Chapter 3

Review of Literature
&
Research Methodology
No. Title Page No.
3.0 Introduction 56
3.1 Review of Existing Literature 57
3.2 Research Gap 82
3.3 Introduction to Research Methodology 82
3.4 Title of the Present Research 83
3.5 Period of the Study 83
3.6 Scope of the Present Study 83
3.7 Population and Sample of the Study 84
3.8 Type of the Study 84
3.9 Method of Data Collection 85
3.10 Objective of the Study 85
3.11 Hypotheses of the Study 85
3.12 Tools and Techniques of Analysis 86
3.13 Chapter Plan 87
3.14 Limitations of Present Research 88

55
3.0 Introduction:

Review of literature has vital relevance with any research work. Due to literature
review the possibility of repetition of study can be eliminated and another dimension
can be selected for the study. The literature review helps researcher to remove
limitations of existing work or may assist to extend prevailing study. Several
researches have been conducted to analyze the different aspects of commercial banks
in India and abroad. But there are very few research and literature available on the
subject related to financial reforms and its impact on Indian banks. The available
literature and research are divided into four major parts according to the area of
research i.e. literature related to the objectives considered for this study.

A literature review gives an overview of the field of enquiry: what has already been
said on the topic, which are the key writers, what are the prevailing theories and
hypothesis, what questions are being asked and what methodologies and methods are
appropriate and useful. According to Bourner there are good reasons for spending
time and effort on a review of the literature before embarking on a research project.
These reasons are:

• To identify gaps in the literature.

• To avoid reinventing the wheel (at the very least this will save time and it can
stop the researcher from making the same mistakes as done by others).
• To carry on from where others have already reached (reviewing the field
allows to build on the platform of existing knowledge and ideas).
• To identify other people working in the same fields (a researcher network is as
valuable resource.)
• To increase breadth of knowledge of the subject area.
• To identify seminal works in area.
• To provide the intellectual context for your own work, enabling you to
position your project relative to other work.
• To identify opposing views.
• To put your work into perspective.
• To demonstrate that you can access previous work in an area.
• To identify information and ideas that may be relevant to your project

56
Literature for this study is reviewed from following five major sources such as (i)
Ph.D. research conducted in India and abroad (ii) The research / studies carried over
by the institutions like RBI, ICRA Limited, government reports, working papers from
B-schools, research papers published in various national /international conference
proceedings, standard journals and business magazines like Financial Express,
Business Today, Money Outlook, Business India, etc. and (iii) Research Studies of
individual scholars published in journals and magazines and (iv) websites of RBI,
Govt. of India and websites of various banks.(vi) annual reports of eight UCBs of
South Gujarat region of Gujarat state. The present study is undertaken in the light of
the methodology adopted and conclusions emerged in the earlier studies relating to
analysis of financial statement by using recognized statistical tools.

3.1 Review of Existing Literature:

Following are the various literatures reviewed for this thesis:

Alamelu, and Devamohan, (2010), in their study titled, “Efficiency of Commercial

Banks in India” calculated the business ratios, such as interest income to average
working funds, non-interest income to average working funds, operating profit to
average working funds, return on assets, business per employee and profit per
employee for public sector banks, private sector banks and foreign banks for the
period 2004-05 to 2008-09. It was observed that the foreign banks and new generation
private banks have superior business ratios. They effectively leverage technology,
outsourcing and workforce professionalism which helped them to protect their bottom
line. On the other hand, the public sector banks are yet to exploit fully the advantages
of vast branch network and large workforce. That’s why they have unimpressive
business ratios. Old generation private banks do not have impressive business ratios,
as they are constrained by small size and conservatism1.
Anand, G., S., (1984), evaluated the performance of the Grape Growers' Marketing
and Processing Co-operative Society in Bangalore. He applied the solvency,

1
Alamelu, and Devamohan, (2010), “Efficiency of Commercial Banks in India”,
Professional Banker, ICFAI University Press, Hyderabad

57
liquidity, turnover, total sales to fixed assets and total sales to owned funds ratios to
examine the performance of the society2.
Anand, S., K., (1981), employed the solvency, stock turnover, working capital and
profitability ratios to evaluate the financial position and performance of the state
consumer’s co-operative federation, Maharashtra3.
Asaithambi, K., (1988), analyzed the performance of Andaman and Nicobar State
Co-operative Bank for the period from 1982- 83 to 1985-86. The performance
indicators selected for the study were membership, share capital, working capital,
deposits, and loans outstanding and overdue. The results of the analysis showed that
the bank has been maintaining high degree of efficiency in all the vital aspects of its
operations4.
Bankim, C., (1996), the author examined the performance of Maharashtra State Co-
operative Bank for the period 1989- 90 to 1992-93. The variables for the study were:
working capital structure and composition, deposit mix, credit mix, credit-deposit
ratio, loan outstanding, overdue and profitability. The findings of the study were: the
working capital mix indicated a major share of deposits and borrowings; deposits
contributed 70 percent in working capital and among various deposits, the fixed
deposits alone contributed 69 percent; the credit mix was rational; high degree of
relationship between the credit and the deposits; excellent performance in recovery
and an upward trend in profit5.
Babu, C., V., (1997), analysed the liquidity, profitability and business strength of
three urban co-operative banks in Thrissur district of Kerala state for the period 1980-
81 to 1989-90. For the purpose of analysis, the author used the various ratios viz.
profitability performance ratios (developed by Varsha S. Varde and Sampat P.Singh)

2
Anand, G., S., (1984), “Performance Appraisal of the Bangalore Grape Growers
Marketing and Processing Co-operative Society Ltd., Lalbagh Bangalore: A Case
Study”, M.Sc. Thesis (Unpub.), UAS, Bangalore
3
Anand, S., K., (1981), "The Ratio Analysis", Aspects of a State Consumers Co-
operation Federation, Maharashtra, Indian Cooperative Review, 18(3) NCUI, New
Delhi
4
Asaithambi, K., (1988), “Performance Appraisal of Andaman and Nicobar State Co-
operative Bank”, Indian Co-operative Review, Vol., XXV No.4, PP. 395-402, NCUI,
New Delh
5
Bankim, C., (1996), “Maharashtra State Co-operative Bank: An examination of its
performance”, Indian Co-operative Review (24) (3) PP., 137-144 NCUI, New Delhi
58
liquid assets to deposit ratio, cash asset to deposit ratio, credit-deposit ratio, and
owned fund to borrowed fund ratio and overdue - demand ratio6.
Bagchi, (2006), in his study titled “Agriculture and Rural Development are
Synonymous in Reality: Suggested Role of CAs in Accelerating Process” analyzed
the performance of Primary Agriculture Credit Societies, and observed that PACS
could not match up to the increasing requirements of growth dimensions in the
Agriculture /Rural development in the Post-independence period, although till the late
50s, they were the only available source of institutional rural finance7.
Bhatt, B., V., Shiyani, R., L., and Patel, N., M., (1989), analysed the credit and
deposit performance of Junagarh District central co-operative bank (JDCCB) Ltd.in
Gujarat. The study period was 1975-76 to 1986-87. The variables selected for the
study were: deposits, total outstanding loan, net outstanding loan, apex bank loan,
credit deposit ratio and effective C.D. ratio. They used regression technique to work
out the growth rates. The model fitted for the study was Y = a + bx
where Y = adjusted index number
x = independent variables (time)
b = estimated annual growth rate.
The study revealed that all the variables showed a significant growth during the study
period. Further, the credit advanced depended on the total deposits received or
generated share capital and other funds etc. The authors opined that the effective
credit-deposit ratio (based on net outstanding) should be used for judging the
performance efficiency in relation to the credit and deposit of banking sector8.
Bhatia, R., C., (1978), in his study titled, “Banking Structure and Performance − A
Case Study of the Indian Banking System” attempted to analyze the economic
performance of Indian banking system as reflected by its output, price and
profitability during the period 1950-68. He found that profit of the Indian banking
system during the said period had an upward trend. The study suggested deregulation

