Chapter 2 Review of Literature

2.1 Introduction: 20
2.2 Literature Review: 20
2.3 Research Gap: 44
2.4 Summary: 46

19
 Chapter 2 Review of Literature

2.1 Introduction:

Research is an important tool to evaluate the performance of banking

institution, be it commercial or cooperative bank. Several studies have been

made to evaluate working and performance of banks at macro level, national

level and regional level by institutions, individual researchers, government

agencies etc. In this chapter review of literature has been attempted to provide

bird's eye-view of the literature related to the subject to provide necessary

background for the present study.

Thus, an attempt is made here to review briefly important annual reports,

Committee reports, action plan, audit reports, circulars, policy letters, official

records of banks selected for the study. Journals, magazines, periodicals, dailies

along with Publications of official agencies like RBI, NABARD. Registrar of

Cooperatives, Ministry of Finance, Urban Banks Department (UBD) and

important PhD theses, dissertations related to specific cases, issues etc. are also

be referred to.

2.2 Literature Review:

Maclagan Committee on Co-operation (1915)' which was appointed by the

then government during the banking crisis of 1913-14, when number of banks

collapsed, pointed out that. "Urban Credit Societies might serve a useful

purpose in training the upper and middle urban classes to understand ordinary

banking principles.

20
 The Indian Central Banking Enquiry Committee (1931)^ (headed by Sir

Bhupendra Nath Mitra) opined that the duty of these urban banks should be to

try, to do for the small trader, the small merchant and the middle class

population what the commercial banks are doing for the big trader and big

merchant.

Talmaki (1931) , in his book ''Cooperation in India and Abroad" has dealt

with the need of Urban Cooperative banks in urban area and benefit of the

same to the urban people in following words: "'Urban banks in our own towns

are sure to attract all or most of the savings and to afford tniancial aids to the

people who stand in need of it and promote local trade and industries." He has

also noted the problem of movement of heavy metallic money in India due to

lack of adequate banking mechanism in urban areas of the country and seeks

solution to the problem in the form of adequate facility of banking chiefly,

urban cooperative banking. In his own words. "There is hardly any civilised

country in the world except India which has to move so much heavy metallic

token money from one station to another to adjust internal trade balances and

this primitive and wasteful method of circulation of money places a great

handicap on the expansion of the country's trade and commerce. But urban

banks, when started in small towns, will so organise the credit of our

countryside as to remove this drawback by adjusting those trade balances by

means of cheques, bills and other kind of paper money."

The statutory report of Reserve Bank of India (1937) disclosed a pathetic

tale of cooperative banks in a country and it suggested following measures:

separation of short and long credit structures, building up of strong reserve

fund, issue of loans for productive ends, reformation of primary societies on

cooperative philosophy etc.

The Co-operative Planning Committee (1946)^ under the chairmanship of

Mr. R. G. Saraiya, to draw up a plan of co-operative development, stated:

"Joint Stock banks are not interested in developing business of small loans,

because the cost of advancing and recovering them is high. Further, as joint

stock banks are not likely to have under ordinary circumstances full and

intimate knowledge of the standing and resources of persons of moderate

means, they will not advance on personal security. On the other hand, there are,

in urban areas numerous persons of small means, like traders, merchants,

artisans, factory workers, street hawkers, motor and lorry drivers, who resort to

money lenders and similar agencies for small loans and obtain them at high

rates of interests. Co-operative banks qualify by establishing personal and

intimate relationship with people for this class as the most suitable agencies for

serving their credit needs.'"

The Rural Banking Enquiry Committee (1950)'' (headed by Sir

Purshotamdas Thakurdas) also commented on the role that urban co-operative

banks could play in providing banking facilities. The committee observed that

urban banks, which were established in many towns in Bombay and Madras,

would be able to offer facilities both to urban people and to individuals in the

nearby loiral areas, and in view of their relatively low cost of establishment and

operation can go up to places smaller than the Taluka towns.

22
 7

The sub-committee set up by the Small-scale Industries Board (1956) to

consider the question of channelling loans to small-scale industries through

urban co-operative banks observed that "... the supply of credit by all existing

institutional agencies is not adequate to demand and the proposal for utilization

of co-operative urban banks for channelling loans to small-scale industries has

to be considered."

The All India Rural Credit Survey Committee (1951)** (Popularly known as

the Gorwala Committee) observed that large parts of the country were not

covered by cooperatives and in such areas where it had been covered, a large

segment of the agricultural population remained outside its membership. Even

where membership did exist, the bulk of the credit requirement (75.2%) was

met from other sources. The Committee recommended introducing an

integrated system of rural credit, partnership of the government in the share

capital of the cooperatives and also appointment of government nominees on

their boards, thus participating in their management. The Committee

emphasized the importance for training in cooperative management.

Laud G.M. (1956)'^ while dealing with history of cooperation in India has

noted "the cooperative movement was officially introduced in India as an urban

movement but the legal status was conferred first on rural credit societies

mainly because it was considered to be a 'boon' to agriculturist."

According to the study group on credit co-operatives in the non

agricultural sector appointed by the Government of India under the

23
chainnanship of the late Shri V. P. Varde (1963)"', the co-operative banks have

an important role to play in several areas including the following:

(a) First and foremost, they can organise and bring together middle and

working classes in urban and semi-urban areas.

