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CHAPTER-II

AN OVERVIEW OF CO-OPERATIVE MOVEMENT

There has been a conflict in several sections of the society, namely

the rich and the poor, the haves and have-nots, the exploiter’s and exploited,

powerful and powerless, producer and consumers, irrespective of any

country. In this situation weaker section of the society always struggle for

fairness, justice, freedom and equality. Thus, the origin of the co-operative

movement was emerged because of situation of crisis, exploitations and

sufferings. The history of modern civilization is, in fact, the history of

co-operation, for without it social and economic progress would have been

unthinkable.

Co-operative movement owes its origin to Europe especially to

England, where economic challenges and deprivation large swathes of the

population faced. The great philosopher, Robert Owes (1771-1856) who

have given the idea of “self help through mutual help”, Hermann Schulze

(1808-83) and Friderich Withelm Raiffesien (1818-88), based on these

philosopher’s idea, many co-operative banks have been started in Europe.

To mitigate the sufferings of the exploited class of the society co-operative

concept had become an advantage. The movement which started in England

has given direction to the whole world, to overcome

exploitation by other class of society. The first ever effort towards the

formation of the co-operative organisation was made by 28 artisans working

in the cotton mills, popularly called the Rochdale Pioneers, at the Rochedale

near Manchester in England in the year 1844.

In consequence of the unprecedented depression of textile trade, some

of the workers were thrown out of employment. They struggled for living.

Here after, according to the suggestion by one of the members Charles

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Howarth, the co-operators decided to start a store by pooling their scare

resources and working together they could access basic goods at a lower

price. Initially, there were only four items for sale: flour, oatmeal, sugar and

butter. The Pioneers decided it was time shoppers were treated with honesty,

openness and respect, that they should be able to share in the profit that their

custom contributed to and that they should have a democratic right to have a

say in the business, these 28 persons saved one pound each in one year and

started “The Rochdale Equitable Pioneers Society” registered under the

Friendly Society established with an intention of carrying business. So, the

Rochdale Pioneers become the founders of world wide self help movement,

namely, the co-operative movement.

The co-operative movement was spreaded slowly consumer

co-operative to the other field of the economy in the England. Later on

movement of self help crossed the boundaries of the England. In France

workers co-operative, in Germany and Denmark agricultural credit

co-operatives were constituted to fight against the exploitations and in the

other industrialised European countries service co-operatives were started.

In Germany Von Raiffeisen and Herman Schulze boosted

co-operative movement by organising co-operative for the farmers which

was popularly known as the “Raiffeisen Union”. And Herman Schulze

organised co-operative in Germany with the objective of providing financial

relief to sick industries and purchases of raw materials to small artisans.

During the same period Luigi Luzzatti organised “Peoples Bank” in Italy.

The co-operative organisations which were led by Raiffeisen, Schulze

and Luzzatti formed the core of a credit movement in the sphere of rural and

urban. These societies were able to compete effectively with economically

more powerful moneylenders and traders. Further more, in the area of

co-operative movement the establishment of Robo Bank in Netherlands and

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D.G. Bank in Germany contributed significantly in protecting the men with

modest means from the clutches of the money lenders and as well as

inculcating the habit of thrift and savings amongst them. Today co-operative

movement has spread all the countries of the world and co-operative

principles were adopted for economic activity1.

CO-OPERATIVE MOVEMENT IN INDIA

The principle of co-operation is part and parcel of Indian culture. In

India, co-operative movement was officially started after passing of the

Co-operative Societies Act 1904 by the Imperial Legislative Council. But

the co-operative in India exist even before passing Co-operative Societies

Act 1904. The co-operation can traced in ancient Vedas, Upanishads,

Bhagawat Purana, Kautilya’s Arthshastra etc, in the form of various social

and economic activities. Perhaps no other country in the world has the

co-operative movement as large and as diverse as it is in India. There is

almost no sector left untouched by the co-operative movement.

The co-operative movement can see in Arthashastra of Kautilaya’s

which provides, “whoever stays away from any kind of co-operative

undertaking shall send his servants to carry on the work, shall have a share

in the expenditure but none in the profit. The laws of Manu too reveal that

ancient Indians had craft guilds. Co-operation is the foundation of Hindu

Joint Family System. The Hindu joint family set up is the best example of

co-operative endeavours and philosophy.

Even before formal co-operation structures come into being through

the passing of a law the proactive of the concept of co-operation and co-

operative activities were prevalent in several parts of India. In village assets

like water tank, village road, village forest etc. were built by the village

communities, for their mutual benefit.

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In south India collecting small contributions in cash at regular

intervals to lend to members of the group known as “chit fund” and “Nidhi”.

The same is called “Bunda” in Vidarbha, “Phad” in Kolhapur, “Gonchi” in

Andra Pradesh. Such are instances of mutual help and co-operation.

During the beginning of the 20th century, officials of the colonial

government perceived the Indian farmer’s dependence on usurious

moneylenders to be major causes of their indebtedness and poverty. At that

time the co-operative movement had become well established in Europe and

achieved remarkable success there. This convinced that co-operative

movement offered the best means of liberating Indian farmers from the

crushing burden of debt and the tyranny of money lenders.

With all this background, Government of India has taken several

initiatives such as enactment of the Taccavi legislation, Northern India

Taccavi Loan Act, 1875, Land Improvement Loans Act 1883, Agriculturist

Loans Act 1884 to mitigate the problems of the farmers and to make credit

at reasonable cost available to farmers.

Another initiative was taken by the Madras government when

Frederick Nicholson was appointed in 1895 to study the possibilities of

starting land banks so as to help combat rural indebtedness. During the

contemporary period, the Famine Commission in 1898 and Dupernex in his

book “People’s Bank for Northern India” in 1900 argued for co-operation

among Indian farmers to insulate them from many of their problems. Lord

Curzon followed the famine commission’s recommendations and appointed

the Edward Law Committee in 1901 and the first Co-operative Societies Act

was passed in 1904 which began the era of co-operation in the Indian

Economy.

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The Indian Co-operative Societies Act 1904 provided for constitution

of societies, eligibility for membership, registration, liabilities on members,

disposal of profits, shares and interests of members, privileges of societies,

claims against members, audit, inspection and enquiry, dissolution,

exemption from taxation and rule making power. All other operational and

managerial issues were left to the local governments namely to formulate

suitable rules and model bye-laws of the co-operative societies. The

institution of the Registrar, visualized as a special official mechanism to be

manned by officers with special training and appropriate attitudinal traits to

prompt and catalyse co-operative development was the result of the

Co-operative Societies Act of 1904. Under this Act, several non credit

initiatives also came up such as the Triplicane Society in Madras which ran

a consumer store, Weaver Credit Co-operatives in Dharwar and Hubli,

which gave credit in the form of yarn etc. However, these were registered as

Urban Credit Societies2.

The Co-operative Credit Societies Act 1904 was followed by a

number of supporting legislations including the Co-operative Societies Act

1912 which provided for the formation of non credit societies and federal

co-operative organisations. Provisions like Bombay, Madras, Bihar, Orissa

and Bengal enacted their own co-operative laws on the lines of the 1912 Act.

This gave a fresh imprtus to the growth of the movement in all directions.

The Maclagan Committee was appointed in 1914 to review the growth of the

movement. It made far reaching proposals for the future development of

co-operative creation. The committee recommended three tier structure of

co-operative credit.

Under the Reforms Act 1919, co-operation became a Provincial

subject under a minister with whose zeal and guidance, the movement made

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rapid progress. Bombay gave a lead to other provinces by passing a separate

Co-operative Societies Act in 1925.

The agricultural credit scenario was a matter of concern and various

committees looked into the problems of co-operative banks in various

provinces. In 1928, the Royal Commission on Agriculture submitted a report

emphasising the importance of co-operative sector and observed that “if

co-operation fails, there will be failure of the best hope of rural India”. In

1934, the setting up of RBI was a major development in the thrust for

agricultural credit. It had agriculture credit as part of its basic mandate. By

extending refinance facilities to the co-operative credit system it played an

important role in spreading the co-operative movement to far corners of the

country.

In 1942, the government enacted the Multi Unit Co-operative Act

which was an enabling instrument for incorporation and winding up of

co-operative societies.

In post-independence, co-operatives were considered to be the part of

the strategy of planned economic development. Pandit Nehru visualized

India in which each village would have a panchayat, a co-operative and a

school. Rapid and equitable economic development became the focus of the

state policy. In the early 1960s, co-operative legislation all over the country

underwent a major change on the basis of the findings of the All India Rural

Credit Survey Committee (1951-54) formed under the Chairmanship of Shri

A.D. Gorwala. The crux of the Committee’s recommendations was that the

state should play an active role for the spread of the co-operative movement.

Based on these recommendations, States enacted new laws / amended the

existing ones of the Constitution. The new legislations gave them a major

role in the functioning of the co-operative institutions. Co-operative societies

having jurisdiction over more than one state had to encounter different laws

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and therefore a need was felt to introduce a separate consolidated legislation

for them. Parliament accordingly enacted a Multi-State Co-operative

Societies Act in 1984. The NABARD Act was passed in 1981 and

NABARD was set up to provide refinance support to co-operative banks and

to supplement the resources of commercial banks and Regional Rural Banks

to enhance credit flow to the agriculture and rural sector.

Over the years, there has been a growing realisation that undue

interference from the State Government, lack of autonomy and widespread

politicisation has severely impaired the functioning of the co-operative

institutions. As a consequence, a number of Committees were appointed to

go into various issues of co-operatives. The committees such as Choudhary

Brahm Prakash Committee (which proposed a model law) (1990),Mirdha

Committee (1996), Jagdish Kapoor Committee (2000), Vikhe Patil

Committee (2001), V. S. Vyas Committee (2001 and 2004), Vaidynatha

Committee (2004), Prakash Bakshi (2012) went for a complete dissection of

the sector and made a number of valuable suggestions to turn co-operatives

into self-reliant, autonomous and democratised institutions. These

Committees strongly advocated the need to replace the existing government

dominated co-operative laws by a new people centric legislation.

As a consequence of these recommendations and on support of a

sizable section of the co-operative community, two major events took place

on the co-operative scene of the country.

a) The Government of Andhra Pradesh passed the A.P. Mutually Aided

Co-operative Societies Act 1995. This was followed by similar

enactments in eight other States; Bihar, Jharkhand, Madhya Pradesh,

Chhattisgarh, Jammu and Kashmir, Karnataka, Orissa and

Uttarakhand.

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b) The Union Government replaced the existing Multi-State

Co-operative Law by a fresh statute – the Multi-State Co-operative

Societies (MSCS) Act 20023.

