COMPARATIVE STUDY OF SARASWAT CO-OPERATIVE BANK AND ABHUDAYA BANK

INTRODUCTION: 

Banking business has done wonders for the world economy. The simple looking method of accepting
money deposits from savers and then lending the same money to borrowers, banking activity encourages the
flow of money to productive use and investments. This in turn allows the economy to grow.

In the absence of banking business, savings would sit idle in our homes, the entrepreneurs would not be
in a position to raise the money, ordinary people dreaming for a new car or house would not be able to
purchase cars or houses. The government of India started the cooperative movement of India in 1904.At
present there are several cooperative banks which are performing multipurpose functions of financial,
administrative, supervisory and development in nature of expansion and development of cooperative credit
system. In brief, the cooperative banks have to act as a friend, philosopher and guide to entire cooperative
structure.

The co-operative banks in rural areas mainly finance agricultural based activities including farming,
cattle, milk, hatchery, personal finance, etc. along with some small scale industries and self-employment
driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-
employment, industries, small scale units and home finance. These banks provide most services such as
savings and current accounts, safe deposit lockers, loan or mortgages to private and business customers. For
middle class users, for whom a bank is where they can save their money, facilities like Internet banking or
phone banking is not very important. Although they are not better than private banks in terms of facilities
provided, their interest rates are definitely competitive.

Some of the cooperative banks are as follows:

1.1. MEANING

FINANCIAL PERFORMANCE:

 Financial performance of a bank indicates the strength and

weakness of a particular bank by
properly establishing the association between the items of the
balance sheet and profit & loss account. 

 Financial performance analysis is the process of determining the

operating and financial characteristics of a firm from financial
statements.

 This study attempts to measure the financial performance of some leading Co-Operative banks in India.

CO-OPERATIVE BANKS:

 Cooperative bank is an institution established on the cooperative

basis and dealing in ordinary banking business.

 Like other banks, the cooperative banks are founded by

collecting funds through shares, accept deposits and grant loans.

 Cooperative banking is retail and commercial banking organized

on a cooperative basis.
 Cooperative banking institutions take deposits and lend money in most parts of the world.

 Cooperative banks are owned by their customers and follow the cooperative principle of one person, one
vote.

 These banks are often regulated under both banking and cooperative legislation. They provide services
such as savings and loans to non-members as well as to members, and some participate in the wholesale
markets for bonds, money and even equities. 

 Many cooperative banks are traded on public stock markets, with the result that they are partly owned
by non-members.

1.2. PRINCIPLES OF CO-OPERATIVE BANKS

 Voluntary and open membership.

 Democratic Member control.

 Members economic participation.

 Autonomy and Independence.

 Education, Training and Information.

 Cooperation among Co-operatives.

 Concern for community.

1.3. HISTORICAL BACKGROUND

Cooperative movement in India was started primarily for dealing with the problem of rural credit. The
history of Indian cooperative banking started with the passing of Cooperative Societies Act in 1904. The
objective of this Act was to establish cooperative credit societies “to encourage thrift, self-help and
cooperation among agriculturists, artisans and persons of limited means.”

Many cooperative credit societies were set up under this Act. The Cooperative Societies Act, 1912
recognized the need for establishing new organizations for supervision, auditing and supply of cooperative
credit.
These organizations were-
(a) A union, consisting of primary societies
(b) the central banks
(c) provincial banks.
Although beginning has been made in the direction of establishing cooperative societies and extending
cooperative credit, but the progress remained unsatisfactory in the pre-independence period. Even after being
in operation for half a century, the cooperative credit formed only 3.1 per cent of the total rural credit in
1951-52.

HISTORY OF SOME COOPERATIVE BANKS IN INDIA

 SARASWAT BANK

 YEAR OF INCOOPEARATION
The journey of the bank began in September 1918 with the founding of
"The Saraswat Co-operative Banking Society." The primary objective
of the society was to help distressed families with funds for temporary
accommodation, repayment of debt, medical emergencies, etc.