(b) The mobilization of savings by urban co-operative banks and the

consequent drawing of urban resources into the Apex and Central Co-operative

Banks which are in need of funds to finance the rural, industrial, and other

functional cooperatives, can contribute to general economic development.

(c) By providing credit on reasonable terms to the middle classes, they can

rescue them from the exploitation of money-lenders.

(d) By financing individual industrialists and artisans in urban areas, they can

make a significant contribution, to industrial development.

(e) They can provide intelligent, experienced and active leadership to the co-

operative movement including the central and the Apex Co- operatives Banks,

which in view of their federal character; draw their directors from member-

institutions. The same opinion was also expressed in RBI Report on the survey

of urban-co-operative banks (1957-58).

Over the need to have coordinated development of both urban cooperative

banks and commercial banks in India, the Banking Commission (1969)"

constituted by Government of India with R. G. Saraiya as Chairman suggested

the coordinated development of urban cooperatives and commercial banks.

Mathur B.S. (1971) ', in his book titled "Cooperatives in India" has noted

need and importance of Cooperatives banks. In his words, "cooperation offers a

24
solution to difficulties encountered not only by agriculturists but also by the

townsman in respect of credit as well as other aspects of his business and life."

On need for development of Urban Cooperative banking and behaviour of the

joint stock banks in providing loans to middle income group of urban area as

well as unlikeliness on the part of joint stock banks to provide small credit, he

opines, "The need for Urban Cooperative banking arises from the fact that joint

stock banks are not interested in providing credit to urban middle class. This is

because this is not advantageous for joint stock banks in developing the

business of small loans on account of high cost of advancing and recovering

them. Further, they are not likely to have, under ordinary circumstances, full

and intimate knowledge of standing and resources of persons of moderate

means; they will not advance loans on personal security."

The Committee on Problems of Urban Co-operative Banks in Maharashtra,

appointed by the Government of Maharashtra (1974)'^ under the chairmanship

of the late Shri V. M. Joglekar, has commented on the performance of urban

banks in the following words: "The performance of urban banks in

Maharashtra, taken as a whole, is fairly satisfactory. The sustained growth over

the years may be traced to the devoted and selfless management by non-

officials. Not only the number of urban banks has increased, but membership,

which is a measure of peoples' involvement, has also increased. Deposits have

gone up considerably; the deposits from non-members are more than those of

the members, which is a positive proof of the fact that the urban banks have

secured the confidence of the depositing public of urban and semi urban areas".

25
 According to Rao (1974)''*, "the main reason for losses in rural branches of

banks is low volume of the business. However, these branches should be

accepted in the large national interest and efforts should be made to reduce the

losses".

Desingarao N.(1975) ^ in his study titled, ''Deposit Mobilisation by Co-

operative Banks: A Comparison with Scheduled Commercial Banks'' tried to

study the growth trends in deposits between co-operatives and commercial

banks by taking case of Central Cooperative banks along with ownership

aspect of deposits. He found that there is no uniformity in the growth of

deposits within any bank among the different years. Of the total deposits in the

cooperatives the percentage owned by cooperatives themselves has gone up, at

all level as compared to commercial banks at all India level. Compared to this,

the percentage of deposits owned by individuals and others has gone down at

all levels. But this decrease is more alarming among the State Co-operative

Banks. However he also found that, though the co-operatives failed to match

their deposits with those mobilised by the commercial banks in absolute

amounts, they did not fail to match their rate of growth in deposits with the rate

of growth achieved by commercial banks. The State Cooperative banks have

gone further to attract more of demand deposits compared to even the

scheduled commercial bank. Finally, the author concludes that since the

Central Co-operative Banks are showing trends of imbibing business principles

they can become the best rivals of the commercial banks in the near future -at

least in the loiral areas where they have an edge over the latter.

26
 In view of the Hazari Committee (1976)'^ there is a need of integration

between different levels of cooperatives and hence it recommended "the

integration of the three wings of the cooperative credit structure of all the

levels; i.e., the primary, the intermediate (district), and the apex (state)."

The Committee on Urban Co-operative Banks, popularly known as

'Madhavdas Committee', was appointed by the Reserve Bank of India in

1977'^. The committee has observed that, "despite various limitations, urban

banks have mobilized substantial local resources and striven to serve small

borrowers. According to the Committee, there is scope and need for the

development of urban banks in some States. These banks are eminently suitable

for filling up the credit inadequacies in urban and semi- urban areas at

comparatively lower cost of operations. The foregoing sections show not only

the continuous attempt and attention of the Government and the RBI through

different committees and commissions. On the issue of urban co-operative

banks, it also shows the degree and direction of change in the co-operative

policies in favour of urban cooperative banks. Therefore, the urban co-

operative banking is having dominating position in the banking sector".

Kamat (1979)'' over a concern of overdues by cooperatives, suggested that

efforts should be made to reduce the overdues of cooperatives by using

different measures such as supervision, changing procedure, reducing wilful

defaults etc. Planning is necessary for strong and stable growth of cooperative

and for reducing the growth of over dues.

27
 According to Angadi (1983)'^, factors like uneven banking facility, size of

farms, less mechanism etc. have led to unequal distribution of agriculture

advances.

In the study, "Management of Central Cooperative Banks'\ Kutumba Rao

(1985)"^" attempted the compatibility of democratic set with cooperative

efficiency. Thus, he recognised the importance of democratic set up in

cooperatives to be related with efficiency in the cooperative sector.