And the success is evident. Almost 50 percent of the total sugar

production in India is contributed by sugar co-operatives and over 60

percent of the total fertilizer distribution in the country is handled by the co-

operatives. The consumer co-operatives are slowly becoming the backbone

of the public distribution system and the marketing co-operatives are

handling agricultural produce with an outstanding growth rate.

The National Co-operative Development Corporation (NCDC), a

statutory body was set up in 1963 by the Union Ministry of Civil Supplies

and Co-operation, to promote the co-operative movement in India.

Further there is the Indian Farmers Fertilizer Co-operative Ltd.

(IFFCO), which has been successful in setting up an effective marketing

network in most of the states for selling modern farming technology instead

of fertilizers alone. The operations of IFFCO are handled through its more

than 30,000 member co-operatives.

The National Agricultural Co-operative Marketing Federation

(NAFED) has over 5000 marketing societies. These societies operate at the

local wholesale market level and handle agricultural produce. Thus the

farmers have a market for their produce right at their door-step. A market

which assures them reasonable returns and guaranteed payments.

In 2002 Government of India announced a National Policy on

Co-operatives. The ultimate objective of the National Policy is to provide

support for promotion and development of co-operatives as autonomous,

independent and democratic organisations so that they can play their due

54

role in the socio-economic development of the country. The policy further

aims at reduction of regional imbalances and strengthening of co-operative

education, training and human resource development for professionalisation

of co-operative management. It recognises the distinct identity of

co-operatives and seeks to support their values and principles by catalysing

states to provide them an appropriate administrative and legislative

environment.

In India it finds that the states like Maharashtra and Gujarat are well

developed. Whereas the states like Andhra Pradesh, Rajasthan and

Karnataka have shown remarkable progress in the co-operative movement

and there is a vast potential for the development of co-operative in the

remaining states. Today co-operatives are committed to securing an

improvement in the quality of life of a vast majority of Indian.

In a net shell it can be concluded that co-operatives in India have had

a diversified history. During the first few decades after independence, this

sector played a pivotal role in the economy by making significant

contribution to our primary sector production. It had an important role in

bringing food sufficiency through the green revolution, in building up a

network for distribution of new varieties of seeds, fertilizers and cash credit

and in creating an environment of participation and hope among the people.

Development of Co-operatives during the Five Year Plan Period

After independence, the Constitution came into operation on 26th

January 1950. The blueprint for the growth and development of the country

was being formulated. In this blueprint, the co-operatives held an extremely

important position in the development of the rural and agricultural economy

of the country. Mahatama Gandhi and Jawaharlal Nehru encouraged the

development of the co-operative sector for the rural prosperity. Jawaharlal

Nehru provided a fillip to the movement and made special provisions in the

55

five year plans. The successive five year plans looked upon the co-operation

movement as the balancing sector between public sector and the private

sector.

The First Five Year Plan, (1951-56)

The first five year plan was launched in 1950-51. The plan focused

on the credit aspect of the co-operatives or it described the co-operative

movement as an instrument of planned economic action in democracy. In

this plan period RBI constituted a committee named as Rural Credit

Committee. The committee observed that the poorer and weaker section

could not get loans mainly because of their poor credit worthiness. In order

to have an all round improvement, it was felt necessary that these sections

were also lifted up and provided credit to perform better.

The plan emphasised the adoption of the co-operative method of

organisation to cover all aspects of community development. It provided for

setting up of urban co-operative banks, industrial co-operative of workers,

consumer co-operatives and housing co-operatives.

However, the plan did not contribute significantly to the co-operative

movement. The plan failed to achieve the objectives for which it was

formed. This was mainly due to the weak base of the existing co-operatives.

The co-operatives formed were very small and the members were also

socially very weak. Thus, the amount of credit availability was also small.

Hence, many people were still dependent on the moneylenders for credit.

Also, as the movement was carried on to the state level, the development

was taken as a state issue and not a national one. Thus, the co-operatives in

certain states have prospered, while in other states not much success could

be achieved. Thus, the plan failed to deliver the much-needed results.

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The Second Five Year Plan, (1956-61)

The focus of the second five year plan was organising the

co-operative at the village and primary level. This was done mainly to make

it a movement at the grass roots level and create self-awareness among the

people. The plan drew up programs of co-operative development based on

the recommendations of the All India Rural Credit Survey Committee. The

committee considered that the role of co-operative development is very

important in increasing the agricultural production and making the rural

economy stronger.

The plan set object was every family in a village should be a member

of at least one co-operative society and to provide better service to the

farmer linking of credit and non credit societies, with state partnership

co-operative institutions at various levels. The essential basis of which was

to assist and not interference or control. This was recommended and for

facilitating state partnership in co-operatives. The plan also recommended

the establishment of a National Agricultural Credit Long-term Operations

Fund. The National Co-operative Development Fund was also established by

the Central Government, to enable states to borrow for the purpose of

subscribing share capital of non credit co-operative institutions in the

country during this plan.

The Third Five Year Plan (1961-1969)

In this plan, various objectives were set up to bring the entire country

under the fold of the co-operative movement. It was noticed that about

Rs. 30 crores should be made available for short term loans which was

successfully done. The state governments also provided excellent support

and assistance to the societies for creating reserves against bad debts. The

co-operative movement was again boosted with a large number of primary

and wholesale societies coming up during the plan period. Various

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panchayat working groups and societies came together for the development

of the co-operatives.

The Mirdha Committee on co-operation recommended that the

principle of open membership should be continued in order to encourage

higher level of membership and to make more amounts of loans available for

the purpose of eliminating the ‘taccavi’ loans though the co-operative

movement was in right direction but still it faced certain problems such as

lack of trained personnel, improper management etc. Thus many

co-operatives were not functioning properly and leading to losses. There was

an urgent need of trained professionals and dedicated members who could

give the co-operatives the right direction.

The Fourth Five Year Plan (1969-1974)

Growth and stability was expected to be the key note of the co-

operative movement during the fourth plan. The plan stated, “It is important

for a planned development to bring out growth of co-operative in all the

parts of the county to ensure the co-ordinate operation of various types of

co-operative organisations”. The plan aimed at ensuring the services which a

farmer requires are institutionalised to the greatest extent possible.

It was observed in fourth plan period that co-operatives faced the

problem of management and internal rivalry, considering these problems,

the plan was mainly focused to eliminate all negative elements which were

used the co-operative for their own interest. The plan gave high priority to

re-organisation of co-operatives to make co-operative short term and

medium term structure viable. The plan also made necessary provisions to

provide co-operatives with management subsidy and store capital

contribution, as well as for the rehabilitation of central co-operative banks. It

also emphasised the need to orient policies in favor of small cultivators.

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The Fifth Five Year Plan (1974-1979)

During this period, the focus was towards consolidating and unifying

all the efforts taken towards co-operatives. The aim was to popularise the

co-operatives and present it as an alternative towards solving the problems

of the farmers and the people as a whole. The consumer co-operatives were

encouraged to control the price line of various commodities and strengthen

the network of agricultural co-operatives.

During this period, co-operatives received special attention and

identified as an effective tool for improving the economy. This was noticed

during the state of emergency in 1975, when the co-operatives played a

pivotal role in serving the needs of the people. The co-operative societies

were strengthened and ensured to make them economically viable. A

network of rural banks was set up to help the people in the rural areas. It is

encouraging to note that RBI regularly published the statistical statements

related to the co-operative movement in India, and review of committee’s

movement. This consolidated review is greatly used as a source of

information for study.

The Sixth Five Year Plan (1980-1985)

The focus of this plan was to provide the co-operatives with trained

and professional staff and strengthen the primary and secondary co-

operatives, to serve as multipurpose service providers. The plan envisaged

the facts that if trained managers are appointed and management practices

are improved, it will help to face competition and use the resources more

effectively. Also, attention was to be paid to the poorer sections of the

society and the people who were living below the poverty line. It was also

emphasised that loans should be made available to the poorer sections in

order to lift them above the poverty line. State and district level federations

were formed and strengthened to provide leadership and support to the

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primary and secondary societies to expand and spread their business over

large areas. Consumer co-operatives were given special importance as it was

understood as a viable alternative for Public Distribution System (PDS).

The major development in the field of credit during the sixth plan was

the setting up of National Bank for Agriculture and Rural Development

(NABARD) in July 1982. NABARD now has emerged as an apex national

institution accredited with all matters concerning policy, planning and

operations in the field of credit for agriculture and economic activities in the

rural areas.

The Seventh Five Year Plan (1985-1990)

During this period, it was noticed that while considerable success was

achieved in the field of co-operatives, certain regions still lagged behind.

Like in the states of the north – eastern region, the co-operatives were not so

popular and the economy was still weak. The Seventh Plan thus laid down

the following objectives:

I. Initiating special co-operative programmers in the underdeveloped

regions for development.

II. Providing training facilities for better management, and educating

them regarding the importance and benefits of co-operatives.

III. Development of primary agricultural credit societies and to provide

various other facilities to the members.

IV. Enacting policies and procedure to increase the flow of credit and

resources to the weaker sections.

V. Encouragement to consumer co-operatives to substitute public

distribution system, special emphasis was laid on the plan, for

training and development for better management of co-operatives.

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The Eighth Five Year Plan (1992-1997)

The eighth plan document stated that the development of

co-operatives has been envisaged as a significant strategy to strengthen the

people with limited means. The co-operative movement aims at saving rural

poor, small farmers, marginal farmers, agricultural labourers and artisans

from exploitation by money lenders.

One of the major issues concerning the co-operative sector is the

professionalisation of management. If the co-operatives have to complete in

a more open economic regime the state governments will have to

professionalise the management of co-operatives. This is crucial for overall

co-operative development. For achieving this, it will be necessary to

convince the state governments of the need for granting functional autonomy

to the co-operatives. Institutional finance has to be ensured for the thrust

areas, activities have to be undertaken in the eighth plan.

The eight plan document further stated that “the growth of

co-operative sector has not been uniform in all parts of the country. The

primary reason for this situation is control of co-operative by dominant

vested interests groups, poor management and dependence of co-operative

on higher tiers and government for financial assistance and limited range of

activities. The function of thrift has not been given due importance by

co-operatives leading to resource crunch and ultimately to serve the poor the

Agricultural Credit Review Committee stressed on a program of business

development planning in respect of PACS, with a view to diversifying loan

operations, generation of internal resources through deposit mobilisation and

enlarging package of profitable non- credit service. The working groups on

promotion of self help groups as sub system in primary agricultural

co-operatives have made important recommendations relating to strengthen

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the resource base of PACS to enable the group member to undertake

investment necessary for expanding their production levels.”

The Ninth Five Year Plan (1997-2002)

The approach paper to the ninth five year plan approved by the

National Development Council has interalia laid emphasis on,

I) To identify new opportunities for the co-operative sector to develop

sunrise industries like insurance, food processing, animal husbandry

etc.