 FOUNDERS
The Founder Members of the society comprised of Mr. J.K. Parulkar as
Chairman, Mr. N.B. Thakur as Vice Chairman, Mr. P.N. Warde as Secretary, and Mr. Shivram Gopal
Rajadhyaksha as Treasurer. This legendary team is remembered for their steadfast ideals, undying faith,
clear vision, relentless optimism, and an exemplary entrepreneurial spirit. Even after decades of our
foundation, the laudable sense of service and duty of our honorable founders continues to inspire the bank
and its shareholders.

 HISTORY BEFORE INDEPENDENCE

In the early years of our history, the bank had to deal with economic consequences of the two world wars.
Subsequently, the bank has been a witness to other historical events such as the independence struggle of
India. Even in the most uncertain economic times, the Founder Members and successive leaders
demonstrated an unshakable faith in the potential of the common man and encouraged the shareholders to
save.

 CO-OPERATIVE BANK
In 1933, the society was converted into a full-fledged Urban Co-operative Bank. By 1942 having built a
strong foundation in terms of membership, resources, assets and profits, the bank was fulfilling all the core
banking needs of its customers.

 HISTORY POST INDEPENDENCE

Post-independence, during the late 1950’s, the bank witnessed solid growth. By this time, the Bank had
established five branches in Mumbai and one each at Pune and Belgaum. At the time of its 50th anniversary,
the bank had grown substantially a good reputation with notable progress in its social and economic
objectives.

In the year 1977-78, the bank’s gross income crossed the Rs. 3 crore mark for the first time. In 1978, the
bank got a permanent license to deal in foreign exchange. In the same year, we became the first co-operative
bank to provide Merchant Banking services.

In the year 1988, the bank was awarded with “Scheduled” status by the Reserve Bank of India. In 1992, the
Bank celebrated its Platinum Jubilee. From its humble beginnings, by this time, the bank’s business had
crossed Rs. 700 crores.

 21ST CENTURY
The beginning of 21st century saw the bank take a giant
leap in business growth. With a combination of
organic & inorganic growth, the bank witnessed rapid
acceleration in its business. Total business, which was at around Rs. 4,000 crore in 2000 almost tripled to Rs.
15,295 crores in 2007.
In 2008, the bank launched a unique branding initiative to reemphasize on the bank’s thrust on its core
values. The objective of this initiative was to inspire a “sense of belonging” among all its stakeholders.

In the past two decades, the bank has undertaken several strategic business initiatives, such as Business
Process Re-engineering, and merging seven Cooperative banks and nurturing them continuously. The
Bank’s tie-up with VISA International for issuance of debit cards was a landmark in cooperative banking.

In 2011, the bank was granted permission by the Reserve Bank of India to operate All over India. In the year
2010, the new corporate office of the Bank became operational at Prabhadevi, Mumbai. The massive edifice
in crystal glass, situated in the heart of India’s financial capital, serves as a subtle reminder of the bank’s
leadership position in the Cooperative sector.

 PRESENT DAY
By 31st March 2019, the bank had crossed a milestone of Rs. ₹ 61,812 crore in total business. As of 31st
March 2019, we had a network of 284 fully-computerized branches and 266 ATMs spread across six states
of India, viz. Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi. The bank is having
corresponding relationships with over 430 centers, spread over 65 countries covering 9 currencies.