Vashisht (1987)^', evaluated trends and progi'ess of commercial banks in

India. According to him, commercial banks did very well in the area of branch

expansion, deposit mobilization, credit disbursement and priority sector

ad\ances. However, the major area of concern was declining profitability.

The committee set up to examine the issues raised by the National

Federation of Urban Co-operative Banks and Credit-Societies (1987)

recommended the grant of schedule bank status to selected urban co-operative

banks, relaxation in the norms for reckoning of advances towards priority

sector, weaker sections, enhancement of ceiling on housing loans by urban co-

operative banks, increase in maximum limit on advances of certain categories,

rationalization of recruitment procedures, desirability of conducting the audit of

urban co- operative banks by Chartered Accountants, supersession of board of

directors, administration and progress in the rehabilitation of weak banks etc.

According to Joshi (1989)"", prior to nationalization protlt was the only

criterion for evaluating performance of commercial banks. However, in post-

nationalisation era, social banking and profitability became major objectives of

28
commercial banks and thus, any evaluation of bank's performance has to in

relation to these objectives.

Naidu (1989)^'*, analysed growth and role of banks in rural development in

India and according to him, after nationalisation banking system made rapid

progress in branch expansion, deposit mobilisation and credit disbursement.

A High Power Committee on Urban Cooperative Banks (1990)^'* (under the

Chairmanship of Shri K.Madhava Rao) considered housing loan and consumer

loan as area where Urban Cooperative Banks should focus. The committee thus

reviewed that emerging areas in co operative banks which are covered in liglit

of Urban Cooperative Banks, are consumer loans and housing loans.

Nripendra Misra (1990)"' stressed the importance of economic efficiency in

cooperative field. So, in his study he reviewed that under the new climate of

economic liberalization, the cooperatives will retain their relevance only if they

are economically efficient. He also observed that there is dependency of

cooperatives on state support. In his view "Cooperatives in India largely

depended on state support even for their structural reorganization & managerial

up gradation".

According to Amandeep (1990)"^ "in order to improve profitability, the

banks need to focus attention on management of spread, burden, establishment

expenses, income and deposit composition". It was also suggested that since

priority sector lending and rural banking do not have an adverse impact on

bank's profitability, advances to priority sector and opening of rural branches

may be extended in large interest of the society.

29
 Goiporia Committee (1991)^^ suggested opening up of specialised branches

focusing on international banking, industrial finance and Small-Scale

industries. The committee also suggested the technological upgradation,

continuous improvement in banking facilities and minimising procedural time

to improve customer service.

Ojha P.D. (1990)^'^ observed that the cooperatives are engaged in wide

range of activities and cooperatives are organisations to serve economically

weak section with mutual aid. He thus, opined that "co operatives cover a wide

range of economic activities including production & processing, marketing &

distribution, service functions etc. cooperatives are the organizations of

economically weak & poor people who have come together for improving their

economic condition througli self help & mutual help."

Shivamaggi H.B. (1991)^°, found that the Reserve Bank of India's policy for

the urban co-operative banks has all along been restrictive. The experience

about the urban banks hitherto has not been satisfactory. Some of them are not

working properly and in fact are sick. The reasons for this state of affairs are

not far to seek. Quite a number of them have become victims of vested interests

resulting in not only cornering of credit available from them but also restricting

both membership and advances to certain closed groups of traders or

communities.

P.T. Pandit (1991)" dealt with present changes in cooperative structure and

opined that the necessary changes will bring prosperity in the cooperatives and

made them an important player in near future. In his words: "approaching of

30
21 st century is an important milestone in progressive history of cooperative

movement which we have to make more people oriented, particularly those

belonging to weaker section of the society and prove its meaningful role as a

shield of weak and downtrodden, without losing its autonomy and self

regulating character, with vision of making commendable, continuous growth

through decades and the next century".

Suresh Prabhu (1991)^^ in his study reviewed the need for finding important

areas for cooperative banks and suggested that emerging areas in urban

cooperative banks which are covered in light of Urban Cooperative Banks are

consumer loans and housing loans.

Subrahmaniyam (1991)^^ observed that the liberalisation measures of late

80"s have not led to promotion of efficiency and stability in the banking sector

and thus, for better performance of banking sector, further doses of

liberalisation should be imtroduced in the banking sector.

Muniappan (1991)^'* in his researcli article titled ''Indian Banking:

Paradigm Shift", suggested many effective measures to strengthen the Indian

banking system. According to him, the reduction of NPAs, more provisions for

standards of the banks, IT, sound capital base are the positive measures for a

paradigm shift.

According to a case study on performance appraisal of cooperative banks,

the authors Redeppa Reddy and A. Shivarami Reddy (1996)^^ evaluated

performance of Cuddapah district Central Cooperative Bank by studying

31
various factors such as membership, share capital, branch expansion, deposits,

borrowings, advances, recoveries and overdues.

Subramanian and Swami (1994) * in their paper, "Comparative

performance of public sector banks in India", analyzed and compared the

efficiency in six public sector banks, four private sector and three foreign banks

for the year 1996-97 on the basis of operational efficiency which is calculated

in terms of total business and salary expenditure per employee. The analysis

revealed that higher per employee salary level need not result in poor efficiency

and business per employee efficiency co-efficient was also calculated. Among

the Public Sector Banks. Bank of Baroda registered the high efficiency and

operating profit per employee. Among the private sector banks, Induslnd Bank

followed by Citibank Registered highest and second highest operating profit

per employee respectively. However, they also concluded that in the

Nationalized Banks there existed wide variations in efficiency.