6
Babu, C.,V., (1997), “Liquidity, Profitability and Business Strength Analysis of
Urban Co-operative Banks”, Indian Co-operative Review, Vol. XXXV, No.1, PP.,
56-70, NCUI, New Delhi
7
Bagchi, (2006), “Agriculture and Rural Development are Synonymous in Reality:
Suggested Role of CAs in Accelerating Process”, The Chartered Accountant, Journal
of Institute of Chartered Accountants of India, Vol. 54, No.08, New Delhi
8
Bhatt, B., V., Shiyani R., L., and Patil, N., M., (1989) “Credit Deposit Ratio: A case
study of Junagarh District Central Co-operative Bank”, Indian Co-operative Review,
Vol. XXVI No.3, PP 306-311, NCUI, New Delhi.
59
of interest rates to enhance the profitability of financial institutions and to ensure a
competitive banking environment which would ultimately result in better services9.
Brynjolfsson, E., and Hitt, L., (1996), however, cautioned that these findings do not
account for the economic theory of equilibrium which implies that increased IT
spending does not imply increased profitability. More recent firm level studies,
however, point a more positive picture of IT contributions towards productivity.
These findings raise several questions about mis-measurement of output by not
accounting for improved variety and quality and about whether IT benefits are seen at
the firm level or at the industry level10.
Carlos, P., B., Nicolas, P., and Jonathan, W., (2005), studied productivity changes
in European co- operative banks and concluded that an effective use of technology
between 1996 and 2003 had increased productivity for majority of the European co-
operative banks under study. An appropriate policy recommendation by the
researchers was for larger or centralized co-operative banks to develop and franchise
technology to smaller cooperatives11.
Chopra, K., (1987), in her book, studied operational efficiency of some selected
public sector banks. She found lack of professionalism in banking industry and
stressed for the introduction of scientific management practices to enhance profits and
profitability of public sector banks. She recommended comprehensive management of
costs as well as earning of the banks12.
Das, M., R., (1997), in his paper, studied the productivity in nationalized banks. He
observed that labour productivity in nationalized banks, over the time, had not only
remained low but also substantially declined. He advocated the restructuring of banks
to improve productivity in Indian banks13.

9
Bhatia, R.C. (1978), “Banking Structure and Performance - A Case Study of the
Indian Banking System”, An un published Ph.D. Thesis submitted to West Virginia
University
10
Brynjolfsson, E., and Hitt, L., (1996), “Paradox Lost?- Firm-Level Evidence on the
Returns to Information Systems Spending”, Management Science, 42(4), PP., 541-
558
11
Carlos, P., B., Nicolas, P., and Jonathan, W., (2005), “Productivity Changes in
European Co-operative Banks”, Journal of Economic Literature, 2005 Classification
G-21 and D-24, IDEAS
12
Chopra, K., (1987), “Managing Profits, Profitability and Productivity in Public
Sector Banking”, ABS Publications, Jalandhar
13
Das, M., R., (1997), “Productivity in Nationalized Banks, A Paper Presented in
Bank Economists Conference, IBA- Bulletin, Mumbai
60
Das, D., (2001), in his study titled, “A Study on the Repayment Behaviour of Sample
Borrowers of Arunachal Pradesh State Co-operative Apex Bank Limited”, examined
the repayment behaviour of loanees, covering a period of 1994-95 to 1998-99. On the
basis of primary data collected, researchers concluded that incidence of default was
highest among borrowers for agriculture allied activities loans. Agriculture loanees,
horticulture loanees, small business loanees and service sector loanees were ranked
2nd, 3rd, 4th and 5th in a descending order on the basis of percentage defaulters.
Study further revealed that the number of defaulter loanees was highest in government
sponsored schemes14.
Dayanandan, R., and Sasikumar, K., (1993), evaluated the performance of the
Central Co-operative Banks in Kerala for the period from 1981-82 to 1989-90. The
variables viz., membership, share capital, deposits, reserve fund, total loan overdues
and net profits were considered for the study. They employed the technique of 'Best
Fit Line' to compute linear growth rates of the selected variables15.
Debasish, S., S., (2003), in his research paper titled, “Prime Discriminants of
Profitability in the Indian Commercial Banks” tried to develop a discriminant function
for bank profitability using the most significant ratios/parameters. The validity of the
model was assessed by calculating the analysis sample (78 banks). The hit ratio for
analysis sample was 49/78 = 62.82 per cent. The efficiency was judged on four major
parameters: Liquidity of the bank, Return performance, Expense parameters, and
Operational efficiency. As per step-wise discriminant analysis, out of various
measures, i.e., smallest F- Ratio, Mahalnobis Distance, and Wilk Lambda, the study
employs Wilk Lambda with minimum value required for entry as 3.84 and maximum
value for removal of the independent variable as 2.71. At each step the variable that
minimizes the overall Wilk Lambda is entered. The computation ends when any
further entry of variables fails to minimize the Wilk Lambda16.
Deolalkar, (1998), in his study titled, “The Indian Banking Sector on Road to
Progress” observed that NPAs in Public Sector Banks were recorded at about Rs. 457
14
Das, D., (2001), “A Study on the Repayment Behaviour of Sample Borrowers of
Arunachal Pradesh State Co-operative Apex Bank Limited”, Indian Co-operative
Review, Vol. XXX No.2, New Delhi
15
Dayanandan, R., and Sasikumar, K., (1993), “A Study in the Performance
Evaluation of Central Co-operative Banks in Kerala”, Indian Co-operative Review,
Vol. XXXI, No.2, PP., 196-201
16
Debasish, S., S., (2003), “Prime Discriminants of Profitability in the Indian
Commercial Banks”, Prajnan, Vol. XXXI, No.4 (Jan.-June), NIBM, Pune
61
billion in 1998. About 70% of gross NPAs were locked up in “Hard Core” doubtful
and loss assets, accumulated over years, pending either in courts or with Board for
Industrial and Financial Reconstruction (BIFR). He further added that the main cause
of NPAs in the banking sector was the DIRECTED LOANS SYSTEM, under which
the commercial banks were required to supply a prescribed percentage of their credit
(40%) to the Priority Sector. Such loans supplied to the micro sector were problematic
of recoveries, especially when some of the units become sick or weak. These loans
had led the borrowers to expect that like a non-refundable state subsidy, bank loans
need not be repaid17.
Devadas, B., (1987), in his book titled, “Co-operative Banking and Economic
Development” studied the role of Assam Co-operative Apex Bank Ltd. in economy of
the State. He found that apart from working as a commercial bank it had to discharge
three other functions, i.e., to finance primary credit societies, to act as banking centre
for primary societies, and to undertake supervision of primary societies. He found that
bank had not been able to achieve much in these three fields due to lack of adequate
support from government of the state18.
Dhanappa, (2009), in his study titled, “Performance Evaluation of UCBs: A Case
Study of Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. Ichalkaranji”
made an attempt to examine the working and financial performance of UCBs. The
objective of the study was to examine and analyze the trend, progress and problems of
this bank, and to offer some important suggestions for improving the competency and
efficiency of the bank. The related data had been collected for the period from 1995-
96 to 2007-08. He used various statistical tools such as ratios, percentages, averages,
and chi-square test to analyze the data, to know the performance of the UCBs in
respect of share capital, deposits, reserve funds, loans and advances, investment,
profit, and NPAs. He observed that the bank had maintained NPAs under control at
the best stipulated level of RBI norms. There was immense instability in net profit.
The bank should focus on non- interest income sources (commission based services)
to increase the profit level and reduce the NPAs. CD ratio of the bank was declining
continuously which was not a good signal. The economic health of the bank was

17
Deolalkar, (1998), “The Indian Banking Sector on Road to Progress”,
www.abd.org, www.scribd.com accessed on 07.03.09
18
Devadas, B., (1987), “Co-operative Banking and Economic Development”, Deep &
Deep Publications, Delhi
62
sound and the Bank was able to compete with other banks. He further suggested that
loans should be provided (at least to regular borrowers) on competitive rates of
interest19.
Dos, S., Peffers, B., L., and Mauer, K., G., (1993), studied statistical correlation
between IT spending and performance measures such as profitability or stock’s value.
It is found that there is an insignificant correlation between IT spending and
profitability measures, implying thereby that IT spending is unproductive20.
D' Silva, J., (1984), studied the working of Abhyudaya cooperative Bank Ltd. in
Mumbai, for the period from 1964 to 1984. The variables chosen for the study were:
membership paid up share capital, deposits, advances, working capital and the number
of branches. The study revealed an excellent growth in all its selected variables during
the study period. The author remarked that the dedicated service rendered by the bank
in its short span of life of two decades has earned a place of pride among the urban
co-operative banks in the country especially in Maharashtra21.
Gajare, L., H., (1990), the author in his paper suggested certain steps to increase
productivity and profitability in urban cooperative banks. He opined that the
performance of the financial institutions is judged by its allocation and operational
efficiencies. Operational efficiency refers to the difference between the rate at which
the funds are raised and deployed. The following were the suggestions: cash and
investment management; credit management; ancillary business; cost effectiveness
and cost control; profit planning and budgeting and control22.
Gayithri, K., (1993), studied the credit delivery in rural Karnataka. She has found
that the societies which are not faring well in recovery and where there are charges of
corruption against the secretaries do not get any refinance benefits from the District
Central Co-operative Bank (DCCB). She has concluded that refinance from
NABARD for agriculture schemes is mainly based on the recovery performance of

