of common man, incomplete and imperfect markets and

other socio political considerations it is the primary duty of the

government to ensure that its citizens have easy access to co-operative

credit. (Vinayagamoorthy A and Vijay Pithadia, 2007).

1.9 Present status of cooperative banks in Uttar Pradesh

Uttar Pradesh has a large population and a high population growth rate.

From 2001 to 2011 its population increased by 20.23%. Uttar Pradesh is

the most populous state in the country with 199,812,341 people as per

census 2011. The state contributes 16.16% of India’s population. The

population density is 829 people per square kilometer while the national

average is 382 per sq km, making it one of the densest states in the

country. This suggests that U.P. requires wide banking network as the

financial requirements of Uttar Pradesh are comparatively very high to

other states.

Figure 1.2 Percentage decadal growth rate of population

The present study has been taken up with an overall objective of

evaluating the performance of district co-operative banks operating in

Uttar Pradesh. The findings of the study may be of immense use both to

the policy makers for the district cooperative banks and to the general

public to learn about the working of district co-operative banks in Uttar

Pradesh.

There is a large network of district co-operative banks in Uttar Pradesh

with a total of 1373 branches functioning in the state as on 31.3.2011.

But, so far a comprehensive and detailed study on the workings of the

district co-operative banks in Uttar Pradesh has not been undertaken.

The District co-operative banks have occupied an important place in the

state's economy in terms of financing the major economic activities. It is

important to note that the state has a wide network of banking with a

total 13327 branch offices including the district co-operative banks both

in the rural and the urban areas and engaged in mobilizing savings and

distribution of mobilized resources to various economic activities. In

view of this large banking network, a study on the performance and

contribution of district co-operative banks to the economy assumes

more importance.

The district co-operative banks are a distinct form of organizations and

they cannot be matched with any other banks either private or public. It

has been very often heard that the performance of co-operatives has

been by and large not satisfactory and they are not financially viable.

The liberalized new economic policies have posed threat to the survival

and growth of co-operatives. In this context, the district co-operative

banking as one of the most significant segments of cooperatives attracts

an immediate attention.

The reform measures initiated in the Indian banking sector in general

and in the co-operative banking in particular have brought forward many

challenges before the district banks' management. This changing

operating environment in the banking sector necessitates examining the

working status of the district co-operative banks operating in the state.

The study focuses on conducting an in-depth analysis and assessment of

the various dimensions of DCBs in the state.

CHAPTER-II

RESEARCH METHODOLOGY

2.1 Brief introduction

Cooperative banks were the important constituent of the banking

structure of India as they bridged the gap between the deficit & surplus

units of the financial system of the country. Co-operative banks are

particularly important in Indian banking structure because of the fact that

India is basically a developing country with comparatively less developed

financial systems resulting in low level of banking and financial

activities. In such a scenario co-operative banks play a major role as they

follow a simple banking system and also offer loans and advances at

cheaper rates which make them attractive and lucrative for those investors

who are not motivated enough to go for complexed and advanced

banking and financial instruments. This is how it was assumed that

cooperative banks are very important for the growth and development of

Indian banking business. In the present years it has been observed that in

general the profitability and efficiency of the cooperative banks in India

is declining and their contribution in overall banking business is also

declining. Thus there is a need to assess and analyze the present status of

these banks, reasons for the decline in their profitability and efficiency

and further to give certain meaningful policy suggestions which will lead

to their improvement.

As there are thousands of cooperative banks in India of various types and

categories, which will be too large, a sample size to study effectively and

efficiently. Thus in the present study the researcher is particularly

focusing upon the present status of DCBs in India particularly in Uttar

Pradesh.

2.2 Need of the study

The District Co-operative Banks also known as Central Co-operative

Banks occupy a significant position in the cooperative credit structure.

They serve as an important link between the Apex Co-operative Bank and

the Primary Agricultural Credit Societies. District Co-operative Banks are

in fact a federation of Primary Agricultural Credit Societies and other

types of societies working within their jurisdiction. District Co-operative

Banks (DCBs) acts as the leader of the cooperative movement in a district

and plays an effective role in the all-round growth of the cooperative

movement. It has to undertake various promotional and developmental

activities also. Being the social banker, it has to take banking facilities to

the rural areas and unbanked centers. It is the spokesman for not only the

primary agricultural credit societies, but also for other kinds of co-

operative institutions in the district. The DCBs are also doing personal

banking along with the financing of primary credit societies.

The District Co-operative Banks (DCBs) are nodal centers of financial

institutions in the co-operative sector in a district. They have to mobilize

the available resources and utilize them in the most efficient and

profitable manner. The major objective of this analysis is to study the

historical development and analyze the trends in the progress of

cooperative banking in Uttar Pradesh. The researcher also aims at

examining the growth of business of cooperative banks in terms of

deposits mobilization and credit advanced and evaluating the overall

performance and financial performance of cooperative banks in Uttar

Pradesh during the study period. Other than these the researcher put

efforts to identify the prospects and constraints of district cooperative

banks in the region and also to forward some policy suggestions for

future projection of cooperative banks in Uttar Pradesh.

2.3 Objectives of the study

1. To study the historical development and analyze the trends in the

progress of cooperative banking in Uttar Pradesh.

2. To analyze the sources and uses of funds of DCBs in UP.

3. To examine the growth of business of cooperative banks in Uttar

Pradesh in terms of deposits mobilization and credit advanced during the

study period in particular and the overall growth and status of DCBs in

general with respect to both India and Uttar Pradesh.

4. To study the extent of progress in owned funds of cooperative banks

in Uttar Pradesh in terms of share capital and reserves during the study

period.

5. To evaluate the overall performance and financial performance of

cooperative banks in Uttar Pradesh with the help of some selected ratios.

6. To assess and analyze the status of employees in terms of their cost of

management.

7. To give policy suggestions for future projection of cooperative banks

in Uttar Pradesh.

8. Finally, efforts are taken to identify the prospects and constraints of

district cooperative banks in the region and also to forward some

suggestion in this regard.

2.4 Scope

In the present study an analysis and assessment of cooperative banks in

Uttar Pradesh with respect to their efficiency, profitability in comparison

to the cost of funds, further the sources from which they are acquiring

their funds and the manner and method in which they are utilizing their

funds has been explored. In order to ensure this various ratios have been

calculated by the researcher.

2.5 Hypothesis

1. Over the years the number of branches of DCBs in India is likely to

increase.

2. Cooperative banks have been playing an important role in

mobilization of deposit and extension of credit to influence the

distribution of credit to people.

3. In general, it is expected that all the banks in U.P will have an

increasing trend with regard to different types of deposits during the

study period.

4. There is an inverse relationship between borrowings and profits of

DCBs.

5. Loans and advances and profits of DCBs are directly related each

other.

6. There is an increasing trend of overdues to loans over the period of

study.

7. In general the DCBs had maintained very low liquid assets. (From

ratio analysis chapter).

8. It is assumed that the percentage of term deposits in comparison to

other kinds of deposits in DCBs would be comparatively less.

2.6 Research Methodology

2.6.1 Data sources

The present study has the objective of assessing and analyzing the

performance with regard to profit and efficiency of cooperative banks in

India particularly in Uttar Pradesh.

For this purpose the secondary data were collected from Annual reports

of cooperative banks published by NABARD and Basic Data on

Performance of DCBs published by NAFSCOB for the period from 2002-

03 to 2010-11. Data sources also include RBI bulletin (various issues),

Report on trend and progress of Banking in India (various issues),

published and unpublished dissertation works, books, periodicals and

research articles from various journals were also taken into consideration.

2.6.2 Sample selection

The DCBs in Uttar Pradesh constituted the universe of the study. Uttar

Pradesh is divided into four regions namely Eastern, Western,

Bundelkhand and Central. We have selected ten sample banks on the

basis of these regions. These sample banks include Eta, Etawah,

Ghaziabad and Moradabad DCBs from Western region, Azamgarh and

Allahabad DCBs from Eastern region, Lucknow from Central region and

Jalaun, Lalitpur and Hamirpur DCBs from Bundelkhand region. We have

used purposive random sampling while selecting the sample districts.

2.6.3 Tools for analysis

Consistent with the objectives of the study, simple statistical techniques

like mean, percentages, graphs, etc. along with advanced statistical tools

like compound growth rates, trend equations, Karl Pearson correlation

method, etc. will be applied to arrive at the logical outcome.

Analysis of financial statement of selected DCBs has been done by

applying the tools and techniques of accounting such as ratio analysis and

trend analysis. Compound Annual Growth Rate was used for the

comparison of growth rates of different financial variables like

borrowings, deposits, credit, profit etc. Various statistical measures like

geometric mean, standard deviation and correlation etc have been

calculated. For a more clear understanding of the data, some important

variables are presented through graphs.

2.7 Organization of the dissertation

The research work has been divided into six chapters.

The first chapter traces the historical background and concentrates on

identifying the basic issues connected with cooperative banking in India

particularly in Uttar Pradesh.

The second chapter focuses upon the data sources, objectives of the

study, testable hypothesis and organization of the dissertation and will

explore the methodology to be followed by the researcher to test the

hypothesis.

The third chapter of the study examines the available literature related to

the topic.

Chapter four and five form the core of the study. While the fourth chapter

assesses the trends and patterns of sources and applications of funds of

cooperative banking in Uttar Pradesh, the fifth chapter analyzes the

efficiency and profitability of cooperative banking in Uttar Pradesh.

Finally chapter sixth incorporates the major findings and suggestions

drawn from this study.

CHAPTER -III

LITERATURE REVIEW

Since the inception of cooperative banking, there has been an increasing

interest in performance study of these institutions. A number of studies

related to performance of co-operative banking sector in India have

been conducted. Here, an attempt is being made to provide an overview

of various aspects and issues of this study through the review of existing

literature. Some of the main studies selected for review have been

discussed below.

The All India Rural Credit Survey Committee (1954) noted that through

the restructuring of the co-operative credit in the Bombay state, with

the active support of the co-operators of the state, the system of crop

finance has assumed new significance by 1948-49. The committee found

that under the new provisions, the reorganized Bombay State Co-

operative bank and the central financing agencies along-with the

primary credit societies were expected to provide short-term finance to

all credit worthy agriculturists. The committee also suggested that short

term finance should be provided on the basis of crop acreages rather

than putting credit limits on the basis of landed securities and the time

of repayment should be on the basis of harvesting season.

The study team appointed by Reserve Bank of India (1972) studies the

problems of overdues of the co-operative credit institutions in the

country. The study revealed that particularly backward and undeveloped

districts were facing the problem of high overdues. The team also

observed that the members of the managing committee of societies and

the director of the central co-operative banks were being unconcerned

as far as recovery of loans is concerned.

John Winfred (1974) in his study observed that in order to have prompt

recovery of loans it was very essential that recoveries in DCB should be

arrange around harvest time with supervisory staff and non-official

leadership. For the proper understanding of the implications of prudent

use of credit, he further suggested a member education programme,

which was also supposed to generate additional income - through

subsidiary occupation to farmers. His recommendations also included

organizing the marketing activities by marketing societies to recover the

loans from sales proceeds.

Subhash Chandra Sarkar (1974) observed that the heavy overdues at the

level of DCBs in India are the major reason for reducing their capacity to

borrow from the higher financial institutions. In his view the reason for

the increasing overdues of DCBs was not the inability of the borrowers

to repay, rather their own incapability to recover loans. As per his

opinion the other reasons for the increasing overdues in co-operative

financial institutions include defective lending policy pursued by the

DCBs and Primary Agricultural Credit Societies, administrative

weaknesses, political patronage to defaulters and the failure of the

executives of the co-operative institutions to adopt appropriate

measures.

Kanakasabhai (1976) studied the credit planning and financial

management in co-operative banks in Orissa. He finds out that the

success of a co-operative society depends upon the way it manages its

funds, how it increases its profitability and thereby improves the image

of the institution.

Varkey (1976) observed that to raise resources was the major problem

faced by co-operative societies. The ratio of deposits between

commercial and co-operative banks has deteriorated from 88.19: 11.81

in 1970-71 to 89.05: 10.95 during 1973-74. He concluded that rather

than depending on government contribution co-operatives need to

focus on the mobilization of deposits.

Pandey and Muralidharan (1977) found that the major factors

influencing overdues in co-operative credit societies at farmers’ level

were the size of loan and consumption expenditures. The study revealed

that loans were issued without considering the repayment capacity of

the borrower and moreover lack of proper supervision of loans also

resulted in diversion of loan either for consumption purposes or for non-

stated capital investments.

Bhaskar Rao (1978) analyzed that investment growth both in DCBs and

Primary Agricultural Credit Societies is not properly supplemented by

satisfactory recovery performance.

Desai and Narayana Rao (1978) observed that in co-operative credit the

default rate is very high. In comparison to long term loans the rate is

quite high for short-term loans. The default rate in most of the states

was more that 30 to 35 per cent with a few exceptions like Tamil Nadu,

Andhra Pradesh, Kerala, Punjab and Haryana. The major reasons for this

were inappropriate loan terms and administration, which were found to

be interrelated. They concluded that in order to solve this problem there

was a need to reorient the credit projects along-with better economic

analysis.

Pancras (1978) examined the funds management of co-operative banks.

He found out that due to their far flung location from apex banks, the

co-operative banks are compelled to keep more cash/liquid assets. In his

views profitability in co-operative banks depends upon efficient

management of funds mobilization and deployment of funds. He also

emphasized that co-operative banks should aim at increasing

profitability by efficient cost control associated with funds management.

Jose, et al. (1984) studied the performance of Trichur District Co-

operative Bank in deposit mobilization scheme. They observed that the

total deposits of the Trichur DCB increased from Rs.635.19 lakhs in 1976-

77 to Rs.1763.63 lakhs in 1981-82, showing an annual average increase

of 35.53 per cent. On the other hand, the share of fixed deposits showed

a declining trend during 1976-77 to 1978-79, which increased

substantially in 1981-82 during the deposit mobilization campaign.

I Sharma (1985) analyzed the short-term agricultural credit of Rajasthan

Central Co-operative Bank. The study revealed that with regard to the

short-term credit, the loan policies and procedures of the central co-

operative banks should be on the basis of crop loan system. He also

observed that loans should be given in installments and there should be

a felicitously appropriate link between advancing and repayment of

loans with sowing and harvesting season.

Venkitesan (1984) discussed the achievement of Primary Agricultural

Credit Societies (PACS) regarding credit disbursement and also short-

term agricultural loans and its resultant impact on agricultural

production in Kerala. His findings revealed PACSs earning profits had a

strong resource base, high rate of deposit mobilization, low borrowings

and high distribution of agricultural advances and high rate of loan

recovery compared to those incurring losses. The study also recognized

the major factors adding to resources of the PACS like pattern of

cropping and occupation of the members, simplified loaning procedures

leading to the satisfaction of the beneficiaries and members’ active

participation in the affairs of the society.

Savaraiah and Thirupal (1984) made an attempt to compare the financial

performance of Prakasam District Central Co-operative Bank (DCCB) and

Nellore DCCBs on the basis of statistical tools and also evaluated the

financial soundness of these two banks. The study pointed out DCCBs

should procure the permanent capital of its own as quickly as possible

and should try to mobilize deposits from the public to the maximum

possible extent so as to make these operations possible.

Sharma (1985) discussed the short-term agricultural credit of Rajasthan

Central Co-operative bank (CCB) and concluded that the CCBs should

change their short term loan policies and procedures on the basis of

crop loan system and also observed that loans should be given in

installments and there should be a felicitously appropriate link between

advancing and repayment of loans with sowing and harvesting season.

Varma (1985) studied the overall performance of the Central Co-

operative banks in Maharashtra and opined that their major defects

were poor recoveries, overdues, poor deposits, insufficient

management, inadequate and untrained staff lack of supervision,

defective loan policies, defective book adjustments, inadequate bad and

doubtful reserves, etc.

Unnikrishnan (1985) studied the details of cash reserve management of

Trichur DCB and emphasized the need for reducing the cash reserves of

the bank. He also recommended that for better deployment of funds,

technologically feasible and economically viable schemes may be

undertaken.

Shah (1986), in his study observed that for the survival of co-operative

banks, especially after the competitive multi-agency banking concept in

the field of rural finance, there was the need for the establishment of

Research and Development cells in co-operative banks. According to him

the present profile of the functioning of the co-operative credit

institutions amply establish the rule of thumb as a modus operandi at all

levels of management. In his views, cooperative banks need to have

more systematic planning without compromising flexibility and

entrepreneurial flair. He suggested that the co-operative banks’

approach have to be more innovative in marketing and selling of banking

services.

John Winfred (1986) examined the funds management of Central Co-

operative Banks (CCBs) in India. The study revealed that mobilization of

resources is one of the core functions of CCBs. In his views, in order to

run the credit system efficiently and to reduce their dependence on

outside borrowings, there is a need to enhance and improve the rural

resources. According to him, co-operative capital should be utilized

prudently and in the most effective manner to minimize expenditure

and to gain maximum benefits. The efficient utilization of resources

implies diversified development without compromising the main

banking principles viz. liquidity, safety and profitability. He concluded

that better utilization of funds helps not only in improving the image and

income earning capacity of the banks but also in reducing the regional

and functional imbalances.

Narayana Swamy and Ramachandran (1987) discussed the impact of

income and expenditure on profitability through the key ratios

developed by Varsha S. Varda and Sampat P. Singh. The study pointed

out that the rise in the volume of business over a decade had resulted in

the increased profit of the bank and also due to a higher rate of decline

in spread ratio as a result of fall in interest received. In their opinion, the

profit and profitability would increase with the improvement in the

areas like recovery, mobilization of deposits, branch expansion,

reduction in manpower and operating expenses, building up of more

owned funds and scientific management of funds.

James Paul (1987) made an attempt to evaluate the operational

efficiency of Ernakulam DCB and opined that the bank’s owned funds to

borrowed funds ratio and the borrowed funds to working capital ratio

made it evident that the bank is efficient in the mobilization of funds.

However the deployment of funds was found to be inefficient. Because

of inefficient utilization of funds the ratio of net profit to own funds ratio

showed a declining trend. His study revealed sound liquidity position of

the bank. In his view the position of the bank can be improved by

exploring new avenues of investment, better cash management and

through the reduction of the overdues of the bank and by forming an

extension wing to study the problems of its member societies.

Naidu and Prasad (1987) examined the pattern of utilization of

production credit of cooperative short-term with the help of cross

tabular analysis and regression analysis. The study revealed that there is

an inverse relationship between short-term credits of co-operative used

for production purpose and the farm size. The marginal and small

farmers used the credit amount for the consumption purpose on the

other hand the medium and large farmers also used it for

nonagricultural purposes. They further suggested that to assure the use

of loan amount for stipulated purposes regular follow-up visits are

essential.

Rajeev Kumar Saxena (1987) in his study found out that Central

Cooperative Bank at district level serves as an important link between

the state co-operative bank and the primary agricultural credit societies

at the base. He observed that in order to make the central co-operative

banks financially and administratively strong and viable units, there was

an urgent need to solve its major problem of overdue and its recovery.

His recommendations also included effective supervision over the end

use and close contact of higher officials with the farmers.

Arulanandam and Namasivayam (1987) found out that the overall image

of the bank, the quality of the service offered, the type of deposit

schemes introduced, their attractiveness, branch network and the

efforts made by the bank to identify the savings potential of the target

group and their effective channelization into its system reflects the level

of deposits mobilized by any co-operative bank. They were of the view

comparison of the ratio of bank deposits to the national income of

various countries will help in analyzing the deposit mobilization better,

and for increasing this ratio, the motto of co-operative banks should be

"no place is too insignificant and no deposit is too small".