According to Kulkarni S.R. (1996)" some of the problems in Urban

Cooperative Banking are: limited area of operafion, selected class functioning,

limited membership, lack of effective leadership, lack of remittance facility,

neglect of weaker sections of society and women, higher proportion of Cash

Reserve Ratio and Statutory Liquidity Ratio, higher proportion of unproductive

funds due to high Credit-Deposit ratio, advances for consumption purposes,

lack of training to staff, inadequate equipments etc.

In his thesis titled. "Performance effectiveness of Nationalised Bank- A

Case Study of Syndicate Bank" Thomas Zacharias (1997)''^ studied the

32
performance effectiveness of this nationalized bank. He examined various

aspects like growth and development of banking industry, achievements of

Syndicate Bank in relation to capital adequacy, quality of assets, profitability,

social banking, growth, productivity, customer service and also made a

comparative analysis of the performance of Syndicate Bank in relation to other

nationalized bank. A period from 1984 to 1993-94 was taken for the study. The

study reviewed and analyzed the performance effectiveness of Syndicate Bank '

and other Nationalized banks in India using an Economic Managerial

Efficiency Evaluation Mode! (EMEE Model) developed by researcher. He

found that Syndicate Bank got 5th Position in capital adequacy and quality of

assets, 15th in profitability, 14th position in social banking, 8th in growth, 7th

in productivity and 15th position in customer service among the nationalized

banks. He also found that five nationalized banks showed low health

performance, seven low priority performances and eleven low efficiency

performance in comparison with Syndicate Bank.

Vaze A. T. and Pawar I. D.(1998) in their book ''Theory and History of

Cooperation" have dealt with growth of cooperative movement in India with

special reference to Maharashtra.

T. Radha (1999/*^, in her thesis, titled, "Impact Of Banking Sector Reforms

on The Performance of Commercial Banks In India", made evaluation of the

impact of Banking Sector Reforms on the performance of Commercial Banks

in India. The areas covered for the study included: deposits and borrowings,

and trends in branch expansion, advances and investments, trends income and

33
expenditure and also studied the magnitude of achievements in priority sector

advances, capital adequacy, CD ratio, staff position in different bank groups

and individual banks within the group. Major findings of the study were: (a) hi

the total borrowings Nationalized banks, on an average, accounted for 39.42

per cent followed with 22.77 per cent by foreign banks, 23.54 per cent by SBI,

7.76 per cent by private banks, (b) In branch expansion, hidian private sector

banks, registered 21.36 per cent growth rate which is highest amongst SCBs,

during the study period, followed by Foreign Banks with 16.96 per cent,.

Associate Banks with 12.77 per cent. Nationalized Banks with 11.36 per cent,

SBI with 6.23 per cent, (c) Priority Sector advances as proportion of net bank

credit has been continuously tailing, (d) Foreign Banks in hidia as a group

achieved highest capital adequacy ratio among all groups of scheduled

commercial banks.

SBI Research Department in 2000'", through its paper "Performance

analysis of 27 Public sector banks'" analyzed the Performance of the 27 Public

Sector Banks for the year 1999-2000 vis-a-vis the preceding year. Four

different categories of indicators selected for the puipose were-Business

Performance, Efficiency, Vulnerability and labour productivity indicators. The

research found out that during 1999-2000, the Public Sector Banks exhibited

better show in terms of several parameters mentioned above. However, the

study suggested that the problems of NPAs and capital adequacy remain to be

taken care of and also greater operational flexibility and functional autonomy

/J'
/ ^ • '

34
should be given to Public Sector Banks especially to strengthen their capital

base.

S. O. Junare (2000)'*'^ has studied the role of Urban Cooperative Banks in

financing priority and weaker sectors in Gujarat state on the basis of measures

like membership trends, trends of owned funds, deposit mobilisation trends,

trends in credit deployment, profit margin, priority sector lending, etc.

According to Partho Pritam Roy (2000)'*^ the success of cooperative

institutions is need of the time. In his own words: "cooperatives must siicceed

because they are for the people, of the people, by the people. Cooperatives have

been recognized as the best institutions for supplying uncxploitative, cheapest,

sound and dynamic credit to the small borrowers particularly to priority

sector."

Athma Prashanta (2000)'*'*, in his thesis titled "Performance of Public Sector

Banks - A Case Study of State Bank of Hyderabad", attempted the

performance of Public Sector Banks (PSBs) with special emphasis on State

Bank of Hyderabad for the period from 1980 to 1994. In this study, the author

outlined the growth and progress of Commercial Banking in India and also

analyzed the trends in deposits, various components of profits, examined the

trends in asset structure, evaluated the level of customer satisfaction and

compared the performance of State Bank of Hydrabad with other public sector

banks. Associate Banks of State Bank of India and State Bank of India itself

For the purpose of meaningful comparison and analysis statistical techniques

like Ratios, Percentages. Compound Annual rate of growth and averages are

35
computed. The major findings of this study are that (i) the progress of banking

in hidia has been very impressive since nationahzation. (ii) Deposits have

continuously grown during the study period, though the rate of growth was

highest in fixed deposits compared to savings and current deposits, (iii) A

comparison of State Bank of Hydrabad performance in respect of resource

mobihzation with other banks showed that the average growth of deposits of

State Bank of Hydrabad is higher than any other bank group, (iv) Protlts of

State Bank of Hydrabad showed an increasing trend indicating a more than

proportionate increase in spread than in burden, (v) Finally, majority of the

customers have given a very positive opinion about various statements relating

to counter service offered by State Bank of Hydrabad.