19
Dhanappa, (2009), “Performance Evaluation of UCBs: A Case Study of
Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd., Ichalkaranji”, Indian
Cooperative Review, Vol., XXXXVII, No-2, NCUI – New Delhi
20
Dos, S., Peffers, B., L., and Mauer, K.,G., (1993), “The Impact of Information
Technology Investment Announcements on the market Value of the Firm”,
Information Systems Research.
21
D'Silva, J., (1987), “Management of Urban Co-operative Banks: Urban Credit”,
Vol. 9, (1) PP: 19-21
22
Gajare, L., H., (1990), “Steps to Increase Productivity and Profitability in Urban
Co-operative Banks”, Urban Credit, Vol., 12, No.3, PP., 5-9 NAFCUB, New Delhi
63
the banks. The technological development in the banking sector began with the use of
Advanced Ledger Posting Machines (ALPM) in the 1980s and nowadays banks are
using core banking solution (CBS) for providing better services to their customers.
Over the years several studies have been conducted both at the industry and academic
level to examine the impact of IT on banking productivity and profitability23.
Goyal, M., K., (1985), analysed debt-equity ratio of all the Apex Co-operative Banks
in India for the period from 1970-71 to 1978-79. The author calculated debt-equity
ratio by two ways: i) Ratio of deposits to owned funds and ii) Ratio of total outside
liabilities to owned funds. The study indicated that the increase in deposits was more
than the owned funds during the study period. The ratio was in between 300 percent
to 492 percent and the ratio of total outside liabilities to owned funds varied between
583 percent and 717 percent during the study period.24
Heiko, H., and Martin, C., (2007), of IMF conducted a study on co-operative banks
and their financial stability. The study was based on individual bank data drawn from
the Bank Scope Database for 29 major advanced economies and emerging markets
that were members of the Organization for Economic Co-operation and Development
(OCED). They found that co-operative banks in advanced economies and emerging
markets had higher scores than commercial banks, suggesting that co-operative banks
were more stable. These findings, perhaps somewhat surprising at first, were due to
much lower volatility of co-operative banks’ returns, which offsets their relatively
lower profitability and capitalization25.
Hundekar, S., G., (1989), evaluated the performance of Nipani Urban Co-operative
Credit Bank Ltd., Nipomo in the Belgaum District of Karnataka State. The study
period was 7 years from 1981-82 to 1987-88. The indicators selected for the study
were membership, deposit mobilization, loans and advances, credit-deposit ratio,
profit, manpower, share capital, reserves, branch expansion and the management. The

23
Gayithri, K., (1993), “Credit Delivery in Rural Karnataka: A Case Study of
Chikmagalur District”, Journal of Rural Development, Vol.12, No.3, PP., 301-317
24
Goyal, M., K., (1985), “Performance Appraisal of the LAMP Cooperative Societies
in Tribal Area in Tamil Nadu: A Case Study”, Indian Co-operative Review,
Vol.XXV, No.1,
25
Heiko, H., and Martin, C., (2007), “Co-operative Banks and Financial Stability”,
IMF Working Paper, Washington, DC

64
study concluded that the bank registered a successful growth in all its performance
indicators among all the urban co-operative banks in Belgaum district26.
Jayaraman, and Srinivasan, (2009), in their study titled, “Relative Efficiency of
Scheduled Commercial Banks in India (2001-08): A DEA Approach” attempted to
measure the scale efficiency of scheduled commercial banks in India using Data
Envelopment Analysis. The study listed out the number of efficient banks on the basis
of relative performances using efficiency scores. It was found that the general
performance of scheduled commercial banks under study was relatively high during
the study period 2001-08 and the average efficiency score was ranging between
0.9195 and 1. More than 60 per cent of the scheduled commercial banks under study
were above the average efficiency score for each study period except for the year
2006, where it was around 53 per cent. The results show that ICICI Bank, IndusInd
Bank, ABN Amro Bank, Calyon Bank and Citibank were efficient for all years during
study period. In addition to above banks, efficiency scores of State Bank of
Travancore, Vijaya Bank, Bank of Maharashtra, and Oriental Bank of Commerce,
Axis Bank, Federal Bank and Yes Bank were above the average efficiency scores for
all the years27?
Kalyankar, (1983), in his study titled, “Willful Default in Loans of Co-operatives”
examined the trends in deposits, share capital, working capital, loans outstanding,
advances, overdues and recoveries at the district level financing institutes.
Socioeconomic factors responsible in projecting and promoting future development in
the Operations and approaches of the co-operative credit organizations were also
considered to examine the specific progress made by Central Co-operative Bank of
Parbhani District. The study revealed that the cropping intensity, irrigation facility
and working capital of the societies were the major factors for explaining overdue at
primary agricultural credit societies’ level. The socio-economic factors were not
responsible for increasing overdue at the borrowers’ level, but overdue were mainly
mounted due to the non-economic factors in case of willful defaulters28.

26
Hundekar, S., G., (1989), “Performance of Urban Co-operative Bank”, Tamil Nadu
Journal of Co-operation, Vol. 81, No.3, PP., 158-164, TNCU, Chennai
27
Jayaraman, and Srinivasan, (2009), “Relative Efficiency of Scheduled Commercial
Banks in India (2001-08): A DEA Approach”, Prajnan, Vol. XXXVIII, No., 2, Pune
28
Kalyankar, (1983), “Wilful Default in Loans of Co-operatives”, Indian Co-
operative Review, Vol., XX, No.2, New Delhi
65
Kamesam, V., (2001), studied the changes that took place in the Indian banking
industry which emphasized on technological advancements and profitability in banks.
Technology has helped in centralized data storage with decentralized processing
which has helped in reduction of costs and NPAs. Further, emergence of services such
as electronic data interchange (EDI), usage of smart cards, RTGS, e-commerce, etc.
resulted in increasing the level of profitability and productivity of banks. The author
concluded that in order to reduce crimes, security audit should be done which will be
helpful in improving customer service, increase systematic efficiency and thus
increased productivity and profitability29.
Krishana, Hosamani and Hiremath, (2003), in their research paper, “Performance
of Regional Rural Banks in Karnataka − An Application of Principal Components and
Discriminant Function Analysis” tried to identify the important discriminating
characteristics of the two identified groups of Regional Rural Banks in the state of
Karnataka. They used the discriminate function approach and sought to obtain linear
discriminate coefficient, such that the squared difference between the mean Z-score
for the one group and the mean Z-score for the other group was as large as possible in
relation to the variation of Z-scores within the groups. They concluded that the
number of employees per branch had maximum discriminating power to the extent of
55%, followed by amount of borrowings (18%), credit deposit ratio (14%) and
income to expenditure ratio (13%)30.
Krishna Murthy, G., and Parameshwar, P., (1985), examined the trends in deposits
of all the central co-operative banks in Andhra Pradesh. The period for the study was
12 years (1970-82). Exponential trend was used to examine the growth of deposits31.
Kumar, S., (2008), in her thesis on “Management of Non-Performing Advances − A
Study of District Central Co-operative Banks of Punjab”, collected a sample of ten
DCCBs, i.e., five with high level of NPAs and five with low level of NPAs, was taken
for the study. It was found that despite the best efforts, Central Co-operative banks

29
Kamesam, V., (2001), The Information Systems Audit Manual, prepared by the
Working Group on the Introduction of Information Systems Audit in Reserve Bank of
India
30
Krishana; Hosamani; and Hiremath (2003), “Performance of Regional Rural banks
in Karnataka-And Application of Principal Components and Discriminant Function
Analysis”, Artharvikas - Journal of Economic Development, Vol. XXXIX
31
Krishna Murthy, G., and Parameshwar, P., (1885), “Deposit Mobilisation by
Central Co-operative Banks in Andhra Pradesh, A Review”, Indian Co-operative
Review, Vol. XXII No.3, PP., 302-307.
66
had not succeeded in diversifying their business. The NPAs in crop loan were found
to be the lowest, while these were the highest in non-farm sector loan. On the basis of
step-wise multiple regressions, it was found that caste, education, amount and
adequacy of loan were the main factors affecting repayment performance of the
borrowers. She suggested that these banks should form a special cell to monitor NPAs
and should take services of recovery agents32.
Kurulkar, (1983), in his published work on agricultural finance in backward region,
reported glaring defects in the set-up of co-operative credit system. He pointed that
out of the ten sample owners who obtained long- term credit from the co-operative
banks, 30% could not secure short- term credit. Lack of short- term or production
credit to the farmers who availed long-term credit resulted in lower output per acre,
thereby resulting in overdue33.
Kulandaiswamy, V., and Nagarajan, C., (1985), studied the growth of the urban co-
operative banks in Coimbatore district in Tamil Nadu, for the period from 1967-68 to
1981-82. The variables selected for the study were: membership, share capital,
deposits, and loans outstanding and net profits. The authors used the linear growth
equation to compute the growth rates34.
Kulkarni, L., G., (1979), in his study titled, “Development Responsibility and
Profitability of Banks” stressed upon social responsibilities of banking sector. He was
of the view that looking for profit maximization only was not true. Profitability of
banks as social benefits arising out of bank operations cannot be ignored. He observed
that while fulfilling the social responsibility, banks should try to make the basic
banking business as successful as possible, reduce cost, improve banking system and
increase the overall profitability35.
Lodha (2002), in his study titled “Social Lending – Its Relevance in Deregulated
Economy” studied how far the two extremities, viz. profit maximization and social