II) Make them more competent by providing marketing support.

III) Developing the rural co-operatives into agents of change to meet the

global competitions4.

The planning commissions setup a working group on Agricultural

Credit and Co-operation in Dec. 1995 for formulation of the ninth plan

under the chairmanship of Shri. P. Kotaih, Chairman, NABARD. The broad

terms of reference of the working group are included among others, review

of the credit flow to the agricultural sector, estimation of agricultural credit

during ninth plan period, measures for development of small farmers,

marginal farmers. SCs, STs, other weaker sections and backward regions,

analysis of the health of co-operatives and suggestions for making them

viable/self sustainable, evaluation of the impact of economic reforms,

recommendation for the development of non credit co-operatives evolving

risk management measures etc.

The working group recommended interalia enhanced credit flow for

agriculture particularly small and marginal farmers, reduction of regional

and sectoral imbalances by exploiting the potential with appropriate

development and credit package like NGOs, SHGs, Constitution of the risks

fund for taking care of risk in agricultural financing, strengthening the co-

operatives through DAP and MOUs, with central and state governments

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supports and operationlisation of certainly sponsored schemes for

rehabilitation of PACS.

There has been no specification mention about co-operatives as a part

of the Plan after ninth plan onward.

CONCEPT AND PRINCIPLES OF CO-OPERATION

Co-operation has been defined for different purposes and in different

ways by cooperators, economists, lawmakers and others. It is enough to say

here that the co-operative is an association of persons usually of limited

means who have voluntarily joined together to fulfill a common economic

need through the formation of a democratically controlled business

organisation making equitable contributions to the capital required and

accepting a fair share of the risks and benefits of the undertaking. It denotes

a special method of doing business.

Co-operation is a form of organisation wherein persons voluntarily

associate together as human beings, on the basis of equality for promotion of

economic interest of themselves.

Hough, E.M., defines co-operation into broadest sense that co-

operation means simply as voluntary association in a joint undertaking for

mutual benefits According to Herrick, co-operation is the act of poor persons

voluntarily united for utilising reciprocally their own forces, resources or

both under mutual management for their common profit or loss5.

According to C.R Fay, “A co-operative society is an association for

the purpose of joint trading originating among the weak and conducts

always in an unselfish spirit, on such terms that all who are prepared to

assume the duties of membership may share its rewards in proportion to the

degree in which they make use of their association.” 6

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According to International Co-operative Alliance defined Co-

operative as “A Co-operative is an autonomous association of persons united

voluntarily to meet their common economic social and cultural needs and

aspirations through a jointly owned and democratically controlled

enterprise.” 7

The definition brings forth the following characteristic of a co-

operative organisation -

• A Co-operative is an autonomous body, independent of government

or any other body.

• It is an association of persons.

• It is a body formed to meet common economic, social and cultural

needs and aspirations of the members.

• It is a voluntary organisation jointly owned and controlled by the

members in a democratic way. It emphasises that within co-

operatives, control is distributed among members on democratic

basis.

Statutory Definition:

For the first time in the banking history a statutory definition of a co-

operative bank has been laid down in the Act (clauses of section 2 of the

Reserve Bank of India, Act 1934) Co-operative Bank means a State Co-

operative Bank, a Central Co-operative Bank and a Primary Co-operative

Bank.

(I) State Co-operation Bank means the principal co-operative society in a

state, the primary object of which is the financing of other co-

operative societies in the state: provided that in addition to such

principal society in a state or where there is no such principal society

in a state, the State Government may declare any one or more co-

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operative societies carrying business in that state to be a State Co-

operative Bank or banks within the meaning of this definition.

(II) Central Co-operation Bank means the principal co-operative society

in a district of a state, the primary object of which is the financing of

their co-operative societies in that district: Provided that in addition to

such principal society in a district or where there is no such principal

society in a district, the State Government may declare any one or

more co-operative societies carrying business in that district to be a

Central Co-operative Bank or banks within the meaning of this

definition.

(III) Primary Co-operation Bank means a co-operative society, other than

a primary agricultural credit society and it should have the following

features:

1) The primary object or principal business of which is the

transaction of banking business.

2) The paid up share capital and reserves which are not less than

one lakhs of rupees.

3) The bye-laws of which do not permit admission of any other

co-operative society as a manner.8

Co-operative Principles

The principles of co-operation may be considered as broad guidelines

for co-operative societies in the conduct of their various activities. They

direct the movement and indicate the follow-up action to be pursued by the

society in future. They determine the mode and manner of co-operative

action for the attainment of pre-determined goals. It views that the

co-operative principles as " the way of organising and conducting co-

operative activities which are an inherent and independent corollary of the

ideal or the objective of the co- operative movement. A co-operative society

should for its object of economic and social betterment of its members by

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means of the exploitation of an enterprise based upon mutual aid, conform to

the following co-operative principles as formulated by the International Co-

operative Alliance.

1) Voluntary and Open Membership

Co-operatives are voluntary organisations, open to all persons able to

use their services and willing to accept the responsibilities of membership,

without gender, social, racil, political or religious discrimination.

2) Democratic Control by Members

Co-operatives are democratic organisations controlled by their

members, who actively participate in setting their policies and making

decisions. Men and women serving as elected representatives are

accountable to the membership. In primary co-operatives, members have

equal voting rights (one member, one vote) and co-operatives at other levels

are organised in a democratic manner.

3) Member Economic Participation

Members contribute equitably to, and democratically control the

capital of their co-operative. At least part of that capital is usually the

common property of the co-operative. They usually receive limited

compensation, if any, on the capital subscribed as a condition of

membership. Members allocate surpluses for any or all of the following

purposes, developing the co-operative possibly by setting up reserves part of

which would be indivisible, benefitting members in proportion to their

transactions with the co-operative, and supporting other activities approved

by the membership.

4) Autonomy and Independence

Co-operatives are autonomous, selfhelp organisations controlled by

their members. If they enter into agreements with other organisations

including Government or raise capital from external sources, they do so on

66

terms that ensure democratic control by their members and maintain their

co-operative autonomy.

5) Education, Training and Information

Co-operatives provide education and training for their members,

elected representatives, managers, and employees so that they can contribute

effectively for the development of their co-operatives. They inform the

general public particularly young people and leaders about the nature and

benefits of co-operation.

6) Co-operation among Co-operatives

Co-operatives serve their members most effectively and strengthen

the co-operative movement by working together through local, regional,

national and international structures.

7) Concern for the Community

While focusing on member needs, cooperatives work for the

sustainable development of their communities through policies accepted by

their members.

Distinguish between Commercial Banks and Co-operative Banks

Co-operative banks perform the basic banking functions of banking

but they differ from commercial banks in the following respects

• Commercial banks are joint-stock companies under the Company Act

of 1956, or public sector bank under a separate Act of the parliament

whereas co-operative banks were established under the Co-operative

Societies Act of different states.

• Commercial bank structure is a branch banking structure whereas

co-operative banks have a three tier setup, with state co-operative

bank at Apex level, District Central Co-operative Bank at district

level, and Primary Co-operative Societies at rural level.

67

• 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 co-operation and not

entirely on commercial parameters.

Importance of Co-operative Banking

• It is a superior institutional arrangement for financing agricultural

operations. Co-operative banks offer loans to farmers for increasing

agricultural production and raising their standard of living. In a

country where the farm population is composed of small farmers who

have small lands, co-operative banking is most advantageous. As the

society consists of farmers themselves, it knows at first hand the

credit problems of the rural poor and strives to find out suitable

solutions for them.

• Co-operative Banking teaches the farming community to borrow at

the right time, the right amount for the right purpose and repay the

loan on the due dates. Therefore, co-operative banks assist in

developing a healthy attitude among farmers, which enables them to

speed up agricultural production.

• A strong and stable co-operative banks in rural areas helps a large

number of borrowers to be free from the clutches of money-lenders

and constrains the latter to reduce their rate of interest if they want to

continue in business. Consequently, the profit margin of

moneylenders has been greatly reduced.

• Co-operative banks are capable of setting into motion the various

factors leading to prosperity in rural areas. This effect can be brought

about by co-operative banks in two ways. First by providing easy

credit facilities to farmers which stimulates economic activity.

68

Secondly, the habit of saving is inculcated among farmers so that they

may not have to borrow in future. The savings of the people promote

investment activity, which ultimately results in prosperity.

• The co-operative banks advance credit for agriculture and allied

activities. They supplement the income of the farming community by

enabling them to engage in dairy farming, sheep rearing, vegetables

growing etc.

• Co-operative banks not only stimulate several economic activities but

also help in bringing about rural reorientation by changing the

thinking and behavior of the people for their own advantage and for

the benefit of the nation.10

ROLE OF SHORT TERM CREDIT CO-OPERATIVE SOCIETIES IN

PROVIDING AGRICULTURAL CREDIT

Credit is one of the crucial inputs for propelling the growth of

agriculture. For the past few decades, institutional finance is coming in a big

way to help the Indian farmer increasing the productivity and production.

All Rural Financial Institutions have played a crucial role and the role of co-

operatives was laudable till the end of 20th century as the largest purveyor of

agricultural credit. However, with the liberalisation and the reforms that had

swept the banking industry in the past decade and half had diminished their

leadership position and made the way for the new players to fill the gap. The

share of the co-operatives in agriculture credit provider to farmer in the

entire banking system which was to be around 70 percent even up to late 90s

further it had slipped down to 17 percent due mainly to inertia to keep pace

with the changes and efforts are not matching with those of competitors

especially from Commercial Banks of Public and Private Sectors. A table

illustrating the present scenario is given below:

69

TABLE : 2.1

AGRICULTURAL LOANS DISBURSED DURING 2006 TO 2011

(Amount in Crores)

Agency 2006 2007 2008 2009 2010 2011

Coops 42,480

(18)

48,258

(19)

46,192

(15)

63,497

(17)

78,121

(17)

87,963

(17)

RRBs 20,435

(9)

25,312

(10)

26,765

(9)

35,217

(9)

44,293

(9)

54,450

(11)

CBs 1,66,485

(73)

1,81,088

(71)

2,28,951

(76)

2,85,800

(74)

3,45,877

(74)

3,68,616

(72)

Total 2,29,400 2,54,658 3,01,908 3,84,514 4,68,291 5,11,029

Source: Report of the expert committee to examine three tier short term co-operative credit structures. Figures in brackets indicate percentage share of different agencies to total agricultural credit. The above table indicates that the co-operative banks are facing tough

competition mainly by the commercial banks. 2001 onwards commercial

banks step into the agriculture finance and started campaign of “doubling the

agriculture credit” which was much affected to co-operative banks. At

present commercial banks shared almost three fourth of the total agricultural

credit in the country and RRBs nearly 10 percent. Having a rural penetration

of over 93,000 PACS as against 50,000 rural and semi-urban branches of

CBs and RRBs, the share of the co-operatives in agricultural credit has

fallen to about 17 percent.