According to Cooper Committee (2001) ^ which was formed to provide

recommendations for strengthening cooperative credit, found out that limited

resources of cooperative banks have led to low business levels. It also

recognizes increasing borrowing membership & volume of business as

essential steps for improving performance of cooperatives.

In his Thesis titled "An Appraisal of Banking Sector Reforms in India"

Singh (2001)'*'', analysed the impact of the reforms on the operational

performance and efficiency of the Commercial Banks in India. The study found

that total income as a percentage of working funds and/or total assets and

spread as a percentage of total Income/Working fund/total advances/ total

deposits have improved in the reform period against the pre-reform period in

most of the banks. Total Income, interest earned, other income, spread, total

36
expenses, interest expended, operating expenses and establishment expenses

are comparatively more consistent in the reform period. It was also observed

that in the Public Sector Banks the size of NPAs has also been reduced to some

extent and quality of service has improved in refonn period. The priority sector

lending has registered a decline in the deregulation era.

hi his book titled "Commercial Banks under Reforms: Performance and

Issues'', Wahab (2001)''^, tried to analyze tlie performance of the commercial

banks under reforms. He concluded that reforms ^have produced favourable

effects on performance of commercial banks in general but still there are

distortions like low priority sector advances, low profitability etc. that need to

be reformed again.

Pradeep Raje (2001) ' stressed over the need to have adequate capital at the

disposal of Urban Cooperative banks, bringing it at par with the commercial

banks and officials to become more responsible in their respecti\'e tasks. In his

study he concluded that "adequate capital is the first line of defence against

unforeseen shocks. In the circumstances, raising the capital requirement to

bring it at par with commercial banks is not an undue burden placed on the

cooperative but a basic minimum device to ensure that the elected officials of

the co-operatives lake their task seriously."

Das and Lai (2002) . in their book ''Banking Reforms in Lead Bank

Scheme", made the critical evaluation of the lead bank scheme in the light of

banking sector reforms. They observed that high level of Non Performing

Assets (NPAs), large number of unremunerative branches, low productivity,

37
overstaff and archaic methods of operations have affected the profitability of

pubHc sector banks. They also felt that the whole banking sector in India is to

be revolutionized to cope with the changing dimensions of the world. Further,

they felt that the backward areas should be given more funds for investment in

priority sectors and more and more people should be brought under its

coverage and the procedures of extending credit should be simplified and there

should be least hassle cost.

In a the paper titled ''Comparative Study On Indian Banking\ ICRA

(2003)", tried to analyse the fast-changing environment in Indian Banking and

found that in recent years the profitability of Indian Banks compares well with

that of the global benchmark banks primarily because of the higher share of

profit on the sale of investments, higher leverage and higher net interest

margins.

In research work titled, ''Collapse of Urban Cooperative Banking". author

Suhrud T. (2003)^', tried to analyse reasons behind the collapse of Urban

Cooperative banks by undertaking case-study of bank failures in Gujarat. Some

of the reasons stated in the research study arc: inability of the Reserve Bank of

India to enforce mechanisms of financial discipline. No significant technology

creation or transfer, limited area of operation as the NGO-led and sponsored

Urban Cooperative banks remained largely rural and confined themselves to

land-based activities and thus having access to limited resources. low levels of

technological and managerial innovations, dominance of caste-led

cooperatives, financial resources became the means to dispensing political

favours and investment in the speculative markets.

In his paper "Profitability Management in Banks under Deregulate

Environmenf, Singh R (2003)'" analyzed profitability management of banks

under the deregulated environment with some financial parameters of the major

four bank groups i.e. public sector banks, old private sector banks, new private

sector banks and foreign banks. According to him profitability of banking

sector has declined in the deregulated environment. He emphasized on need to

make the banking sector competitive in the deregulated environment. He also

suggested that banks should prefer non-interest income sources over interest

sources for maintaining higher profitability ratios.

Pitre V. (2003)"" in research article titled. "Urban Cooperative Banks:

Issues and Prospects" observed that the share of urban population is increasing

along with this there is growth of the services sector and advent of information

technology has opened new frontiers for the Urban Cooperative Banks to

expand in scope and size. Urban Cooperative banks can play the role of

facilitators in the transmission of knowledge, information with regard to the

market and new technology-related development from metropolitan to semi-

urban centres. Urban Cooperative Banks should focus on different

market/clientele, that is, the unorganised market, for acquiring capability in

order to compete with other banking groups like public sector banks, private

sector banks and foreign banks. There is scope for strengthening the database

from institutions like RBI, NABARD. and Cooperative Department, which is

39
consistent and meaningful in this regard. Lastly, the credit plan of Urban

Cooperative Banks must be integrated with the overall development plan of the

area.

In his paper "Development of Financial Institutions in Indian Banking- A

Paradigm Shift". Tiwari (2005)'''*, proposed a view that among the financial

intermediaries banks and financial institutions arc vital players in running the

funding activities of the industries. In the bank based system the financial

institutions dominate in the aggregate assets of the financial system while in

market based system, equity market has largest share of assets in the aggregate

assets of the financial system.