32
Kumar, S., (2008), Management of Non-Performing Advances− A Study of District
Central Co-operative Banks of Punjab, an Unpublished Ph. D. Thesis, Submitted to
HP University
33
Kurulkar, (1983), “Agriculture Finance in Backward Region”, Himalaya Publishing
House, Bombay
34
Kulandaiswamy, V., and Nagarajan, C., (1985), “Recovery of Loans: A Study of
District Central Co-operative Bank Dharwad”, Indian Co-operative Review, Vol.
XXVI, No.1, PP., 27-33
35
Kulkarni, L., G., (1979), “Development Responsibility and Profitability of Banks”,
Economic and Political Weekly (Aug.), Mumbai
67
lending will co-exist in the deregulated market, particularly in a developing economy
like India. He concluded that
(1) Social lending should continue despite reforms;
(2) Economic reforms should continue;
(3) Target lending should be abolished;
(4) Social lending should be confined to weaker sections only;
(5) Time bound lending with least formalities should be ensured;
(6) Lending decision should be based on cost benefit analysis;
(7) Subsidy in social lending should be scrapped;
(8) Loss making rural branches should be converted into satellite offices
(9) Self- help groups should be encouraged; and
(10) Business hours and days should be changed to face competition36
Markand, (1979), in his book titled, “Social Priority Index of Public Sector Banks”
evaluated the performance of public sector banks. With the help of performance index
consisting six quantitative indicators such as branch expansion, priority sector credit,
and wage cost, he concluded that the priority sector financing was essential, and
necessary. For better performance in this sector he suggested that lending power
should be delegated to the branch managers37.
Mettigatti R., M., (1990), studied the performance of Milk Producers Co-operative
Societies and their impact on dairy farming in Dharwad District. The author selected a
number of physical and financial indicators to evaluate the performance. He opined
that both the physical and financial indicators of the societies showed a significant
growth in their values38.
Murthi and Saraswati, (1996), in their paper titled, “Reducing Overdue in Credit
Co-operatives: Some Alternatives” undertook a study to evaluate the Quantitative
Progress made in respect of supply of Institutional Credit. Using the secondary data
made available by RBI in Statistical Statements relating to Co-operative Movement in
India for a period of 6 years from 1978 to 1983 and assessing the Loaning Policies of

36
Lodha (2002), “Social Lending – It’s Relevance in Deregulated Economy”, IBA
Bulletin, Mumbai
37
Markand, (1979), “Social Priority Index of Public Sector Banks”, Allahabad Bank
Publications, Calcutta
38
Mettigatti, R., M., (1990), “Performance of Milk Producers, Co-operative Societies
and their impact on dairy farming in Dharwaddistrict”, unpublished M.Sc. (Agri.)
thesis submitted to UAS, Dharwad
68
Girijan Co-operative Corporation, Visakhapatnam, the study concluded that the
progress in respect of supply of credit was phenomenal over the period of study but
this progress pales into significance, if the magnitude of overdue was considered. It
pointed out that the most unnerving aspect of institutional credit was the alarmingly
high percentage of overdue, i.e., about 43% of loan recoverable in the second-half of
the 80s in the case of co-operatives. The study was conducted to find out whether it
was possible to reduce overdue by (1) making co-operatives the exclusive institutions
of economically weaker sections-BY RESTRUCTURING THEM; and (2) by
effective changes in the Loaning Policies-BY REVAMPING THEM. The study
suggested that making co-operatives as exclusive institutions of weaker sections, i.e.,
making them homogeneous would not result in decline in overdue, as mere
homogeneity was not a sufficient condition. Further, regarding the Revamping of
Loaning Policies, the results were quite impressive as it resulted in significant
improvement in the Recovery Performance. It was finally concluded that the change
in Loaning Policies like Induction of Liaison Workers, efforts of Elders Committee,
Motivated Management would not have helped recovery of loans in the absence of
Homogeneity39.
Murthy, (2008), in his paper titled, “Rural Finance: A Remedial Measure for Rural
Poor”, focused on the role of financial services as key to enhancing economic
development and reducing poverty in rural areas. Rural finance has often led the way
in addressing social, gender and ethnic equity issues which hold families in poverty.
He, however, observed that the access was limited for poor households and for micro,
small and medium enterprises. Despite rapid economic development in India the
number of people living below the poverty line has decreased only slightly. While
there was a numerically strong infrastructure of formal financial institutions in rural
India, they often lacked the capacity to provide adequate demand-oriented services.
He recommended that the major constraint of such important rural finance agencies,
i.e., lack of resources should be removed, by facilitating them to mobilize resources
from capital market and other newer sources40.

39
Murthi and Saraswati, (1996), “Reducing Overdue in Credit Co-operatives: Some
Alternatives”, Indian Co-operative Review, Vol., XXVI No.1, New Delhi
40
Murthy (2008), “Rural Finance: A Remedial Measure for Rural Poor”, Vinimaya,
Vol., XXX, No.2, Pune

69
NABARD, (2005), conducted a study “Development in Co-operative Banking”, to
evaluate the financial performance of 1872 urban co-operative banks and 1, 06,919
rural co-operative credit institutions. The findings of the study revealed that in all
financial institutions in the rural sector (SCBs, DCCBs, SCARDBS, and PCARDBS),
percentage of NPAs in the substandard category declined, while it had increased in
doubtful category. NABARD was worried about deterioration in asset quality of these
banks. However, all the institutions were able to meet the necessary provisioning
requirements. It further highlighted that NPAs ratio in DCCBs varied significantly
across the states from 5% to 68% at the end March 2004. Only in four states
(Haryana, Himachal Pradesh, Punjab and Uttaranchal), the NPA ratio was less than
10%. NABARD suggested that co-operative banks should implement One Time
Settlement system (OTS) and refer small value advances to Lok Adalats and high
value advances to Debt Recovery Tribunals (DRTS). Further, State Governments were
requested to help co-operative banks in reducing NPAs by taking special recovery
derives41.
Nair, (2004), in his paper titled, “Village Co-operatives − A Century of Service to the
Nation” observed that by 2004, the formal institutionalized co-operative sector
completed a century of its service to the nation. Analyzing the progress of Primary
Agricultural Co-operative Societies, he observed that during the half century spread
over 1951-2001, the PACs made rapid strides in membership, owned funds, deposits,
and channelizing production credit for farmers. They were versatile in the sense; they
can take up any type of rural financing and rural service activity at short notice and at
lowest transaction cost. But besides excelling on all fronts, the co-operatives are
feeling handicapped due to mounting NPAs. The overdue loans of PACs increased to
Rs. 95,899.60 million in 2000-01 as compared to Rs. 63.79 million indicated in 1950-
51, thereby subjecting them to a sustained and systematic process of reviews,
reorganization and restructuring42.
Niranjanraj, and Chitanbaram, (2000), in their study titled, “Measuring the
Performance of DCCBs” observed that suitable models should be developed to
evaluate the performance of co-operative banks. They considered 23 parameters

