Cooperative Banking : Challenges And Opportunities. By Dr. Vigneshwara Varmudy Associate Professor in Economics Vivekananda College Puttur

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1 Cooperative Banking : Challenges And Opportunities By Dr. Vigneshwara Varmudy Associate Professor in Economics Vivekananda College Puttur

2 The Indian cooperative sector is 109 years old. Government took initiative to address the twin issues of farmer's-indebtedness and poverty. Cooperative credit societies Act,1904. At present there are more than 5.5 lakhs of individual cooperative organizations with over 239 million members. To improve the status of these government of India brought about 97 th amendment in 2011 to the constitution Act. Now cooperatives are included in Part-3 of the constitution in Article 19.

3 An overview of Cooperative Banks State cooperative Banks Apex institution. There are 31 S C B s Network of 1047 branches. Of these branches Himachal Pradesh has 197, Assam 75, Goa 68, Maharashtra 53,Tripura 50, Tamilnadu Thousands of members.. Overdue : 3.86%

4 District Central Cooperative Banks. At present there are 371 banks in India. Numbers of branches : Membership : 3659 thousands. Overdue : 21.88% Performance deteriorating mainly due to operating expenses.

5 Urban cooperative Banks Area of operation : Urban & Semi Urban. Numbers % banks are located at Maharashtra, Karnataka, Gujarat, Andra Pradesh and Tamilnadu. Here Maharashtra alone accounts for 33% of the total. 4 Grades of banks-gradation based on profit/loss, NPA etc., 1 st Grade -845, in this Maharashtra has 301 and Karnataka 112.

6 Urban cooperative Banks 2 nd Grade-502-Gujarat(First) Karnataka(Second). 3 nd Grade-172- Maharashtra(First)Karnataka(Second). 4 th Grade-126- Maharashtra(First)Gujarat(Second) Karnataka(Third).

7 Target Groups- Farmers, Small vendors, labourers, women, physically challenged etc., Advantages-Cost structure, labour cost, lower operating costs, local in nature. Lending Priority sector-46%,housing-26%. Capital to risk weighted assets ratio (CRAR)-91% Minimum of 9%. Net worth 8.7% in to 5.3% in Improvement due to up gradation,amalgamation and liquidation. NPA s Gross 20% in to 12% in 2010.

8 Drawbacks Lack of corporate governance. Dual control. Political interference. Lack of professionalism. Incidence of financial weakness.

9 Opportunities Local knowledge. Undeniable edge in the area of relationship banking.

10 PACS Integral part of short term credit. Grass root level banking. Number-1,12,309( ), 92,432 ( ) Membership thousands,( ) 1,13,596 thousands. Borrowers thousands ( ) thousands ( ) Villages coverd % in Bihar, Himachal Pradesh, Nagaland, Pondicherry, Sikkim, Tamilnadu, U.P etc., In Karnataka of the total 7,02,914 Villages 6,75,382 Villages are having PACS. Overdues- 15,289 crores( ), 24,304 crores( ) Percentage of over dues During( )-37.90, In ( ) was 26.78

11 Region-wise PACS and Membership Region PACS Viable Membership (000) Northern (11.70) 7553 (11.30) 9974 (8.78) Eastern (21.01) (21.88) (34.22) Central (16.61) (18.68) (9.41) Western (32.06) (30.68) (15.05) 7.79 Southern (14.82) 9719 (14.55) (39.28) North eastern 3500 (3.79) 1947 (2.91) 3694 (3.25) 4.87 Total (100) (100) (100) 100 Number of villages per PACS( IN %)

12 Borrowers Region-wise Region Total (000) Others Northern Eastern Central Western Southern North eastern Total 4, (100) (100)

13 PACS-TOP TEN In numbers State Number Viable Maharashtra U P Bihar Gujarat W B Rajasthan Karnataka Tamil Nadu M P A P Kerala Total in India

14 Membership Top Ten State Membership (000) Number of borrowers (000) Kerala (1) Maharashtra (4) W.B (2) A.P (6) T.N (3) Bihar (10) Karnataka (8) M.P (7) Rajasthan (5) Orissa (9) Total in India

15 % Of Over dues Region In percentages Northern Eastern Central Western Southern North eastern Total in India 26.70

16 Over dues (short term) State In percentages Sikkim 100 Mizoram Tripura Meghalaya Nagaland J & k Pondicherry Goa Bihar Chandigarh Kerala (23) Karnataka (24) India 26.06

17 % of over dues Agriculture, Non- Agriculture and Others STATE AGRICULTURE NON-AGRICULTURE OTHERS Tripura Nagaland Karnataka Kerala Maharashtra W.B T.N TOTAL

18 Staffing Pattern in States Total number of staffs Full time paid secretaries Trained W.B Maharashtra T.N Kerala Karnataka Gujarat A.P INDIA TOTAL

19 Challenges Inability to ensure active membership. Serious inadequacies in governance. Lack of recognition as economic institutions both amongst the policy makers and general public. Professional management. Cost competitiveness. Politicization & excessive role of govt. Sickness or non viable nature-of the total are viable are potentially viable are dormant and 1507 are defunet.

20 Challenges Latest ruling of NABARD (July 22,2013)- 1) Transfer of asset and liabilities of PACS to DCCB s/scbs. 2) Transfer of deposits. 3) No scope for accepting deposits. 4) Members will have to become the members of DCCBs.

21 Opportunities 97 th amendment & the precisions. Recent improvement in the functioning. Adoption of modern technology. Provision updated services. Inherent advantages in tackling the problems of poverty alleviation, food security and employment generation. Potential to deliver goods and services in areas where both the state and the private sector have failed.

22 Cooperatives are the shield of the weak and not the sword of the strong. Thank you