Nair (2006)^^ in his paper 'Banking and Technology to meet list Century

challenges' discussed the future challenges of technology in banking.

According to the author "IT poses a bright future in rural banking, but is

neglected as it is traditionally considered unviable in the rural segment. A

successful bank has to be nimble and agile enough to respond to the new

market paradigm and ineffectively controlling risks. Innovation will be the key

extending the banking services to the untapped vast potential at the bottom of

the pyramid".

Desai S.V. (2006)^^' in his research work tilled. "Pei-Jormance Appraisal Of

Urban Co-Opeiative Banks In North Gujarat", found that the Urban

Cooperative Banks are facing problems of high cost of business operations, low

capital base, inadequate loan appraisal and credit planning, poor recovery

performance, dual coiitrol, mounting overdue, high level of non-performing

Th- 1308^
40
assets, political influence, lack of professional skills and relatively low level of

customer satisfaction, etc. But some of the new challenges are external; for

example, the phenomenal growth in volume of financial institution. Some of

the suggestions given by the researcher are: Improving quality and efficiency

of staff, adoption of modernisation and increasing mechanisation, improvement

in portfolio of advances, more importance to be given to current deposits to

reduce cost, dependency on owned funds rather than deposits, Introduction of

mobile saving vans, Setup of Recovery Committee, Introduction of Customer

Service Audit, Development of specific system for target markefing, provision

for on-the-job and off-the-job trainings etc.

In his paper. Modern Banking Technology, Shroff (2007)", has given a

summary of how Indian banking system has evolved over the year. The paper

discusses some issues faced by this system. The author also gives examples of

comparable banking system for other countries and the lesson learnt.

According to him, Indian banking is at the threshold of the paradigm shift and

the application of technology and product innovations is bringing about

structural change in the Indian banking system.

CO

G.R.Madan (2007)"^ has dealt w ith some of the important objectives of

Urban Cooperative Banks and listed following important objectives: promotion

of thrift among members and non members, provision of credit on reasonable

terms to people of limited means, provision of banking services to customers

etc.

41
 In his paper "Changing Paradigm in Indian Banking'', Subbaroo (2007) ,

concluded that the hidian banking system has undergone transformation itself

from domestic banking to international banking. However, according to him,

"the system requires a combination of new technologies, well regulated risk

and credit appraisal, treasury management, product diversification, internal

control, external regulations and professional as well as skilled human resource

to achieve the heights of the international excellence to play its role critically in

meeting the global challenge."

In his paper tilled. "Financial Performance of Banks in India". Singla

(2008)^'' examined role of financial management in the growth of banking. The

study is related to examination of the profitability position of the selected

sixteen banks of banker index for a period of six years (2001-06). The study

reveals that the protltability position was reasonable during the period of study

when compared with the previous years. Strong capital position and balance

sheet, place banks in better position.

RBI Annual Report (2008)' recognised an important role played by

cooperatives especially Urban Cooperative Banks in the tleld of priority sector

lending and noted that Urban Cooperative Banks are main centres of providing

credit to priority sectors of the society other than agriculture.

Similarly, other Reserve Bank of India Annual report (2009)" has also

appraised importance of Urban Cooperative Banks and noted that Urban

Cooperative Banks arc main centres of credit to the primary sector other than

42
agriculture. The Urban Cooperative Banks provide for the access of that lower

income group who cannot get services from commercial banks.

Hajela T. N. (2010) in his hook-"Cooperation-Principles, Problems and

Practice " deals with various aspects related to cooperatives in India, like:

origin and development of cooperation. Objectives and functions of

cooperatives, Area of operation. Membership. Constitution and Management,

Structure, Methods of raising funds. Investment of Funds, Distribution of

Profits, Supervision and Audit, Performance Review, problems and difficulties

and so on.

In research work titled, "An Empirical Study on the Fincmcial

Performance of Selected Scheduled Urban Cooperative Banks in India'''

authors Ramachandran A. and Shanmugam D.S. (2012)'" tried to study the

financial performance of Urban Cooperative banks in India, which were

covered under schedule II of RBI Act. The researchers tried to analyse the

financial performance of 10 Urban Cooperative banks for sample study. The

relative performance of each bank has been assessed in the context of

Resources Deployed, Assets Quality, Management Productivity and Earning

Capacity variables. The various ratios used for the analysis are: credit-deposit

ratio. Investment-Deposit ratio, Deposit-liability ratio. Business per employee,

Deposit per employee. Advances per employee etc. The researchers found that

the Urban Cooperative Banks need to concentrate more on improving

Investment-Deposit ratio and Credit Deposit ratio which are found at very low

43
level increasing risk of failure. It was suggested to increase term deposits and

level of spread to make banks stronger.

Table 2.1 Important Committees on Urban Cooperative Banl<s

Year Name
1915 Maclagan Committee on Co-operation
1931 Co-operative Planning Committee
1950 The Rural Banking Enquiry Committee
1951 All India Rural Credit Survey Committee (Gorwala Committee)
1958 RBI Report on The Survey Of Urban-Co-Operative Banks
1963 V. P. Varde Committee on Credit Co-Operatives In The Non
Agricultural Sector
1969 Banking Commission chaired by R.G.Saraiya
197.4 Committee on Problems of Urban Co-operatwe Banks in
Maharashtra (V. M. Joglekar as a chair person)
1977 The Committee on Urban Co-operative Banks (Madhava Das
Committee)
1976 Committee on Integration of Cooperative Credit Institutions
1990 High Power Committee on Urban Co-operative Banks
Sources: Compiled from various sources.