Vaikuntha (1988) did a survey of borrower households of Dharward DCB,

in Karnataka during 1984-85 and observed the reasons for non-recovery

of loans. According to him natural calamities, unsound lending policies,

inadequate supervision, unsatisfactory management and lack of right

type of leadership were some of the major reasons for increasing

overdues. He recommended that in order to control the overdue

problem there is a need to impose abnormal interest penalties and

effective recovery policies.

John Winfred (1988) conducted another study on the funds

management in DCBs in India. The study revealed that the sources of

funds consisted of both internal sources (share capital from banks,

members and reserves created by banks) and external sources (deposits

from individuals, co-operatives, other institutions and loans and

advances from apex financing banks, government and commercial

banks). He observed that in order to identify the margin available to a

bank in its resource mobilization and utilization effort, it is very essential

to ascertain the cost and returns of funds. According to him it was also

necessary to evaluate whether the margin available is adequate to run a

bank viably. He opined that the cost of deposits varied from bank to

bank depending upon their composition- the higher the level of current

and savings deposits (which are much less costlier) the lower will be the

average deposits rate and vice-versa.

Moorti et al. (1988) studied the membership, share capital, deposits,

loans and advances, pattern of utilization and problems of overdues of

the co-operative credit societies. They found out that the poor

management of societies, negligence on the part of management of

societies, the untimely release and inadequate amount of loan that

weakens the repayment capacity, were the major reasons for the

increasing overdues in credit societies.

Bhoslae and Dangat (1989) studied the cooperative societies in Kolhapur

district. They analyzed the extent of medium term borrowings of farmers

from cooperative societies, repayment position of the loan borrowed

and the factors responsible for overdues. The misutilization of loan was

the major reason for overdues. They observed that there is a direct

relationship between the total amount borrowed and the amount of

overdues therefore proper analysis of the loan application by the

financing institution is required. They recommended that there is a need

of a suitable policy with regard to supervision of credit at the farm level.

Bhatt et al. (1989), with the help of correlation coefficient and‘t’ test,

examined the credit-deposit ratio and its inter-relationship with other

components contributing towards credit of DCBs. They found out that

the real picture of management of deposits and credit is depicted by

effective credit-deposit ratio. The researchers emphasized performance

efficiency should be judged by using the effective credit-deposit ratio, in

relation to credit and deposits of banking sector function in rural area.

Cheriyakoya (1989) examined the extent and composition of the

additional deposits mobilized during deposit mobilization campaign and

its impact on the lending pattern of the Trichur DCB during 1978-79 to

1987-88. He analyzed that in comparison to the normal months, the

credit deposit ratio, which indicates banks' efficiency in the deployment

of funds, was lower during the deposit mobilization campaign. The

reason for this was said to be unwarranted concern of the staff for

deposits mobilization and the total negligence for lending during this

period. It was observed that during the April- May period in all years, the

deposits increased significantly, so this period was found to be more

suitable for the deposit mobilization campaign.

Ranga Reddy (1989) made an attempt to study the measures taken for

reducing farm co-operative overdues in the Guntur District Central Co-

operative Bank and the sample PACS. He observed that the stream-lining

of management, strengthening of the supervisory staff, restructuring of

the working capital by raising the share of owned resources and prompt

legal and executive action covering all delinquents were some of the

corrective and preventive measures taken for reducing farm co-

operative overdues.

Khusro Committee Report (1989) suggested that the DCBs, along-with its

supervisory functions over PACS, should help them in legal and other

related matters, whenever needed. The committee also recommended

that DCBs will continue to work as the liquidity reservoir and balancing

centre of PACS, simultaneously working as a bank for other co-operative

societies in the district. In committee’s view to retain a part of the share

capital received from their members the linking of share capital to

borrowings at DCB level for PACS may be fixed at 5 per cent. It was

advised to reduce the ratio of cash credit to PACS from 2.50 per cent to

1 per cent.

Abdul Majeed (1989) studied the credit operations of Malappuram DCB.

He analyzed the change in composition of loans on the basis of priority,

period, section wise classification and purpose of loans issued by

Malappuram DCB. He concluded that over the period under study (1980-

81 to 1987-88) loans recovery was low and declining.

Dhanarajan (1989) studied the profitability trend of Palakkad DCB (1977-

78 to 1986-87) and also assessed the impact of primary and secondary

factors on spread and burden of Palakkad DCB. The study revealed that

the burden of the bank increased continuously throughout the period

which was evident in its decreasing profitability trend.

Shaheena and Kannan (1989) in their study measured the excess

reserves kept and the opportunity cost of excess reserves for Palakkad

DCB for the period 1978-79 to 1987-88. They suggested that the bank

should aim at reducing the excess amount kept under CRR. They also

recommended that if in case bank is keeping an excess, it should in the

form SLR, so that it can be utilized by the bank for short-term

investments preferably in the Stock Exchange Market. This will help

them improve their liquidity position and they can rely for interbank

loans on a larger scale.

Rajan (1990) studied the reserve management of Kozhikode DCB to

assess the excess reserves kept by the bank to measure the opportunity

cost of excess reserves for the period 1979-80 to 1988-89. The study

revealed that the bank was keeping excess reserves under the

regulations of CRR and SLR. The non-availability of scientific portfolio

management techniques was the reason for the high magnitude of

excess reserves under CRR. However it was found that the bank was

efficient in SLR management. He also suggested that to minimize the loss

due to the practice of keeping excess reserves in the branches of the

bank there was a need to improve the branch information system. The

recommendations also included investment in call money market and

inter-bank deposits.

Mani and Letha (1990) observed that the Trichur DCB used to keep

excess reserves under cash reserve ratio (CRR) and statutory liquidity

ratio (SLR). The size of excess reserves under CRR was reported to be

high, the reason being lack of scientific portfolio management

techniques in the bank.

Salim Uddin (1990) analyzed the functioning and impact of various co-

operative financing institutions in Haryana State. In his views there is a

need for the professionalization of co-operative management and also

to define a proper code of conduct for managers. He suggested that a

balanced board of directors with diverse talents, sound policies and

commitment for proper implementation, are the key areas which can

help in success of the movement and improvement of the central co-

operative banks. He recommended that for the sound functioning of the

banks, reduction of administrative cost and introduction of the various

new practices is very necessary.

Satendra Pal Singh et al. (1990) conducted a study to identify the factors

affecting overdues of agricultural loans. Amount of loan borrowed,

amount of loan put under non-productive uses, size of holding and

repayment capacity were the four main factors identified by them.

According to the authors the test of technical feasibility and financial

viability should be the condition for providing loans to the farmers. They

recommended that suitable steps be taken for proving education to the

farmers regarding the proper utilization of loans and also to avoid excess

expenditure on the repayment of loans.

Obul Reddy and Malla Reddy (1990) tried to identify the socio-economic

factors which influence the repayment of co-operative dues by the

borrowers with the help of information collected from 150 borrowers

under the Bhongir DCB in Nalgonda district of Andhra Pradesh. They

found out that there is no significant relationship between socio -

economic factors and repayment of co-operative dues.

Mohandas and Indira (1991) analyzed that as per All India Debt and

Investment Survey (1971-72), the deposits of DCBs of Kerala had

increased from Rs.253.14 lakh in 1960-61 to Rs.3117.75 lakh in 1974-75

and they noted substantial increase since 1971-72. They also observed

that the co-operatives are still lagging behind the commercial banks

despite the substantial increase in their deposits.

Sukumaran and Shaheena (1991) examined the efficiency of the

Palakkad DCB with regard to the management of the interest, spread,

burden and profitability of the bank through the secondary data from

annual reports. They analyzed that the excess reserve kept by the bank

indicates ineffective management of funds within the bank.

Bobby C. John (1991) made an attempt to study the financial

performance of Kottayam DCB in detail to measure its profitability.

According to him, the operating profit ratio of the bank was not

satisfactory. The study revealed that in comparison to non-interest

expense which increased six fold, the non-interest income increased just

five fold. Due to the increase in the manpower expenses, not only the

non-interest expenses increased but it also resulted in the declining

trend in profitability. He recommended that the bank should make

efforts to reduce the management cost and plan its assets and liabilities

mix to reduce the cost of funds and increase the return on funds.

Viswanathan and Radhakrishnan (1991) analyzed the different sources

of funds, the costs associated with raising these funds, different

channels of flow of funds, revenue realized and their growth over the

years to examine the overall performance of DCBs in Kerala.

Reorganization of the various activities was recommended by them

through which DCBs can enhance their income. Lower level of fixed

deposits, higher level of savings bank and current deposits, subscription

of maximum reserve funds and a moderate level of borrowings were

some of the recommendations on the source of funds.

James Hadlant Gunther (1992) in his study examines the extent of

deposit mobilization, deployment and the profitability of Ernakulam

DCB. He observed that about 40% of total deposits consisted of fixed

deposits and short term loans contributed the major portion of loans in

the loan mix of the bank. Over the years the disbursement of loans and

advances were increasing. The author found that there is seasonality in

lending in the months of May and June. He also found that the

performance of Ernakulam DCB, with regards to mobilization of

resources, its deployment and profitability were quite good.

The performance and economic viability of PACS in Kerala were studied

by Suresh and Vinaikumar (1993). They also analyzed the performance

of PACS in general at the All India level and remarked that only a few

states satisfied the norms stipulated by the RBI and NABARD. However,

all the PACS in Kerala satisfied the five quantifiable norms of NABARD on

an average. On the basis of the index of viability constructed considering

eleven variables, the authors found that PACS in only five districts in

Kerala were viable, five potentially viable, while the remaining four less

viable. To promote economic viability of PACS it was suggested that

auditors should be trained, procedures should be streamlined to detect

misappropriations and effective actions should be taken to curb them

and loans and advances and business policies ought to be revamped to

suit member needs to increase the user members. They further

suggested the professionalization of co-operatives, in-service training to

inculcate managerial skill and the establishment of state level

Recruitment Board for co-operatives, and the transformation of the

present status of PACS as Government extension agencies to peoples'

organization.

Sivaprakasam (1993) made an attempt to analyze the personnel

management in DCBs and observed that the employee turnover ratio of

DCBs was low as compared to those in Regional Rural Banks. He found

that one of the important criterion for nearly 1/3of the employees to get

appointed is “influence”. He recommended that the DCBs should

develop such a promotion policy that the employees at the base level

are able to get at least two promotions in their entire career. As per his

views majority of the employees oppose deputation because of the

various reasons such as lack of knowledge, lack of commitment on the

part of the deputationist, lack of banking knowledge, blocking the

promotion of bank employees, delay in policy and decision making and

frequent transfer as they are government employees. He also found that

after undergoing training employees were able to improve their work.

Tucker (1993) emphasized the significance of Human resource

development (HRD) for the improvement of productivity of co-

operatives.

Indra Sena Reddy (1994) made an attempt to study the overall financial

position and performance of Multipurpose Co-operative Rural Bank and

found out that it was satisfactory. The author also suggested that the

bank should aim at improving its performance in respect of profitability

and turnover.

Ajjan (1994) made an attempt to study the performance of the three-tier

structure of cooperative credit institution in Tamil Nadu in terms of their

deposits, borrowing working capital, loans issued, loans outstanding for

a decade (1982-83 to 1991-92) and found out that in all the short-term

and medium term cooperative credit institutions, the deposits,

borrowing and working capital have increased more than 20 per cent.

The study noted a decline in the recovery of the overdues from 46 to

about 35 per cent during the study period depicting the poor recovery

performance, for which he recommended implication of appropriate

plans.

Muthupandian (1995) made an attempt to study on the overall

performance of Tirunelveli District Central Co-operative Bank (TDCCB).

According to him the development of primary societies and the growth

of the co-operative spirit among the members are responsible for the

success of TDCCB. The success of TDCCB also depends upon their ability

to mobilize deposits and savings and make recoveries of bad debts. He

suggested that for future growth bank will have to promote agricultural

development and have to set standard of supervision of the societies

under their charge.

Joy Joseph (1995) studied the funds management of the Agricultural and

Rural Development Banks in Kerala and observed that in comparison to

income factors the growth rates of cost components were high. He

observed that the banks’ profitability was adversely affected by the high

cost of management. In his views profitability was continuously declining

year by year due to the increasing overdues, and consequently the

operational efficiency and overall return in these institutions was very

low. The margins received by primary banks were inadequate for their

profitable operation. He opined that high family expenditure, willful

neglect, modification of subsidy system, misutilization of income from

the project and inappropriate Government policy were some of the

major reasons for the high and increasing overdues.

Shollapur (1995) examined the recovery performance of Karnataka state

cooperative apex bank. He observed that the performance in credit

collections was poor as the percentage of recovery to demand has

declined from 94 per cent to 55 per cent in total credit and from 95 per

cent to 54 per cent in agricultural credit. The total overdues have

increased 13 times from Rs. 401.26 crores to Rs. 5059.32 crores. His

recommendations include imparting training for recovery management

involving central cooperative banks and other constituents.

Shiyani and Sima (1999) studied the performance of credit institutions in

promoting agricultural development in Gujarat. He was of the view that

the total overdue of agriculture and allied activities in Gujarat was Rs

421.52 crore, which was quite high. The proportion of agriculture

overdues of co-operative banks in the total overdues of all banks in

Gujarat was more than 65 percent reflecting a situation that needed

immediate action. Moreover the cooperative banks’ share in the total

credit flows to the agricultural sectors was as low as 36 percent.

Patil (2000) found out in his study on the basis of opinion of beneficiaries

that the procedure of getting loans from primary co-operative

agricultural and rural development bank in Dharwad district was

cumbersome and most of the borrowers faced many problems such as

document requirement which consumed a lot of time and money, lack

of guidance on the part of bank officials, delayed sanction of loans etc.

However the staff treatment of bank officials was quite satisfactory.

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.

Zeratsion (2002) made an attempt to analyzed the performance of

primary agricultural credit societies in Karnataka and found out that

primary agricultural credit societies in the state shows a growth of 15.37

per cent with regard to the total loan recovery. The overdues showed an

insignificant growth of 3.15 per cent annually during the study period

from 1986-87 to 1997-98.

Gosh (2005) observed that the short term credit remained nearly

unaffected, considerably at about 14 per cent, while the long term credit

growth reduced from about 20 per cent in the 1970s to about 14 per

cent in the 1990s which was alarming. But this trend was a hurdle in the

way of growth and prosperity of the agricultural sector.

Thanarathnam (2006) examined the loan dispersion and the working of

primary agriculture co-operative bank. He observed that 24 percent of

the farmers confirmed easy accessibility and 76 per cent of the farmers

confirmed low rate of interest were the reasons for borrowing from co-

operatives, indicating the good performance of bank. The study revealed

that among the difficulties for getting loans, difficult procedures were

the reason for 22 percent, cost of availing loans for 16 per cent, security

required for 24 per cent, untimely loans availability for 18 per cent of

the farmers along with difficulties in providing documents for 20 per

cent of the farmers. He observed that short term loans were generally

provided on personal security; therefore this problem of providing

security could be easily remedied.

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.

Ramappa and Sivasankaraiah (2007) observed that as overdues of the

Rayalseema Grameena bank in Andhra Pradesh declined from 34 per

cent in 2003 to 19 per cent in 2004 it reflects its better recovery

performance. He also found that the repayment performance of non

priority sector was better than that of priority sector. The study also

revealed that 95 per cent of total demanded loans had been repaid by

the members of the Self Help Groups which was quite remarkable.

Singh, Koshta, Chandrakar, (2007) in their study observe the

performance of District Central Cooperative Bank, Raipur and its Mandir

Hasaud Branch by estimating the growth rate performance indicators

with the help of time series data from 1991-92 to 1998-99. . In absolute

term, linear trend value of performance indicators have increased

considerably and overdue was increased by amount of Rs. 375.33 per

annum; is not a good sign for co-operative loans during the period of

study. The estimated compound growth rate for number of borrowers,

amount advanced as crop loan, recovery, outstanding and over dues was

noticed by 2%, 12.42%, 5.13%, 15.36 % and 16.12 %, respectively at 1

per cent level of significance. . It is an alarming situation for co-operative

bank because the increase in rate of over dues is quite high as compared

to the other indicators. It is recommended to improve the recovery

performance in order to check the over dues because it is not a good

indication for the healthy economy of co-operatives.

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.

Kumar, Rajiv, Jasmindeep, Kaur (2010) studied financial appraisal of

Haryana State Cooperative Apex Bank for the period of five years from

2002-03 to 2006-07. They analyzed the various parameters for the

appraisal of banks like number of offices, membership, paid up capital,

reserves and other funds, deposit mobilization, deposit type wise,

demand, collection, loans issued, loans outstanding, cost of

management and profit and loss and number of branches in profit and

loss.

Gandhimathi, Vanitha (2010) made an attempt to study the preference

of farmers for borrowing between commercial and co-operative banks.

They examined the distribution of institutional credit across various

categories of farmers and assessed the coverage and quantum of credit

and also the socio-economic factors which affect the borrowing behavior

of farmers towards commercial and co-operative banks. They gave some

suggestions for improving accessibility of institutional credit for farmers.

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.

Singh and Singh (2010), in their study titled, “Technical and Scale

Efficiency in District Central Co-operative Banks of Punjab −A Non-

Parametric Analysis” had attempted to investigate the extent of

technical efficiency across 20 DCCBs of Punjab with the help of Data

Envelopment Analysis. They brought out that size of DCCBs and profits

had been affecting the measures of technical efficiency significantly. The

study further revealed that DCCBs of Punjab were suffering from the

problems of managerial irregularities and improper production scale.

Appropriate policy interventions by state government, RBI and NABARD

have been suggested by the authors.

CHAPTER-IV

TRENDS AND VOLUME OF SOURCES AND

APPLICATIONS OF FUNDS IN DCBS

4.1 Introduction

Rural credit cooperatives in India were born more than 100 years ago as a

state initiative with promulgation of the Cooperative Societies Act by the

then British Government. Cooperative Credit Societies were organized

with the only objective of providing credit to the farmer members at a

reasonable rate of interest to emancipate them from the clutches of money

lenders. After the amendment of the Cooperative Societies Act in 1912,

the Cooperative Credit Societies were federated into Central Cooperative

banks (CCBs) to mobilize resources to meet the credit requirement of its

farmer members.

The role of Co-operative banks is very important in meeting the credit

requirements of both the urban and rural India. Despite the fact that these

institutions account for small share in the total business undertaken by the

banking system in India, they occupy a significant and prominent place in

Indian financial system as they cater to different geographic locations and

demographic categories. Co-operative banks with their large banking

network have not only supplemented the commercial banks to strengthen

the financial intermediation by bringing a large number of depositors and

borrowers under the formal banking network, but have also enabled the

people from low and middle-income groups, both in rural and urban

areas, to have access to banking services.

The cooperatives in India generally have three-tier structure in most of

the states with primary agricultural credit cooperative societies (PACS)

with farmers as their members at the base level, districts cooperative

banks (DCBs) as the intermediate federal structure with PACS as

principal affiliated members, and the state cooperative bank (StCB) at the

apex state level with CCBs and other cooperatives as its principal

members. This three-tier cooperative credit structure is popularly known

as the short-term cooperative credit structure (ST CCS). The ST CCS

functions as a three-tier structure in 16 states; while in 13 smaller states &

union territories, PACS are directly affiliated to the StCB and the ST

CCS functions as a two tier structure. In 3 states, a mixed structure, i.e.,

two tier in some districts, and three-tier in the other districts operates.

(RBI Report 2012).

The financial performance of DCBs in India in general and Uttar Pradesh

in particular in terms of various sources and applicatons of funds for the

period of 2002-03 to 2010-11 are analysed in this chapter.