70

TABLE : 2.2 NUMBER OF AGRICULTURAL LOAN ACCOUNTS FINANCED

FROM 2006 TO 2011 (Figures in lakhs)

Agency 2006 2007 2008 2009 2010 2011 Coops 189 202 178 204 242 309 RRBs 62 62 76 73 73 82 CBs 172 175 202 205 234 255 Total 423 439 456 482 549 646

Source: Report of the expert committee to examine three tier short term co-operative credit structures. Although co-operatives are providing only 17 % of agriculture credit,

the share of co-operatives in total number of agricultural accounts held by

the banking system is substantial. Co-operatives provided agricultural credit

to 309 lakhs farmers in 2011 compared to 255 lakhs farmers only by

commercial banks and 82 lakhs by the RRBs. In fact, co-operatives financed

67 lakhs new farmers during in 2011 compared to 21 lakhs new farmers by

commercial banks and only 9 lakhs new farmers by RRBs.

Chart 2.1 : Structure of Co-operative Credit Institutions in India

(As on March 2011)

Source: Report on trend and progress of banking in India by RBI in 2011.

Co-operative Banks (97410)

UCBs ( 1645)

Non Scheduled (1592)

Rural Co-operatives (94531)

Scheduled

Multi State (25) Single State (28)

Multi State (25) Single State (28)

Short Term

PACS (94,647)

DCCBs (370)

StCBs (31)

Long Term

PCARDBs

SCARDBs (20)

71

The co-operative banking structure in India which shown in above

chart comprises two main components, viz, urban co-operative banks and

rural co-operative credit institutions.

A.) Urban Co-operative Banks (UCBs): The urban areas of the country

are served by the urban co-operative banks, which are further

sub-divided into scheduled and non scheduled UCBs. Scheduled

UCBs form a small proportion of the total number of UCBs. The

operations of both scheduled and non-scheduled USBs are limited to

either one state or multi state. Most of the non-scheduled UCBs are

primary single state UCBs having single tier structure.

B.) Rural Co-operative Credit Institutions: UCBs have a single tier

structure, while rural co-operatives have a complex structure. Rural

co-operatives credit institutions have two distinct structure viz, the

Short Term Co-operative Credit Structure (STCCS) and Long Term

Co-operative Credit Structure (LTCCS).

The Short Term Co-Operative Credit Structure (STCCS): It provides

crop and other working capital loans primarily for a short period to farmers

and rural artisans. The Short Term Co-operative Credit Structure is a three

tier structure having State Co-operative Banks, Districts Central

Co-operative Banks and Primary Agricultural Credit Societies.

In this section an attempt is made to present the short term

co-operative credit structure in India. It also includes analysis of the

performance of State Co-operative Banks, Districts Central Co-operative

Banks and Primary Agricultural Credit Societies.

72

STATE CO-OPERATIVE BANKS IN INDIA

State Co-operative Bank (StCB) means the principle society in a state

which is registered or deemed to be registered under the Co-operative

Societies Act, 1912, or any other law for the time being in force in India

related to co-operative societies. StCBs are formed by federating all District

Central Co-Operative Banks (DCCBs) in a particular state. If there is no

such society in a state, the State Government may declare one or more

co-operative societies carrying on business in that state to be a State

Co-operative Bank (or Banks).

As in the case of central co-operative banks in StCB may be pure in

which case, it will be a federation of central state co-operative banks only, or

mixed in such case it will be a federation of both central co-operative banks

as well as individual members.

The StCB is also called as Apex Bank which stands at the top of the

credit structure in each State. It furnishes finance to the central co-operative

banks in order to enable them to help in promoting the leading activities of

the primary credit societies. Thus, StCBs serve as the final link between the

money market and the co-operative sector. The StCBs not only finances but

also controls and regulates the working of central co-operative banks in each

State.

The StCB is interested in helping the co-operative credit movement

and also in promoting other co-operative ventures and in extending the

principles of co-operation. In the absence of DCCBs in a state, StCB may

give direct financial assistance to the primary credit societies. The main

features of StCBs are they serves as the balancing centre in the state,

organise provision of credit for credit worthy farmers, carry out banking

business and leads the co-operative movement as a leader of the

co-operatives in the state.

73

All apex banks have been given the status of a “Scheduled Bank”. It

acts as a link between central co-operative banks, primary co-operative

societies and RBI from which it borrows. They accept deposit from member

societies, non members, individuals and institutions for their working

capital. Special deposits are accepted from local boards, educational

institutions and municipalities. Borrowings constitute the major source of

working fund for StCBs and it is borrowed from Reserve Bank of India, the

state Government, the State Bank of India and subsidiaries. The state

co-operative bank enjoys an overdraft facility with the State Bank of India.

Sometimes, StCBs borrow from one another. But borrowings from the

Reserve Bank of India are the main source of loans to StCBs. State

Co-operative Banks do not lend fund directly to farmers. Funds are

sanctioned to Central Co-operative Banks and they further distribute to

primary credit societies. All these societies, in turn, lend the fund to

borrowers. The lending operations of StCBs cover loans, cash credit and

Overdraft facilities made available to member banks. A certain limit is fixed

for each central co-operative bank, up to which it can borrow from State

Co-operative Banks. Short-term loans are given for a period of less than 12

months and medium-term loans for less than three year.

The main source of working fund of StCB is the share capital, reserve

fund, deposits from members, surplus fund of the affiliated central

co-operative bank’s, loans from state bank of India, other commercial banks,

National Bank for Agriculture and Rural Development, inter bank

borrowings and borrowings from the RBI.

In the following section, an attempt has been made to study the

performance of State Co-operative Banks at national level.

74

TABLE: 2.3

PROGRESS OF STATE CO-OPERATIVE BANKS IN INDIA (Amount in Crore)

Particulars 2005 -

06 2006 -

07 2007 -

08 2008 -

09 2009 -

10 2010 -

11

No. of Co-operative Banks

31 31 31 31 31 31

Owned fund 10545 10549 10718 11726 11871 11200

Deposits 45405 48560 52973 68659 79150 78300

Borrowings 16989 22256 22164 20874 23559 31900

Loans and Advances issued

48260 52777 57455 64883 53588 70818

Loans and Advances Outstanding

39684 47354 48228 48079 49629 64213

Working Fund 72939 81365 85855 101259 114580 121400

Total Liabilities/ Assets

76481 85756 94977 108116 120662 130200

C-D Ratio 87.40 97.52 91.04 70.02 62.70 82.00

Source: Report on trend and progress of banking in India of RBI The above table shows that there were 31 StCBs in 2005-06 and then

it remained same during the study period from 2005-06 to 2010-11.

The StCBs owned fund in India increased in all the years of the study

period except in 2011. StCBs funds were increased from Rs.10545 crores in

2005-06 to Rs.11871 crores in 2009-10. It indicates the improved efficiency

of generating internal resources of finance which helps StCBs to get self

reliance of fund for fund mobilisation. There was a noticeable decrease in

the amount of owned fund of StCBs during 2010-11 which was declined to

Rs.11200 compared to 2009-10. The reason for this decline was due to

decrease in the amount of reserves.

75

The deposits in StCBs stood at Rs.45405 crores in 2005-06 and

increased to 79150 crores in 2009-10, it shows that progress made by StCBs

in deposit mobilisation and it was slightly declined to 78300 crores in 2010-

11. The average growth in deposits was found 12 percent during the study

period from 2005-06 to 20010-11.

The total borrowings of StCBs found fluctuating during the study

period. It stood around Rs.16989 crores during 2005-06 which increased to

Rs.31900 crores during 2010-11. The average borrowings increased by

14.63 percent during the study period. The increase in borrowings shows

that StCBs dependency on borrowings along with the deposits for their

lending operation.

As a major part of the loans from StCBs being apex level institutions

go towards the lower tier institutions in short-term credit structure, a decline

in the growth of loans from StCBs implies reduced lending to the lower tier

institutions and increased in the growth of loans and advances indicates

increased lending to the lower tier institutions.

During six years period loans and advances constitute more than half

of the total assets of these institutions every year. During 2005-06 the loans

issued of StCBs were Rs.48260 crores which increased to Rs.70818 crores

in 2010-11. The average growth of loans and advances issued was found

7.80 percent during the study period from 2005-06 to 20010-11. The

increase in loans and advance shows that increased efficiencies of bank in

distribution of loan and advances.

Outstanding loans and advances were found increased every year

except for the year 2008-09. The amount of outstanding loans were

Rs.39684 crores in 2005-06 which was increased to Rs.70818 crores during

2010-11 indicating average increase of 13 percent.

76

The working fund with StCBs stood at Rs.72939 crores in 2005-06

and increased to Rs.121400 crores in 2010-11. The average increase in

working fund registered 11 percent during the study period. The increased

working fund shows sufficient financial resources for lending operations

The CD ratio which expresses the relationship between advances and

deposits was found fluctuating during the study period. The maximum ratio

found was 97.52 percent during 2006-07 and minimum ratio found was

62.70 percent in 2009-10.

TABLE : 2.4

LIABILITIES AND ASSETS OF STATE CO-OPERATIVE BANKS (Amount in Crores)

Liabilities 2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

2010 -11

Capital 1114 (1.5)

1246 (1.5)

1534 (1.6)

1569 (1.5)

1631 (1.4)

2100 (1.6)

Reserves 9431 (12.3)

9303 (10.8)

9905 (10.4)

10325 (9.5)

10240 (8.5)

9100 (7.0)

Deposits 45405 (59.4)

48560 (56.6)

56325 (59.3)

70312 (65)

79150 (65.6)

78300 (60.2)

Borrowings 16989 (22.2)

22256 (26)

22577 (23.8)

20913 (19.3)

23559 (19.5)

31900 (24.5)

Other Liabilities 3542 (4.6)

4392 (5.1)

4637 (4.9)

4997 (4.6)

6083 (5.0)

8800 (6.8)

Total Liabilities/ Assets

76481 (100)

85756 (100)

94977 (100)

108116 (100)

120662 (100)

130200 (100)

Cash & Bank Balance

4323 (5.7)

9290 (10.8)

8312 (8.8)

7960 (7.4)

9367 (7.8)

8400 (6.4)

Investments 27694 (36.2)

24140 (28.1)

31541 (33.2)

46567 (43.1)

54334 (45)

50200 (38.6)

Loans & Advances

39684 (36.2)

47354 (55.2)

50028 (52.7)

48400 (44.8)

49629 (41.1)

64000 (49.1)

Other Assets 4781 (6.2)

4971 (5.8)

5095 (5.4)

5188 (4.8)

7333 (6.1)

7680 (5.9)

Capital & reserve to Investment & advances ratio

13.79 12.30 12.04 11.00 9.83 9.80

Leverage Ratio 8.73 9.75 12.04 13.86 15.52 8.60 Source: Report on trend and progress of banking in India of RBI.