2.3 Research Gap:

From the reviev/ of above mentioned literature it has been found out that some

of the research-work has been made keeping in mind various aspects related to

banking and specifically, urban cooperative banking in India. From the above

literature review, following inferences can be made regarding gap in research-

work:

• Some study work has been made keeping in mind various banking

related issues currently prevailing or then prevailing in the entire

banking or Urban cooperative banking sector in India rather that a

specific part of the economy like present research work which is related

44
 performance of Urban Cooperative banks having origin in one of the

India's largest districts i.e. Thane district of the Maharashtra.

• Though some of the researchers have concentrated on specific areas like

Cuddapa District of Andhara Pradesh or Vadodara district of Gujarat or

Pune district of Maharashtra, the findings and suggestions given are

much more specific to the Urban Cooperative Banks working in that

particular area and this research work is an attempt to find problems of

Urban Cooperative Banks in Thane and provide suitable suggestions to

deal with the same.

• Some of the studies have concentrated on legal / managerial /

institutional / administrative aspects of the Urban Cooperative banks

(All India) only and thus this researcher has got an opportunity to study

other macro and micro aspects like customer satisfaction, infrastructural

requirements related to banks (even that of individual banks)

functioning in the Thane District of Maharashtra.

• Some of the research works have concentrated on comparative analysis

within urban cooperative banking segment only. However, this

researcher has tried to give comparative analysis of performance of

Urban Cooperative Banks vis-a-vis Public Sector Banks to tind

competitive strengths of the Urban Cooperative Banks functioning in the

Thane district of Maharashtra and this is how, the present research work

is a humble attempt to provide a unique direction to study of Urban

Cooperative banking and expanding the scope of the same.

45
2.4 Summary:

Thus, various reports and studies related to both PubHc Sector Banlcs

and Urban Cooperative Banks have dealt with various topics and issues. The

above literature review is also referring to various time periods, topics and

issues. The above literature review is obviously helpful in providing direction

to the research work and providing necessary theoretical base. However, the

present research study has got a unique dimension in the form of comparative

study of performance of Urban Cooperative Banks (UCBs) and Public Sector

Banks (PSBs) in Thane district. In the days of New Economic Policy of

Libralisation, Privatisation and Globalisation, synergetic approach of

conciliation and integration is stressed and therefore, comparative study is of

great importance. Thus, the present study is an attempt to broaden the scope of

the studies related to performance analysis of two different sets of banks viz;

Urban Cooperative banks and Public sector banks that too by selecting Thane

district of Maharashtra, hi this way the present study tries to provide micro-

economic overview to the performance of the banks in the selected district

rather than macroeconomic perspective to be helpful in gaining local

knowledge and providing suggestion beneficial for the development of the

selected segment (i.e. Banking sector in Thane District).

46
Notes and References:

' Government of India, Report of the Committee on Co-operation in India (1915),

Delhi, p. 11.

^ Government of India, Report of the Indian Central Banking Enquiry Committee,

(1931), Delhi, p. 255.

^ Talmaki S. (1931), Cooperation in India and Abroad, Mangalore, Basel Mission

Press.

"* Reserve Bank of India, Statutory Report (1937), Bombay, RBI Publication..

^ Government of India, Report of the Co-operative Planning Committee, (1946),

New Delhi, p. 116.

"^ Government of India, Report of the Rural Banking Enquiry Committee (1950),

New Delhi.

^ Resei"ve Bank of India, Report on the Sun'ey of Urban Co-operative Banks

(1957-58), Bombay, p. 65.

* Government of India, Report of all India Rural Credit Sun'ey Committee (1954),

New Delhi, Government of India Publication.

Laud G. (1956), Cooperative Banking in India, Mumbai, The Coopcrtors' Book

Depot.

Government of India, Report of the Study Group on Credit Co-operatives in the

Non-Agricultural Sector. (1963) New Delhi, p. 67.

"Government of India. Report of the Banking Commission (1969), New Delhi.

Government of India Publication.

'" Mathur B.S.( 1971), Cooperatives in India, Agra, Sahitya Bhavan, p. 269.

47
'^ The Maharashtra State Co-operative Bank Ltd., Report of the Committee on

Problems of Urban Cooperative Bank in Maharashtra, (1976) Mumbai, p. 12.

'"^ Rao A. R. (1974), ''Viability of Commercial Banks in Rural Banking", New

Delhi, Deep and Deep Publication.

'^ Desingarao N.(1975), Deposit Mobilisation by Co-operative Banks: A

Comparison with Scheduled Commercial Banks, Economic and Political Weekly,

Vol. 10, No. 29.

'^ Reserve Bank of India, Report of Committee on Integration of Cooperative

Credit Institutions, (1976) Mumbai, RBI Publication.

'^ Reserve Bank of India, Report of the Committee on Urban Co- operative Banks,

(1979), Mumbai.

'^ Kamat G.S. (1979), New Dimensions of Co-Ope rati ve Management, Mumbai,

Himalaya Publishing House.