4.2 Trends In Financial Performance Of DCBs: The Key Indicators

Table 4.1 Progress Of District Cooperative Banks in India from

2002-03 to 2010-11

Main Items 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 CAGR %

No Of DCBs 366 368 368 370 371 372 373 372 371 0.17 Paid Up Capital (Rs. In crore)

3576.8 3810.0 4115.5 4511.5 5098.1 5829.2 6071.4 7776.5 7257.7 9.25

Reserves (Rs. In crore) 9675.9 11208.2 12672.9 14082.9 15505.1 16435.7 17808.0 20133.0 20692.0 9.97

Deposits (Rs. In crore) 72394.4 76884.5 80493.5 86652.2 92181.4 105993.7 123721.8 146303.1 161308.8 10.53

Borrowings (Rs. In crore) 19238.5 21128.1 21557.1 23202.1 27940.6 30533.3 28477.6 30354.8 39101.2 9.27

Working Capital (Rs. In crore)

109092.4 118905.3 122632.9 131241.9 146083.6 168137.5 184037.9 206918.4 235430.7 10.09

Investments (Rs. In crore) 31138.8 35677.3 34783.2 37127.4 40791.1 48246.6 61041.2 75624.5 75624.5 11.73

Loans Issued (Rs. In crore) 49775.5 48899.7 55212.4 60418.5 76703.8 87229.1 88028.7 110529.3 137757.2 13.57

Cost Of Mangt. (Rs. In crore)

3237.0 3345.8 3680.1 3013.0 3779.8 3748.8 4227.2 4437.4 5307.5 5.6

Number Of Employees 110078 110058 109124 105885 91768 90035 89259 87554 87928 -2.77

CoM/employee 2.93 3.04 3.37 2.85 4.12 4.16 4.74 5.07 6.04 8.37 Profits (+) / Losses(-) (Rs. In crore)

505.7 530.4 1230.4 1773.1 1067.3 -769.1 362.6 2654.8 658.4 3.35

% overdues to loans 37.43 36.90 32.86 31.69 32.93 37.15 32.69 26.73 27.37 -3.84

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB The details of the growth in financial indicators of the DCBs in India are

shown in table 4.1.

During 2002-03 to 2010-11 among all the financial indicators, loans and

advances showed the highest growth rate of 13.57 percent. This was due

to the coverage of large area under lending programme and wide range of

advances to both agricultural and non-agricultural purposes. Investment

showed a positive growth pattern (11.73%).This was mainly due to the

increase in the profitable investment of the banks.

Deposit, profit and reserve and other funds, showed positive growth

(10.53%, 3.35% and 9.97% respectively) due to increase in advances both

for agricultural and non-agricultural purposes and improved recovery

percentage. The growth in deposit was mainly due to rapid increase in

deposit mobilization. There is negligible growth in number of DCBs over

the years(0.17%). Percentage of overdues to loans registered the negative

growth rate of (-3.84%) during the study period. The reason may be

intensive efforts made by the staff to recover loans.

We observed huge fluctuations in profits from Rs. 505.7 crores in 2002-

03 to Rs. (-)769.1 crores in 2007-08 and again Rs. 658.4 crores in 2010-

11.The overall growth rate of profit was 3.35%. The paid up capital

showed a considerable and high increase of 9.25% .

In general there is no significant change in the number of DCBs, we

observed considerable improvement in share capital, reserves, deposits,

borrowings, working capital, investments and loans and advances of

DCBs in India for the period of 2003-2011.

The growth and expansion in terms of the volume of business is

considered to be one of the important indicators which speaks about the

performance of any banking institution. In order to measure the

performance of the district cooperative banks, some of the financial

indicators were identified and the growth rates of those indicators were

computed for the selected sample banks. The computed growth rates of

each bank were analysed and discussed as under

4.3 Sources of funds

It is widely acceptable and recognized that no institution can surive

without adequate own resources. Financial health of any financial

institution is very important for continous improvement, making risky

cum profitable investment and meeting contingencies. The sources of

funds of cooperative banks consist of share capital, reserves and other

funds, deposits and borrowings which are discussed in detail in the

following paragraphs.

4.3.1 Share capital

For a banking institution to raise resources either as deposits or

borrowings would require that the institution have a capital base

consisting of equity and reserves. In a cooperative bank primarily driven

by providing credit to its members at a reasonable cost, maximizing

return on equity remains secondary. Further, raising capital from the

public at large may compromise its mandate. Hence, the equity of the

DCBs is raised from the affiliated member institutions. Normally, as per

statute, a borrowing member has to contribute equity in proportion to the

borrowings made by the institution from the bank. This does make it

difficult for the cooperative banks to have a large capital base and in the

present times when capital adequacy is becoming a major issue in banks,

cooperatives may in the conventional industry sense be undercapitalized.

To overcome this constraint of capital, State Governments have

contributed to the equity of DCBs to strengthen their capital base, but this

has its own pros and cons.

The position of share capital of the selected DCBs is exhibited in table

4.2

Table 4.2 Share capital of selected DCBs from 2002-2003 to 2010-2011

(Rs. in lakhs) Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 Allahabad 682 696 696 725 725 781 804 838 886 Azamgarh 497 512 521 532 532 543 543 584 584 Etah 558 606 698 678 678 743 776 800 809 Etawah 434 442 442 442 442 490 504 519 535 Ghaziabad 385 385 402 489 489 576 809 863 956 Hamirpur 380 391 391 421 421 459 526 565 616 Jalaun 427 432 432 464 464 503 537 537 600 Lalitpur 354 354 354 401 401 444 449 462 502 Moradabad 662 662 662 662 662 662 662 763 763 Lucknow 306 351 351 351 351 351 351 351 351 Average 469 483 495 517 517 555 596 628 660

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

The chart 4.1 and Table 4.2 reveals that out of the ten selected DCBs,

total share capital of four DCBs were higher than the overall average in

2003. Allahabad DCB had the highest average (Rs 682 lakh) followed by

Moradabad DCB (Rs. 662 lakh), Etah (Rs. 558 lakh) and Azamgarh (Rs.

497 lakh). Lucknow DCB had the lowest average of Rs. 306 lakh. The

682

497 558

434 385 380 427354

662

306

469

886

584

809

535

956

616 600

502

763

351

660

0

200

400

600

800

1000

1200

Districts

Chart 4.1 Share capital of selected DCBs ( Rs. in lacs)

2003

2011

averages of Allahabad, Etah, Ghaziabad and Moradabad DCBs were

higher than the overall average in 2011. It was the highest in Ghaziabad

DCB (Rs.956 lakh) and the lowest in Lucknow DCB (Rs.351 lakh). It is

also clear from the table that, Ghaziabad DCB had the maximum increase

in share capital during this period which increased from Rs. 385 lakh in

2003 to Rs. 956 lakh in 2011. Allahabad DCB which topped the list in

2003 declined to forth position in 2011.

Generally there is an increasing trend in the share capital of almost all

selected sample DCBs during 2002-03 to 2010-11.

The compound growth rates worked out for comparing the overall growth

in share capital of the selected DCBs are presented in table 4.3

Table 4.3 Compound annual growth rate (%) of Share capital of

selected DCBs from 2002-03 to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR %

Allahabad 682 696 696 725 725 781 804 838 886 3.33

Azamgarh 497 512 521 532 532 543 543 584 584 2.04

Etah 558 606 698 678 678 743 776 800 809 4.75

Etawah 434 442 442 442 442 490 504 519 535 2.65

Ghaziabad 385 385 402 489 489 576 809 863 956 12.04

Hamirpur 380 391 391 421 421 459 526 565 616 6.22

Jalaun 427 432 432 464 464 503 537 537 600 4.34

Lalitpur 354 354 354 401 401 444 449 462 502 4.46

Moradabad 662 662 662 662 662 662 662 763 763 1.79

Lucknow 306 351 351 351 351 351 351 351 351 1.73

U.P. 26591 27377 28236 30100 31554 33974 34361 36206 38151 4.62

India 357680 381003 411547 451147 509813 582923 607141 777653 725768 9.25 Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

It is evident from chart 4.2 and table 4.3 that Ghaziabad DCB recorded

the highest growth (12.04%) which is even greater than the overall

growth of U.P. and India and Lucknow DCB the lowest (1.73%). With

respect to all the indicators it has been observed that there exists a state of

stagnancy in data for Lucknow DCB during 2002-03 to 2010-11. The

table also reveals that the CAGR of Hamirpur and Etah DCBs were

higher than the overall CAGR of Uttar Pradesh. The high increase in

share capital of Ghaziabad DCB may probably be due to its industrial and

commercial development as compared to other districts.

The overall growth of India (9.25%) is almost double in comparison to

the growth of Uttar Pradesh (4.62%) during 2002-03 to 2010-11.

In general the data of the selected sample districts of U.P.for the period

2003-2011 shows that the share capital of DCBs in U.P. is increasing

over the years.

3.332.04

4.75

2.65

12.04

6.22

4.34 4.46

1.79 1.73

4.62

9.25

0

2

4

6

8

10

12

14

Districts

Chart 4.2 Compound annual growth rate (%) of share capital of selected DCBs

4.3.2 Reserves and other funds

Another important component of sources of funds is reserves and other

funds created from operations. Reserves constitute of statutory reserve

fund, agricultural credit stabilization fund and other reserves. Table 4.4

presents the trend of total reserves funds of selected DCBs for the period

2002-03 to 2010-11.

Table 4.4 Reserves and other funds of selected DCBs from 2002-03 to

2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 Allahabad 165 165 165 166 166 354 369 376 375 Azamgarh 2399 2803 2872 3134 3134 3619 3619 4750 4750 Etah 99 100 100 100 100 100 102 102 103 Etawah 1166 1283 1283 1283 1283 2224 3008 3316 4141 Ghaziabad 2670 2670 3403 2741 2741 2906 3590 3811 3866 Hamirpur 425 461 461 496 496 768 942 1085 1615 Jalaun 1687 1750 1750 1930 1930 2233 2455 2455 1955 Lalitpur 935 935 935 706 706 948 949 948 989 Moradabad 1569 1569 1569 1569 1569 1569 1569 8625 8625 Lucknow 216 96 96 96 96 96 96 96 96 Average 1133 1183 1263 1222 1222 1482 1670 2556 2652

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

A close examination of table 4.4 and chart 4.3 highlights an increasing

trend during the period 2002-03 to 2010-11. The table shows that out of

the ten selected DCBs, total reserves and other funds of five DCBs were

higher than the overall average (Rs. 1133) in 2003. Ghaziabad DCB had

the highest average (Rs 2670 lakh) followed by Azamgarh DCB (Rs.

2399 lakh), Jalaun (Rs. 1687 lakh), Moradabad (Rs. 1569 lakh) and

Etawah (Rs. 1166 lakh). Etah DCB had the lowest average of Rs. 99 lakh.

In 2011, the averages of Moradabad, Azamgarh, Etawah and Ghaziabad

DCBs were higher than the overall average. Moradabad DCB exhibited

the highest amount of reserves which increased from Rs. 1569 lakh in

2003 to Rs. 8625 lakh in 2011. Etawah DCB closely followed Moradabad

DCB in this respect. Lucknow DCB's position was at the bottom during

this period, which actually shown a decline in reserves and other funds

from Rs.216 lakh in 2003 to Rs.96 lakh in 2011. Hence, it is evident that

Moradabad DCB is generating more business and as a result creating high

reserve funds as compared to other districts.

165

2399

99

1166

2670

425

1687

935

1569

216

1133

375

4750

103

4141 3866

1615

1955

989

8625

96

2652

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Districts

Chart 4.3 Reserves & other funds (Rs. in lacs)

2003

2011

Table 4.5 Compound annual growth rate (%) of total reserves and

other funds of selected DCBs from 2002-03 to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR %

Allahabad 165 165 165 166 166 354 369 376 375 10.81

Azamgarh 2399 2803 2872 3134 3134 3619 3619 4750 4750 8.91

Etah 99 100 100 100 100 100 102 102 103 0.50

Etawah 1166 1283 1283 1283 1283 2224 3008 3316 4141 17.17

Ghaziabad 2670 2670 3403 2741 2741 2906 3590 3811 3866 4.74

Hamirpur 425 461 461 496 496 768 942 1085 1615 18.16

Jalaun 1687 1750 1750 1930 1930 2233 2455 2455 1955 1.86

Lalitpur 935 935 935 706 706 948 949 948 989 0.70

Moradabad 1569 1569 1569 1569 1569 1569 1569 8625 8625 23.74

Lucknow 216 96 96 96 96 96 96 96 96 -9.64

U.P. 74172 83263 90200 106009 107489 113502 119828 149109 162748 10.32

India 967591 1120824 1267286 1408294 1550512 1643573 1780801 2013296 2069202 9.97

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

The trends of reserves and other funds of selected DCBs are exhibited in

table 4.5and chart 4.4. It is observed from table that Moradabad DCB

10.818.91

0.5

17.17

4.74

18.16

1.86 0.7

23.74

-9.64

10.32 9.97

-15

-10

-5

0

5

10

15

20

25

30

Districts

Chart 4.4 Compound annual growth rate (%)of Reserves and other funds

(23.74%) was keeping sufficient reserves followed by Hamirpur DCB

(18.16%). The lowest growth rate was observed for Lucknow DCB which

is actually negative (-9.64%).We also observe that the growth rate of

reserves of Mordabad, Hamirpur, Etawah and Allahabad is infact greater

than that of state and nation. The rate of growth of India is lower than that

of Uttar Pradesh.

The table and chart revealed that in general the reserve and other funds

of the selected sample districts of U.P. for the period 2003-2011 shows an

increasing trend over the years.

4.3.3 Deposits

Yet another source of funds is deposits which include fixed deposits,

savings bank deposits, and current deposits. The growth of deposits of

selected DCBs from 2002-03 to2010-11 has been shown in table 4.6

Table 4.6 Deposits of selected DCBs from 2002-03 to 2010-11 (Rs. in lakhs)

Districts

Current Deposits Savings Term Deposits Total 2003 2011 2003 2011 2003 2011 2003 2011

Allahabad 1072 1965 7912 19376 8318 11624 17302 32965 Azamgarh 712 1093 3256 6736 3877 5020 7854 12855 Etah 472 918 3384 7018 3044 4150 7156 12693 Etawah 1021 1728 7215 20425 6239 9428 14740 31581 Ghaziabad 521 1306 7605 25758 6429 14591 14555 41655 Hamirpur 600 1143 3410 11636 3385 5882 7402 18661 Jalaun 322 449 4979 11314 5732 9042 11039 20805 Lalitpur 130 178 1347 4105 1745 3226 3222 7509 Moradabad 817 1604 8566 20399 6269 7576 15652 29579 Lucknow 270 490 1969 3959 2306 3871 4839 8457 Average 594 1087 4964 13073 4734 7441 10376 21676

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

1072

712

472

1021

521 600

322130

817

270

594

1965

1093918

1728

13061143

449178

1604

490

1087

0

500

1000

1500

2000

2500

Rs. i

n la

cs

Districts

Chart 4.5 Current Deposits (Rs. in Lacs)

2003

2011

7912

3256 3384

7215 7605

34104979

1347

8566

1969

4964

19376

6736 7018

20425

25758

11636 11314

4105

20399

3959

13073

0

5000

10000

15000

20000

25000

30000

Districts

Chart 4.6 Savings Deposits (Rs. in lacs)

2003

2011

Table 4.6 and the above charts suggest that in general, all these banks

showed an increasing trend with regard to different types of deposits

during 2003 and 2011. Total deposits mobilized in 2003, with respect to

Allahabad, Moradabad, Etawah, Ghaziabad and Jalaun DCBs were higher

than the overall averages. In 2011 total deposits mobilized of Ghaziabad,

8318

38773044

6239 6429

3385

5732

1745

6269

2306

4734

11624

50204150

9428

14591

5882

9042

3226

7576

3871

7441

0

2000

4000

6000

8000

10000

12000

14000

16000

Districts

Chart 4.7 Term Deposits(Rs. in Lacs)

2003

2011

17302

7854 7156

14740 14555

740211039

3222

15652

4839

10376

32965

12855 12693

31581

41655

1866120805

7509

29579

8457

21676

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Districts

Chart 4.8 Total Deposits (Rs. in Lacs)

2003

2011

Allahabad, Etawah and Moradabad DCBs were higher than the overall

averages. In 2003 Allahabad DCB mobilized the maximum (Rs. 17302

lakh) and in 2011 Ghaziabad DCB (Rs. 41655) mobilized the most.

Lalitpur DCB mobilized the least in 2003 and also in 2011 (Rs. 10376

lakh and Rs 21676 lakh respectively).

It can therefore be inferred that Ghaziabad, Allahabad, Etawah and

Moradabad DCBs were mobilizing more deposits which they utilize for

their business operations for earning more profit.

As far as, current deposits are concerned Allahabad, Etawah, Moradabad,

Azamgarh and Hamirpur DCBs crossed the overall average of Rs. 594

lakh in 2003. In 2011, the averages of Allahabad, Etawah, Moradabad,

Ghaziabad, Hamirpur and Azamgarh DCBs were more than the overall

average of Rs. 1087 lakh. Allahabad DCB recorded the highest figure

(Rs. 1072 lakh and Rs. 1965 lakh) in 2003 and 2011 respectively.

Lalitpur DCB maintaining the lowest (Rs. 130 lakh and Rs. 178 lakh) in

2003 and 2011 respectively.

In terms of savings bank deposits, Moradabad, Allahabad, Ghaziabad,

Etawah and Jalaun DCBs deposits were higher than the overall average of

(Rs. 4964 lakh) in 2003. In 2011, except Jalaun, all those DCBs of

Moradabad, Allahabad, Ghaziabad and Etawah again had their saving

bank deposits higher than their overall average of Rs. 13073 lakh.

With regard to fixed deposits, total amount collected by Allahabad,

Ghaziabad, Moradabad, Etawah and Jalaun DCBs were higher than the

overall average of (Rs. 4734 lakh and Rs. 7441 lakh) in 2003 and 2011

respectively.

The trends of different types of deposits are exhibited in Table 4.7.

Table 4.7 Compound annual growth rate (%) of total deposits of

selected DCBs from 2002-03 to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR %

Allahabad 17302 17152 17152 18996 18996 22909 26037 29682 32965 8.39

Azamgarh 7854 8771 9597 9905 9905 9487 9487 12855 12855 6.35

Etah 7156 7406 7003 8347 8347 10279 10877 12372 12693 7.43

Etawah 14740 16287 16287 16287 16287 22222 24796 28461 31581 9.99

Ghaziabad 14555 14555 17368 20317 20317 22977 29712 34722 41655 14.05

Hamirpur 7402 7877 7877 8577 8577 11634 13730 16794 18661 12.25

Jalaun 11039 11415 11415 11985 11985 14563 18920 18920 20805 8.24

Lalitpur 3222 3222 3222 3619 3619 5102 5648 6719 7509 11.16

Moradabad 15652 15652 15652 15652 15652 15652 15652 29579 29579 8.28

Lucknow 4839 8457 8457 8457 8457 8457 8457 8457 8457 7.23

U.P. 491491 514287 533160 590158 632374 679472 762678 897209 963457 8.78

India 7239443 7688452 8049350 8665222 9218136 10599372 12372182 14630314 16130882 10.53

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

It is evident from chart 4.9 and table 4.7 that maximum compound annual

growth rate (CAGR) of total deposits recorded was 14.05% for

0

2

4

6

8

10

12

14

16

Districts

Chart 4.9 Compound annual growth rate (%) of deposits of selected DCBs

Ghaziabad DCB and the minimum for Azamgarh (6.35%). The growth

rate of Etawah, Ghaziabad, Hamirpur and Lalitpur is higher than that of

Uttar Pradesh. This may be attributed to the high industrial development

of the districts coupled with the joint efforts of employees with regard to

deposit mobilization.

As is evident from the table that in general, the data of the selected

sample districts of U.P. and India for the period 2003-2011 shows that

the deposits is showing an increase over the years.