77

The above table shows the financial position of StCBs during

2005-06 to 2010-2011. The StCB being the apex bank of co-operative sector

in the state has registered a healthy growth in 2005-06. The total liabilities

and assets found was Rs.76481 crores. Out of the composition of the

liabilities (viz., capital, reserves, deposits, borrowings and other liabilities)

of StCBs, deposits constituent major share to total liabilities i.e. 59.4

percent. Apart from deposits, another major share of total liabilities was

borrowings with 22.2 percent. Deposits and borrowings being major share in

total liabilities reflect their dependency on outside sources for expansion. On

the assets side loans & advances constituted major share to total assets and

investment was the second highest.

The balance sheet of StCBs expanded significantly during 2006-07.

The total assets and liabilities of StCBs were Rs.85756 crores during

2006-07 which was increased by 12 percent comparing to total assets and

liabilities of Rs.76481 crores of the year 2005-06. On the liabilities side,

deposits continued to constitute the largest share of the resources of StCBs,

despite the modest decline in the share during the year. However, the share

of borrowings increased during the year. High growth in borrowings, which

outpaced the growth of other components during the year indicates that

StCBs continued to rely heavily on outside sources for their expansion.

Capital and deposits also witnessed a higher growth during the year. On the

asset side, the loans and advances grew at an accelerated pace, investments

which was Rs.27694 crores during 2005-06 declined to Rs.24140 crores

during 2006-07 indicating average decline by 12.8 percent. Cash and bank

balances registered a sharp increase during the year.

The growth in the balance sheets of StCBs slowed down during

2007-08. The total assets/liabilities which was Rs.85756 crores increased to

Rs.94977 during 2006-07 registering an average increase of 10.75 percent,

78

which below compared to previous year. This slowdown came about mainly

from a sharp fall in the growth of loans and advances of StCBs on the assets

side. This fall in growth resulted in bringing down the share of loans and

advances in the total assets of StCBs a bit marginally. Loans and advances

continued to constitute more than half of the total assets of these institutions.

As a major part of the loans from StCBs being apex level institutions go

towards the lower tier institutions in short-term credit structure, a decline in

the growth of loans from StCBs implied reduced lending to the lower tier

institutions. The StCBs made investments for compensating a fall in the

share of loans and advances, which grew at high average rate of 30.7 percent

in 2007-08 comparing Rs.24140 crores during 2006-07 to Rs. Rs.31541 of

2007-08.

During 2008-09, balance sheets of StCBs witnessed a higher growth

as compared with the previous year, which can be attributed to deposits on

the liabilities side and investments on the assets side. The amount of

liabilities and assets were Rs.108116 during 2008-09 which was increased

by 13.83 percent, comparing total assets and liabilities of Rs.94977 crores of

the year 2007-08. However, loans and advances declined during 2008-09

compare to previous year. While the share of deposits in liabilities moved up

during 2008-09 compared to the previous year, the share of borrowings also

declined. However, the increase in deposits was used for building up

investments rather than providing loans, may be because of the increased

risk awareness of these banks in the wake of the general economic meltdown

during the year on the one hand and for reaping treasury gains on the other.

The balance sheet of StCBs expanded at a rate close to 11.60 per cent

during 2009-10, which was lower than the growth of 13.83 percent observed

during 2008-09. The growth in StCB’s balance sheet was mainly due to

increase in borrowings and other liabilities on the liabilities side, and cash

79

and bank balances, and other assets on the assets side. On the liabilities side,

deposits continued to account for the largest share of the resources of StCBs,

while investment accounted for 45 percent of the total assets. During

2009-10, investments increased at a higher rate than loans and advances.

Also, the percentage share of investments and total assets increased with a

decline in the share of loans and advances as compared to the previous year.

During 2010-11 there was a decline in the growth of the balance sheet

of State StCBs. The amount of liabilities and assets were Rs.130200 crores

during 2010-11 which was an average increase by 7.90 percent compare to

total assets and liabilities of Rs.120662 crores of the year 2009-10. On the

liabilities side, the growth in the balance sheet of StCBs in 2010-11

emanated from high growth in borrowings, while on the assets side, the

growth was attributed to loans and advances.

In total StCBs during the period 2005-06 to 2010-11 the balance

sheet of StCBs expanded every year at the average rate between 10 to 15

percent. The growth in StCB’s balance sheet was mainly due to increase in

deposits on the liabilities side, and investments at assets side. On the

liabilities side, deposits continued to account for the largest share of the

resources of StCBs, while investment and loans and advances accounted for

almost 35 to 45 per cent of total assets. During 2009-10, investments

increased at a higher rate than loans and advances. The percentage share of

investments in total assets also increased with a decline in the share of loans

and advances as 2009-10 as compared to the previous year.

Since data on risk weighted asset is not available for rural

co-operatives, it was not possible to measure the capital to risk weighted

asset ratio (CRAR) for StCBs. However, a rough measure of capital

adequacy for StCBs has been taken as ratio of capital and reserves to

80

investments and advances. This ratio stood at a range of 12-15 per cent in

recent years, but showed some amount of decrease in last two years.

However, the leverage ratio for StCBs was found to be very high in

recent years. The high leverage ratio of StCBs remains as a cause of concern

for rural co-operative sector and also limits their ability to provide further

assistance to ground level institutions.

Leverage ratio which is calculated dividing the owned fund by total

assets of StCB during the study period showed increasing trend except in

2010-11. Increasing leverage ratio indicates that the total assets of StCB

shareholders fund increased where as outsiders fund decreased.

TABLE -2.5

FINANCIAL PERFORMANCE OF STATE CO-OPERATIVE BANKS (Amount in Crores)

Particulars 2005 -

06 2006 -

07 2007-

08 2008 -

09 2009 -

10 2010 -

11

Income 5656 (100)

5242 (100)

6194 (100)

7590 (100)

8239 (100)

8700 (100)

a) Interest Income 5320 (94.1)

4974 (94.9)

5980 (96.5)

7281 (95.9)

7822 (94.9)

8300 (95.5)

b) Other Income 336 (5.9)

269 (5.1)

214 (3.5)

309 (4.1)

417 (5.1)

390 (4.5)

Expenditure 5278 (100)

4967 (100)

5973 (100)

7272 (100)

7985 (100)

8300 (100)

Interest Expended 3658 (69.3)

3708 (74.7)

4586 (76.8)

5729 (78.8)

6595 (82.6)

6800 (82)

Provisions & Contingencies

1039 (19.7)

502 (10.1)

543 (9.1)

451 (6.2)

393 (4.9)

405 (4.9)

Operating Expenses Of which wage bill

581 (11) 381 (7.2)

757 (15.2) 398 (8.0)

844 (14.1) 458 (7.7)

1092 (15) 512 (7)

997 (12.5) 581 (7.3)

1100 (13.1) 700 (8.3)

Net Profit 378 275 221 318 253 460

81

Particulars 2005 -

06 2006 -

07 2007-

08 2008 -

09 2009 -

10 2010 -

11 a) Institutions in Profit

No. of Institutions 27 27 26 26 29 30 Amount of Profit 408 319 234 385 462 520

b) Institutions in loss No. of Institutions 4 4 5 5 2 1

Amount of loss 30 44 49 71 209 60 Operating Profit 1417 777 764 768 647 870 Accumulated loss 274 389 429 459 575 480 Return on Assets (%) 0.50 0.32 0.23 0.33 0.23 0.35 Return on Equity (%) 3.58 2.60 2.06 2.71 2.13 4.10 Net Interest Margin (%) 2.30 1.65 1.60 1.55 1.10 1.23

Source: Report on trend and progress of banking in India of RBI.

The table shows that during 2005-06 out of 31 reporting StCBs, 27

earned profits aggregating Rs.408 crore, while 4 made losses amounting to

Rs.30 crore. The income of income contributed was almost 94 percent of

total income of StCBs as they had very limited sources of non-interest

income. On the other hand, interest expenditure accounted more than

two-third of total expenditure.

During 2006-07 the net profit of StCB showed Rs.275 crores which

was lesser than the net profit Rs.378 crores of the previous year. The

average decline registered was 27 percent. The increase in both interest

expenditure and operating expenditure coupled with the decline in income

which led StCBs operating profits to decline significantly to 45.2 percent.

However, sharp reduction in provisions and contingencies constrained the

decline in the net profits during 2006-07 compared to 2005-06.

During 2007-08 StCBs sources of non-interest income are relatively

weak. Interest income constituted the largest component having a share of

96.5 percent in the total income of StCBs. Moreover, the growth as well as

82

share of interest income was on a rise for these institutions. Similarly, on the

expenditure side, the most important component was interest expended by

StCBs. Like interest earned, interest expended too posted an increase in

terms of growth and share during the year. In the entire short-term structure,

StCBs were the only institutions that made net profits during the year. About

82 percent of the total numbers of reporting StCBs were in profit in 2007-08.

Although StCBs booked net profits of Rs.221 crores during the year, there

was a decline in the rate of growth of their profits by 19.65 percent

comparing previous year profit of Rs.275 crores.

Higher net profit of StCBs in 2008-09 indicates improved financial

performance compared to 2007-08. The net profit of Rs.318 crores was

made by StCBs during the year was registered average increase 43.90

percent compared to net profit of Rs.221 crores during the previous year

2007-08. Not only profitability indicators of StCBs improved, but the

number of institutions in profit also increased as compared to the previous

year. However, operating profits of StCBs declined during the year over the

previous year mainly on account of higher growth in interest expenses and

operating expenses as compared with growth in income.

The net profits of StCBs decreased in 2009-10 as compared to the

previous year. This fall in profit was mainly attributed to a slower growth of

income during 2009-10 as compared to the previous year. There was also a

change discernable in the composition of total income of StCBs in the last

two years with the share of their non-interest income in total income

increased continuously. The trend continued in 2009-10 with non-interest

income growing at a significantly higher rate than interest income.

Nonetheless, interest income accounted for almost 95 per cent of StCBs total

income in 2009-10. On the expenditure side, interest expenditure continued

to account for more than three fourth of total expenses. The total wage bill

83

increased substantially though there was a fall in total operating expenses in

2009-10 as compared to the previous year. Provisions and contingencies also

declined in 2009-10.