41
NABARD, (2005), A Report “Development in Co-operative Banking”,
www.nabard.org, accessed on 14.05.09
42
Nair, B., R., (2004), “Village Co-operatives - A Century of Service to the Nation”,
Yojana, New Delhi
70
falling into four major groups for measuring the performance of District Central
Cooperative Banks and assigned appropriate weights to each parameter. They ranked
14 District Central Co-operative Banks of Kerala based on composite marks. They
suggested that performance of co-operative banks should not be measured in terms of
financial/ economic achievements only but their performance as co-operative
organizations (social achievements) should also be evaluated43.
Padmini, E., V., K., and Lekha, P., K., (1992), studied the financial performance of
Shire Narayana Powerloom Industrial Co-operative Society, Nadathara in Kerala for
the period from 1980-81 to 1987-88. The performance was evaluated with the help of
the selected ratios namely turnover ratios, financial ratios and liquidity ratios. The
relevant parameters used for the evaluation were: cost of goods sold, administrative
expenses, sales, current assets, current liabilities and fixed assets. The study revealed
that the cost of goods ratio was very high i.e. around 70 to 80 percent of the value of
sales, administrative ratio more or less remained the same, current and liquidity ratios
were found to be low from 1983-84 onwards. The study concluded that the financial
performance of the society was not up to the level44.
Patil, M., B., (1995), analysed the performance of the Primary Co-operative
Agriculture and rural Development Banks in Karnataka for the period 1976-77 to
1990-91. The author incorporated the parameters like membership, share capital,
working capital, deposits, loans, overdue, cost of management, profit and loss
account, etc. for analysis45.
Patel, (1995), in his paper on viability of rural banking, inferred that low volume of
business per branch and per employee and high level of credit deposit ratio were two
major factors causing losses in rural banking system. He observed that relative share
of non-farm sector loans in rural banks were going up46.
Pathania, and Singh, (1998), in their study titled, “A Study of Performance of HP
State Co-operative Bank” observed that the performance of the Himachal Pradesh
State Co-operative Bank Ltd. in terms of membership drive, share capital, deposit
43
Niranjanraj and Chitanbaram (2000), “Measuring the Performance of DCCBs”,
NAFSCOB Bulletin, Mumbai
44
Padmini, E., V., K., and Lekha, P., M., (1992), “Financial Performance of
Industrial Co-operatives: A case study of the Sree Narayan Powerloom Industrial Co-
operative Society”, Co-operative Perspective, Vol. 26, No.4
45
Patil, M., B., (1985), “Priority Sector and Urban Co-operative Banks, Urban
Credit”, Congress Special, No. 2, PP., 15-29, NAFCUB, New Delhi
46
Patel, (1995), “Viability of Rural Banking”, Prajnan, (Jan-Mar.), Pune
71
mobilization, working capital and advances has improved over the period of five
years, i.e., 1991-92 to 1995-96. However, recovery performance was unsatisfactory
and overdue had increased sharply. This was due to the after effects of loan waiver
scheme. The per member and per branch performance of the bank revealed that there
is a significant growth in share capital, deposits, borrowings, advances and profits.
They suggested that in the context of globalization and liberalization of economy,
cooperative banks should ensure their business on healthy lines by having
professional manpower, training and a sense of competition47.
Pillai, N., C., and Vasanthakumari, P., (1994), analyzed the financial performance
of women's industrial co-operative societies (WICS) in Thrissur district in Kerala for
a period of 5 years from 1986-87 to 1990-91. The study used ratio analysis technique
to evaluate the financial performance. The study disclosed that the profitability ratios
represented a poor financial performance. The gross profit margin was very low and
the net profit margin was almost negative. Both the current and acid test ratios failed
to satisfy the standard norm of 2:1 and 1:1respectively and inventory ratio was proved
to be very low48.
Prasad, (2005), in his research paper titled, “Co-operative Banking in a Competitive
Business Environment” stated that the technology had made tremendous impact on
entire banking sector, which had thrown new challenges, due to which co-operative
banks were constantly exposed to competition and risk management. Therefore, they
needed a combination of new technologies and better processes of credit and risk
appraisal, treasury management, product diversification, internal control and external
regulation along with infusion of professionalism. In the present business
environment, the co-operative banks should be backed by democratization,
depoliticization & decentralization so as to make them competitive. He felt an urgent
need for transformation in the mindset, identity, business operations, governance and
systems & procedures, which will definitely boost the morale of co-operative banks to
face environmental challenges49.

47
Pathania, and Singh, (1998), “A Study of Performance of HP State Co-operative
Bank”, Indian Co-operative Review Vol. XXXIV, No.2, New Delhi
48
Pillai, N., C., and Vasanthakumari, P., (1994), “Financial Performance of Women's
Industrial Co-operative Societies in Kerala”, Indian Co-operative Review, Vol.
XXXII, No. 1
49
Prasad (2005), “Co-operative Banking in Competitive Business Environment”,
CAB Calling, Pune
72
Puyalvannan, P., (1997), examined the cost of management productivity and
profitability of Central Co-operative Banks (CCBs) in Tamilnadu. He has observed
that all CCBs are functioning effectively by keeping the cost of management lower.
He has concluded that the cost of management per employee at all CCBs in
Tamilnadu shows progressively increasing trend Sambari Kokuriah (1995) in his
work entitled “Co-operative banking for rural development in Karimnagar District
Central Co-operative Bank (KDCCB), Andhra Pradesh”, had observed that the
economic position of the respondents improved after availing loan from co-operative
bank. He found that the majority of respondents revealed that, they had to make
unauthorized payments for getting the loans sanctioned50.
Rajamohan, and Pasupathy, (2009), in their study titled, “Performance Evaluation
of TAICO (Tamil Nadu Industrial Co-operative Bank Ltd.) − An Application of
Structural and Growth Analysis” stated that there were several factors that determined
the operating efficiency and profitability of the bank. In this context, the general
performance of a bank can be analyzed more meaningfully and objectively for a given
period of time through structural and growth analysis. Through structural analysis the
figures reported in the profit and loss account and balance- sheet are converted into
percentages for each period to ensure uniformity for the purpose of comparison with
those of other periods. Macro mean had been used to exhibit the strength and
weakness of each factor considered. The results were summarized in capsule form.
Macro mean in respect of interest received constituted 96.8% of the total income; it
was 81.2 % for interest paid, 18.8% for operating expenses, 91% in the case of spread
and 83% for burden. It was found that the net profit recorded a negative growth of
27.8%. Growth rate of operating expenses was at 44%, spread at 15%, burden at 29%
and advances at 49%. Therefore, it was recommended that the burden rate should be
reduced by effecting cost control measures, and the spread rate be increased so that
the profitability may be at a higher rate51.
Ramachandaran, N., (1992), in his paper titled, “Profit Planning as a Management
Tool for Profit Maximization”, tried to analyse profitability position of the banks.

50
Puyalvannan, P, (1997), “A Study on Cost of Management, Productivity and
Profitability of Central Co-operative Banks in Tamilnadu”, Indian Co-operative
Review, Vol. XXXIV, No.3, PP., 235-240
51
Rajamohan, and Pasupathy, (2009), “Performance Evaluation of TAICO (Tamil
Nadu Industrial Co-operative Bank Ltd) − An Application of Structural and Growth
Analysis”, Indian Co-operative Review, Vol., XXXXVII, No., 2, New Delhi
73
Increasing emphasis on goals, increase in establishment cost, NPAs, amount locked in
sick units, unfavourable deposit mix, compliance to statutory requirements were some
reasons identified by him, for declining profitability. He suggested the following
measures to redress the said problem:
(i) Diversification of business,
(ii) Interest to be paid by RBI on CRR/SLR balances,
(iii) Opting utilization of scarce resources by asset management,
(iv) Better funds management,
(v) Management of non-performing advances,
(vi) Professionalization of bank management,
(vii) Identification of loss centers,
(viii) Better role of government, and
(ix) Up gradation of skills and mechanism52.
Ramamoorthy, (1997), in his paper titled, “Profitability and Productivity in Indian
Banking − International Comparisons and Implications for Indian Banking” observed
that the old order of regulated market banks were not conscious of their profitability
and productivity levels. But new economic order has compelled these banks to shift
towards market-oriented, commercially driven banking system. He also observed in
his study that performance of banks operating in different economic systems with
different levels of economic development and varying degrees of regulations were not
comparable. The results further revealed that profitability of a bank was a function of
allocation efficiency, volume of credit, provisioning for loan losses, interest rate
movements and operating cost structure. He suggested that performance incentive
plans, motivation, training and leadership of human resources and level of technology
absorption can improve the productivity and profitability of the banks53.
Rao, K., P., (1989), evaluated the progress and prospects of Bhimavaram Co-
operative Urban Bank Ltd in west Godavari District of Andhra Pradesh for the period
1930 to 1987. The variables selected for the study were: membership, deposits,
advances and management of the bank. The study disclosed that the bank made a