4.3.4 Borrowings

Borrowings constitute yet another source of funds. DCBs borrowings are

made from different sources like State Co-operative Bank, Government,

NABARD, RBI, National Housing Bank, Housing Development Finance

Corporation, Housing and Urban Development Corporation, and

Commercial Banks etc. Total borrowings of selected DCBs are exhibited

in table 4.8

Table 4.8 Total Borrowings of selected DCBs from 2002-03 to 2010-11

(Rs. in lakhs) Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 Allahabad 242 1504 1504 1504 1504 1659 1346 1582 2303 Azamgarh 1755 2058 2538 2538 2538 2874 2874 1208 1208 Etah 2692 2931 3440 3440 3440 2251 1912 202 2306 Etawah 275 304 304 304 304 1765 1605 1767 2206 Ghaziabad 203 203 515 515 515 3642 5989 6915 12492 Hamirpur 415 1500 1500 1500 1500 1786 1795 2103 4698 Jalaun 1263 1487 1487 1487 1487 1574 1960 1960 4613 Lalitpur 1270 1270 1270 1270 1270 720 617 630 1101 Moradabad 4061 4061 4061 4061 4061 4061 4061 7414 7414 Lucknow 399 253 253 253 253 253 253 253 253 Average 1258 1557 1687 1687 1687 2059 2241 2403 3859

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

Table 4.8 and chart 4.10 depicts that there is no uniformity in the growth

of borrowings. In 2003, out of the ten selected DCBs, total borrowings of

five DCBs were higher than the overall average in 2003. Moradabad

DCB had the highest average (Rs 4061 lakh) followed by Etah DCB (Rs.

2692 lakh), Azamgarh (Rs. 1755 lakh), Lalitpur (Rs.1270 lakh) and

Jalaun (Rs. 1263 lakh). Ghaziabad DCB had the lowest average of Rs.203

lakh. In 2011 the averages of Ghaziabad, Moradabad, Hamirpur and

Jalaun DCBs were higher than the overall average. It was the highest in

Ghaziabad DCB (Rs 12492 lakh) and the lowest in Lucknow DCB

(Rs.253 lakh). It is also clear from the table that, Ghaziabad DCB had the

maximum increase in borrowings during this period which increased

from Rs. 203 lakh in 2003 to Rs. 12492 lakh in 2011. Moradabad DCB

which topped the list in 2003 declined to second position in 2011.

242

17552692

275 203 4151263

1270

4061

399 12582303

1208

2306 2206

12492

4698 4613

1101

7414

253

3859

0

2000

4000

6000

8000

10000

12000

14000

Districts

Chart 4.10 Borrowings of selected DCBs

2003

2011

Table 4.9 Compound annual growth rate (%) of borrowings of

selected DCBs from 2002-03 to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR %

Allahabad 242 1504 1504 1504 1504 1659 1346 1582 2303 32.53

Azamgarh 1755 2058 2538 2538 2538 2874 2874 1208 1208 -4.56

Etah 2692 2931 3440 3440 3440 2251 1912 202 2306 -1.92

Etawah 275 304 304 304 304 1765 1605 1767 2206 29.73

Ghaziabad 203 203 515 515 515 3642 5989 6915 12492 67.36

Hamirpur 415 1500 1500 1500 1500 1786 1795 2103 4698 35.44

Jalaun 1263 1487 1487 1487 1487 1574 1960 1960 4613 17.58

Lalitpur 1270 1270 1270 1270 1270 720 617 630 1101 -1.77

Moradabad 4061 4061 4061 4061 4061 4061 4061 7414 7414 7.81

Lucknow 399 253 253 253 253 253 253 253 253 -5.54

U.P. 93303 98931 111766 127263 163204 176039 186468 189271 232343 12.08

India 1923847 2112810 2155710 2320213 2794060 3053334 2847764 3035483 3910116 9.27

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

As mentioned earlier there is no uniformity in the growth pattern of

DCBs which is evident from above table and chart. Ghaziabad DCB

recorded the highest (67.36%) growth of borrowings and Lucknow DCB

the lowest (-5.54%). The table also reveals that the CAGR of Ghaziabad,

Hamirpur Allahabad, Etawah and Jalaun DCBs were higher than the

32.53

-4.56 -1.92

29.73

67.36

35.44

17.58

-1.77

7.81

-5.54

12.08 9.27

-10

0

10

20

30

40

50

60

70

80

Districts

Chart 4.11 Compound annual growth rate (%) of borrowings of selected DCBs

overall CAGR of Uttar Pradesh (12.08%). As mentioned earliar the high

increase in borrowings of Ghaziabad DCB may probably be due to the

commercial and industrial development of Ghaziabad district compared

to other districts.

On analyzing the above table and chart we observed an increasing trend

for borrowings of U.P. for the period 2003-2011. It has also been

observed that the growth of U.P. is greater than that of India. Although

the growth rate of borrowings of few sample districts like Azamgarh,

Etah, Lalitpur and Lucknow showed a decline but there is an overall

increase in the borrowings of U.P. over the years. Correlation

The degree of relationship between the two variables under consideration

is measured through the correlation analysis. The measures of correlation

called the correlation coefficient or correlation index summarize in one

figure the direction and degree of correlation. The correlation analysis

refers to the techniques used in measuring the closeness of the

relationship between the variables.

The correlation is a statistical device which helps us in analyzing the

covariation of two or more variables. The problems of analyzing the

relation between different series should be tested whether it is significant

or not. The table clearly shows the relation between two variables.

Of the several mathematical methods of measuring correlation, the Karl

Pearson's method, popularly know as Pearson's coefficient of correlation,

is most widely used in practice. The Pearson coefficient of correlation is

denoted by the symbol r. The value of the coefficient of correlation as

obtained by this method shall always lie between +1 to -1.

The value of r is plus then correlation is positive and r is minus then

correlation is negative. It also describes high or low degree of correlation

between two variables.

Table 4.10 Coefficient of correlation between borrowings and profits (Rs. In Lakhs) Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 r Allahabad -594 -637 -637 -1156 -1156 -646 -270 2 11 0.265

Azamgarh 303 -457 -376 -579 -579 -866 -866 285 285 -0.942

Etah 76 90 104 88 88 -572 626 495 35 -0.386

Etawah 182 149 149 149 149 158 125 522 246 0.463

Ghaziabad 133 133 145 172 172 254 302 343 149 0.393

Hamirpur 74 51 51 52 52 52 7 48 259 0.832

Jalaun 23 44 44 15 15 53 76 76 77 0.599

Lalitpur 84 84 84 100 100 -114 -114 76 63 0.752

Moradabad 311 311 311 311 311 311 311 31 31 -1.000

Lucknow -114 290 290 290 290 290 290 290 290 -1.000

U.P. -4723 -5565 -7024 -12430 -12430 -22981 -9127 -13512 -17284 -0.717

India 50572 53043 123038 177306 106734 -76906 36258 265476 65841 -0.072 Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

The above table shows the correlation coefficient (r) between borrowings

and profits of DCBs of selected sample districts, Uttar Pradesh and of

India. The correlation coefficient between borrowings and profits is found

to be highly negative in case of Uttar Pradesh as well in case of

Azamgarh, Moradabad and Lucknow DCBs. In case of Hamirpur, Jalaun

and Lalitpur we observed a high degree of positive correlation. The

reason that can be traced is that it might be due to poor and inaccurate

data reporting in the Bundelkhand region (these three districts belong to

this region). The above finding is in line with our hypothesis that there is

an inverse relationship between borrowings and profits of DCBs.

4.4 Applications of funds

The funds so collected by the banks, through various sources, are utilized

for meeting the various reserve requirements, granting loans and

advances, purchase of fixed assets and investing in different types of

securities. Here we tried to analyze the trend and pattern of deployment

of funds for important purposes only.

4.4.1 Cash in hand and at bank

DCBs are required to keep 4 per cent and 23 per cent of their demand and

time liabilities as the cash reserve ratio and statutory liquidity ratio

respectively. Generally, banks keep more than their minimum

requirement. So over the years, though there were frequent changes in

these ratios, it showed an increasing trend due to increase in demand and

time liabilities. Cash in hand and at bank of selected DCBs for the period

2002-03 to 2010-11 is displayed in table 4.11

Table 4.11 Cash in hand and at bank of selected DCBs from 2002-03

to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 Allahabad 666 344 344 458 458 998 1215 1264 1520 Azamgarh 484 270 732 605 605 554 554 1230 1230 Etah 507 387 517 665 665 668 418 1017 698 Etawah 626 560 560 560 560 1169 941 997 509 Ghaziabad 974 974 1897 1786 1786 1119 1113 1619 1832 Hamirpur 481 486 486 583 583 443 774 1089 1265 Jalaun 563 630 630 705 705 578 999 999 877 Lalitpur 172 172 172 308 308 435 309 428 382 Moradabad 6058 6058 6058 6058 6058 6058 6058 24009 24009 Lucknow 192 292 292 292 292 292 292 292 292 Average 1072 1017 1169 1202 1202 1231 1267 3294 3261 Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

As exhibited in Table 4.10 and chart 4.12 cash in hand and at bank of

only Moradabad DCB was higher than the overall average in 2003 and

also in 2011 (Rs. 6058 lakh in 2003 & Rs. 24009 lakh in 2011). The

minimum amount of cash in hand and cash at bank was of Lalitpur DCB

(Rs. 172 lakh) in 2003 and Lucknow DCB (Rs. 292 lakh) in 2011.

The data of cash in hand and at banks shows that amongst all the selected

ten sample districts the figures for Moradabad for this indicator is

comparatively and significantly high. As in general as compared to other

districts Moradabad is managing high total reserve funds.

Computed growth rates of cash in hand and at bank is displayed in table

4.11

666 484507

626974 481 563

172

6058

192 10721520

1230 698

509

1832 1265 877

382

24009

2923261

0

5000

10000

15000

20000

25000

30000

Districts

Chart 4.12 Cash in hand and at bank of selected DCBs

2003

2011

Table 4.12 Compound annual growth rate (%) of Cash in hand and

at bank of selected DCBs from 2002-03 to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR %

Allahabad 666 344 344 458 458 998 1215 1264 1520 10.87

Azamgarh 484 270 732 605 605 554 554 1230 1230 12.37

Etah 507 387 517 665 665 668 418 1017 698 4.08

Etawah 626 560 560 560 560 1169 941 997 509 -2.55

Ghaziabad 974 974 1897 1786 1786 1119 1113 1619 1832 8.22

Hamirpur 481 486 486 583 583 443 774 1089 1265 12.85

Jalaun 563 630 630 705 705 578 999 999 877 5.70

Lalitpur 172 172 172 308 308 435 309 428 382 10.49

Moradabad 6058 6058 6058 6058 6058 6058 6058 24009 24009 18.78

Lucknow 192 292 292 292 292 292 292 292 292 5.38

U.P. 33037 34515 36736 39439 42030 44157 73877 104762 106044 15.69

India 528133 692559 830000 835036 805139 819096 982594 1119726 11197231 46.49

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

Chart 4.13 and table 4.11 points out that the maximum CAGR (18.78%)

was recorded at Moradabad DCB which is indeed higher than that of U.P.

(15.69) and minimum (-2.55%) at Etawah DCB. As mentioned earlier

with respect to all the indicators it has been observed that there exists a

10.87 12.37

4.08

-2.55

8.2212.85

5.710.49

18.78

5.38

15.69

46.49

-10

0

10

20

30

40

50

Districts

Chart 4.13 Compound annual growth rate (%) of Cash in hand and at bank of selected DCBs

state of stagnancy in data for Lucknow DCB during 2002-03 to 2010-11.

We observed in the recent years Etawah DCB is managing the liquidity

with minimum amount of cash.

The above table and chart point out that there is increase in cash in hand

and cash at bank in the selected sample districts of Uttar Pradesh over the

period of 2003-2011 with the only exception of Etawah. Although the

overall growth of cash in hand and at bank in Uttar Pradesh has also

shown a considerable increase over the years, yet it is lower than that of

India.

4.4.2 Loans and advances

The major business of the cooperative banks is lending. For lendings, the

DCBs can obtain refinance from higher lending agencies like NABARD,

who channelise these funds through the State Cooperative Banks. Term

loans are extended for a wide range of purposes, from excavation of

wells, purchase of pump sets to horticulture, animal husbandry and even

rural transport like tractors and other farm equipments. The loan

requirement of the project is arrived at based on the aggregate of the cost

of various components of investments and then deducting the margin that

the borrower will have to provide. The repayment instalment and period

is fixed based on the incremental income that will be derived from the

asset and the life of the asset. Usually, for small and marginal farmers,

around half of the incremental income is taken for the servicing of the

bank loan.

A significant share of DCBs funds are used for granting different types of

loans and advances. Loans granted by the selected DCBs for the period

from 2003 to 2011 are shown in table 4.12

Table 4.13 Loans and advances of selected DCBs from 2002-03 to

2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 Allahabad 5675 5432 5432 6611 6611 9109 9315 8980 11980 Azamgarh 2237 3008 3384 2361 2361 2793 2793 2290 2290

Etah 7636 7818 7580 6750 6750 7220 6936 6375 7572 Etawah 4599 5189 5189 5189 5189 6903 7150 7648 7555 Ghaziabad 8643 8643 11301 14357 14357 15501 26948 30105 36456

Hamirpur 3705 3587 3587 4694 4694 3516 4762 5243 7193

Jalaun 5082 5461 5461 7246 7246 11050 10723 10723 12657

Lalitpur 1617 1617 1617 2733 2733 1924 2811 2765 3761 Moradabad 15359 15359 15359 15359 15359 15359 15359 21419 21419 Lucknow 1047 3554 3554 3554 3554 3554 3554 3554 3554

Average 5560 5967 6246 6885 6885 7693 9035 9910 11444 Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

A close examination of chart 4.14 and table 4.12 shows that the overall

loan position has increased considerably from 2003 to 2011. In 2003,

5675

2237

7636

4599

8643

37055082

1617

15359

1047

5560

11980

22907572 7555

36456

7193

12657

3761

21419

3554

11444

0

5000

10000

15000

20000

25000

30000

35000

40000

Rs. I

n la

cs

Districts

Chart 4.14 Loans and advances of selected DCBs

2003

2011

Allahabad, Moradabad, Ghaziabad and Etah DCBs had averages above

the overall average of Rs.5560 lakh. The highest amount of loans was

granted by Allahabad DCB (Rs. 5675 lakh) and lowest amount by

Lucknow DCB (Rs. 1047 lakh. But in 2011, Ghaziabad DCB’s average

was Rs. 36456 lakh followed by Moradabad DCB (Rs. 21419 lakh).

Azamgarh DCB had the lowest average of Rs.2290 lakh in 2011.

The trends in loans and advances of selected DCBs from 20030to 2011

are exhibited in table 4.13.

Table 4.14 Compound annual growth rate (%) of Loans and

advances of selected DCBs from 2002-03 to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR %

Allahabad 5675 5432 5432 6611 6611 9109 9315 8980 11980 9.79

Azamgarh 2237 3008 3384 2361 2361 2793 2793 2290 2290 0.29

Etah 7636 7818 7580 6750 6750 7220 6936 6375 7572 -0.11

Etawah 4599 5189 5189 5189 5189 6903 7150 7648 7555 6.40

Ghaziabad 8643 8643 11301 14357 14357 15501 26948 30105 36456 19.71

Hamirpur 3705 3587 3587 4694 4694 3516 4762 5243 7193 8.65

Jalaun 5082 5461 5461 7246 7246 11050 10723 10723 12657 12.08

Lalitpur 1617 1617 1617 2733 2733 1924 2811 2765 3761 11.13

Moradabad 15359 15359 15359 15359 15359 15359 15359 21419 21419 4.24

Lucknow 1047 3554 3554 3554 3554 3554 3554 3554 3554 16.51

U.P. 333958 342933 383580 424251 459307 504480 546564 570140 648577 8.65

India 4977550 4889970 5521241 6041849 7670381 8722909 8802869 11052929 13775717 13.57

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

Table 4.14 and chart 4.15 reveal that the maximum CAGR for loans and

advances was recorded at Ghaziabad DCB (19.71%) and the minimum at

Etah DCB (-0.11%). We observed that the growth of loans and advances

of Ghaziabad and Lucknow is greater than not only that of U.P. (8.65%)

but than that of India (13.57%) too. The reason for such high growth of

Ghaziabad and Lucknow DCBs may be the efficient utilization of funds

mobilized.

The above table revealed an increase in the overall loans and advances of

Uttar Pradesh during the period of 2003-2011.

9.79

0.29

-0.11

6.4

19.71

8.65

12.08 11.13

4.24

16.51

8.65

13.57

-5

0

5

10

15

20

25

Districts

Chart 4.15 Compound annual growth rate (%) of Loans and advances of selected DCBs

Table 4.15 Coefficient of correlation between loans and advances and

profits Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 R

Allahabad -594 -637 -637 -1156 -1156 -646 -270 2 11 0.67

Azamgarh 303 -457 -376 -579 -579 -866 -866 285 285 -0.51

Etah 76 90 104 88 88 -572 626 495 35 -0.38

Etawah 182 149 149 149 149 158 125 522 246 0.55

Ghaziabad 133 133 145 172 172 254 302 343 149 0.53

Hamirpur 74 51 51 52 52 52 7 48 259 0.76

Jalaun 23 44 44 15 15 53 76 76 77 0.76

Lalitpur 84 84 84 100 100 -114 -114 76 63 -0.02

Moradabad 311 311 311 311 311 311 311 31 31 -1.00

Lucknow -114 290 290 290 290 290 290 290 290 1.00

U.P. -4723 -5565 -7024 -12430 -12430 -22981 -9127 -13512 -17284 -0.68

India 50572 53043 123038 177306 106734 -76906 36258 265476 65841 0.09 Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

The above table and chart represent the correlation coefficient between

loans and advances and profits. The result of correlation coefficient

between these two indicators shows that there exists a high degree of

positive correlation between these indicators for six out of ten selected

districts. However, in case of Azamgarh and Moradabad, the correlation

-1-0.8-0.6-0.4-0.2

00.20.40.60.8

1

Axis Title

Chart 4.16 Coefficient of correlation (r) between loans and advances and profts

is found to be highly negative. The reason for this might be the fact that

the banks in these districts might have high non performing assets

(NPAs). The similar reason can also be responsible in case of Uttar

Pradesh as a whole, as for U.P. we observed high degree of negative

correlation.

4.4.3 Investments in securities

Banks utilize a portion of their funds mobilized for investment in

Government securities, trustee securities, shares in co-operative societies

and other types of securities which are considered as near cash items in

terms of liquidity. The growth of total investments in securities of

selected DCBs is presented in table 4.16

Table 4.16 Total Investments in securities of selected DCBs from

2002-03 to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 Allahabad 4777 5474 5474 4911 4911 8013 11035 16763 9225 Azamgarh 2255 2208 2633 2681 2681 2343 2343 5197 5197 Etah 2574 3005 3248 3430 3430 3938 5144 5315 8919 Etawah 11349 12819 12819 12819 12819 20034 23249 28447 31799 Ghaziabad 9638 9638 11095 16346 16346 21064 22743 24115 35070 Hamirpur 5678 7023 7023 8039 8039 9973 13216 16115 25371 Jalaun 8557 8862 8862 8946 8946 10112 14547 14574 17786 Lalitpur 1417 1417 1417 1344 1344 2050 2735 4418 5403 Moradabad 6169 6169 6169 6169 6169 6169 6169 8824 8824 Lucknow 2079 3577 3577 3577 3577 3577 3577 3577 3577 Average 5449 6019 6232 6826 6826 8727 10476 12735 15117

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

Table 4.16 shows that out of the ten selected banks, Etawah, Ghaziabad,

Jalaun, Moradabad and Hamirpur had averages above the overall average

of Rs. 5449 lakh in 2003. The highest amount (Rs.11349 lakh) was

recorded at Etawah DCB and the lowest amount (Rs .1417 lakh) at

Lalitpur DCB. In 2011, Ghaziabad, Etawah, Hamirpur and Jalaun DCBs

had an average higher than the overall average of Rs 15117 lakh. Etawah

DCB which secured the first position in 2003, slipped to second in 2011,

with Ghaziabad being on the top with Rs. 35070 lakh and Lucknow DCB

ranked the last with Rs.3577 lakh. Hence, it may be inferred that

preference for investments was higher in Ghaziabad DCB.