Higher net profit during 2010-11 indicates improved financial

performance of StCBs over the previous year. The net profit of Rs.460

crores was made by StCBs during the year. It was registered an average

increase of 81.81 percent compared to net profit of Rs.253 crores during the

previous year 2009-10. There was almost double of net profits of StCBs,

suggesting a complete turnaround from the decline growth in profits shown

by these institutions in 2009-10. The increased profitability of StCBs was on

account of the growth in income outpacing that of expenditure. The growth

in income was primarily attributable to a higher growth of interest income.

There was an increased growth in provisions and contingencies within the

total expenditure, necessitated partly by the increased growth in the NPA of

these institutions in 2010-11.

During the six years study period from 2005-06 to 2010-11, the

interest income was found increased every year except in 2006-07 and it

constituted major part of the income which was around 94 - 97 percent

during the study period. The other income of StCBs was not constant in the

first three years and showed decline trend and again later two years showed

upward trend. The total expenditure of StBCs was increasing year by year

and it caused total expenditure mainly due to increase in interest

expenditure. Provisions and contingences which was declining initially

compared to the declining trend in the later period.

During the study period operating profit found fluctuating from

Rs.1417 crores to Rs.647 crores. The institutions loss figures indicates

increased trend and maximum loss of Rs.209 crores was found during 2009-

10. Due to the loss of few StCBs, the accumulated loss increased every year

84

except during 2010-11 where only one StCB made loss of Rs.60 crores. The

return on assets was less than half percent and return on equity found

between 2 to 4 percent and Net Interest Margin found was 1 to 2 percent

during the study period. It indicates need of more effort to increase and

maintain stability to earn the profit.

TABLE:2.6

ASSETS QUALITY OF STATE CO-OPERATIVE BANKS (Amount in Crores)

Assets Classification

2005 -06

2006 -07

2007-08

2008 -09

2009 -10

2010 – 11

Total NPA 6735 (100)

6704 (100)

6191 (100)

5725 (100)

4353 (100)

5700 (100)

Sub Standard 2763 (39.3)

2957 (44.10)

2801 (45.24)

1627 (28.42)

1332 (30.6)

1700 (29.83)

Doubtful 2292 (35.1)

2625 (39.15)

2653 (42.85)

3822 (66.76)

2219 (50.98)

2500 (43.86)

Loss Assets 1680 (25.6)

1122 (16.75)

737 (12)

276 (4.82)

802 (18.42)

1500 (26.31)

NPA to Loans Ratio (%)

16 14.2 12.4 11.2 8.8 8.9

i) Recovery to Demand (%)

87 85.8 84.6 91.8 91.8 91.8

ii) Provisions Required

3354 2820 2657 2883 2861 3523.99

iii) Provisions Made

3600 3200 3000 3310 4438 3997.93

Source: Report on trend and progress of banking in India of RBI

During the year 2005-06 the total NPA stood at Rs.6735 crores of

which Sub standard loans were the major category followed by doubtful

loans and loss of loans. During the year provisions were made more than

what is actually required. Percentage of NPA to loans was 17 percent which

was very high and recovery percentage was 87 percent.

85

During the year 2006-07, the NPA of StCBs declined in both absolute

and percentage. The gross NPA to total loans ratio was at 14.2 percent

which was lower than that of 17 percent in 2005-06. The improvement in

asset quality was also discernible from the decline in ‘loss’ assets and partly

due to migration from the lower categories. Thus, there was an increase in

the 'sub-standard' and 'doubtful' assets categories. The recovery

performance, which has remained similar to that in the previous year, needs

to improve further to reduce the NPA in future. During the year provisions

were made more than what is actually required.

During 2007-08, NPA of StCBs posted a decline in absolute terms.

The ratio of NPA to loans outstanding also stood at a lower level of 12.4

percent during 2007-08 as compared to its corresponding level of 14.2 per

cent 2006-07. Of the various categories of NPA, ‘substandard’ and

‘doubtful’ assets each constituted over 40 percent of the total NPA of StCBs.

The third category of ‘loss’ assets had a share of 12 percent during 2007-08.

There was a fall in terms of both growth and share of ‘loss’ assets between

2006-07 and 2007-08.

The asset quality of StCBs improved during 2008-09 over the

previous year both in absolute and percentage terms. Category-wise details

of non-performing loans showed that highest decline was in the loss

category. Thus, the share of loss assets in the total non performing loans

declined in 2008-09 over 2007-08. Similarly, sub-standard assets also

witnessed a decline during the year over the previous year bringing down its

share in total non-performing loans in 2008-09 as compared with the

previous year. The decline in substandard assets indicates that fresh

additions to non-performing loans were comparatively less in 2008-09 as

compared with the previous year.

86

The asset quality of StCBs improved during 2009-10 over the

previous year with their NPA declining both in absolute as well as in

percentage. During the year total NPA was decreased to Rs.4353 crores

from Rs.5725 crores in 2008-09 and showed average decrease of 24 percent.

Analysis of various categories of NPA further revealed that the decline in

NPA was mainly on account of decline in sub-standard and doubtful assets

while there was a steep increase in loss assets in 2009-10 as compared to

previous year. The percentage share of ‘sub-standard’ and ‘loss’ categories

of NPA in total NPA increased in 2009-10 as compared to the previous year

though there was a decline in the percentage share of ‘doubtful’ NPA during

the same period.

There was deterioration in the NPA position of StCBs in 2010-11.

However, on account of high growth in credit from StCBs, the NPA ratio

was largely maintained at around 8.9 per cent in 2010-11. The high growth

in NPA in 2010-11 emanated from sub-standard assets, since the growth in

doubtful and loss assets showed a slight moderation over the previous year.

Like the NPA ratio, the recovery-to-demand ratio suggesting the extent of

recovery of loans as a proportion of the expected recovery, was maintained

at 92 per cent in 2010-11.

During 2005-06 to 2010-11, there has been a continuous decline in

the NPA of StCBs, both at absolute as well as in percentage terms. Another

important trend observed in the composition of NPA of StCBs during the

study period is that while share of ‘sub-standard’ NPA in total NPA came

down, there was an increase in percentage share of ‘doubtful’ NPA in total

NPA, though the same again decreased in 2009-10. The increase in

percentage share of ‘doubtful’ NPA in total NPA during 2005-06 to 2010-11

indicated that NPA of StCBs has become stickier in recent years. The

provision coverage ratio for StCBs exhibited an increasing trend from

87

2006-07 onwards. More importantly, there was a steep increase in the

provision coverage ratio of StCBs in the year 2009-10 as compared to the

previous year. During the period of 2010-11 the total NPA and its various

categories were increased in terms of amount as well as in terms proportion

to total NPA but there was no increase in the NPA ratio of StCBs. The ratio

either showed a decline or was, at best, maintained at the previous year’s

level. There was a similar trend for the recovery ratio, with the ratio either

showing rise or no change.

Weaknesses and Shortcomings of StCBs

The working of state co-operative banks is not free fromweaknesses

and shortcomings. The most important weaknesses and shortcomings of

StCBs are:

• The undesirability of linking commercial banking activities with co-

operative banking

• Boosting recovery by book adjustment without making genuine

recoveries from DCCBs

• Undertaking unsound and improper investment thereby causing

substantial financial loss leading to the threatening the very existence

of the institute

• Extending financial support to individuals much against the

guidelines and direction of RBI

• Mounting over dues created due to improper loan appraisal,

evaluation, monitoring and supervision

• Adoption of defective loaning methods and procedure thereby adding

to the problems of recovery

• Prone to high level political interference mostly in banking activities.

• The very existence of the insufficient share capital, utilisation of

reserve fund as working capital.

88

DISTRICT CENTRAL CO-OPERATIVE BANKS

In the beginning of the formation of Primary Co-operative Credit

Societies (PACS), they could not function effectively without gaining

financial support from an outside agency. Apart from this, they were in need

of technical guidance and administrative support. At the same time, there

were some societies which have gained strength and posses surplus fund as

well as talents. As a precondition to get mutual help it became necessary that

all these primary societies form a federation for ensuring rational use of their

fund and provide a common place to meet and exchange of ideas and get

co-operative experience. Thus the formation of DCCBs was in need for

mutual help and it occupied middle level position in the three tier

co-operative credit structure of the country.

PACS functioning in specified areas federated themselves into

collective banking activities, giving birth to central co-operative banks with

the prime objective to mobilise fund from urban outlets and divert the same

to the village societies.

The Co-operative Societies Act of 1912 permitted the registration of

DCCBs. Even before the enactment of this Act, some DCCBs were

established to cater to the needs of primary societies. In 1906, forerunner of

the first DCCB was established as a primary society in Uttar Pradesh. At

Ajmer in Rajasthan the first DCCB was established in 1910. But the first full

fledged DCCB as per the provisions of the Act of 1912 was started in

Jabalpur District of the Central Province.

DCCBs are formed mainly with the objective of meeting the credit

requirements of member societies. As an institution for helping the societies

in times of need, they finance agricultural credit societies for production

purposes, marketing societies for marketing operations, industrial societies

89

for supply operations and other societies for working expenses. In short, the

major objectives of DCCBs are to provide loans to affiliated societies, to act

as a balancing centre of finance for primary societies, to arrange for the

supervision and control of the affiliated societies, to raise deposits from

members and non-members, to convene conferences of the member societies

and also prescribe uniform procedure for the working of primary societies,

to open branches of the bank at important places with the permission of the

Registrar of Co-operative Societies and to maintain and utilise state

partnership.

The area of operation of a DCCB is limited to one district. For the

successful working of DCCB, it is important to have a suitable area of

operation so as to attain adequate business turnover so that the bank may

employ adequate staff, meet the overheads and build up a strong reserve

fund. Reserve Bank Standing Advisory Committee on Agricultural Credit

and All India Rural Credit Survey Committee have expressed their view that

there should be one district as an area of operation for DCCB. The norm for

the area of operation of a DCCB would be most convenient to enable the

bank to become a strong and powerful unit and to discharge its

responsibilities towards the lower tiers in the co-operative credit structure

sufficiently.

The main source of working fund is the share capital, reserve fund,

deposits from members and public, surplus fund of the affiliated

co-operative banks, loans from state bank of India, other commercial banks,

National Bank for Agriculture and Rural Development, other co-operative

banks and borrowings from the RBI, State Co-operative Bank,

Government,

90

Classifications of DCCBs

As recommended by Maclagan Committee (1915) DCCBs in India

were classified into:

• Banks whose membership is confined to individuals – These are

banks where in membership consists entirely of individuals or in

which societies are admitted as shareholders on exactly the same

footings as individuals, without any special provision for their

adequate representation on the board of management. The Maclagan

Committee was of the opinion that these type of banks should not be

given registration under the Co-operative Societies Act. Hence, no

such banks exist in our country at present.