 COSMOS BANK

 ABOUT
The Cosmos Co-operative Bank Ltd, established in 1906, is one of the oldest Urban Co-operative Banks in
India. Cosmos Bank celebrated its 100 years on 18 January 2006. It is one of the first co-operative banks in
the country to implement Core Banking System (CBS) across the entire network of its then 140 service
outlets using Finacle-Infosys Core Banking Software. It also received an authorized dealer (AD) license
from the Reserve Bank of India to become the third co-operative bank in India to have such a license in
thirty years. Cosmos Bank is the first bank in co-operative sector to be granted permission to operate a
Currency Chest. Cosmos Bank has a Currency Chest in Pune, offering services to other bank in Pune.
 FOUNDERS
This bank was founded on January 18, 1906 in Pune by Krishnaji Sadashiv Gore and Shankar Hari Barve.
The first Chairman of the Cosmos Bank was Sahitya Samrat N.C. Kelkar alias Tatyasaheb Kelkar. On
December 1, 1990, Cosmos Bank received the Scheduled status and within a short span of just 7 years, on
November 28, 1997 the Bank was awarded as the 'Multi-State' status.

 OPERATED IN
The Cosmos Bank is operative in 7 States of India, viz., Maharashtra, Gujarat, Madhya Pradesh, Karnataka,
Andhra Pradesh, Telangana and Tamil Nadu through its 140 branches. Bank has more than 2 Millions
customers and 79,000 shareholders.

 FINANCIAL STRENGTH
Cosmos Bank holds its position of being 2nd largest cooperative bank in India. Over the century, it has
strengthened its financial set up through innovative business.
Financial setup of the bank as on 31.03.2017 was ₹ 27110.26 crore, comprising of deposits of ₹ 15649.16
Crore and advances of ₹ 11461.1 Crore.

 ACHIEVEMENTS
Cosmos Bank is the first Multi-state Co-operative Bank to implement Centralized Banking System
All Branches, Extension Counters, all Regional Offices and Head Office are interconnected through the Data
Center situated at Head Office.

Cosmos eSolutions and Services Pvt. Ltd., the fully owned subsidiary of The Cosmos Co-operative Bank
Ltd., received the prestigious Financial Express’, “Express I.T. Mobility Solutions Award” in Bengluru.
The Cosmos Co-operative Bank Ltd., received ‘The Infosys Finacle Client Innovation Award 2017’ .The
award was received in two categories i.e. Customer Service innovation for TABBANC with Micro ATM
Solution and Innovative Custom Components developed with Finacle.
1.4. CHARACTERISTICS

 Cooperative banks are voluntary association of persons desirous of pursuing a common objective.
 Co-operative Banks are organized and managed on the principal of co-operation, self-help, and mutual
help.
 They function with the rule of "one member, one vote" function on "no profit, no loss" basis.
 The general body of the members lays down the broad framework within which the managing
committee has to function thus democracy is the keynote of the management of a co-operative society.
 Co-operative banks, as a principle, do not pursue the goal of profit maximization.

 Co-operative bank performs all the main banking functions of deposit mobilization, supply of credit and
provision of remittance facilities.
 Co-operative Banks provide limited banking products and are functionally specialists in agriculture
related products they also provide housing loans.
 In India, the activities of cooperative banks are regulated by the Co-operative Societies Act 1904, These
banks are required to submit their annual report and accounts to the Registrar of Cooperatives.
 The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and Urban Co-operative
Banks (UCBs) can normally extend housing loans upto Rs 1 lakh to an individual UCBs provide
working capital loans and term loan as well.
 The scheduled UCBs, however, can lend upto Rs 3 lakh for housing purposes The UCBs can provide
advances against shares and debentures also.

1.5. NEEDS AND IMPORTANCE

1.6. OBJECTIVE OF CO-OPERATIVE BANKS
1. To encourage and promote trift and mutual help for the development of persons of small means such as
agriculturist, artisans and other segments of the society.

2. Concentrating an effort to release the exploited classes out of the clutches of the money lenders.

3.

1.7. ADVANTANTAGES DISADVANTAGES

Advantages
1. The cooperative banks tend to protect the rural population from the clutches of money lenders.

2. Cooperative credit system has cheapened the rural credit both directly as well as indirectly.

3. Cooperative credit movement has encouraged saving and investment by developing the habits of thrift
among the agriculturists.

4. Cooperative Banking provides effective alternative to the traditional defective credit system of the village
money lender.
5. It provides cheap credit to masses in rural areas.