47772255 2574

113499638

5678

8557

1417

61692079

5449

9225

5197

8919

31799

35070

25371

17786

54038824

3577

15117

0

5000

10000

15000

20000

25000

30000

35000

40000

Districts

Chart 4.17 Investments in securities of selected DCBs

2003

2011

Table 4.17 Compound annual growth rate (%) of Investments in

securities of selected DCBs from 2002-03 to 2010-11 (Rs. in lakhs)

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR %

Allahabad 4777 5474 5474 4911 4911 8013 11035 16763 9225 8.57

Azamgarh 2255 2208 2633 2681 2681 2343 2343 5197 5197 11.00

Etah 2574 3005 3248 3430 3430 3938 5144 5315 8919 16.81

Etawah 11349 12819 12819 12819 12819 20034 23249 28447 31799 13.74

Ghaziabad 9638 9638 11095 16346 16346 21064 22743 24115 35070 17.52

Hamirpur 5678 7023 7023 8039 8039 9973 13216 16115 25371 20.58

Jalaun 8557 8862 8862 8946 8946 10112 14547 14574 17786 9.58

Lalitpur 1417 1417 1417 1344 1344 2050 2735 4418 5403 18.21

Moradabad 6169 6169 6169 6169 6169 6169 6169 8824 8824 4.58

Lucknow 2079 3577 3577 3577 3577 3577 3577 3577 3577 7.02

U.P. 217124 219333 236501 283194 332181 347645 444575 582934 641313 14.50

India 3113877 3567729 3478322 3712739 4079112 4824662 6104124 7562446 7562446 11.73

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

It is evident from table 4.17 that the CAGR of Hamirpur (20.58%),

Lalitpur (18.21%), Ghaziabad (17.52%) and Etah (16.81%) DCBs were

higher than the overall CAGR of Uttar Pradesh (14.50%) and that of

India (11.73%). The table also reveals that Hamirpur DCB recorded the

highest growth rate (20.58%) leading to the inference that preference for

8.57

11

16.81

13.74

17.52

20.58

9.58

18.21

4.58

7.02

14.5

11.73

0

5

10

15

20

25

Districts

Chart 4.18 Compound annual growth rate (%) of Investments in securities of selected DCBs

investments is also increasing in Hamirpur DCB. The lowest growth rate

was recorded for Moradabad DCB (4.58%). In general data of the selected sample districts of U.P.for the period 2003-

2011 shows that the investments of DCBs in U.P. is increasing over the

years.

4.5 Overdues To Loans Long term solvency of a bank depends upon the credit management of a

bank. Over due to total advances ratio indicates the proportion of

advances which remain outstanding at the end of the period so that the

bank can have an idea about the solvency position.

A higher the ratio indicates poor recovery efforts from the bankers,

inadequate credit appraisal, mis-utilization of loan and willful default. It's

affects adversely on the morel of non defaulting members. While lower

the ratio indicates good recovery efforts and good credit management of

the bank

Table 4.18 Percentage of overdues to loans of selected DCBs from 2002-03 to 2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 Allahabad 42.48 45.62 45.62 44.97 44.97 43.12 36.72 35.77 32.83 Azamgarh 55.96 60.88 50.03 54.78 54.78 53.39 53.39 36.73 36.73 Etah 60.46 60.39 36.30 43.42 43.42 47.45 43.92 36.32 40.40 Etawah 38.83 34.85 34.85 34.85 34.85 34.96 33.57 26.90 31.63 Ghaziabad 24.13 24.13 17.52 6.73 6.73 5.97 3.79 2.99 2.11 Hamirpur 18.54 16.12 16.12 14.01 14.01 18.69 -20.17 8.84 -1.24 Jalaun 37.43 30.63 30.63 31.07 31.07 20.15 30.32 30.32 29.45 Lalitpur 57.82 57.82 57.82 41.89 41.89 63.78 51.46 38.10 43.35 Moradabad 23.02 23.02 23.02 23.02 23.02 23.02 23.02 17.69 17.69 Lucknow 31.29 38.00 38.00 38.00 38.00 38.00 38.00 38.00 38.00 U.P. 34.00 34.59 32.65 30.21 30.21 35.02 21.78 23.12 22.74 India 37.43 36.90 32.86 31.69 32.93 37.15 32.69 26.73 27.37 Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

The data in the table and the trend line in the chart shows a declining

trend in percentage of overdues to loans. The percentage of overdues to

loans which was 34 percent in 2002-03 had reduced to 22.74% in 2010-

11. This decling trend in this ratio is a positive sign as it helps in

increasing the profitability of the banks.

4.6 Cost Of Management per employee

Table 4.19 Cost Of Management of selected DCBs from 2002-2003 to 2010-2011 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR

% Allahabad 515 514 514 2214 2214 1811 1854 770 860 5.86

Azamgarh 277 290 293 321 321 339 339 494 494 6.64

Etah 214 216 242 273 273 293 330 562 405 7.35

Etawah 285 465 465 465 465 543 489 609 780 11.84

Ghaziabad 362 362 453 522 522 610 754 862 2214 22.29

Hamirpur 193 155 155 191 191 281 359 381 384 7.94

Jalaun 203 220 220 253 253 318 402 402 645 13.71

Lalitpur 120 120 120 113 113 164 180 214 310 11.12

34.00 34.5932.65

30.21 30.21

35.02

21.78 23.12 22.74

37.43 36.90

32.86 31.69 32.93

37.15

32.69

26.73 27.37

y = -0.1687x2 + 0.0805x + 34.308R² = 0.7009

0

5

10

15

20

25

30

35

40

2003 2004 2005 2006 2007 2008 2009 2010 2011

Chart 4.19 Trend line of Overdues to Loans

UP India Poly. (UP)

Moradabad 423 423 423 423 423 423 423 815 815 7.56

Lucknow 181 244 244 244 244 244 244 244 244 3.37

U.P. 14949 16417 16873 20947 21862 22802 23350 27188 36948 10.58

India 325104 334579 368012 602688 755968 374876 422724 443737 530745 5.60

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB

Table 4.20 Cost of management per employee of selected DCBs from 2002-2003 to 2010-2011 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 CAGR

%

Allahabad 1.75 1.84 1.81 8.26 8.26 6.91 7.36 3.13 3.69 8.64

Azamgarh 1.74 1.86 1.94 2.14 2.14 2.26 2.26 3.55 3.55 8.25

Etah 1.75 1.82 2.03 2.26 2.26 2.44 2.87 5.11 4.26 10.39

Etawah 1.98 3.23 3.23 3.23 3.23 3.27 2.93 3.85 5.31 11.58

Ghaziabad 2.28 2.28 2.63 2.88 2.88 3.37 3.95 4.42 9.71 17.47

Hamirpur 1.74 1.37 1.37 1.77 1.77 2.36 2.92 3.31 3.34 7.51

Jalaun 2.07 2.06 2.06 2.46 2.46 2.81 2.91 2.91 5.12 10.59

Lalitpur 1.71 1.71 1.71 1.74 1.74 2.45 2.54 2.97 3.92 9.66

Moradabad 1.93 1.93 1.93 1.93 1.93 1.93 1.93 3.09 3.09 5.37

Lucknow 1.31 2.02 2.02 2.02 2.02 2.02 2.02 2.02 2.02 4.93

U.P. 2.01 2.22 2.24 2.76 2.76 3.02 3.1 3.61 4.93 10.48

India 2.93 3.04 3.37 2.85 4.12 4.16 4.74 5.07 6.04 8.37

Source: Basic data on performance of district central cooperative banks ( 2002-2003 to 2010-2011), NAFSCOB It is evident from table that Ghaziabad DCB recorded the highest growth

rate (22.29%) and Lucknow DCB the lowest (3.37%). The table also

reveals that the growth rate of cost of management of Ghaziabad, Jalaun,

Etawah and Lalitpur DCBs were higher than the overall CAGR of Uttar

Pradesh (10.58%). The high increase in cost of management of

Ghaziabad DCB may probably be due to compared to other districts.

In the above paragraphs, the trend and pattern in the growth of important

funds management variables, viz., share capital, reserves and other funds,

deposits, borrowings, cash in hand and at bank, loans and advances,

investments in securities, were analyzed.

The analysis revealed that in almost all the variables we observed an

increasing trend from 2002-03 to 2010-11 with few exceptions like

Lucknow DCBs where we observed stagnancy in almost all the financial

indicators over the years. The probable reason may be the poor data

reporting of DCBs in Lucknow.

CHAPTER-V

RATIO ANALYSIS OF FINANCIAL

PERFORMANCE OF DCBS IN UTTAR PRADESH

The major objective of this chapter is to analyze the efficiency of selected

DCBs in Uttar Pradesh with regard to mobilization and deployment of

funds. The main aim of all the organizations, whether public and private,

is to achieve and maintain efficiency. However, there have been different

views regarding the meaning, methods and measurement of efficiency. In

case of cooperative banks, it is all the more difficult because a

cooperative institution has to meet dual objectives, viz., financial

objectives as a financial enterprise and social objectives as a co-operative

enterprise. The social objectives have been kept out the ambit of this

study as they require measurement of non-economic parameters and

involve a distinct mode of analysis.

The efficiency of a DCB is generally assessed on the basis of five major

norms namely, performance in mobilizing adequate internal resources,

performance in meeting the credit needs of the area, performance in

ensuring the recovery of loans, ability in regard to efficient management

of funds and the role played as a federal body of primary credit societies

(Government of Kerala, 1980).

For the purpose of the study, efficiency is measured primarily from the

financial angle. For financial analysis, the researcher computed credit to

deposit ratio, borrowings to deposits ratio, owned funds to borrowed

funds ratio, liquid assets to demand and time liabilities ratio, current and

savings deposit to total deposits ratio, term deposits to total deposit ratio,

owned funds to working funds ratio, deposits to working funds ratio,

borrowings to loans ratio, investments to deposits ratio.

5.1 Ratio analysis

Ratio analysis is a concept or technique, which is as old as accounting

concept. Financial analysis is an important tool. It has assumed important

role as a tool for appraising the real worth of an enterprise, its

performance during a period of time, its pitfalls. Financial analysis is vital

apparatus for the interpretation of financial statistics. It also helps to find

out any cross sectional and time series linkages between various ratios.

Ratio analysis means the process of computing, determining and

presenting the relationship of related items and groups of items of

financial statements. They provide, in a summarized and concise form,

good idea about the financial position of a unit. They are important tools

for financial analysis.

For the assessment of the efficiency of cooperative banks various ratios

have been used viz., credit to deposit ratio, borrowings to deposits ratio,

owned funds to borrowed funds ratio, liquid assets to demand and time

liabilities ratio, current and savings deposit to total deposits ratio, term

deposits to total deposit ratio, owned funds to working funds ratio,

deposits to working funds ratio, borrowings to loans ratio, investments to

deposits ratio.

5.1.1 Credit to deposit ratio

It is the ratio of how much a bank lends out of the deposits it has

mobilized and indicates how much of a bank's core funds are being used

for lending, the main banking activity. A higher ratio indicates more

reliance on deposits for lending and vice-versa.

The regulator does not stipulate a minimum or maximum level for the

ratio. However, a very low ratio indicates banks are not making full use

of their resources. Moreover, if the ratio is above a certain level, it

indicates a pressure on resources. Generally, C.D. ratio over and above

60% is considered good and banks may maintain this level. A higher

credit deposit ratio indicates efficiency of management in advancing

loans against deposits and lower credit- deposits ratio indicates credit

creation incapability of the bank in relation to deposits, which

considerably affect the profitability of bank.

The status of credit deposit ratio is presented in table 5.1

Table 5.1 Credit to deposit ratio of selected DCBs from 2002-03 to

2010-11

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M S.D Allahabad 33 32 32 35 35 40 36 30 36 34 3 Azamgarh 28 34 35 24 24 29 29 18 18 26 6 Etah 107 106 108 81 81 70 64 52 60 78 22 Etawah 31 32 32 32 32 31 29 27 24 30 3 Ghaziabad 59 59 65 71 71 67 91 87 88 72 12 Hamirpur 50 46 46 55 55 30 35 31 39 42 10 Jalaun 46 48 48 60 60 76 57 57 61 56 9 Lalitpur 50 50 50 76 76 38 50 41 50 52 13 Moradabad 98 98 98 98 98 98 98 72 72 92 11 Lucknow 22 42 42 42 42 42 42 42 42 39 7 U.P. 68 67 72 72 73 74 72 64 67 70 4 India 69 64 69 70 83 82 71 76 85 74 8 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB

The proportion of the Credit deployed to the deposit mobilized is one of

the parameter to assess the performance of a bank. The credit to deposit

ratio manifested the bank's efficiency in channelizing its mobilized

resources for the various economic activities.

Table 5.1 presents the credit deposit ratio of selected sample DCBs for

the period 2002-03 to 2010-11. The CD ratio of DCBs has shown a

fluctuating trend during the study period. It is evident from the table

under consideration that on an average the proportion of credit to deposit

was highest in Moradabad DCB (G.M. = 92) and lowest in Azamgarh

DCB (G.M. = 26) which was lower than the desired level i.e. > 60 %. The

percentage of credit disbursement in relation to the mobilized deposits

was observed to be sluggishing in the later years as compared to the

former years. An unfavorable credit-deposit ratio in the later years could

be ascribed to the mounting NPAs in the former years of the study period.

The condition of Allahabad, Etawah, Hamirpur, Jalaun, Lalitpur and

Lucknow was no better. On an average the ratio of all DCBs except Etah,

Ghaziabad and Moradabad were lower than the overall average of state

(G.M. = 70) and nation as a whole (G.M. = 74).

The CD ratio of Uttar Pradesh initially increases between 2003 and 2008

and then decreases. The descriptive statistics in table suggest that the

credit deposit ratio of banks in Uttar Pradesh is lowest (64) for the year

2010 and highest (74) for the year 2008.

When we observe the standard deviation of the selected sample DCBs,

we found the highest variability in Etah DCB (S.D. = 22) indicating low

degree of homogeneity i.e. heterogeneity of the credit to deposit ratio and

lowest variability was observed in case of Allahabad and Etawah (S.D. =

3 for both). The S.D for Uttar Pradesh is 4 and that of India are 8 which is

less as compared to variability observed in case of selected sample DCBs.

It indicates high degree of uniformity of observations as well as

homogeneity of the credit to deposit ratio.

5.1.2 Borrowings to deposits Ratio

Another ratio used for analyzing profitability is borrowings to deposits

ratio. Borrowings to deposits ratio indicates the level of dependence of a

bank on borrowings. This ratio should not be very high because then it

will reflect high level of dependence on borrowings. If it is so, the bank

may reduce its dependence on borrowings by mobilizing more deposits.

Table 5.2 Borrowings to deposits ratio of selected DCBs from 2002-03

to 2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M. S.D Allahabad 1 9 9 8 8 7 5 5 7 6 2 Azamgarh 22 23 26 26 26 30 30 9 9 21 8 Etah 38 40 49 41 41 22 18 2 18 22 16 Etawah 2 2 2 2 2 8 6 6 7 3 3 Ghaziabad 1 1 3 3 3 16 20 20 30 6 11 Hamirpur 6 19 19 17 17 15 13 13 25 15 5 Jalaun 11 13 13 12 12 11 10 10 22 13 4 Lalitpur 39 39 39 35 35 14 11 9 15 23 14 Moradabad 26 26 26 26 26 26 26 25 25 26 0 Lucknow 8 3 3 3 3 3 3 3 3 3 2 U.P. 19 19 21 22 26 26 24 21 24 22 3 India 27 27 27 27 30 29 23 21 24 26 3 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB Table 5.2 presents the borrowings to deposits ratio of selected sample

DCBs for the period 2002-03 to 2010-11. The borrowings to deposits

ratio of DCBs has shown a fluctuating trend during the study period. It is

evident from the table under consideration that on an average the

proportion of borrowings to deposits was highest in Moradabad DCB

(G.M. = 26) indicating a high level of dependence of bank on borrowings.

The bank may try to reduce its dependence on borrowings by mobilizing

more deposits. The ratio was observed to be lowest in Lucknow DCB

(G.M. = 3).

Low borrowings to deposits ratio is a positive sign for banks as it is one

of the highest cost items of funds. The reason for proportionately reduced

dependence of banks on borrowings might be its increased deposit

mobilization. The standard deviation of Moradabad district is coming out

to be zero that shows the consistency of Moradabad district in terms of

high borrowings. It is also evident from the data as the ratio of

borrowings to deposits for this district is almost the same for every

selected year.

On an average, the borrowings to deposits ratio of Uttar Pradesh showed

an increase over the period of study. The descriptive statistics in table

suggest that the borrowings to deposits ratio of banks in Uttar Pradesh is

lowest (19) for the years 2003 and 2004 and highest (26) for the years

2007 and 2008. However, for India, the proportion of borrowings in

relation to the deposits showed a mixed trend, which remains stagnant

from 2003 to 2006 then, showed an increase in 2007, again decreases,

and finally showed an increase from 21 in 2010 to 24 in 2011. The S.D

for Uttar Pradesh and India is 3 which is comparatively low. It indicates

high degree of uniformity of observations as well as homogeneity of the

borrowings in relation to the deposits ratio.

When we observe the standard deviation of the selected sample DCBs,

we found wide deviations in this ratio amongst the sample DCBs. The

S.D is as low as zero for Moradabad DCB and as high as 16 for Etah

DCB which is comparatively high indicating low degree of homogeneity

i.e. heterogeneity of the owned fund to borrowed funds ratio.

5.1.3 Owned funds to borrowed funds ratio

The proportion of owned funds comprising of paid up share capital,

reserves and surplus, overdue interest reserve and undistributed profits, in

relation to the borrowed funds plays an important role in building the

confidence of the depositors. This ratio indicates as to how many times of

its owned funds the bank is borrowing. Higher the ratio better it is for

banks. DCBs mainly depend on external funds for their operation and its

relation with owned funds is exhibited in table 5.3

Table 5.3 Owned funds to borrowed funds ratio of selected DCBs

from 2002-03 to 2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G. M S.D Allahabad 5 5 5 4 4 5 4 4 4 4 0

Azamgarh 30 31 28 29 29 34 34 38 38 32 4

Etah 7 7 8 7 7 7 7 7 6 7 0

Etawah 11 10 10 10 10 11 13 13 14 11 1

Ghaziabad 21 21 21 16 16 13 12 11 9 15 5

Hamirpur 10 9 9 9 9 9 9 9 10 9 0

Jalaun 17 17 17 18 18 17 14 14 10 16 3

Lalitpur 29 29 29 23 23 24 22 19 17 23 4

Moradabad 11 11 11 11 11 11 11 25 25 14 6

Lucknow 10 5 5 5 5 5 5 5 5 6 2

Uttar Pradesh 17 18 18 19 17 17 16 17 17 17 1

India 14 15 16 17 17 16 16 16 14 16 1 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB

Table 5.3 shows the ratio of owned funds (share capital and reserves) to

borrowed funds (deposits and borrowings) of all the DCBs from 2002-03

to 2010-11.

The proportion of owned funds in relation to the borrowed funds was

noticed to be comparatively low in case of most of the sample DCBs

except Azamgarh and Lalitpur, revealing a weak equity base in the total

capital structure of the bank. However, the percentage of owned funds to

borrowed funds in Lalitpur was observed to have sluggishing trend in

later years as compared to former years. One of the key reasons for this

weak share of owned funds could be attributed to the changing attitude of

the members to become a member just by buying the entry share capital

to avail the facilities. In case of Azamgarh owned funds in relation to the

borrowed funds was noticed to be comparatively better and the pace of

owned funds was almost stable during the whole period of the study,

highlighting a good share of owned funds in the total working capital.