• Banks whose membership is confined to societies only – The

banks whose membership is confined to only primary societies

situated in the area of operation are permitted to become members of

DCCB’s. The Maclagan Committee was in favor of admitting

societies only as members. Under this type of bank, the primary

societies are the members who are also the borrowers of the bank. As

the shareholders, lenders and borrowers are the same, the clash of

interest between the shareholders and borrowing societies can be

eliminated. By doing so, these types of banks preserve the

co-operative character.

• Banks whose membership consists of both individuals and

societies – This is mixed type having both individuals and societies

as members. Certain proportion of representation of individual

members in the board of management is given under this type. There

is a possibility to get experts with adequate knowledge and

experience in management from both rural and urban areas under this

type. At present, many DCCBs in India, primary societies and

individuals are found as members. However, the Co-operative

91

Societies Act in many States does not permit individuals to become

‘A’ class members. The All India Rural Credit Survey Committee

approved the admission of individual agriculturist as purely

transitional arrangements pending establishment of co-operative

societies in the area concern. Majority of DCCBs in India are of this

type.11

In the following part, an attempt has been made to study the

performance of DCCBs at national level.

TABLE : 2.7 PROGRESS OF DISTRICT CENTRAL CO-OPERATIVE BANKS IN

INDIA (Amount in Crore)

Particulars 2005 -

06 2006 -

07 2007 -

08 2008 -

09 2009 -

10 2010 -

11

No. of Co-operative Banks

366 371 371 370 370 370

Owned fund 23450 26180 28406 29792 31370 32990

Deposits 87532 94529 102986 127623 146404 165100

Borrowings 24217 29912 26096 27664 28735 33610

Loans and Advances issued

73583 82963 93162 90105 118393 159859

Loans and Advances Outstanding

79202 89038 91374 99429 107466 130800

Total Liabilities/ Assets

143090 158894 178881 195684 218676 254100

Working Fund 135199 150621 153836 185079 206509 231700

C-D Ratio 90.48 94.20 88.72 77.90 73.40 79.22

Source: Report on trend and progress of banking in India of RBI & annual reports of NABARD.

92

The above table indicates that the number of DCCBs during the study

period slightly improved. The number of DCCBs found during the year

2005-06 was 366. This number increased to 371 during 2006-07 and

maintained same number during 2007-08. Further number of DCCBs found

declined to 370 and maintained same during the rest of the study period.

Owned fund of DCCBs in India increased every year during the study

period. More than 40 percent increase in owned fund can be traced out by

comparing DCCBs owned fund Rs.32990 crores of the year 2010-11 with

the owned fund of Rs.23450 crores for the year 2005-06. Increased owned

fund indicates the improved efficiency of generating internal resources of

finance which helps DCCBs to get self reliance of fund for fund

mobilisation.

The deposits mobilised by DCCBs in India showed Rs.87532 crores

in 2005-06 which was increased to Rs.165100 crores in 20010-11. Increased

amount of deposits were found almost double during the study period which

indicates DCCBs is able to attract various kinds of deposits from individuals

and institutions.

The amount of borrowings of DCCBs in India showed increasing

trend during the study period except 2008-09. Borrowings of DCCBs which

were around Rs.24217 crores during 2005-06 increased to Rs.33610 crores

during 2010-11 registering an average growth near to 6.50 percent. During

2010-11 amount of borrowings recorded highest compared to other years of

the study period. The increase in borrowings show that DCCBs dependency

on borrowings along with the deposits for their lending operation.

Releasing loans and advances increased every year in the study

period except during 2008-09. During the year 2008-09 release of loans and

93

advances was Rs.90105 crores decrease from Rs.93162 crores from the year

2007-08. The annual decrease found by 3.4 percent between these two years.

Loans and advance issued which were around Rs.73583 crores during 2005-

06 increased to Rs.159859 crores during 2010-11 registering average growth

19.54 percent. Increase in loans and advance shows increased efficiencies of

DCCBs distribution of loan and advances.

But outstanding loans and advance figure shows that DCCBs

inefficiency in recovery of loans and advance. During the study period

outstanding loans and advances were increased every year and most of the

years the amount of outstanding loans and advance were more compared to

amount of issued loans and advance. The amount of outstanding loans which

were Rs.79202 crores during 2005-06 increased to Rs.130800 crores during

2010-11 indicating average growth of near to 11 percent. Increased amount

of outstanding loans and advances was the signal for more NPA.

Working fund of DCCBs in India increased every year during the

study period, which indicates that DCCBs efficiency of working fund

management and enhanced financial resources for its lending operations.

Working fund includes Capital, Reserves, Deposits and Borrowings. The

total working fund which was Rs. 135199 crores during 2005-06 increased

to Rs.231700 crores during 2010-11 indicating increased average near to 12

percent.

The credit deposit ratio indicates the general expansion of banking

business of these institutions. The ratio which expresses the relationship

between advances and deposits was fluctuated during the study period. The

ratio 73.40 percent was found minimum in 2009-10 and maximum 94.20

percent in 2007-08. The decrease in this ratio indicates inefficiency of

DCCBs management in advancing loans against deposits.

94

TABLE : 2.8

LIABILITIES AND ASSETS OF DISTRICT CENTRAL

CO-OPERATIVE BANKS IN INDIA

(Amounts in crore)

Liabilities 2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

2010 -11

Capital 4748 (3.3)

5458 (3.4)

5939 (3.3)

6578 (3.4)

7309 (3.3)

7950 (3.1)

Reserves 18702 (13.1)

20722 (13)

22467 (12.6)

23227 (11.9)

24061 (11)

25040 (9.85)

Deposits 87532 (61.2)

94529 (59.5)

109597 (61.3)

127623 (65.2)

146404 (67)

165100 (65)

Borrowings 24217 (16.9)

29912 (18.8)

32130 (18)

27663 (14.1)

28735 (13.1)

33610 (13.33)

Other Liabilities 7891 (5.5)

8273 (5.2)

8749 (4.9)

10593 (5.4)

12168 (5.6)

22400 (8.8)

Total Liabilities/Assets

143090 (100)

158894 (100)

178881 (100)

195684 (100)

218676 (100)

254100 (100)

Cash & Bank Balance

10695 (7.5)

11274 (7.1)

10609 (5.9)

12917 (6.6)

14797 (6.8)

17100 (6.7)

Investments 36628 (25.6)

41006 (25.8)

48228 (27.4)

64709 (33.1)

75913 (34.7)

85400 (33.6)

Loans & Advances

79202 (55.3)

89038 (56)

101221 (56.6)

99429 (50.8)

107466 (49.1)

130800 (51.5)

Other Assets 16565 (11.6)

17576 (11.1)

18823 (10.5)

18629 (9.5)

20500 (9.4)

20800 (8.2)

Capital & reserve to Investment & advances ratio

20.24 20.13 19.00 18.15 17.10 15.26

Leverage Ratio 16.39 16.48 15.88 15.23 14.34 12.98

Source: Report on trend and progress of banking in India of RBI Figure in brackets shows percentage to total liabilities and assets.

95

The above table exhibits the financial position of the rural short-term

co-operative credit structure i.e. DCCBs. During 2005-06 the business

operations of DCCBs in India registered a healthy growth. On the liability

side, the share of deposits is the major source of funding and retained

earnings is good compared to rest of the years. On the asset side, loans and

advances and investments are the major proportion of assets i.e. 55.3 percent

and 25.6 percent respectively of the total assets.

The business operations of DCCBs continued to expand during

2006-07. Total assets and liabilities of DCCBs were Rs.158894 crores

during 2006-07 which was increased by 11 percent compare to total assets

and liabilities of Rs.143090 crores in the year 2005-06. The composition of

the liabilities and assets of DCCBs remained broadly unchanged between

2005-06 and 2006-07. Deposits continued to be the principal source of fund

for DCCBs, although their share declined to 59.5 percent from 61.2 percent

of 2005-06. Borrowings, however, increased sharply, implying growing

reliance by DCCBs on outside sources for expansion. On the asset side, both

the loans and advances and investment portfolio grew at higher rates as

compared with the previous year.

The total assets and liabilities of DCCBs continued to expand during

the year 2007-08. The amount of liabilities and assets were Rs.178881

during 2007-08 which was increased by 12.58 percent by compare to total

assets and liabilities of Rs.158894 crores of the year 2006-07. Loans and

advances in balance sheet constituted the most important form of assets for

DCCBs, the share of loans and advances worked out to 56.6 percent.

Investments were next in line with a share of 27.4 percent. Similarly,

deposits made up the largest portion of the total liabilities of DCCBs, the

share of deposits during 2007-2008 was about 61.3 percent. Borrowings are

variable component of the liabilities of DCCBs showed declining trend.

96

During 2008-09, balance sheets of DCCBs witnessed a lower growth

as compared with the previous year. The total liabilities and assets which

were Rs.178881 crores increased to Rs.195684 crores during 2008-09

indicating increased average growth of 9.40 percent which was lower

compared to average growth of 12.58 of 2007-08. The growth in balance

sheets of DCCBs can be attributed to deposits on the liabilities side and

investments on the assets side. On the liabilities side, borrowings of DCCBs

witnessed a decline in amount as well as in percentage in 2008-09 over the

previous year indicating a lower dependence on borrowings for resources by

DCCBs. In contrast, deposit mobilisation picked up during the year

increasing its share in total liabilities of DCCBs.

Total assets and liabilities of DCCBs continued to expand during the

year 2009-10. The total liabilities and assets which were Rs.195684 crores

during 2008-09 increased to Rs.218676 crores during 2009-10 indicating

increases average growth 12 percent. This growth was attributable to growth

in deposits and ‘other’ liabilities on the liabilities side and investments on

the assets side. Deposits accounted for almost two third of total liabilities of

DCCBs in 2009-10, indicating their heavy dependence on deposits for

working fund. Alongside, there was a decline in the percentage share of

capital and reserves in total liabilities.

On the assets side, loans and advances constituted almost half of the

total assets whereas investments accounted for almost one third of the same.

During 2009-10, loans and advances increased as compared to a decline in

2008-09. However, the higher growth in investments as compared with the

growth of loans and advances during 2009-10 indicated DCCBs continued

preference for investments rather than lending due to reduction in risk.

97

The business operations of DCCBs continued to expand during 2010-

11. Total assets and liabilities of DCCBs were Rs.254100 crores during

2010-11 which was increased by 16.20 percent, comparing total assets and

liabilities of Rs.218676 crores of the year 2009-10. The attributable to this

growth was mainly growth in other liabilities at liabilities side and loans and

advances at assets side.