'"^ Angadi V. B. (1983), "Banks Advances to Priority Sectors", Economic and

Political Weekly, Vol. XVIII, No. 48.

"° Rao Kulumba (1985), Management of Central cooperative Banks, New Delhi,

Ashish Publishing House.

Vashisht A. K. (1987), "Performance Analysis of Commercial Banks'', in India,

unpublished Thesis, Department of Commerce, H.P. University, Shimla.

-- D'Silva .lohn, (1988), Scheduled Banks, Urban Credit, NFUCBSS, New Delhi,

pp. 9-11.

"' .loshi P. N. (1987), "Norms and Techniques of Bank Performance", New Delhi,

Deep and Deep Publication.

48
'" Naidu K. M. (1989), "-Steady Progress in Banking Sector'", New Delhi. Deep

and Deep Publication.

'^ Reserve Bank of India, A High Power Committee Report on UCBs (1990),

Mumbai, RBI Publication.

"*Misra N. (1990), Co-Operative Paradigm Shift Needed, Banking Finance, vol.8,

no.10, p.23.

'^ Amandeep S. (1990), "Profits and Profitability of Indian Nationalised Banks'',

Thesis, Punjab University, Chandigarh.

'^^ Report o/Gorporia Committee on Customer Sendee in banks. (1991), Mumbai,

IBA Publication.

^"^ Ojha P.D. (1990), Cooperative Sector-Some Critical Issues, Banking Finance.

vol.5, no.9.

^" Shivamaggi H.B.(1991), Policy for Urban Co-operative Banks: Need for New-

Approach, Economic and Political Weekly, Vol. 26, No. 45.

^'Pandit P.T.,(1991) Co-Operative Banking in Next Decaae, Maharashtra Co-

Operative Quarterly, vol.74, no.4, p.39.

^'Prabhu Suresh (1991), Emerging Areas in Cooperative Banks, Cooperative

Perspective, vol. 26, no.l.

" Subrahmaniyam M. S. (1991). ""Liberalisation of India's Banking and Monetary

Regim ", Prajnan, Vol. 20 (4).

'^ Muniappan G. P. (1991) ""Indian Banking: Paradigm Shift", IBA Bulletin, vol.

24(3).

•'^ Reddy R., Reddy A. Sivarami and Sakriya D. (1996); Performance Appraisal of

Co-Operative Banks -A Case Study, Banking Finance, vol..9, No.3.

49
^* Subramanian and Swami (1994), "Comparative Performance of Public Sector

Banks In India" Pijanaiu Vol. XXII.

" Kulkami S. R. (1996), Urban Cooperative Banks-An Appraisal New Delhi,

Anmol Publication.

^** Zacharias Thomas (1997), 'Performance effectiveness of Nationalised Bank- A

Case Study of Syndicate Bank', PhD Thesis (unpublished), Kochin University.

^' Vaze A.T., Pavvar I.D. (1998), Theory and Histoiy of Cooperatives, Pune,

Varsha Prakashan.

^^ T. Radha (1999). ''Impact Of Banking Sector Reforms On The Performance Of

Commercial Banks In India", (unpublished) Thesis. Andhra University,

Visakhapattanam.

" SBI Research Department (2000), "Performance Analysis of 27 Public Sector

Banks" SBI Monthly Review Performance, Vol XXXIX.

^•^ Junare S.O. (2000), Role of Urban Cooperative Banks in Financing Minority

and Weaker Sectors in Gujarat State, Unpublisned thesis. Pune. University of

Pune.

•*" Roy P.P. (2000), Co-Operative Movement, Banking Finance, vol.13, no.5,

•^"* Athma Prashanta (2000), "Performance of Public Sector Banks - A Case Study

of State Bank of Hyderabad", PhD thesis (unpublished), Osmania University

Hyderabad.

^" Reserve Bank of India, Cooper Committee Recommendatio)is,(200\) Mumbai,

RBI Publication.

Singh S. (2001) "An Appraisal of Banking Sector Refornts In India",

unpublished Ph.D. Thesis, Guru .lambeshwar University, Haryana.

50
^^ Wahab A. (2001) "Commercial Banks under Reforms: Performance and

Issues'", Deep and Deep Publications, New Delhi.

^** Raje P. (2001), Co-Operative Failure, Banking Finance, vol.15, no.5, p.43.

^'' Das A. V. and Lai H. C. (2002), Banking Reforms in Lead Bank Scheme, Deep

and Deep Publication, New Delhi.

'" ICRA (2003), ''Comparative Study on Indian Banking'', ICRA Publication, New

Delhi.

''Suhrud T. (2003), Collapse of Urban Cooperative Banking, Economic and

Political Weekly, Vol. 38, No. 32.

'' Singh R (2003), Profitability Management in Banks under Deregulate

Environment, IBA bulletin. No. 25.

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""* Tiwari P. (2005), "Development of Financial Institutions in Indian Banking- A

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•''' Dcsai. S. v., (2006), Performance Appraisal of Urban Co-operative Banks in

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51
^^ Subbaroo P. S. (2007), "Changing Paradigm in Indian Banking". Gyan

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^'^ Singla H. K. (2008), "Financial Performance Of Banks In India",

ICFAI Journal of Bank Management No 7.

^' Reserve Bank of India, Annual Report, (2008) Mumbai, RBI Publication.

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^'* Ramachandran A. and Shanmugam D.S. (2012), An Empirical Study on the

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52