The owned fund to borrowed funds ratio of Uttar Pradesh remains almost

stagnant throughout the period of study. The descriptive statistics in table

suggest that the owned fund to borrowed fund ratio of banks in Uttar

Pradesh is lowest (16) for the year 2009 and highest (19) for the year

2006. The S.D for Uttar Pradesh and India is 1 which is comparatively

low. It indicates high degree of uniformity of observations as well as

homogeneity of the owned funds in relation to the borrowed funds ratio.

When we observe the standard deviation of the selected sample DCBs,

we found wide deviations in this ratio amongst the sample DCBs. The

S.D is as low as zero for Etah DCB and as high as six for Moradabad

DCB, which is comparatively high indicating low degree of homogeneity,

i.e. heterogeneity of the owned fund to borrowed funds ratio.

5.1.4 Liquid assets to demand and time liabilities ratio

The ratio of liquid assets to demand and time liabilities is known as

statutory liquidity ratio (SLR). Apart from CRR, every bank is required to

maintain in India at the close of business every day, a minimum

proportion of their Net Demand and Time Liabilities as liquid assets in

the form of cash, gold and un-encumbered approved securities. The ratio

of liquid assets to demand and time liabilities is known as Statutory

Liquidity Ratio (SLR). Present SLR is 23%. (Reduced w.e.f. 11/08/2012

from earlier 24%). RBI is empowered to increase this ratio up to 40%. An

increase in SLR also restricts the bank’s leverage position to pump more

money into the economy.

Liquid assets (cash in hand, cash at bank and money at call and short

notice) to demand and time liabilities (fixed deposit account, savings

bank account, current account and money at call and short notice account)

ratio shows the liquidity position of the bank. This ratio shows the

financial soundness of the bank. The concept of liquidity is highly

relevant for a financial institution as it indicates the ability of the bank to

meet its obligations out of its own resources.

As per statutory provisions, DCBs are expected to maintain 23 per cent of

demand and time liabilities (DTL) as the statutory liquidity ratio (SLR)

and 3-6 per cent of DTL as the cash reserve ratio (CRR). In addition to

this, 3-4 per cent of DTL may be required for meeting contingencies and

expenses. Therefore, liquid assets to demand and time liabilities ratio of

around 30-32 percent may be sufficient.

The liquidity position of the selected DCBs is exhibited in table 5.4

Table 5.4 Liquid assets to demand and time liabilities ratio of

selected DCBs from 2002-03 to 2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M S.D Allahabad 9 5 5 7 7 4 5 4 34 7 10 Azamgarh 6 3 8 6 6 6 6 10 10 6 2 Etah 13 12 11 12 12 11 8 43 10 13 11 Etawah 4 3 3 3 3 5 4 4 2 4 1 Ghaziabad 7 7 11 9 9 6 4 5 7 7 2 Hamirpur 7 9 9 10 10 7 6 6 11 8 2 Jalaun 5 6 6 6 6 4 5 5 7 5 1 Lalitpur 14 14 14 17 17 9 5 6 9 11 4 Moradabad 39 39 39 39 39 39 39 81 81 46 19 Lucknow 50 4 4 4 4 4 4 4 4 5 15 U.P. 10 12 11 13 13 12 15 18 17 13 3 India 11 12 13 13 12 10 11 10 76 14 21 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB Table 5.4 points out that during the study period except Moradabad (G.M.

= 46) all the DCBs were unable to maintain the required level of

liquidity. It indicates that these have to take steps to increase the quantum

of liquid assets maintained. This can be achieved by decreasing the

volume of loans and advances. The lowest ratio was observed for Jalaun

and Lucknow ( G.M. = 5, for both). This weak liquidity position would

certainly cause an inconvenience to the banks in case of meeting

immediate liabilities and the pace of liquid assets to the total deposits was

also found to be far below than the laid down (23%) under Banking

Regulation Act.

The liquid assets to demand and time liabilities ratio of Uttar Pradesh

showed that on an average only 13 percent of its demand and time

liabilities was kept in the form of liquid assets. It indicates weak liquidity

position of the bank as 13 percent liquid assets to demand and time

liabilities is considered to be obviously inadequate to meet its immediate

liabilities, with comparatively low variability (S.D. = 3).

The position of India is also no better (G.M. = 14). The liquid assets to

total deposits ratio was found to be unstable and not satisfactory which

could be accredited to a wide deviation in the liquid ratio. The ratio was

noticed as low as 10 percent during 2008 and 2010 and which has

increased as high as to 76 percent during 2011 indicating the excess

liquid assets over the prescribed limit reflecting an unbalanced resource

management. The variability in case of India is comparatively high (S.D.

= 21). The descriptive statistics in the table shows a mixed trend for the

standard deviation of selected sample DCBs. The variability is as low as

one for Etawah and Jalaun and as high as 19 for Lalitpur. Such high level

of variability with regard to selected sample DCBs and also for India

indicates low degree of homogeneity i.e. the heterogeneity of the liquid

assets to demand and time liabilities ratio.

5.1.5 Current and savings deposit to total deposits ratio

Current and Saving Accounts are demand deposits and therefore pay

lower interest rates compared to term deposits where the rates are higher.

Thus higher CASA ratio means that more of the deposited money in the

bank is in the demand deposits i.e. the CASA, thus bank is getting the

money at lower cost. Higher the CASA ratio, better the net interest

margin, which means better operating efficiency of the bank.

As this ratio indicates the proportion of low cost deposits to the total

deposits, a higher ratio is better for banks. This would help in keeping

down the financial cost. Generally, a 30 to 40 percent is assumed

reasonable.

The relationship between current and saving deposits and total deposits is

displayed in table 5.5.

Table 5.5 Current and savings deposit to total deposits ratio of

selected DCBs from 2002-03 to 2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M S.D

Allahabad 52 54 54 65 65 65 65 65 65 61 6

Azamgarh 51 53 57 59 59 61 61 61 61 58 4

Etah 56 62 59 64 64 67 63 62 66 62 3

Etawah 57 61 61 61 61 67 93 67 70 66 11

Ghaziabad 56 56 66 68 68 68 56 60 65 62 5

Hamirpur 54 57 57 61 61 65 64 68 68 62 5

Jalaun 48 53 53 55 55 54 56 56 57 54 3

Lalitpur 46 46 46 53 53 61 57 59 57 53 6

Moradabad 60 60 60 60 60 60 60 74 74 63 6

Lucknow 49 53 53 53 53 53 53 53 53 53 1

U.P. 52 53 56 61 63 62 61 62 64 59 4

India 34 36 39 43 45 44 43 43 45 41 4 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB It is clear from the table 5.5 that all selected sample DCBs have current

and saving deposits to total deposits ratio higher than the minimum

required level (30% to 40%). In terms of geomean for the selected sample

districts, the highest value was observed for Etawah DCB (G.M. = 66)

along with a comparatively high variability (S.D. = 11) which further

shows that there is high variation in CASA to total deposit figures for this

district over the selected period. The DCBs in Etawah region showed its

competency in raising resources at a cheaper cost as current and saving

deposits constituted the major portion of banks’ total deposits, which is

generally a cheaper source of fund.

We observed the same for Uttar Pradesh (G.M. = 59) as well as for India

(G.M. = 41). The ratio is higher than minimum required level (30% to

40%). As far as standard deviation is concerned we noticed

comparatively low variability (S.D. = 4, for both). The low variability

amongst almost all selected districts (other than Etawah), Uttar Pradesh

and India indicates high degree of uniformity of observations as well

homogeneity of the current and saving deposits to total deposits ratio.

5.1.6 Term or fixed deposit to total deposit ratio

Term deposit to total deposit ratio indicates proportion of high cost

deposits in the total deposits. Higher ratio indicates higher cost of funds.

Banks should maintain proper portion of low cost and high cost deposits

to maintain the financial cost. This ratio should not be blindly interpreted

and it has to be seen keeping in view the area of operations and the

clientele of the bank.

As this ratio indicates the proportion of high cost deposits in the total

deposits, usually, a 60 to 70 percent is assumed reasonable.

A higher ratio indicates higher proportion of long-term deposits in total

deposits, which is not good from profitability point of view, as the bank

has to pay high rate of interest on these types of deposits. Higher it is

good from the long term solvency point of view as the bank has to keep

less margin as idle cash for maintaining liquidity and cash invest for long

term purpose earning higher returns. An increasing ratio also indicates the

increasing faith of the public towards the bank. While lower, the ratio

indicates lesser proportion of long-term deposits as it decreases the

procurement cost.

The relationship between Term deposit and total deposit is displayed in

table 5.5

Table 5.6 Term deposit to total deposit ratio of selected DCBs from

2002-03 to 2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M S.D

Allahabad 48 46 46 35 35 35 35 35 35 39 6

Azamgarh 49 47 43 41 41 39 39 39 39 42 4

Etah 44 38 41 36 36 33 37 38 34 37 3

Etawah 43 39 39 39 39 33 7 33 30 30 11

Ghaziabad 44 44 34 32 32 32 44 40 35 37 5

Hamirpur 46 43 43 39 39 35 36 32 32 38 5

Jalaun 52 47 47 45 45 46 44 44 43 46 3

Lalitpur 54 54 54 47 47 39 43 41 43 47 6

Moradabad 40 40 40 40 40 40 40 26 26 36 6

Lucknow 51 47 47 47 47 47 47 47 47 47 1

U.P. 48 47 44 39 37 38 39 38 36 40 4

India 66 64 61 57 55 56 57 57 55 59 4 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB The table 5.6 reveals that the term deposits to total deposits ratio of all

selected sample DCBs were lower than the minimum required level. The

term deposits held by banks for a specified term, gives bank the ability to

invest it in a higher gain financial product class. The highest term

deposits to total deposits ratio was observed for Lalitpur and Lucknow

(G.M. = 47 for both) even that was lower than the required minimum

level to be maintained (60% to 70%). Despite the fact that the cooperative

banks provide a little higher rate of interest on deposits as compared to

commercial banks, we observed low term deposit to total deposit ratio.

The probable reason might be that people prefer commercial banks to

cooperatives because commercial banks enjoy greater reliability among

people as their size of business and accordingly their profits are much

higher than that of cooperatives.

As far as standard deviation is concerned we observed the highest value

for Etawah (G.M. = 11) and for other districts the variability is

comparatively low, indicating high degree of uniformity of observations

as well homogeneity of the term deposits to total deposits ratio.

We observed the same for Uttar Pradesh (G.M. = 40) as the ratio is lower

than minimum required level whereas in case of India (G.M. = 59) it is

almost reasonable. As far as standard deviation is concerned we noticed

comparatively low variability (S.D. = 4, for both). It indicates high degree

of uniformity of observations as well homogeneity of the term deposits to

total deposits ratio.

5.1.7 Owned funds to working funds ratio

This ratio indicates the share of owned funds to the total working funds

and indicates the borrowing ability of the bank to augment its working

funds. Higher the ratio, better it is for the bank. Generally, if the

percentage of ratio is greater than 10 percent it is considered reasonable.

Table 5.7 Owned funds to working funds ratio of selected DCBs from

2002-03 to 2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M. S.D Allahabad 4 4 4 3 3 3 3 3 3 3 0 Azamgarh 23 23 21 22 22 25 25 26 26 24 2 Etah 6 6 6 6 6 6 6 5 5 5 0 Etawah 9 9 9 9 9 10 11 10 12 10 1 Ghaziabad 17 17 17 12 12 11 11 10 8 12 3 Hamirpur 9 8 8 7 7 8 8 10 8 8 1 Jalaun 15 14 14 15 15 14 12 12 9 13 2 Lalitpur 22 22 22 19 19 19 18 16 14 19 3 Moradabad 9 9 9 9 9 9 9 20 20 11 5 Lucknow 9 4 4 4 4 4 4 4 4 4 2 U.P. 14 15 15 15 16 14 13 14 14 14 1 India 12 13 14 14 14 13 13 13 12 13 1 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB Table 5.7 shows the ratio of owned funds (share capital and reserves) to

working funds of all the DCBs from 2002-03 to 2010-11.

The proportion of owned funds in relation to the working funds showed a

mixed trend for the selected sample DCBs. The ratio was noticed to be

low and not even close to the accepted ideal proportion in case of

Allahabad, Etah and Lucknow DCBs indicating the low borrowing ability

of the banks to augment its working funds. One of the key reasons for this

weak share of owned funds could be attributed to the changing attitude of

the members to become a member just by buying the entry share capital

to avail the facilities. However, Azamgarh, Etawah, Ghaziabad, Jalaun,

Lalitpur and Moradabad DCBs were successful in managing on an

average more than 10 percent of owned funds to working funds ratio. So

in case of these DCBs we can say that the ratio of owned funds in relation

to the working funds was reasonably adequate and the pace of owned

funds was almost stable during the whole period of the study,

highlighting a good share of owned funds in the total working capital.

The descriptive statistics in table suggest that Uttar Pradesh (G.M. = 14)

as well as India (G.M. = 13) were successful in maintaining the adequate

level of owned funds to working funds ratio. The ratio of both, Uttar

Pradesh and India, remains almost stagnant throughout the period of

study indicating comparatively very low variability (S.D. = 1). When we

observe the standard deviation of the selected sample DCBs, we found

there is also comparatively low variability amongst almost all the sample

DCBs. The highest variability was observed in Moradabad DCB (S.D. =

5). The low degree of variability of this ratio amongst selected sample

DCBs, Uttar Pradesh and India indicates high degree of uniformity of

observations as well as homogeneity of the owned funds to working

funds ratio.

5.1.8 Deposits to working funds ratio

With regard to the working capital, an adequate amount of working

capital is of paramount importance for the cooperative banks as the

growth and expansion of any organization, usually depends on the

availability of working capital. Higher the availability of working funds

better would be the prospects for future growth and expansion of an

organization, similar is the case for cooperative banks.

Table 5.8 Deposits to working funds ratio of selected DCBs from

2002-03 to 2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M. S.D Allahabad 79 73 73 69 69 71 74 72 73 73 3 Azamgarh 61 61 60 61 61 56 56 64 64 60 3 Etah 60 58 54 59 59 69 69 66 68 62 5 Etawah 85 85 85 85 85 78 78 78 78 82 4 Ghaziabad 79 79 77 78 78 75 73 73 69 76 4 Hamirpur 80 72 72 69 69 74 75 100 70 75 10 Jalaun 76 75 75 73 73 76 77 77 73 75 2 Lalitpur 55 55 55 61 61 69 72 75 73 64 8 Moradabad 62 62 62 62 62 62 62 64 64 62 1 Lucknow 84 73 73 73 73 73 73 73 73 74 4 U.P. 67 70 66 66 71 64 66 68 68 67 2 India 66 65 66 66 63 63 67 71 69 66 2 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB Table 5.8 shows the ratio of deposits to working funds of all the DCBs

from 2002-03 to 2010-11.

The proportion of deposits in relation to the working funds showed a

mixed trend for the selected sample DCBs. This ratio is considered very

well if it is greater than 80 percent and if CASA ratio is greater than 30

percent. Therefore, the bank may try to maintain this level in order to

keep its cost low and to maintain the liquidity. However, if this ratio is

less than 50 percent, it is considered low and therefore the bank should

take steps to increase the level of deposits to at least 50 percent of

working fund within the specified period.

The descriptive statistics in table suggest that all the banks were

successful in maintaining the adequate level of deposits in relation to the

working funds ratio. We observed that all the banks were successful in

managing more than 50 percent of their working funds in the form of

deposits indicating its competency in raising its resources at a cheaper

cost as current and saving deposits constituted the major portion of

banks’ total deposits, which is generally a cheaper source of fund.

Moreover, we noticed an upward trend in this ratio over the years. The

general increase in this ratio in some of the sample banks may attribute to

their success in deposit mobilization policy.

In terms of geometric mean the highest value was observed for Etawah

DCB (G.M. = 82) with a comparatively low variability (S.D. = 4). We

observed the same for Uttar Pradesh (G.M. = 67) as well as for India

(G.M. = 66). The ratio is higher than minimum required level (> 50

percentage). As far as standard deviation is concerned we noticed

comparatively low variability (S.D. = two for both).

The low degree of variation of this ratio amongst selected sample DCBs,

Uttar Pradesh and India indicates high degree of uniformity of

observations as well as homogeneity of the deposits in relation to the

working funds ratio.

5.1.9 Borrowings to loans ratio

As borrowings are one of the highest cost items of sources of funds, a

lower borrowing to loans ratio is better for banks. This would help in

keeping down the financial cost. Generally, a ratio of less than 30 percent

is considered reasonable.

Table 5.9 Borrowings to loans ratio of selected DCBs from 2002-03 to

2010-11 Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M S.D

Allahabad 4 28 28 23 23 18 14 18 19 17 7

Azamgarh 78 68 75 107 107 103 103 53 53 80 23

Etah 35 37 45 51 51 31 28 3 30 29 15

Etawah 6 6 6 6 6 26 22 23 29 11 10

Ghaziabad 2 2 5 4 4 23 22 23 34 8 12

Hamirpur 11 42 42 32 32 51 38 40 65 36 15

Jalaun 25 27 27 21 21 14 18 18 36 22 7

Lalitpur 79 79 79 46 46 37 22 23 29 44 24

Moradabad 26 26 26 26 26 26 26 35 35 28 4

Lucknow 38 7 7 7 7 7 7 7 7 9 10

U.P. 28 29 29 30 36 35 34 33 36 32 3

India 39 43 39 38 36 35 32 27 28 35 5 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB

The borrowings to loans ratio manifested the bank's efficiency in

channelizing its mobilized resources for the various economic activities.

Table 5.9 presents the borrowings to loans ratio of selected sample DCBs

for the period 2002-03 to 2010-11. The borrowings to loans ratio of

DCBs has shown a fluctuating trend during the study period. It is evident

from the table under consideration that on an average the proportion of

borrowings to loans was higher than the required level (30%) in

Azamgarh (G.M.= 80), Hamirpur (G.M.= 36) and Lalitpur (G.M. = 44)

indicating a very high level of dependence of banks on borrowings. These

banks may try to reduce its dependence on borrowings by mobilizing

more deposits. The ratio was observed to be lowest in Ghaziabad DCB

(G.M. = 8). The reduction in borrowings is a positive sign for banks as it

is one of the highest cost items of funds. This trend might have resulted

from the proportionately reduced dependence of banks on borrowings due

to increased deposit mobilization.

We observed an increase in borrowings to loans ratio of Uttar Pradesh

throughout the study period reflecting the increasing dependency of

banks on borrowings. The descriptive statistics in table suggest that the

ratio of banks in Uttar Pradesh was slightly higher than the required level

(G.M. = 32). We observed the same for India (G.M. = 35). The level of

variability for Uttar Pradesh is three and that of India is five which

comparatively less. It indicates high degree of uniformity of observations

as well as homogeneity of the borrowings to loans ratio.

When we observe the standard deviation of the selected sample DCBs,

we found the highest variability in Lalitpur DCB (S.D. = 24) indicating

low degree of homogeneity i.e. the heterogeneity of the borrowings to

loans ratio. The lowest variability was observed in Moradabad DCB (S.D.

= 4) reflecting high degree of uniformity of observations as well as

homogeneity of the borrowings to loans ratio.

5.3.10 Investments to deposits ratio

In banking business, the main task of the bank is to obtain deposits at low

cost and advances at highest cost and earn good returns on it. A bank,

which is efficient in obtaining funds through short-term sources and

advancing for long-term purpose, can earn good returns. It shows how

much funds is invested from total deposited funds.

