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ABSTRACT
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In the context of rapid growth of UCBs, qualitative aspects of lending, such as adequacy of
lending to meet credit requirements of their borrowers and effective supervision and
monitoring of advances has assumed considerable importance. Earlier Registrar of
Cooperative Societies used to lay down the lending policy of the UCBs but now the lending
policy of banks is to be based on the directives of the RBI. However, consistent with the
policy of liberalisation and financial sector reforms, several indirect measures to regulate the
bank credit such as exposure norms for lending to individual/group borrowers, prudential
norms for income recognition, asset classification and provisioning for advances, capital
adequacy ratios, etc. were introduced by RBI and greater operational freedom has been
provided to banks in dispensation of credit.
UCBs are expected to lay down through their Boards, transparent policies and guidelines for
credit dispensation, in respect of each broad category of economic activity, keeping in view
the credit exposure norms and various other guidelines issued by the RBI from time to time.
UCBs provide finance mainly for trade, commerce and industry and to a limited extent for
construction and repairs to houses, for the purchase of durable consumer goods and other
consumption purposes. While making advances, the banks should satisfy about the normal
safeguards, such as, source and adequacy of the income of the borrower for prompt
repayment, the nature of security offered and the standing of the party. In the case of loans to
artisans and entrepreneurs, they should satisfy about the economic viability and technical
feasibility of the projects proposed to be financed.
UCBs are required to fix, with the approval of their Board of Directors, exposure ceiling in
relation to bank's capital funds. The exposure limit is 15% of capital funds in case of
individual borrower and 40% in case of group of borrowers. Banks may sanction loans to
nominal members for short/temporary period and for purchase of consumer durables, subject
to the following ceiling;
For banks with deposits upto Rs. 50 crores; maximum Rs.50, 000 per borrower
For banks with deposits above Rs.50 crores; maximum Rs. 1, 00,000 per borrower.
UCBs are prohibited from making, providing or renewing either secured or unsecured loans
and advances or extending any other financial accommodation to their directors, or their
relatives and the firms/concerns/companies in which they are interested with effect from 1
October 2003. The existing advances may be allowed to continue up to the date when they
are due.
REVIEW OF LITERATURE
A number of Committees and Commissions appointed by the RBI, Central and State
Governments have submitted their reports on UCBs incorporating therein several invaluable
suggestions to improve the functioning of the UCBs in India. The first and foremost study
with regard to urban co-operatives has been made by Maclagan Committee (1915) on Cooperation. The development of urban co-operative societies did not receive much attention
until 1915 when the Maclagan Committee referred to the potentialities for the organization
of such societies as a means of training the upper and middle classes in ordinary banking
principles. The failure of local joint-stock banks in the country at that time gave an impetus
to the growth of urban co-operative credit societies. It was felt by the Committee that urban
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credit societies were eminently suitable institutional agencies for collecting local savings and
to provide relief to those who were in the clutches of money lenders by providing them with
financial accommodation.
All India Rural Credit Survey Committee (1954), while identifying the reasons for the failure
of the co-operative credit, made an attempt to discuss the role of urban banks. The
Committee pointed out that, in the matter of loans against pledge of gold and agricultural
produce, urban banks may be allowed to extend their share of operations to villages within a
radius of five miles of the area of towns in which they are located there are no primary
agricultural credit societies in the villages concerned.
The Working Group on Industrial Finance through Co-operative Banks (1968), recognizing
the key role of urban banks in providing finance to cottage and small industries,
recommended that high priority to be given to the organization of such banks in areas where
there was a sufficient concentration of cottage and small scale industries carried on by
individuals as well as by firms and joint-stock companies
Government of Andhra Pradesh appointed an Expert Committee (2002) to review the
functioning of UCBs in the state under the chairmanship of K.Narasimha Murthy. The
suggestions of the Committee including co-opting six to seven directors from among the
shareholders, three to five from among the depositors and three professionals from the
banking, finance, auditing and legal fields to the Boards of Banks, limiting the term of each
director to a maximum of eight years instead of an unlimited period, appointment of a
qualified person as a chief executive and capping establishment expenditure up to 10 per
cent. The panel also recommended that Committees be formed for dealing with the
procedure on auditing, giving loans and asset liability management and suggested that no
loans be given for real estate business, stock market operations, and film production. It also
recommended payment of a maximum dividend of 25 per cent to the shareholders and also
limiting the term of deposits to 10 years.