52
Ramachandaran, N., (1992), “Profit Planning as a Management Tool for Profit
Maximisation”, Indian Banking: Today and Tomorrow, Vol., 38 , No. 11, New Delhi
53
Ramamoorthy, (1997), “Profitability and Productivity in Indian Banking-
International Comparisons and implications for Indian Banking”, Paper Presented in
Bank Economists Conference, IBA Bulletin, Mumbai
74
considerable progress in all its selected variables during the study period. Further, he
remarked, that the staff members work with dedication and co- operative spirit54.
Raul, R., K., and Ahmed, J., U., (2005), conducted an empirical analysis of different
aspects of bank’s performance in the Barak Valley, southern part of Assam in the
context of national level performance of PSBs in particular during two distinct time
periods, pre- (1981-91) and post-(1992-2001) reform regimes, in their study titled,
“Public Sectors Banks in India−Impact of Financial Sector Reforms”. They concluded
that profitability of banks had come under reverse pressure and PSBs had witnessed a
low percentage of profits to total assets during the post-reform years due to lower
interest spread and greater priority sector landing. They suggested that corporate
governance should be implemented in these banks to encourage and pursue market
discipline through transparency, consistency and accountability. They stressed greater
autonomy for banks to lay down internal guidance and procedures for transparency,
disclosures and risk management55.
Reddy, (1985), in his study titled, “Overdue Appraisal and Management in Banking”
analysed the relationship between the lending and recovery of an apex bank. His
findings suggested that the lending and recovery of the apex bank had not been
proportionate, i.e., either the apex bank could not meet the entire credit needs of the
primary banks or the latter could not borrow the funds from the apex bank. The
primary banks were constituted by people not for co-operative services but for their
vested interests. With the help of Coefficient of Variation technique, he proved that
there was a wide dispersion in lending followed by recovery. He finally concluded
with the help of t-test that the association between lending and recovery was not
satisfactory56.
Reddy, R., and Reddy, R., (1996), in their study titled, “Nature and Dimensions of
Wilful and Non-Wilful Default and Impact of Co-operative Credit Policy with
reference to Nellore District of Andhra Pradesh” used multi-stage sampling technique
and various statistical tools to examine the reasons for overdue. They concluded that

54
Rao, K., P., (1989), “Progress and prospects of the Bhimavaram Co-operative
Urban Bank Ltd.: A case study”, Urban Credit, Vol., II, No., 2, PP., 33-36, NAFCUB,
New Delhi
55
Raul, R., K., and Ahmed, J., U., (2005), “Public Sector Banks in India− Impact of
Financial Sector Reforms”, Kalpaz Publications, Delhi
56
Reddy, C., R., (1985), “Overdue Appraisal and Management in Banking”, Indian
Co-operative Review, Vol., XXIII, No. 2, New Delhi
75
landholding, cropping pattern, income from agriculture, number of dependent family
members and political interference had direct influence on recovery position of co-
operative banks. They suggested that management of these banks should adopt a co-
operative friendly approach instead of market approach ‘as self-help is the foundation
stone of cooperative philosophy and peoples’ participation at all levels of
management will improve working culture of the co-operatives57.
Rutamu, and Ganesan, (2008), in their research article titled, “Profit and
Profitability of Co-operative Banks : The Case of Banques Populaires (Peoples' Bank)
of Rwanda” stated that financial institutions in general and banking sector in
particular play a strategic role in the financing stage of capital formation. In the
banking sector, cooperative banks undertake the responsibility of mobilising the
scarce savings of the community and channelising these savings for productive
investment in the economy. They discussed the performance of Banques Populaires
and the determinants of its Profit and Profitability. It had been noted that the net profit
was not distinguished from Gross Profit in the years 1994-2004. The empirical results
from the six models of Profit and Profitability showed that total assets per branch,
other earnings and total deposits per branch were the determinants of profit in
Banques Populaires, while total assets per branch, and the number of branches were
the determining variables of profitability of Banques Populaires. The low return from
investment of Banques Populaires indicated a lack of cost control and unsatisfactory
sources of income other than interest from advances. It was, therefore, crucial that
Banques Populaires should make further effort for the improvement of its efficiency
in operations so that the low profitability might be uplifted58.
Shah, D., (2007), conducted a case study of Sangli and Buldana District Central
Cooperative Banks regarding the financial health of credit co-operatives in
Maharashtra and found NPAs or overdues as the main factors for deterioration in
health of these banks. The study revealed that both these banks showed a decline in

57
Reddy, R., and Reddy, R., (1996), “Nature and Dimensions of Willful and Non-
Willful Default and Impact of Co-operative Credit Policy with reference to Nellore
District of Andhra Pradesh”, Indian Co-operative Review, Vol. XXVI No.-1
58
Rutamu and Ganesan (2008), “Profit and Profitability of Co-operative Banks:The
Case of Banques Populaires (Peoples' Bank) of Rwanda”, Indian Management Studies
Journal, Vol., 12, Patiala
76
their financial health and economic viability during the late nineties as against the
early nineties period59.
Satyanarayane, K., (1994), analysed the capital adequacy position of all the public
sector banks and a sample of 14 private sector banks. The results revealed that the
public sector banks have achieved the capital adequacy norm of four percent one year
earlier than the time prescribed by RBI. The private sector banks and SBI group did
not achieve this norm though their profitability levels were higher60.
Satyanarayane, K., (1996), studied productivity beyond per employee business, and
suggested a model to measure overall efficiency of the banks. He emphasized that the
size of the bank should be squared off while measuring efficiency of bank. According
to him, Productivity of bank = (Average index market share of all the output
factors/Average index market share of all the input factors) X 100 where, output
factors were deposits, non-deposit working funds, loans & advances, investments,
interest spread, non-interest income and the net profit. The input factors were network
of branches, number of staff, wage bill, non-wage operating expenses, etc. In order to
facilitate comparison of one bank with the other, irrespective of size, the market share
of each factor in percentage terms has to be taken into account instead of absolute
level61.
Satyanarayane, K., (1998), in his paper titled, “Profitability and Productivity
Analysis of Banks and Financial Institutions” developed a program to measure the
profitability of financial sector institutions. He presented a simple but comprehensive
framework of profitability analysis of a bank. He had suggested a three-tier
framework to analyse the profitability of a bank or zone of a bank. The first part of the
framework emphasized the computation of the profit earned, the second indicated the
cost and yield parameters of funds and the final part depicted the return and
appreciation to the shareholders of a bank62.

59
Shah, D., (2007), “Evaluating Financial Health of Credit Co-operatives in
Maharashtra State of India”, University Library of Munich, Germany, MPRA Paper-
3949
60
Satyanarayana, K., “Feasible NPA Levels of Banks for Capital Account
Convertibility”, Prajnan, Vol., XXVI, No.3, 1997, PP., 325-45
61
Satyanarayane, K., (1996), “Productivity Beyond Per Employee Business”, IBA
Bulletin (April), Mumbai
62
Satyanarayane, K. (1998), “Profitability and Productivity in Banks and Financial
Institutions”, Pune
77
Satyasai, and Badatya, (2000), conducted a study regarding restructuring Rural
Credit Co-operative Institutions. They analysed performance of rural co-operative
credit institutions on the basis of borrowings and lending operations, cost structure,
financial viability, etc. and found that co-operative system, in general, had failed to
perform its functions properly. They advised the co-operative banks to diversify their
business and also to overcome internal (rising transaction cost, declining business
level, mismanagement of overdue) and external (excessive bureaucratization,
politicization) weaknesses63.
Shankarmurthy, H., G., (1986), studied the performance of Karnataka State Co-
operative Marketing Federation Ltd. He used different ratios to study the different
aspects of financial position of the federation such as solvency, liquidity, turnover
profitability efficiency and strength. He expressed that the ratio analysis would
provide a better idea of the financial position of the federation64.
Singh, A., and Singh, P., (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 authors65.
Singh, B., and Vishwajit, (1994), conducted a study of overdue of loans in
agriculture to examine the repayment performance of defaulters in three blocks of
Agra district in Uttar Pradesh. They found that well-to-do agricultural families
accounted for a large share of overdue. They accounted 37 per cent of total defaulters
and 57 per cent of total overdue. Total amount of overdue and its relative share also