Total Investment to Total deposits Ratio indicates that banks are using

their funds rather than keeping them ideal. A higher ratio indicates higher

efficiency and lesser liquidity. However, this ratio has to be interpreted

keeping in view the funds position of the bank and must be compared

with their respective credit deposit ratio.

Table 5.10 Investments to deposits ratio of selected DCBs from 2002-

03 to 2010-11

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011 G.M. S.D Allahabad 28 32 32 26 26 35 42 56 28 33 10 Azamgarh 29 25 27 27 27 25 25 40 40 29 6 Etah 36 41 46 41 41 38 47 43 70 44 10 Etawah 77 79 79 79 79 90 94 100 101 86 10 Ghaziabad 66 66 64 80 80 92 77 69 84 75 10 Hamirpur 77 89 89 94 94 86 96 96 136 94 16 Jalaun 78 78 78 75 75 69 77 77 85 77 4 Lalitpur 44 44 44 37 37 40 48 66 72 47 12 Moradabad 39 39 39 39 39 39 39 30 30 37 4 Lucknow 43 42 42 42 42 42 42 42 42 42 0 U.P. 44 43 44 48 53 51 58 65 67 52 9 India 43 46 43 43 44 46 49 52 47 46 3 Source: Basic data on performance of district central cooperative banks (2002-2003 to 2010-2011), NAFSCOB Table 5.10 presents the investments to deposits ratio of selected sample

DCBs for the period 2002-03 to 2010-11. The investments to deposits

ratio of DCBs has shown a fluctuating trend during the study period. It is

evident from the table under consideration that on an average the

proportion of investments to deposits was very high as compared to CD

ratio (see table 5.1) of Etawah (G.M.= 86) and Hamirpur DCBs (G.M.=

94). These banks may try to explore avenues for increasing CD ratio and

may avoid excessive investments in order to improve its income and

profitability. The investments to deposits ratio (G. M. = 29) and the CD

ratio (G.M. = 26) was found to be lowest in Azamgarh DCB, indicating

the inefficiency in channelizing its mobilized resources for the various

economic activities. This suggests that a very small proportion of the

funds utilization and low amount of interest.

When we observe the standard deviation of the selected sample DCBs,

we found fluctuating trend during the study period. The degree of

variability is nil for Lucknow DCB (S.D. = 0). The highest variability

was observed in Hamirpur DCB (S.D. = 16) which is comparatively high.

It indicates low degree of homogeneity i.e. heterogeneity of investment to

deposit ratio.

We noticed an increase in investments to deposits ratio of Uttar Pradesh

throughout the study period. The descriptive statistics in table suggest

that the investments to deposits ratio of banks in Uttar Pradesh is lowest

(43) for the year 2004 and highest (67) for the year 2011. The S.D for

Uttar Pradesh is high (G.M. = 9) as compared to India (G.M. = 3)

indicating low degree of homogeneity i.e. heterogeneity of investment to

deposit ratio.

CHAPTER VI

SUMMARY, CONCLUSIONS AND SCOPE FOR

FURTHER WORK

Banks occupy a unique position in the economy of any nation and they

have a long history in India, as in other countries, though the form and

character of their operations have been changed in consonance with the

changing times.

The co-operative banks in Indian banking were started with the objectives

of prevention of concentration of economic power, achieving wide

dispersal of ownership of productive resources, active involvement of

people in development programmes, augmentation of the productive

resources, liquidation of unemployment and poverty, and relieving the

people from indebtedness to money lenders (Vijayalakshmi, 2010).

In independent India, the co-operative banks shoulder the responsibility

as institutions to purvey credit for agricultural and rural development.

The network of co-operative banks, with 31 state co-operative banks, 371

District central co-operative banks with around 94647 primary level

institutions, covers almost all villages in India (as on 31st march 2011).

A strong network of district cooperative banks is a pre-requisite for sound

performance of the cooperative credit structure. District cooperative

banks not only provide the much-needed financial support to PACS, but

also ensure the smooth flow of credit to various sectors in the district.

They also ensure the strict implementation of the developmental schemes

in the cooperative sector of the state and avoid the misuse of the funds by

PACS or the select affluent sections of the rural society (Harshitha,

2007).

6.1 Summary of the study

The first chapter of this study deals majorly with the historical

background and traces the evolution of cooperative banks in India. The

origin of Cooperative Credit Societies in India can be traced to the close

of 19th century. The co-operative credit societies got legal status in 1904,

with a view to encourage thrift, eradicate rural indebtedness and provide

credit to the needy and weaker sections of society in rural areas. This

1904 Act was later on modified in 1912 and 1919, which has widened the

scope of co-operative enterprise in India. The Co-operative Societies Act

of 1912 permitted the registration of DCBs in India. The DCBs were

formed mainly with the objective of meeting the credit requirements of

member societies.

The subject of the present study is '' An assessment of cooperative

banking in India with special reference to Uttar Pradesh'' which covers

the period from 2002-03 to 2010-11. This study covers the Districts

Cooperative Banks in India in general and Uttar Pradesh in particular.

The study is based on secondary data. The data has been collected from

the published annual reports of cooperative banks published by

NABARD and Basic Data on Performance of DCBs published by

NAFSCOB for the period from 2002-03 to 2010-11. Data sources also

include RBI bulletin (various issues), Report on trend and progress of

Banking in India (various issues), published and unpublished dissertation

works, books, periodicals and research articles from various journals

were also taken into consideration. To examine the fund management

practices and to evaluate the operational efficiency, ratio analysis has

been used. Compound Annual Growth Rate was used for the comparison

of growth rates of different financial variables like borrowings, deposits,

credit, profit etc. For a more clear understanding of the data, all ratios

calculated for the purpose of study and some important items of balance

sheets and profit and loss account are presented through graphs.

This is followed by the statement of the problem, need, scope, objectives,

hypotheses, methodology, scope and limitations of the study in the

second chapter.

In the third chapter, a review of past research works in the field has been

compiled to enable better understanding of the research in various

regions, method of analysis on the research subject. The review made in

this chapter brought out that there were a number of general studies

relating to financial analysis of DCBs in India. But very few studies have

attempted a detailed analysis of mobilization, deployment and other

aspects of funds management limited in their scope.

In the fourth chapter an attempt is made to analyze the trend and pattern

of sources and uses of funds in Uttar Pradesh. Here we tried to examine

the trend in the components of sources and uses of funds in selected

DCBs using the data for the period from 2002-03 to 2010-11. For

computing the overall growth, averages and Compound annual growth

rate method was found suitable and comparisons were made on that basis.

The major objective of the fifth chapter is to analyze the efficiency of

selected DCBs in Uttar Pradesh with regard to mobilization and

deployment of funds. For the assessment of the efficiency of cooperative

banks various ratios like credit to deposit ratio, borrowings to deposit

ratio, borrowed funds to owned funds ratio, liquid assets to demand and

time liabilities ratio, demand deposits to term deposits ratio, deposits to

working capital ratio, borrowings to working capital ratio, liquid assets to

working capital ratio, loans and advances to working capital ratio and

investments to working capital ratio have been used.

6.2 Conclusions

6.2.1 Chapter 4 - Trends and volume of sources and applications of

funds in DCBs

For better insight into the working of the organization, analysis of its

growth, development and other basic features becomes a pre-requisite

step. The performance and financial indicators of the district cooperative

banks were subjected to compound growth rate analysis for the period

2002-03 to 2010-11 in order to assess the performance of district

cooperative banks.

The financial variables viz., Share capital, reserves and surplus, total

deposits and each of fixed, saving and other deposits, total working

capital and each component of borrowed and owned funds, investments,

the total advances and each of the short, medium and the long term

advances of all the districts cooperative banks were found to have

recorded an impressive annual growth rate over the years.

It was further revealed that the share capital, reserves and surplus, the

total deposits, borrowings, loans and advances of Ghaziabad DCB, cash

in hand and cash at bank of Moradabad DCB and Investment in securities

of Hamirpur DCB were observed to have registered a highest and

spectacular annual growth rate over the years. The major conclusions are

as follows

1. During 2002-03 to 2010-11 there is negligible growth in number of

DCBs over the years (0.17%).

2. We found that in case of share capital, Ghaziabad DCB recorded

the highest growth which is even greater than the overall growth of Uttar

Pradesh and of India as well. The lowest growth was observed for

Lucknow DCB. However, in general, the data of the selected sample

districts of Uttar Pradesh for the period 2003-2011 shows that the share

capital of DCBs in Uttar Pradesh is increasing over the years.

3. In case of reserves and other funds, Moradabad DCB was keeping

sufficient reserves followed by Hamirpur DCB. The lowest growth rate

was observed for Lucknow DCB which is actually negative. The reason

being that the share capital and the number of branches are also stagnant

in case of Lucknow district. As a result of which the profits and

subsequently the reserves and surpluses are also going down. However, in

general, the reserve and other funds of the major selected sample districts

of Uttar Pradesh for the period 2003-2011 shows an increasing trend over

the years.

4. In general, the district co-operative banks have succeeded in

mobilizing deposits which is evident from the study. Total deposits

mobilized by Allahabad, Etawah, Ghaziabad and Moradabad DCBs were

higher than the overall averages during 2003 and 2011. We observed that

Ghaziabad DCB mobilized the maximum deposits while Azamgarh DCB

the least. In general, the data of the selected sample districts of Uttar

Pradesh and India for the period 2003-2011 shows that the total deposits

is showing an increase over the years. These favorable trends may be

attributed to the relatively better industrial activities of the districts

coupled with the joint efforts of employees and management.

5. In case of current deposits Allahabad DCB recorded the highest

figure in 2003 and 2011 whereas Lalitpur DCB is maintaining the lowest

in 2003 and 2011.

6. In terms of savings bank deposits Moradabad and Ghaziabad DCBs

recorded the highest figure in 2003 and 2011 respectively. Lowest was

observed for Lalitpur in 2003 and Lucknow DCB in 2011.

7. With regard to fixed deposits Allahabad and Ghaziabad DCBs

recorded the highest figure in 2003 and 2011 respectively. Lowest was

observed for Lucknow DCB in 2003 and 2011.

8. In general, all the banks in U.P showed an increasing trend with

regard to different types of deposits during 2003 and 2011.

9. Regarding borrowings, Ghaziabad DCB recorded the highest

growth and Lucknow DCB the lowest. The CAGR of borrowings of

Ghaziabad, Hamirpur Allahabad, Etawah and Jalaun DCBs were higher

than the overall CAGR of Uttar Pradesh. We observed an increasing trend

for borrowings of Uttar Pradesh for the period 2003-2011. It has also

been observed that the growth of Uttar Pradesh is greater than that of

India. Although the growth rate of borrowings of few sample districts like

Azamgarh, Etah, Lalitpur and Lucknow showed a decline but there is an

overall increase in the borrowings of major sample DCBs of Uttar

Pradesh over the years.

10. The correlation coefficient between borrowings and profits is

found to be negative and significant in case of Uttar Pradesh as well in

case of major selected sample districts except for few such as Hamirpur,

Jalaun and Lalitpur, where the correlation is found to be positive and

significant.

11. The maximum CAGR of cash in hand and at bank was recorded at

Moradabad DCB which is indeed higher than that of Uttar Pradesh and

minimum for Etawah DCB. In general there is increase in cash in hand

and cash at bank in the selected sample districts of Uttar Pradesh over the

period of 2003-2011 with the only exception of Etawah. Although the

overall growth of cash in hand and at bank in Uttar Pradesh has also

shown a considerable increase over the years, yet it is lower than that of

India.

12. The maximum CAGR for loans and advances was recorded at

Ghaziabad DCB and the minimum for Etah DCB. We observed an

increase in the overall loans and advances of Uttar Pradesh during the

period of 2003-2011.

13. The correlation coefficient between loans and advances and profits

shows that there exists a high degree of positive correlation between these

indicators for six out of ten selected districts. However, in case of Uttar

Pradesh as a whole and Azamgarh and Moradabad DCBs the correlation

is found to be negative and significant.

14. We observed the highest growth rate of investment for Hamirpur

DCB, leading to the inference that preference for investments is

increasing in Hamirpur DCB. The lowest growth rate was recorded for

Moradabad DCB. In general, data of the selected sample districts of Uttar

Pradesh for the period 2003-2011 shows that the investments of DCBs in

Uttar Pradesh is increasing over the years.

15. We observed a declining trend in percentage of over dues to loans

of DCBs in Uttar Pradesh during the period of study.

6.2.2 Chapter 5 - Ratio Analysis of Financial Performance of DCBs in

Uttar Pradesh

For financial analysis, the researcher computed credit to deposit ratio,

borrowings to deposits ratio, owned funds to borrowed funds ratio, liquid

assets to demand and time liabilities ratio, current and savings deposit to

total deposits ratio, term deposits to total deposit ratio, owned funds to

working funds ratio, deposits to working funds ratio, borrowings to loans

ratio, investments to deposits ratio.

1) Credit to deposit ratio

Credit Deposit Ratio indicates the relationship between advances and

deposits. A higher credit deposits ratio indicates efficiency of

management. The average yearly total credit disbursement in relation to

the total deposit mobilized ratio (C.D. Ratio) of Etah, Ghaziabad and

Moradabad DCB was found to be excellent. While in case of Allahabad,

Azamgarh, Etawah, Hamirpur, Jalaun, Lalitpur and Lucknow DCB, the

ratio was found to be rather poor. Further, the C/D ratio of Moradabad

DCB was observed to be the highest among the banks. As far as the CD

ratio of Uttar Pradesh and India is concerned, it was found to be

satisfactory.

2) Borrowings to Deposits Ratio

Borrowings to deposits ratio indicates the level of dependence of a bank

on borrowings. This ratio should not be very high because then it will

reflect high level of dependence on borrowings. On an average the

proportion of borrowings to deposits was highest in Moradabad DCB.

The ratio was observed to be lowest in Lucknow DCB.

On an average, the borrowings to deposits ratio of Uttar Pradesh showed

an increase over the period of study. The descriptive statistics in table

suggest that the borrowings to deposits ratio of banks in Uttar Pradesh is

lowest for the years 2003 and 2004 and highest for the years 2007 and

2008. However, for India, the proportion of borrowings in relation to the

deposits showed a mixed trend, which remains stagnant from 2003 to

2006 then, showed an increase in 2007, again decreases, and finally

showed an increase from 21 in 2010 to 24 in 2011.

3) Owned funds to borrowed funds ratio

The proportion of owned funds in relation to the borrowed funds was

noticed to be comparatively low in case of most of the sample DCBs

except Azamgarh and Lalitpur, revealing a weak equity base in the total

capital structure of the bank. However, the percentage of owned funds to

borrowed funds in Lalitpur was observed to have sluggishing trend in

later years as compared to former years.

The owned fund to the borrowed funds ratio of Uttar Pradesh and India

was also comparatively low.

4) Liquid assets to demand and time liabilities ratio

The liquid assets to demand and time liabilities ratio was found to be far

below than required, under Sec 18 of the Banking Regulation Act, in case

of all DCBs except Moradabad, where it was observed to be more than

the required ratio, indicating excess funds in the form of liquid assets. As

far as Uttar Pradesh and India are concerned, the case is no different, as

we observed the Liquid assets to demand and time liabilities ratio is far

below than required.

5) Current and savings deposit to total deposits ratio

All selected sample DCBs have current and saving deposits to total

deposits ratio higher than the minimum required level (30% to 40%). In

terms of geometric mean for the selected sample districts, the highest

value was observed for Etawah DCB. The DCBs in Etawah region

showed its competency in raising resources at a cheaper cost as current

and saving deposits constituted the major portion of banks’ total deposits,

which is generally a cheaper source of fund. We observed the same for

Uttar Pradesh as well as for India.

6) Term or fixed deposit to total deposit ratio

Long Term Deposits to Total Deposits Ratio indicates the proportion of

long term deposits in total deposits. The term deposits held by banks for a

specified term, gives bank the ability to invest it in a higher gain financial

product class. We found that the term deposits to total deposits ratio of all

selected sample DCBs were lower than the minimum required level. The

highest term deposits to total deposits ratio was observed for Lalitpur and

Lucknow even that was lower than the required minimum level to be

maintained (60% to 70%).

We observed the same for Uttar Pradesh as the ratio is lower than

minimum required level whereas in case of India it is almost reasonable.

7) Owned funds to working Funds ratio

The owned funds in relation to the working funds ratio was noticed to be

low and not even close to the accepted ideal proportion in case of

Allahabad, Etah and Lucknow DCBs indicating the low borrowing ability

of the banks to augment its working funds. However, Azamgarh, Etawah,

Ghaziabad, Jalaun, Lalitpur and Moradabad DCBs were successful in

managing on an average more than 10 percent of owned funds to working

funds ratio. So in case of these DCBs we can say that the ratio of owned

funds in relation to the working funds was reasonably adequate and the

pace of owned funds was almost stable during the whole period of the

study, highlighting a good share of owned funds in the total working

capital.

The analysis showed that Uttar Pradesh as well as India was successful in

maintaining the adequate level of owned funds to working funds ratio.

8) Deposits to working funds ratio

A detailed examination of the observations showed all the banks were

successful in maintaining the adequate level of deposits in relation to the

working funds ratio. We observed that all the banks were successful in

managing more than 50 percent of their working funds in the form of

deposits indicating its competency in raising resources at a cheaper cost

as current and saving deposits constituted the major portion of banks’

total deposits, which is generally a cheaper source of fund. Moreover, we

noticed an upward trend in this ratio over the years. The general increase

in this ratio in some of the sample banks may attribute to their success in

deposit mobilization policy. In terms of geometric mean the highest value

was observed for Etawah DCB indicating the high liquidity position of

the banks.

We observed the same for Uttar Pradesh as well as for India. The ratio is

higher than minimum required level (> 50 %).

9) Borrowings to loans ratio

The proportion of borrowings to loans was higher than the required level

(30%) in Azamgarh, Hamirpur and Lalitpur indicating a very high level

of dependence of banks on borrowings. The lowest ratio was observed for

Ghaziabad DCB.

We observed an increase in borrowings to loans ratio of Uttar Pradesh

throughout the study period reflecting the increasing dependency of

banks on borrowings. The descriptive statistics in table suggest that the

ratio of banks in Uttar Pradesh was slightly higher than the required level.

We observed the same for India.

10) Investments to deposits ratio

Total investment to total deposits ratio indicates that banks are using their

funds rather than keeping them ideal. A higher ratio indicates higher

efficiency and lesser liquidity. However this ratio has to be interpreted

keeping in view the funds position of the bank and must be compared

with their respective credit deposit ratio. The average ratio was the

highest in Hamirpur DCB which was 94 percent and maintained almost

same level during the study period. It was followed by Etawah, Jalaun,

Ghaziabad, Lalitpur, Etah, Lucknow, Moradabad, and Allahabad DCBs.

The average ratio was the lowest in Azamgarh DCB.

We noticed an increase in investments to deposits ratio of Uttar Pradesh

throughout the study period i.e. from 2002-03 to 2010-10. The

investments to deposits ratio of DCBs in India has shown a fluctuating

trend during the study period. We observed that on average investments

to deposits ratio of DCBs in India increases till 2010 and decreases in

2011.

6.3 Major findings

1. While analyzing the historical trends of DCBs in U.P. it was found

that in general the DCBs are having a stagnant growth with respect to

different indicators.

2. During 2002-03 to 2010-11 there is negligible growth in number of

DCBs over the years (0.17%). Hence the hypothesis that over the years

the number of branches of DCBs in India is likely to increase has been

rejected.

3. One of the major objectives of this study is to examine the growth

of business of cooperative banks in Uttar Pradesh in terms of deposits

mobilization and credit advanced during the study period. In general, the

district co-operative banks have succeeded in mobilizing deposits which

is evident from the study. In general, the data of the selected sample

districts of Uttar Pradesh and India for the period 2003-2011 shows that

the total deposits is showing an increase over the years. These favorable

trends may be attributed to the relatively better industrial activities of the

districts coupled with the joint efforts of employees and management.