The RBI constituted an Expert Committee (2011) on Licensing of Urban Cooperative Banks
under the Chairmanship of Sri. Y. H, Malegam, the Committee submitted its report to the
RBI with many observations as well as very valuable recommendations. Reserve Bank
followed liberal licensing policy between May 1993 and March 1999. However, many UCBs
licensed during this period became financially weak. In the Annual Policy Statement for
2004-05, RBI announced licensing discontinuance and entered in to MOU with State
Governments for co-ordination of regulatory policies. Since then, there has been
considerable improvement in the functioning of UCBs. The signing of MOU between the
State Governments and RBI and the setting up of TAFCUBs has resulted in a significant
improvement in the health of the UCB sector.
The RBI has been conducting meetings of the Standing Advisory Committee (SAC) for
UCBs annually. The first meeting was held on 23rd May, 1983. On various aspects of the
UCBs functioning such as organizational matters, mobilization of resources and their
deployment in various aspects, modalities on the rehabilitation of weak banks, introduction
of professional management, training and education of personnel of the UCBs. RBI issues
from time to time instructions/guidelines regarding, operations and functioning of UCBs
which are published in the form of Compendium of Instructions/Guidelines issued by RBI.
In addition, some studies have been carried out by academicians at macro and micro level to
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evaluate the performance of co-operative credit movement in general and urban co-operative
banks in particular.
NEED FOR THE PRESENT STUDY
The foregoing review of literature indicates that several official and non-official studies have
been carried out from time to time on the working of UCBs. These studies are either macro
in nature covering the entire country or confined to a few areas or few aspects of UCBs. In a
vast country like India with varied resources base and socio-economic conditions, there is a
need for more micro level and area specific studies to evaluate the performance of UCBs in
a particular region and to throw light on the problems faced by these banks in their
operations. Coastal Andhra region of Andhra Pradesh has been selected for the purposes of
the present study due to its geographic, demographic and economic importance. It is hoped
that the present research study on UCBs in Coastal Andhra will be a gap filling one and
useful addition to the existing literature on the subject.
OBJECTIVES OF THE STUDY
This is a fact finding study dealing with the loans and advances of urban co-operative banks
in Coastal Andhra region of Andhra Pradesh. The specific objectives of the study are:
HYPOTHESES
Based on the above objectives the following hypotheses are postulated for testing.
H01: There is no significant growth in loans and advances of sample UCBs and period.
H02: Inter-bank and inter-period variations with regard to loans and advances are not
significant.
H03: The year-wise and the bank-wise differences in the Credit-Deposit ratio under study
period are not significant.
H04: There is no significant difference among the UCBs with respect to overdues in the
selected banks.
H05: There are no significant variations between banks and years with regard to ratio of
overdues to loans and advances
RESEARCH METHODOLOGY
Sources of Data
The study is based on secondary data. The data relating to loans and advances of UCBs in
Coastal Andhra region are collected from the annual reports of these banks. Besides this,
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discussions and consultations have also been held with the officials of these banks after
preliminary analysis of data collected. Apart from these, data have also been collected from
the publications of various institutions like RBI, Government of India, Bureau of Economics
and Statistics and Registrar of Co-operatives of Government of Andhra Pradesh. Also
published and unpublished reports, theses and individual works on the subject have been
consulted.