63
Satyasai, and Badatya, (2000), “Restructuring Rural Credit Co-operative
Institutions”, Economic and Political Weekly, Volume 35 (5), Mumbai
64
Shankarmurthy, H., G., (1986), “Performance of the Karnatak State Cooperative
Marketing (KMF) Ltd. and its impact on Farm Market: An Economic Analysis”,
Ph.D. thesis (Unpub.) submitted to Andhra Pradesh Agricultural University,
Hyderabad
65
Singh, A., and Singh, P., (2010), “Technical and Scale Efficiency in District Central
Co-operative Banks of Punjab - A Non Parametric Analysis”, Indian Co-operative
Review, Vol. XXXXVII, No.1, New Delhi
78
increased during the period of study. Lack of proper supervision over end use of loan
was identified as a major reason for mis-utilisation of credit which leads to increase in
overdue66.
Singh, F., and Singh, B., (2006),in their study titled, “Funds Management in Central
Cooperative Banks−Analysis of Financial Margin” attempted to estimate the impact
of identified variables on the financial margin of the central co-operative banks in
Punjab with the help of correlation and multiple step-wise regression approach. The
ratio of own funds to working funds and the ratio of recovery to demand were
observed to be having positive significant influence on financial margin, whereas
overdue to total loans were found to be negatively associated with the concerned
parameter. A high percentage of own funds and timely recovery of previous loans
outstanding, as a source of funding new loans by the bank, increased the financial
margin in these banks67.
Sinha et al, (1994), analysed the pattern of income, expenditure, profits or loss and a
break-even levels for deposits and loan business of the Central Co-operative Bank and
the Regional Rural Bank (RRB). The results revealed that the income and expenditure
of cooperative bank were higher than the RRB, but the establishment expenses were
higher in case of RRB due to the deputation of higher salaried staff from the
sponsoring bank. The co-operative bank earned profits throughout the period where as
RRB incurred losses during the corresponding period. Break-even-analysis indicated
the co-operative bank was operating above the break-even-level where as RRB was
operating below the break-even-level68.
Suhag, K., S., Goyal, S., K., and Groer, R., K., (1998), observed the performance of
co-operative credit institutions in Haryana. They observed that amongst, three-tier co-
operative credit institutions, Central Co-operative Banks (CCBs) had made the
greatest contributions in deposit mobilization but at gross root level the societies had
yet to make dent. They have concluded that for designing the appropriate financial

66
Singh, B. and Vishwajit, (1994), “A Study of Overdue of Loans in Agriculture”,
Indian Co-operative Review (April), New Delhi.
67
Singh, F., and Singh, B., (2006), “Funds Management in Central Cooperative
Banks- Analysis of Financial Margin”, ICFAI Journal of Bank Management, Vol., 5,
Issue, 3, Hyderabad
68
Sinha, et al (1994), “Financial Viability of Central Co-operative and Regional Rural
Banks in Bihar: A Case Study”, Indian Journal of Agricultural Economics, (3), PP.,
551-556, Mumbai
79
policies and/or revitalizing the existing organizational structure, it is extremely
essential to assess the past performance of co-operative credit structure in the state69.
Sujata, K., S., et al (1993), analysed the efficiency of Ernakulam District Central Co-
operative Bank, with regard to the mobilization, deployment of funds and
profitability. A compound growth rates were calculated for the various indicators. The
results indicated that the deposits, advances and the reserves were increasing at 18
percent, 15 percent and 18 percent respectively. The spread, burden and profitability
ratios were also found satisfactory70.
Sukumaran, A., and Shaheena, P., (1991), analyzed the spread, burden and
profitability management in Palghat District Co-operative bank in Kerala. The period
for the study was 1977 to 1987. The results revealed that the profitability and the
interest expenditure of the banks showed a fluctuating but unfavorable trend during
the study period. Analysis of the spread ratio and the burden ratio also indicated some
deficiency in the fund management within the bank. The reserves and surplus
management the bank threw a light on the idle reserves indicating ineffective
management. In nutshell, the management of spread, burden and profitability within
the bank was not much effective and called for necessary steps to improve the bank's
position71.
Sumitra, G., (1994), the author suggested some major areas which essentially need a
proper and systematic planning for the growth of an urban bank. She remarked that in
this 20th century, the age of competition with the advancement of high technology,
the concept of planning has been becoming more and more meaningful. The areas
suggested for the effective planning were; share' capital, deposit mobilization,
advances, recruitment of staff, profit/income, expenditure, recovery, investments
etc72.

69
Suhag, K., S., Goyal, S., K., and Groer, R., K., (1998), “The Performance of Co-
operative Credit Institutions in Haryana”, Indian Co-operative Review, Vol. XXXV,
No.4
70
Sujata, K., S., James and Hadlant, Q., (1993), “Fund Management and Profitability
of District Co-operative Banks: A Case Study”, Agricultural Banker 16(4), PP., 20-26
71
Sukumaran, A., and Shaheena, P., (1991), “Management of Spread, Burden and
Profitability: A Case Study of Palghat District Cooperative Bank”, Indian Co-
operative Review, Vol. 29(1), PP., 80-85
72
Sumitra, G., (1994), “Planning the Growth of Urban Bank”, Vol. 3, No.3, Co-op.,
ICA ROAP Magazine, PP., 21-23, New Delhi
80
Suryan, K., U., and Veluraj, R., (2005), in their study titled, “Profitability Analysis
of the Pondicherry State Co-operative Bank”, analysed the performance of the bank
from 1998-99 to 2002-03. Various ratios, such as cost of management (total expenses)
to working capital ratio, profit to working capital ratio, non-interest income to total
income ratio, etc. were used to assess the general performance of the bank. Spread
and burden positions of the bank were also analysed. They concluded that the
profitability performance of the bank was impressive and bank was able to meet its
obligations and norms. The cost of management and establishment expenses got
reduced during the period of study which further strengthened the profitability
position of the bank73.
Veeresh, B., (1995), evaluated the performance of Mahila Co-operative Bank Ltd. in
Bangalore city of Karnataka State, for the period of 14 years from 1979-80 to 1992-
93. The variables selected for the study were membership, share capital, deposits,
loans and profits. The study indicated a successful operation of the bank during the 14
years period. All the variables registered an increasing growth over a period. Author
suggested the bank to provide non-credit service to its members74.
Verma, R., and Reddy, B., (2000), conducted a study analyzing the causes for
Overdue in Co-operatives under SWOOD, to assess recovery and NPAs position in
these banks. Policy distortions in liberalized economy and inefficient management
were identified as main reasons for poor recovery. Mis-utilization of credit, political
interference at every level, successive crop failures, non-remunerative prices of
agriculture produce, inadequate income and natural calamities, were some other
factors, which affect the working culture of co-operative banks considerably. To
improve the working of these banks, the study suggested that available credit size
should be need based and production-oriented. Effective supervision of loans to
minimize mis-utilization and close social relations with loanee members were two
other suggestions to improve the profitability and productivity of these banks75.

73
Suryan, K., U., and Veluraj, R., (2005), “Profitability Analysis of the Pondicherry
State Co-operative Bank”, NAFSCOB Bulletin, Mumbai
74
Veeresh, B., (1995), “Need for Mahila Co-operative Banks: Performance Appraisal
of Mahila Co-operative Bank Ltd. in Bangalore city”, Indian Co-operative Review,
Vol. XXXII No.3 PP., 212-225 NCUI, New Delhi
75
Verma, R., and Reddy, B., (2000), “Analysis of Causes of Overdue in Co-
operatives under SWOOD”, Co-operative Perspective, Vol., 35, No.1, Pune

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Yaron, J., D., (1997), in their study titled, “Rural Finance: Issues, Design and Best
Practices” emphasized upon the performance evaluation of the rural financial
institutions, to find out whether they have met their goal of expanding income and
reducing poverty, and then to evaluate their opportunity cost. He studied two primary
criteria, i.e., the level of outreach achieved among target clientele and self-
sustainability of rural financial institutes76.
3.2 Research Gap:
After the review of existing literature, it can be found that there is a gap between this
research work and the research work that has been done so far.
The existing research work is undertaken on the bases of analysis of profitability only,
but this research work covers over all financial performance of the co-operative banks
taken in the sample.
The other researchers have focused more on the analysis of profitability of the rural
Co-operative banks, whereas, in this research work, the researcher has focused on the
urban Co-operative banks.
The other research work done in this field focuses more on the financial inclusion
aspects of banking sector, whereas, this research work is concentrated on the analysis
of financial performance of the Co-operative banks.
The other research work done in this area is focused on NPAs of the Co-operative
banks, whereas, this research work is based on the analysis of overall financial
performance of Co-operative banks taken in the sample.
Other research works applies only one tool for analyzing financial performance,
whereas, in this research work accounting tools and statistical tools both are applied.
3.3 Introduction to Research Methodology:

Research, in actual sense, is a search of knowledge. It is a search of information on a

particular topic. Research is a contribution to the existing knowledge. Thus, it makes
the advancement in the existing body of knowledge.

Thus, the systematic and critical analysis of the data is called research. For conducting
any research work, a systematic method has to be followed. This method is known as
Research Methodology. Before starting the research work, the methodology for that

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Yaron, J., D., (1997), Rural Finance: Issues, Design and Best Practices, World
Bank Publication

82
research work should be planned out clearly. The research methodology followed for
this research work is explained as follows

3.4 Title of the Research Work:

For this research work, the researcher has finalized the following title:
“Financial Performance Statement Analysis – A Study of Urban Co-Operative
Banks in South Gujarat”

3.5 Scope of this Research Work:

This study aims to analyze financial performance statements of urban cooperative

banks providing financial services within the sphere of South Gujarat region. The
financial statement of any bank is desired to analyze periodically with a view to assess
the past and current performance, prediction of profitability and growth prospects,
prediction of bankruptcy and failure and assessment of the operational efficiency.
This study covers seven leading cooperative banks of South Gujarat region for the
purpose of their financial statements analysis.