6. Cooperative Banks have discouraged unproductive borrowing personal consumption and have established

the culture of productive borrowing.

7. Cooperative credit movement has encouraged saving and investment, instead of hoarding money the rural
people tend to deposit their savings in the cooperative or other banking institutions.

8. Cooperative societies have also greatly helped in the introduction of better agricultural methods.
Cooperative credit is available for purchasing improved seeds, chemical fertilizers, modern implements, etc.

9. Cooperatives Banks offers higher interest rate on deposits.

10. Cooperative societies have also greatly helped in the introduction of better agricultural methods available
for purchasing improved seeds, chemical fertilizers, modern implements, etc. The marketing and processing
societies have helped the members to purchase their inputs cheaply and sell their produce at good prices.
11. A vast network of the cooperative banks has been built over the years throughout the length and breadth
of the country due to which this network can neither be duplicated nor be surpassed easily.

12. The cooperative institutions have developed intimate knowledge of the local conditions and problems of
rural areas.
Disadvantages
1. Cooperative Banks/societies financial strength depend on the cap contributed by its members and loan
raising capacity from state cooperative banks. The membership fee is limited for which they are
unable to raise large amount of resources as their members belong to the lower and middle class. Thus,
cooperative are not suitable for the large scale business which require huge capital.
2. Cooperative Banks are managed by members only they do not possess any managerial and special skills it
is considered as major drawback of this sector.
3. The cooperative society does not maintain any secrecy in business because the affairs of the society is
openly discussed in the meetings.
4. The cooperative sell their products to outsiders only in cash. But, they are usually from the poor sections.
These persons require to avail credit facilities which is not possible in the case of cooperatives. Hence,
marketing is a shortcoming for the cooperatives.

5. A serious problem of the cooperative credit is the overdue loans of the cooperative institutions which have
been continuously increasing over the years.

6. The members may not feel enthusiastic because the law governing the cooperatives put some restriction
on the rate of return.

7. There has been uneven growth of land development banks. These have shown some progress in the states
like Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Gujrat. Other states have made very little
progress. About half of the states have no land development bank.
8. Organisational and financial limitations of the primary credit societies considerably reduce their ability to
provide adequate credit to the rural population.

 Needs of tenants and small farmers are not fully met.

 Primary credit societies are financially weak and are unable to meet the production-oriented credit needs

 Overdues are increasing alarmingly at all levels.

 Primary credit societies have not been able to provide adequate and timely credit to the borrowing
farmers.
9. The cooperatives have resource constraints as their owned funds hardly make a sizeable portfolio of the
working capital. Raising working capital has been a major hurdle in their effective functioning.

10. A serious problem of the cooperative credit is the overdue loans of the cooperative banks which have
been continuously increasing over the years.

 Large amounts of overdues restrict the recycling of the funds and adversely affect the lending and
borrowing capacity of the cooperative.

11. Most of the benefits from the cooperatives have been covered by the big land owners because of their
strong socio-economic position.

12. Cooperative Banks are losing their lustre due to expansion of Scheduled Commercial Bank and adoption
of technology. They are also facing stiff competition from payment banks and small-finance banks.

13. Long-term credit extended by them is declining.

14. The cooperatives in northeast states and in states like West Bengal, Bihar, Odisha are not as well
developed as the ones in Maharashtra and Gujarat. There is a lot of friction due to competition between
different states, this friction affects the working of cooperatives.

15. Politicians use them to increase their vote bank and usually get their representatives elected over the
board of director in order to gain undue advantages.

Types of Cooperative Banks in India

The co-operative banks are small-sized units which operate both in urban and non-urban centers. They
finance small borrowers in industrial and trade sectors besides professional and salary classes.
Regulated by the Reserve Bank of India, they are governed by the Banking Regulations Act 1949 and
banking laws (co-operative societies) act, 1965.
The co-operative banking structure in India is divided into following 5 categories:

Primary Co-operative Credit Society

The primary co-operative credit society is an association of borrowers and non-borrowers residing in a
particular locality.
The funds of the society are derived from the share capital and deposits of members and loans from central
co-operative banks.
The borrowing powers of the members as well as of the society are fixed. The loans are given to members
for the purchase of cattle, fodder, fertilizers, pesticides, etc.