Sample Frame
UCBs in Coastal Andhra region of Andhra Pradesh constitute the universe for the purpose of
the study. Coastal Andhra region comprises nine districts, viz., Nellore, Prakasam, Guntur,
Krishna, West Godavari, East Godavari, Visakhapatnam, Vizianagaram and Srikakulam. 8
oldest UCBs, representing one from each of the eight districts of Coastal Andhra except
Srikakulam(Srikakulam Bank excluded for the sample due to the newly established bank)
have been selected as samples for detailed analysis. All these eight UCBs have been in
existence for more than 60 years. Thus, the Table 1 reveals that the sample banks for the
study.
Table 1. Sample Frame
Sr.
Name of the
District
1.
Nellore
2.
Prakasam
3.
Guntur
4.
Krishna
5.
West Godavari
6.
East Godavari
7.
Visakhapatnam
8.
Vizianagaram
Year of
Establishment
1917
1908
1948
1929
1930
1919
1916
1914
Tools of Analysis
The data collected from different sources are properly classified, tabulated and analyzed
using appropriate statistical tools to draw meaningful conclusions. Simple statistical
techniques such as ratios, percentages and averages are used in the study. Besides these,
other statistical tools like linear growth rates and analysis of variance with F distribution are
used for analysis and interpretation of data at appropriate places because of the values in
each bank are normally distributed and the period of each bank should be equal.
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FINDINGS OF THE STUDY
The lending policy of an UCB is laid down by its by-laws or rules framed by the bank and
also to be followed RBI circulars/directives in this regard in giving loans to members. After
meeting the demands of the members they may give loans to non-members on the security of
their deposits. UCBs are giving loans and advances for various purposes, like for purchase
of domestic appliances, for repayment of the past loans, for social purposes, for purchase or
repair of house, for medical and educational expenses as well as commercial and
professional requirements. UCBs are primarily expected to meet credit requirements of
middle and lower income groups of urban and semi-urban areas.
The linear growth rates (in Table 3) of loans and advances are highest in Guntur Bank (29.04
per cent), and it is closely followed by Visakhapatnam Bank (27 per cent). Vizianagaram
Bank registered lowest growth rate (11.91 per cent) in loans and advances. Thus the growth
rates in advances showed a mixed trend. It is observed that trends in loans and advances of
sample banks as revealed by linear growth rates are statistically significant. Hence, the first
hypothesis that there is no significant growth in loans and advances of sample UCBs is
rejected.
Table 2. ANOVA Loans and Advances of Select UCBs
Sources of
Variation
Between Banks
Between Years
Error
Total
Degree of
Freedom(DF)
7
9
63
79
Sum of
Squares(SS)
1.27
1.06
82564541
3.15
Mean Sum of
Squares(MS)
18098711
11769846
1310548
--
F-Value
13.810
8.981
---
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important components accounting for more than 90 per cent of total loans disbursed by the
bank. Mortgage loans showed highest liner growth rate of 23.68 per cent and the growth rate
was least at 5.08 per cent for surety loans. But all the growth rates are statistically
significant.
Guntur bank registered a phenomenal growth in total amount of loans and advances. This
bank also mortgage and jewel loans constitute about 77 per cent of total loans and advances.
Deposit, surety and other loans account for 23 per cent of total loans. The linear growth
rates for different types of loans are high, varying between 28.5 and 39.88 per cent and all
growth rates are significant. In Durga Bank mortgage and jewel loans are main components
of total loans accounting for 70 and 17 per cent of total loans disbursed by this bank. All
other types constitute 13 per cent of total loans. The linear growth rates for different types of
loans varied between 9.45 and 22.77 per cent and growth rates of all loans, except other
loans, are observed that statistically significant at 1 per cent level.