Thus the hypothesis that Cooperative banks have been playing an

important role in mobilization of deposit and extension of credit to

influence the distribution of credit to people, has been accepted.

4. In general, all the banks in U.P showed an increasing trend with

regard to different types of deposits during 2003 and 2011. The

hypothesis, that in general, it is expected that all the banks in U.P will

have an increasing trend with regard to different types of deposits during

the study period has also been established because we observed that

current deposits, saving deposits and fixed deposits have increased in all

the banks as the growth rate of deposits is positive in case of selected

sample banks, Uttar Pradesh as a whole and also in case of India.

5. The correlation coefficient between borrowings and profits is

found to be negative and significant as well, in case of Uttar Pradesh and

also for major selected sample districts except for few such as Hamirpur,

Jalaun and Lalitpur, where the correlation is found to be positive and

significant. The reason that can be traced is that it might be due to poor

and inaccurate data reporting in the Bundelkhand region (these three

districts belong to this region). These inferences were establishing an

inverse relationship between borrowings and profits of DCBs.

6. The correlation coefficient between loans and advances and profits

shows that there exists a high degree of positive correlation between these

indicators for six out of ten selected districts. However, in case of Uttar

Pradesh as a whole and Azamgarh and Moradabad DCBs the correlation

is found to be negative and significant. In case of U.P. as well as

Azamgarh the reason for the negative correlation may be high NPAs. For

Moradabad the two probable reasons can be cited for the negative

correlation between these indicators. Firstly, the DCBs in Moradabad

district are having high NPAs and secondly the data reported by these

banks is also not appropriate. Hence the hypothesis that Loans and

advances and profits of DCBs are directly related to each other may be

accepted.

7. We observed a declining trend in percentage of over dues to loans

of DCBs in Uttar Pradesh during the period of study. Thus the hypothesis

that there is an increasing trend of over dues to loans over the period of

study has been rejected.

8. The liquid assets to demand and time liabilities ratio was found to

be far below than requirements under Sec 18 of the Banking Regulation

Act, in case of all DCBs except Moradabad, where it was observed to be

more than the required ratio, indicating excess funds in the form of liquid

assets. As far as Uttar Pradesh and India are concerned, the case is no

different, as we observed the Liquid assets to demand and time liabilities

ratio is far below than required. Thus the hypothesis that in general the

DCBs had maintained very low liquid assets may be accepted.

Long Term Deposits to Total Deposits Ratio indicates the proportion of

long term deposits in total deposits. The term deposits held by banks for a

specified term, gives bank the ability to invest it in other profitable

avenues but it was found that the term deposits to total deposits ratio of

all selected sample DCBs were lower than the minimum required level.

The highest term deposits to total deposits ratio was observed for Lalitpur

and Lucknow even that was lower than the required minimum level to be

maintained (60% to 70%). The same is also observed for Uttar Pradesh as

the ratio is lower than minimum required level whereas in case of India it

is just reasonable. Despite the fact that the cooperative banks provide a

little higher rate of interest on deposits as compared to commercial banks,

we observed low term deposit to total deposit ratio. The probable reason

might be that people prefer commercial banks to cooperatives because

commercial banks enjoy greater reliability among people as their size of

business and accordingly their profits are much higher than that of

cooperatives. Hence the hypothesis that the percentage of term deposits

in comparison to other kinds of deposits in DCBs would be

comparatively less may be accepted.

9. One of the objectives of this study is to analyze the various sources

and uses of funds of DCBs in U.P. The analysis shows that the share

capital, reserves and other funds, deposits and borrowings are the

different sources of funds of DCBs. The funds so collected by the banks

are utilized for meeting the various purposes, but in this study we

analyzed only the important purposes namely cash in hand and at bank,

for granting loans & advances and investment in securities.

10. The overall growth of share capital of DCBs in India is almost

double in comparison to the growth of Uttar Pradesh during 2002-03 to

2010-11. In general the data of the selected sample districts of U.P. for

the period 2003-2011 shows that the share capital of DCBs in U.P. is

increasing over the years. The rate of growth of India is lower than that of

Uttar Pradesh. The table revealed that in general the reserve and other

funds of the selected sample districts of U.P. for the period 2003-2011

shows an increasing trend over the years.

11. To assess and analyze the status of employees in terms of their cost

of management is also one of the objectives of this study. In general, it

was observed that for all the selected districts there has been on an

average 10% growth of cost of management per employee as the

compound annual growth rate for all the major districts for the selected

time period is in general 10%.

12. One of the objectives of this study was to evaluate the overall

performance and financial performance of cooperative banks in Uttar

Pradesh with the help of some selected ratios. After analyzing the ratios

we found that all the selected ratios viz. credit to deposit ratio,

borrowings to deposits ratio, current and savings deposit to total deposits

ratio, owned funds to working funds ratio, deposits to working funds

ratio, borrowings to loans ratio, investments to deposits ratio were as per

the required standards except owned funds to borrowed funds ratio, liquid

asset to demand and time liabilities ratio and term deposits to total

deposits ratio.

6.4 Policy suggestions

1. It is necessary for Allahabad, Azamgarh, Etawah, Hamirpur,

Jalaun, Lalitpur and Lucknow DCBs to increase their credit deposit ratio

to channelize their excess funds than the required, by increasing their

lending activity so as to earn a justifiable return on the mobilized

resources.

2. The proportion of borrowings to deposits needs to be reduced in

case of DCBs in Uttar Pradesh and more specifically in Azamgarh, Etah,

Lalitpur and Moradabad DCBs, by mobilizing more deposits as to reduce

the level of dependence on borrowings which is one of the highest cost

items of funds.

3. The proportion of owned funds in relation to the borrowed funds

needs to be strengthened in case of DCBs of Uttar Pradesh and India as a

whole and for most of the sample DCBs except Azamgarh and Lalitpur,

for a strong equity base. This can be achieved by two ways: i) by

increasing the membership strength so as to raise share capital. For this, a

region wise committee comprising of local members may be constituted

to persuade the people to become the members of the banks; ii) the

present minimum face value of the shares may be fixed at such rate which

would not restrict the persons of small means to become the members of

the banks. Further, a suitable linkage of shareholdings to the borrowings

should be encouraged.

4. The owned fund position of the districts banks can also be

improved by capital contribution of the apex bank and State Government.

5. The percentage of liquid assets in relation to the total deposits

needs to be enlarged in case of all selected sample DCBs, Uttar Pradesh

and India, in order to widen the safety base to the deposit holders on the

one hand and satisfy the statutory norms prescribed by the RBI, on the

other as the liquid assets to the total deposits ratio was found to be far

below than the required in these banks. Thus it needs to be improved.

6. Moradabad DCB needs to channelize their excess funds than the

required blocked in the form of either liquid assets or in the form of cash

assets, to the profitable outlets. The investment can be made either in

approved securities or by increasing their lending activity extending even

to the rural area as well as to the agricultural activity so as to earn a

justifiable return on the mobilized resources.

7. The ratio of owned funds to working funds needs to be increased in

case of Allahabad, Etah and Lucknow DCBs by raising its share capital

and also increasing its membership.

8. As far as the borrowings to loans ratio is concerned, Azamgarh,

Hamirpur and Lalitpur DCBs may try to reduce their dependence on

borrowings by mobilizing more deposits.

9. The proportion of investments to deposits was very high as

compared to CD ratio of Etawah and Hamirpur DCBs. These banks may

try to explore avenues for increasing CD ratio and may avoid excessive

investments in order to improve its income and profitability.

10. Management should ensure that important matters having

significant bearing on the proper functioning and working of the banks

such as mobilization of deposits targets, advance specially priority sector

advance, liquid assets, investment, over dues and recoveries etc. should

be reviewed periodically in order to achieve better functioning.

11. It is suggested to that annual recovery must be fixed and a

Recovery Committee should be setup to speed up recovery by close

monitoring over recovery.

12. To improve profitability of the DCBs, it is suggested that the

management of the DCBs should try to reduce operating cost by

exercising efficient control over their cost of external funds and

increasing operating income by utilizing funds to their full capacity. To

exercise efficient control over their cost of external funds, they should try

to obtain more low cost funds. For the reduction and control of cost,

techniques like budgetary control, standard costing and value analysis

should be implemented.

13. To improve return on total funds it is suggested hereby to increase

the portfolio of advances, simplification of the procedure of advancing

and to provide door to door services to customer. Similarly they should

go for beneficial and safe investment of funds. But they should be

simultaneously aware about the quality and quantity of advances and

advance which do not convert in NPA.

14. Management audit is to be introduced as a tool for an objective

evaluation of the management performance of the nationalized banks in

the overall functioning of the organization. Such an audit should clearly

reveal the lapses in the organization structure, systems and procedures so

that corrective actions can be taken.

15. It was observed during the study certain shortcomings relating to

the disclosure of information, accuracy of facts and figures displayed in

the annual reports and maintenance of proper records with regard to the

various components of income, expenditure, non-performing assets,

number of employees, liabilities etc. which naturally causes

inconvenience to the members as well as to the general public in

understanding clearly the real status of the banks. Hence, it is very

essential for the banks to improve their disclosure standards, accuracy of

the information disclosed in their annual reports and maintaining the

proper records containing detailed information about all the components

of the financial statements.

6.5 Scope for further research

1. The present analysis studies only a few parameters. The other

parameters can also be evaluated.

2. The data is secondary in nature.

3. As the data are collected from the records, the analysis is based on

the information provided by the concerned institutions alone.

4. The detailed analysis is restricted to a limited period of study i.e.

from 2002-03 to 2010-11.

5. The analysis is based on the quantitative aspects and the social

objectives of DCBs are not taken into considerations for the purpose of

study because qualitative aspects required a totally different mode of

study.

6. The structure of cooperative banks in Uttar Pradesh consists of

three tier system – the primary credit societies at the base/ village level,

the DCBs at the district level & the StCBs / apex bank at the state level.

The scope of this study is restricted to the selected DCBs in Uttar

Pradesh.

7. The present study is based on the selected 10 sample DCBs. As the

size of the sample selected is very small, the limitations of a small sample

are applicable to this study.

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Appendices

Deposits

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 17302 17152 17152 18996 18996 22909 26037 29682 32965

Azamgarh 7854 8771 9597 9905 9905 9487 9487 12855 12855

Etah 7156 7406 7003 8347 8347 10279 10877 12372 12693

Etawah 14740 16287 16287 16287 16287 22222 24796 28461 31581

Ghaziabad 14555 14555 17368 20317 20317 22977 29712 34722 41655

Hamirpur 7402 7877 7877 8577 8577 11634 13730 16794 18661

Jalaun 11039 11415 11415 11985 11985 14563 18920 18920 20805

Lalitpur 3222 3222 3222 3619 3619 5102 5648 6719 7509

Moradaba

d

15652 15652 15652 15652 15652 15652 15652 29579 29579

Lucknow 4839 8457 8457 8457 8457 8457 8457 8457 8457

U.P. 491491 514287 533160 590158 632374 679472 762678 897209 963457

India 7239443 7688452 8049350 8665222 9218136 10599372 12372182 14630314 16130882

Term Deposits

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 8318 7828 7828 6647 6647 7915 9230 10536 11624

Azamgarh 3877 4118 4100 4043 4043 3688 3688 5020 5020

Etah 3044 2737 2713 2861 2861 3219 3817 4478 4150

Etawah 6239 6298 6298 6298 6298 7292 1797 9451 9428

Ghaziabad 6429 6429 5925 6283 6283 7078 12984 13837 14591

Hamirpur 3385 3391 3391 3301 3301 4097 4937 5383 5882

Jalaun 5732 5394 5394 5345 5345 6637 8359 8359 9042

Lalitpur 1745 1745 1745 1714 1714 2001 2444 2773 3226

Moradaba

d

6269 6269 6269 6269 6269 6269 6269 7576 7576

Lucknow 2306 3871 3871 3871 3871 3871 3871 3871 3871

U.P. 231818 238955 231484 225647 230332 257982 284646 339726 341949

India

446164

3

462149

8

459827

0

4641115

477510

1

550109

4

665986

3

788297

9

839188

8

Savings

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 7912 8085 8085 10790 10790 13287 15144 17271 19376

Azamgarh 3256 3672 4332 4906 4906 4891 4891 6736 6736

Etah 3384 3620 3281 4119 4119 5564 5391 6266 7018

Etawah 7215 8809 8809 8809 8809 13393 14244 16972 20425

Ghaziabad 7605 7605 10753 12258 12258 13990 15847 19569 25758

Hamirpur 3410 3819 3819 4540 4540 6510 7548 9890 11636

Jalaun 4979 5693 5693 6210 6210 7246 10079 10079 11314

Lalitpur 1347 1347 1347 1801 1801 2732 3069 3699 4105

Moradaba

d

8566 8566 8566 8566 8566 8566 8566 20399 20399

Lucknow 1969 3959 3959 3959 3959 3959 3959 3959 3959

U.P. 224255 237654 263968 318741 357973 378403 400497 503858 557353

India

179953

1

200891

8

226037

1

273547

5

304580

4

344132

3

393294

5

473257

4

553713

7

Current Deposits

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 1072 1239 1239 1559 1559 1707 1663 1875 1965

Azamgarh 712 972 1156 946 946 898 898 1093 1093

Etah 472 765 688 968 968 986 1122 1092 918

Etawah 1021 1180 1180 1180 1180 1537 8755 2038 1728

Ghaziabad 521 521 690 1014 1014 991 881 1316 1306

Hamirpur 600 660 660 733 733 1027 1245 1521 1143

Jalaun 322 321 321 423 423 673 474 474 449

Lalitpur 130 130 130 104 104 369 135 247 178

Moradaba

d

817 817 817 817 817 817 817 1604 1604

Lucknow 270 490 490 490 490 490 490 490 490

U.P. 31358 35613 35114 41699 41297 40408 52675 49355 58483

India

50121

2

57908

5

67725

5

75439

6

80231

8

90090

6

113629

3

123355

2

139561

1

Liquid Assets

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 1603 833 833 1284 1284 998 1215 1264 11190

Azamgarh 484 270 732 605 605 554 554 1230 1230

Etah 907 887 717 965 965 1107 808 5049 1175

Etawah 626 560 560 560 560 1169 941 997 733

Ghaziabad 974 974 1897 1786 1786 1261 1113 1619 2871

Hamirpur 481 704 704 858 858 808 774 1089 2082

Jalaun 563 630 630 705 705 578 999 999 1409

Lalitpur 444 444 444 608 608 435 309 428 690

Moradabad 6058 6058 6058 6058 6058 6058 6058 24009 24009

Lucknow 2271 292 292 292 292 292 292 292 292

U.P. 51039 60963 60819 75358 80335 78887 112069 156778 163200

India 715012

90017

4

100464

6

101938

3

102886

6

101461

6

129318

8

144970

8

1164514

9

Borrowings

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 242 1504 1504 1504 1504 1659 1346 1582 2303

Azamgarh 1755 2058 2538 2538 2538 2874 2874 1208 1208

Etah 2692 2931 3440 3440 3440 2251 1912 202 2306

Etawah 275 304 304 304 304 1765 1605 1767 2206

Ghaziabad 203 203 515 515 515 3642 5989 6915 12492

Hamirpur 415 1500 1500 1500 1500 1786 1795 2103 4698

Jalaun 1263 1487 1487 1487 1487 1574 1960 1960 4613

Lalitpur 1270 1270 1270 1270 1270 720 617 630 1101

Moradabad 4061 4061 4061 4061 4061 4061 4061 7414 7414

Lucknow 399 253 253 253 253 253 253 253 253

U.P. 93303 98931 111766 127263 163204 176039 186468 189271 232343

India 1923847 2112810 2155710 2320213 2794060 3053334 2847764 3035483 3910116

Current and savings account

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 8984 9324 9324 12349 12349 14994 16807 19146 21341

Azamgarh 3968 4644 5488 5852 5852 5789 5789 7829 7829

Etah 3856 4385 3969 5087 5087 6550 6513 7358 7936

Etawah 8236 9989 9989 9989 9989 14930 22999 19010 22153

Ghaziabad 8126 8126 11443 13272 13272 14981 16728 20885 27064

Hamirpur 4010 4479 4479 5273 5273 7537 8793 11411 12779

Jalaun 5301 6014 6014 6633 6633 7919 10553 10553 11763

Lalitpur 1477 1477 1477 1905 1905 3101 3204 3946 4283

Moradaba

d

9383 9383 9383 9383 9383 9383 9383 22003 22003

Lucknow 2239 4449 4449 4449 4449 4449 4449 4449 4449

U.P. 255613 273267 299082 360440 399270 418811 453172 553213 615836

India

230074

3

258800

3

293762

6

348987

1

384812

2

434222

9

506923

8

596612

6

693274

8

Owned Funds Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 847 861 861 891 891 1135 1173 1214 1261

Azamgarh 2896 3315 3393 3666 3666 4162 4162 5334 5334

Etah 657 706 798 778 778 843 878 902 912

Etawah 1600 1725 1725 1725 1725 2714 3512 3835 4676

Ghaziabad 3055 3055 3805 3230 3230 3482 4399 4674 4822

Hamirpur 805 852 852 917 917 1227 1468 1650 2231

Jalaun 2114 2182 2182 2394 2394 2736 2992 2992 2555

Lalitpur 1289 1289 1289 1107 1107 1392 1398 1410 1491

Moradaba

d

2231 2231 2231 2231 2231 2231 2231 9388 9388

Lucknow 522 447 447 447 447 447 447 447 447

U.P. 100763 110640 118436 136109 139043 147476 154189 185315 200899

India

132527

1

150182

7

167883

3

185944

1

206032

5

222649

6

238794

2

279094

9

279497

0

Working funds

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 21767 23379 23379 27477 27477 32482 35342 40946 44930

Azamgarh 12774 14437 15892 16364 16364 16828 16828 20195 20195

Etah 11896 12690 13005 14038 14038 14993 15828 18814 18672

Etawah 17310 19258 19258 19258 19258 28325 31819 36675 40357

Ghaziabad 18355 18355 22490 26055 26055 30753 40980 47256 60419

Hamirpur 9304 10950 10950 12520 12520 15682 18247 16794 26608

Jalaun 14577 15284 15284 16436 16436 19207 24553 24553 28330

Lalitpur 5861 5861 5861 5890 5890 7375 7854 8917 10357

Moradaba

d

25352 25352 25352 25352 25352 25352 25352 46435 46435

Lucknow 5760 11632 11632 11632 11632 11632 11632 11632 11632

U.P 730812 732925 808645 896058 896058 1063991 1159617 1310253 1407633

India 1090923

9

1189053

1

1226328

9

1312418

5

1460836

3

1681375

2

1840378

7

2069184

4

2354307

0

Demand Deposits

Districts 2003 2004 2005 2006 2007 2008 2009 2010 2011

Allahabad 8984 9324 9324 12349 12349 14994 16807 19146 21341

Azamgarh 3968 4644 5488 5852 5852 5789 5789 7829 7829

Etah 3856 4385 3969 5087 5087 6550 6513 7358 7936

Etawah 8236 9989 9989 9989 9989 14930 22999 19010 22153

Ghaziabad 8126 8126 11443 13272 13272 14981 16728 20885 27064

Hamirpur 4010 4479 4479 5273 5273 7537 8793 11411 12779

Jalaun 5301 6014 6014 6633 6633 7919 10553 10553 11763

Lalitpur 1477 1477 1477 1905 1905 3101 3204 3946 4283

Moradaba

d

9383 9383 9383 9383 9383 9383 9383 22003 22003

Lucknow 2239 4449 4449 4449 4449 4449 4449 4449 4449

U.P. 255613 273267 299082 360440 399270 418811 453172 553213 615836

India

230074

3

258800

3

293762

6

348987

1

384812

2

434222

9

506923

8

596612

6

693274

8