Central Co-operative Banks

These are the federations of primary credit societies in a district and are of two types-those having a
membership of primary societies only and those having a membership of societies as well as individuals.
The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks
and joint stocks. These banks provide finance to member societies within the limits of the borrowing
capacity of societies.
They also conduct all the business of a joint stock bank.

State Co-operative Banks

The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-
operative banking structure in the state.
Its funds are obtained from share capital, deposits, loans and overdrafts from the Reserve Bank of India.
The state co-operative banks lend money to central co-operative banks and primary societies and not directly
to the farmers.

Land Development Banks

The Land development banks are organized in 3 tiers namely; state, central, and primary level and they meet
the long term credit requirements of the farmers for developmental purposes. The state land development
banks oversee, the primary land development banks situated in the districts and tehsil areas in the state.
They are governed both by the state government and Reserve Bank of India. Recently, the supervision of
land development banks has been assumed by National Bank for Agriculture and Rural development
(NABARD).
The sources of funds for these banks are the debentures subscribed by both central and state government.
These banks do not accept deposits from the general public.

Urban Co-operative Banks

The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary co-operative
banks located in urban and semi-urban areas.
These banks, till 1996, were allowed to lend money only for non-agricultural purposes. This distinction does
not hold today.
These banks were traditionally centered on communities, localities, work place groups.
They essentially lend to small borrowers and businesses. Today, their scope of operations has widened
considerably.

1.8. Functions of Co-operative Banks

Co-operative banks also perform the basic banking functions of banking but
they differ from commercial banks in the following respects:

1.     Commercial banks are joint-stock companies under the companies’ act of 1956, or public sector
bank under a separate act of a parliament whereas co-operative banks were established under the co-
operative society’s acts of different states.

2.     Commercial bank structure is branch banking structure whereas co-operative banks have a three tier
setup, with state co-operative bank at apex level, central / district co-operative bank at district level,
and primary co-operative societies at rural level.

3.     Only some of the sections of banking regulation act of 1949 (fully applicable to commercial banks),
are applicable to co-operative banks, resulting only in partial control by RBI of co-operative banks
and Co-operative banks function on the principle of cooperation and not entirely on commercial
parameters.

1.9. RBI POLICIES FOR COOPERATIVE BANKS

1. Broad objectives based on High Power Committee formed in May1999 to suggest measures to strengthen
this sector.
a. To preserve the cooperative character of Urban Cooperative Banks.

b. To protect Depositors interest.

c. To reduce Financial risk.

d. To put in place strong regulatory norms at the entry level to sustain the operational efficiency of Urban
Cooperative Banks in competitive environment.

e. To align Urban Bank with other segments of banking sector in context of application of Prudential
norms.

f. RBI has extended the Off-site Surveillance System (OSS) to all non scheduled Urban Cooperative
banks having deposit size of ₹100 crores and above.

1.10. Sectors financed by Cooperative Banks

1. Cooperative Bank in India finance rural areas as under:
a. Farming
b. Milk
c. Personal Finance

2. Cooperative Bank in India finance Urban Area as under:

a. Self - Employment
b. Industries
c. Small Scale Units
d. Home Finance
e. Consumer Finance
f. Personal Finance

2 RESEARCH METHODOLOGY

 To know the lending practices of cooperative banks in India.

 To measure and compare the efficiency of Cooperative Banks of India.

 To study the impact of „size‟ on the efficiency of the Cooperative Banks.

 To suggest the appropriate measures to improve the efficiency of the Cooperative banks.

 To know different type of loans preferred by different sets of customers.

 To know the satisfaction level of the customers from banks lending practices.