In the case of Bhimavaram Bank jewel, housing and mortgage loans are the main component
of total loans, accounting for 37, 19 and 18 per cent of total loans respectively. The linear
growth rates of different types of loans, ranged between () 1.19 and 28.86 per cent and
statistically significant, the only exception being growth rates for jewel loans which is not
significant. In Aryapuram Bank also mortgage and jewel loans formed major proportion of
total loans accounting for about 67 and 13 per cent respectively. All other loans constituted
20 per cent of total loans. The highest and lowest linear growth rates were observed 21.32
and 6.18 per cent in mortgage and jewel loans respectively. Growth rates of all types of
loans are statistically significant.
Visakhapatnam Bank also mortgage and jewel loans constituted major proportion of total
loans, and with a share of 70 per cent of total loans. The linear growth rate was highest
38.64 per cent for other loans, lowest at 5 per cent for mortgage loans. With exception of
mortgage loans, all growth rates are statistically significant. In the case of Vizianagaram
Bank about 70 per cent of total loans were mortgage loans, followed by other loans (11 per
cent), jewel loans (8 per cent), deposit loans (6 per cent) and surety loans (5 per cent).
Growth rates for all types of loans, except jewel and other loans are observed to be
statistically significant.
Table 3. Linear Growth Rates of Composition of Loans and Advances and C-D Ratios
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Note: **: Significant at 1 % level, *: Significant at 5 % level, NS: Not significant at 5 %
level
Source: Compiled from Annual reports of UCBs
Credit-Deposit Ratio
The credit-deposit ratio (C-D ratio) has been regarded as an indicator of the banks
performance in the matter of deployment of credit. The ratio between credit and deposit
reveals the utilization potentiality of the available resources. The C-D ratio is an important
indicator of any financial institutions contribution towards the development of its
operational area.
Bank-wise analysis in Table 3 revealed mixed trend in respect of C-D ratio and it has been
declining in all sample UCBs in Coastal Andhra, except in Nellore bank. Overall ratio for
10 years period was highest in Nellore Bank (80 per cent), followed by Guntur Bank (75 per
cent), Aryapuram Bank (74 per cent) and Durga Bank (72 per cent). The ratio for all other
banks ranged between 45 per cent (Bhimavaram Bank) and 63 per cent (Ongole Bank). It
can be observed that in the recent past the growth of both advances and deposits was very
high.
Table 4. ANOVA Credit-Deposit Ratio of Select UCBs
Sources of
Variation
Between Banks
Between Years
Error
Total
Degree of
Freedom(DF)
7
9
63
79
Sum of
Squares(SS)
12944.8
4117.8
2208.2
19270.8
Mean Sum of
Squares(MS)
1849.257
457.533
35.051
--
F-Value
52.759
13.053
---
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Table 5. ANOVA - Overdues of Select UCBs
Sources of
Variation
Between Banks
Between Years
Error
Total
Degree of
Freedom(DF)
7
9
63
79
Sum of
Squares(SS)
1267273
1731832
1417885
4416990
Mean Sum of
Squares(MS)
181039.026
192425.79
22506.104
--
F-Value
8.044
8.550
---
Degree of
Freedom(DF)
7
9
63
79
Sum of
Squares(SS)
2127.805
88.604
1537.371
3753.779
Mean Sum of
Squares(MS)
303.972
9.845
24.403
--
F-Value
12.456
0.403
---
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performance of Nellore, Ongole and Aryapuram banks with regard to different parameters is
mediocre. Vizianagaram Bank is satisfactory progress in all respects.
The following suggestions are made to create public confidence and strengthen the urban cooperative banking sector in Coastal Andhra as well as in Andhra Pradesh.
Financial position of the borrower must be assessed properly and procedure for
sanctioning loans should be fool-proof.
While making advances, an UCB should keep in view the cardinal principles of
banking such as, safety, security, liquidity and profitability of its investments.
Proper legal and other measures have to be expedited to recover pending loans and
overdue. This will ensure public confidence and avoid scams.
Under liberalized regime UCBs are offering very high rates of interest on deposits
compared to commercial banks to attract deposits. As a consequence they are
charging high rates of interest on loans and advances. This is creating problem in
recovery of loans.
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