3.6 Objective of the Study:

Every study must have an objective without which no research can be conducted and
no result can be obtained. Objectives act as guidelines which give direction to conduct
the research process and to keep it in proper track. Thus the present study also has a
general objective and a few specific objectives

General Objective:
To undertake study on the functioning of UCBs to find its operational efficiency,
preparedness and future strategies in the post economic reform era

Specific Objectives:
• To assess the current position of urban cooperative banks in context to south
Gujarat region
• To predict the profitability and growth prospects of urban cooperative banks in
context to South Gujarat region.
• To assess the operational efficiency of urban cooperative banks in context to
South Gujarat region.

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 • To examine short-term financial strength of the UCBs through liquidity
analysis
• To examine long -term financial strength of the UCBs through liquidity
analysis
• To examine whether the funds of banks have been utilized in an efficient and
profitable manner

3.7 Period of the Research Work:

The present research analyses the financial performance of various Co-operative

Banks for the period of 5 years from 2009-10 to 2013-14. In order to derive perfect
conclusion of the subject of research the researcher has selected the above mentioned
period of study.

3.8 Population and Sample Design:

Surat is known as the birth place of UCBs of South Gujarat as India’s first registered
UCB named “The Surat Peoples Co-operative Bank Ltd.” was established by the late
Shri Vrindavandas C. Jadav on March 10, 1922 in Surat (South Gujarat).Today it
commands the largest market share in urban banking in Surat with utmost satisfaction
of the customers. The progress of the UCBs in Surat took place slowly and steadily.
Prior to independence, only 3 UCBs were registered in Surat. Only 3 UCBs were
established from 1951 to 1965, while during 30 years from 1966 to 1995 only 10
UCBs were established. But majority of the UCBs were established after 1995. By the
year ended 31st March 2012, Surat could boost 34 UCBs with a network of 199
branches having Rs. 10707 crores total business. So, out of this population of 199
UCBs, in this research work the researcher has focused on 7 UCBs. The list of these
banks is given below.

Table – 3.1
A Table Showing the Sample of the Study
No. Name of Bank Head Office
1 The Surat People`s Cooperative Bank Ltd Surat
2 Surat Mercantile Cooperative Bank Ltd Surat
3 Surat National Cooperative Bank Ltd Surat
4 The Varachha Cooperative Bank Ltd Surat

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 5 Prime Cooperative Bank Ltd Surat
6 The Sutex Cooperative Bank Ltd Surat
7 The Sarvoday Sahkari Bank Ltd Surat

3.9 Method of Data Collection

This study is based on secondary sources of data for analyzing the financial
performance of Co-operative banks. For this purpose, financial information of the co-
operative banks is collected.

The required information is gathered from the published annual reports of the selected
sample units over the period of time and used different websites.

3.10 Type of the Study:

This is an empirical in nature study. The empirical study is based on observation or

experience. In this type of research, it is capable of being verified by observation or
experiment. It is also known as data based research. So, the present research may be
defined as quantitative and analytical research. In this research work, the researcher
has tried to analyse the quantitative information gather in the research work.

3.11 Hypotheses of this Research Work:

In order to make the research work according to the objectives stated above the
hypotheses made by the researcher are mentioned below:
1. Null Hypothesis (H0): There is no significant difference in ‘Interest Income
as % of Working-Fund’ among the sampled banks, during the period of study.
2. Null Hypothesis (H0): There is no significant difference in ‘Non-Interest
Income as % of Working-Fund’ among the sampled banks, during the period of study.
3. Null Hypothesis (H0): There is no significant difference in ‘Return on Assets’
among the sampled banks, during the period of study.
4. Null Hypothesis (H0): There is no significant difference in ‘Operating Profit
as % of Working Fund’ among the sampled banks, during the period of study.
5. Null Hypothesis (H0): There is no significant difference in ‘Business per
Employee’ among the sampled banks, during the period of study.
6. Null Hypothesis (H0): There is no significant difference in ‘Profit per
Employee’ among the sampled banks, during the period of study.

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7. Null Hypothesis (H0): There is no significant difference in ‘Capital to Risk
Weighted Assets Ratio’ among the sampled banks, during the period of study.
8. Null Hypothesis (H0): There is no significant difference in ‘Dividend to
Shareholders’ among the sampled banks, during the period of study.
9. Null Hypothesis (H0): There is no significant difference in ‘Gross NPA’s to
Total Advances Ratio’ among the sampled banks, during the period of study.
10. Null Hypothesis (H0): There is no significant difference in ‘Average Cost of
Deposit’ among the sampled banks, during the period of study.
11. Null Hypothesis (H0): There is no significant difference in ‘Net Profit per
Branch’ among the sampled banks, during the period of study.
12. Null Hypothesis (H0): There is no significant difference in ‘Business per
Branch’ among the sampled banks, during the period of study.

3.12 Tools and Techniques of Analysis:

In order to execute the research work, it is necessary to use some tools and
techniques. These tools and techniques can be either accounting techniques or
statistical techniques. In this research work, the researcher has used both accounting
techniques and statistical techniques. They are explained as follows:
Statistical Technique:
Following Statistical techniques are used in this research work:

1. Arithmetic Mean
2. Standard Deviation (σ)
3. Co –Efficient of Variance
4. F- Test
5. Analysis of Variance (ANOVA)
6. Multiple Comparisons:
Accounting Technique:

Accounting Ratio
Ratio analysis means the process of computing, determining and presenting
relationship of items and group of items in the financial appraisal. Ratio expresses
the numerical relationship between two figures.

To justify the present study, and to find out the conclusions, the researcher has used
twelve different ratios representing profitability of a co-operative. Following
accounting ratios are used in present research:
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 - Interest Income as % of Working-Fund
- Non-Interest Income as % of Working-Fund
- Return on Assets
- Operating Profit as % of Working Fund Ratio
- Business per Employee Ratio
- Profit per Employee Ratio
- Capital to Risk Weighted Assets Ratio
- Dividend to Shareholders Ratio
- Gross NPA’s to Total Advances Ratio
- Average Cost of Deposit Ratio
- Net Profit per Branch Ratio
- Business per Branch Ratio

Trend Analysis:

Trend Analysis is one of the most important techniques of financial statement

analysis. This technique is useful to interpret the trend of financial performance of
an organization over a period of time. In order to apply this method, it is necessary
to select a period of time for a number of years. This method is useful to ascertain
the relationship of various items of financial statements with those items in the base
year. In order to perform trend analysis, the earliest year or the first year is
considered as a base year. All the financial items in the base year are considered as
100. The financial items of all the other years considered in the study are compared
with the base year and all the items are presented as a percentage of that base year.
On the basis of that comparison, the trend of the financial information is interpreted.

In this research work, the researcher has used trend analysis for the ratios calculated
to analyse the financial performance of the sampled banks.

3.13 Chapter Plan:

The researcher has divided the present research study into 5 different chapters.
These chapters are listed below:
Chapter – 1 Introduction to Banking Sector in India

Chapter – 2 Understanding of Financial Performance Analysis

Chapter – 3 Review of Literature & Research Methodology

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Chapter – 4 Analysis and Interpretation

Chapter – 5 Summary, Findings and Suggestions

3.14 Limitations of Present Research:

In spite of best of efforts to minimize all limitations that might creep in course of the
research, there were certain constraints within which the research was completed.
These are summarized as follows.
(1) Since the secondary data used in this work are collected from the officers of UCBs
and published annual reports of respective UCBs respectively, they have inherited
limitations.
(2) The present study is based on the selected seven UCBs. As the size of the sample
selected is very small, the limitations of a small sample are applicable. Moreover, the
sample includes only those UCBs which are registered in South Gujarat and statistical
information of which are available for the entire period of study. The sample does not
represent those UCBs which are not registered in South Gujarat. Thus, the conclusion
inferred from the above study may not be applicable to the UCBs which are not
registered in South Gujarat. No sample has been taken from multi state UCBs as their
registration is out of Gujarat.
(3) The limitations of tools and techniques applied for the analysis are inherent in the
present study.
(4) The analyst could not get some information otherwise useful for a deeper study,
due to the RBI restrictions on disclosure of data on part of higher officials. In spite of
all these limitations this study throws light on the important challenging problems of
the UCBs.
(5) The sample presented in this study is of the five financial years on the basis of
data obtained from concern annual report or personal interview with the managerial
staff of UCBs. This also may be a constraint to get in depth information for the
analysis of financial performance of UCBs.
(6) View of experts may be different for the purpose of the study, so it may create
some difference in understanding the topic of the study.

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