In overall DCCBs capital and reserves during 2005-06 to 2010-11 in

terms of amount increased every year but there was no change in its

proportion to total liabilities. Borrowings of DCCBs in terms amount

increased every year except 2008-09, where as borrowings proportion to

total liabilities of the every year witnessed a declining trend, indicating a

lower dependence on borrowings for resources. In contrast, deposit

mobilisation picked up during the years, increasing amount of deposits share

in total liabilities. DCCBs deposit mobilisation was reflected in an increased

investments rather than an increase in loans and advances. This may either

be due to the risk awareness of these banks or may be intended to reap

treasury gains.

The capital adequacy of DCCBs witnessed a decline during the study

period. As data on risk weighted assets were not available for DCCBs, the

ratio of capital and reserves to investments and advances was taken as the

rough indicator of capital adequacy. The decline in capital adequacy was

mainly on account of a higher increase in investments of DCCBs as against

a marginal increase in capital and reserves. Loans and advances of DCCBs

declined during 2008-09, 2009-10 and 2010-11 compared to 2005-06,

2006-07 and 2007-08.

Leverage ratio of DCCBs during the study period shows decreasing

trend, which indicated total assets of DCCBs shareholders fund decreasing

where as outsider i.e. interest bearing fund increasing.

98

TABLE : 2.9

FINANCIAL PERFORMANCE OF DCCBs IN INDIA (Amounts in Crore)

Particulars 2005 -

06 2006 -

07 2007 -

08 2008 -

09 2009 -

10 2010 -

11

Income 11688 (100)

11562 (100)

13135 (100)

16302 (100)

17713 (100)

18800 (100)

a) Interest Income 10688 (91.4)

10597 (90.9)

11980 (91.2)

14817 (90.9)

15936 (90)

17600 (93.7)

Other Income 1000 (8.6)

1055 (9.1)

1155 (8.8)

1485 (9.1)

1777 (10)

1200 (6.3)

Expenditure 11481 (100)

11622 (100)

11767 (100)

14949 (100)

16576 (100)

17900 (100)

Interest Expended 6577 (57.3)

6668 (57.3)

7038 (59.8)

9413 (63)

10330 (62.3)

11100 (61.9)

Provisions & Contingencies

2563 (22.3)

2284 (19.7)

1934 (16.4)

2119 (14.2)

2228 (13.4)

2190 (12.2)

Operating Expenses of which wage bill

2341 (20.4) 1648 (14.4)

2670 (23) 1837 (15.8)

2795 (23.7) 1865

(15.09)

3417 (22.9) 2255 (15.1)

4018 (24.2) 2618 (15.8)

4600 (25.9) 3100 (17.3)

ii) Net Profit 207 31 -139 1353 1136 900 a) Institutions in Profit

No. of Institutions 278 271 234 320 322 318 Amount of Profit 1116 754 760 1603 1659 1400 b) Institutions in loss

No. of Institutions 88 97 88 50 47 52 Amount of loss -913 -724 -825 -287 -523 -500 Operating Profit 2769 2314 2284 3473 3363 3100 Accumulated loss 5275 5712 6106 5213 4757 4188 Return on Assets (%)

0.14 0.02 -0.08 0.7 0.52 0.35

Return on Equity (%)

0.88 0.12 -0.49 4.5 3.62 3.72

Net Interest on Margin (%)

3.10 2.66 2.4 2.9 2.75 2.74

Source: Report on trend and progress of banking in India of RBI. Figure in brackets shows percentage to total incomes and expenses.

99

The above table illustrates the financial performance of DCCBs in

India during 2005-06 to 2010-11.

During 2005-06 interest income accounted for nearly 92 percent of

the total income, while interest expenditure accounted for nearly two-third

of total expenditure. During the year, provisions and contingencies made by

DCCBs was more in terms of percentage as well as in terms of amount

compared to other periods of the study. Out of the 366 DCCBs 278 DCCBs

showed profit of Rs.1116 crores and remaining 88 DCCBs showed loss of

Rs.913 corers and resulted in over all profit of Rs.207 crores.

Interest income of DCCBs declined marginally to 90.9 percent during

2006-07 as compared to 91.4 percent of the previous year, while interest

expended increased in terms of amount compared to pervious year but

maintained same percentage 57.4 in the previous year 2005-06. But the other

income increased marginally. Operating expenses also increased sharply due

to increase in wage bill. As a result, operating profits and net profit declined

significantly. Provisions and contingencies declined significantly, which

allowed DCCBs to earn a meager net profit of Rs.31 crore during 2006-07.

DCCBs recorded overall losses of Rs.139 crores during 2007-08 as

against profits in 2006-07. One of the reasons for the deterioration in the

overall profitability of DCCBs during 2007-08 was a steep fall in their other

income. The total income of DCCBs was increased during the year because

of increase in interest income despite major decrease in other income

compare to pervious year. As the total income increased even total

expenditure was also increased. Due to increase in interest expenditure and

operating expenses total expenses increased and operating profit declined,

overall profit was in negative. Because of decline in provisions and

contingencies the negative profit of DCCBs was restricted to 139 crores.

100

There was an overall improvement in the financial performance of

DCCBs during 2008-09 over the previous year. Importantly, DCCBs

reported overall net profits of Rs.1353 crores during 2008-09 which was

highest during the study period as compared with the reported net losses

during the previous year, thus, witnessing a turnaround in their financial

position. The number of profit making DCCBs also increased during the

same period. Accordingly, profitability indicators such as ROA and ROE

also witnessed improvement during the year as compared to 2007-08.

DCCBs reported higher operating profits during 2008-09 mainly due to

higher net interest income. However, the increase in the net profits was more

than the operating profit owing to a decline in provisions and contingencies.

The overall financial performance of DCCBs deteriorated during

2009-10 with their net profits declining substantially from 1353 crores of

2008-09 to 1136 crores of 2009-10. This is in contrast with the improved

financial performance of these institutions in the previous year when DCCBs

started reporting overall profits as compared to losses prior to that. An

analysis of different components of the profit and loss account of DCCBs

indicated that the decrease of profits was mainly due to of increase in

operating expenses. During the year interest expended continued as a major

share of total expenses of DCCBs and it found increasing at higher rate than

the interest income. Interest income, which is the major component of

income for DCCBs, increased at slower rate in 2009-10 as compared to

2008-09.

Although DCCBs as a whole reported profits of Rs.900 crores in

2010-11, there was a decline in the quantum of profits reported by these

institutions by comparing profit of Rs.1136 crores of pervious year. The

decline in profitability is mainly emanated from a high growth of operating

expenses, which outpaced the growth of income of these institutions.

101

The overall study from 2005-06 to 2010-11, DCCBs showed bad

performance in 2007-08 where its net loss was 139 crores and its ROA, ROE

showed negative returns compared to other years of the study period. One of

the reasons for this bad performance was due to fall in other income

category of income groups and even found expensive compared to its

previous year.

During 2009 DCCBs showed a good performance compared to other

years as its overall profit was 1353 crore with highest ROA 0.7 percent,

ROE 0.52 percent. The reason for this improvement was mainly due to

increase in net interest income and reduction in provisions and contingents.

The overall study of ROA and ROE found inconsistency in profitability. The

study shows that there is a need of more attention towards improvement of

DCCBs financial performance.

TABLE : 2.10

ASSETS QUALITY OF DCCBs IN INDIA (Amount in Crores)

Assets Classification

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

2010 -11

Total NPA’s 15709 (100)

16495 (100)

18754 (100)

17989 (100)

16234 (100)

15300 (100)

Sub Standard 6905 (44)

6375 (38.65)

7880 (42.01)

8110 (45.1)

7229 (44.5)

6000 (39.6)

Doubtful 6699 (42.6)

7648 (46.36)

8214 (43.78)

7202 (40)

6394 (39.4)

6500 (42.6)

Loss Assets 2106 (13.4)

2471 (14.98)

2660 (14.18)

2677 (14.9)

2611 (16.1)

2700 (17.8)

Percentage of NPA’s to Loans

19.8 18.5 18.5 17.9 12.9 11.6

i) Recovery to Demand (%)

69 71 55.6 72.7 75.7 78.8

ii) Provisions Required

8713 10222 10394 10225 10984 NA

iii) Provisions Made 10360 12163 12079 11463 12393 NA Source: Report on trend and progress of banking in India of RBI.

102

The above table indicates that the assets quality of DCCBs is good

during 2006 in terms of amount when compared with the rest of the years.

During the 2005-06 the total NPA stood at Rs.15709 crores of which Sub

standard loans were the major category followed by doubtful loans and loss

loans. During the year provisions were made more than what is actually

required. Percentage of NPA to loans was high and recovery percentage

indicates need attention to reduce total NPA.

During 2006-07 the total NPA was increased to Rs.16495 crores from

Rs.15709 crores in 2005-06 and it showed average increase of 5 percent.

During the year the NPA to loans ratio of DCCBs decreased to 18.5 percent

which shows improved NPA management. The main reasons for

improvement were decline in the ‘substandard’ category of NPA. It was also

noticed that NPA in the ‘doubtful’ and ‘loss assets’ category increased from

previous year. The recovery demand ratio was also improved. Provisions

made significantly exceeded the provisions required.

During 2007-08 total NPA was increased to Rs.18754 crores from the

Rs.16495 crores of the 2006-07 and showed average increase of 17.70

percent comparatively more than the previous year. However, the increased

NPA were primarily in the ‘sub-standard’ category, while there was a

reduction in the NPA in the ‘doubtful’ and ‘loss’ category in terms of

percentage. Percentage NPA to Loan recovery was same as during 2006-07.

There was a migration of loan assets towards sub-standard category during

2007-08. This was a positive development with regards to the NPA profile

of DCCBs. Further, provisions were made more than what was required for

their NPA levels during 2007-08.

The asset quality of DCCBs was improved as in 2008-09 over the

previous year both in absolute and percentage terms. The absolute decline in

103

total non-performing loans was due to an absolute decline in doubtful loans

during 2008-09 over the previous year. The average improvement showed

9.75 percent due to decrease in the amount of NPA from 17989 crores to

Rs.16234 crores during 2008-09 to 2009-10 respectively. However,

substandard loans and loss loans increased during 2008-09 over the previous

year. During 2008-09, sub-standard loans were the major category in the

total non-performing loans followed by doubtful loans and loss loans

The asset quality of DCCBs improved as on end-March 2010

continuing the trend of the previous year. The amount of total NPA as well

as the percentage of NPA to loan ratio declined as on end of March 2010 as

compared to the previous year. There was an increase in the percentage

share of loss assets in total NPA with a subsequent decline in percentage of

shares of doubtful and sub-standard assets. Substandard assets continued to

account for major part of total NPA followed by doubtful assets. The

recovery performance of DCCBs also improved at March 2010 compared to

previous year.

The assets quality of DCCBs improved continuously during 2010-11

with a decline in the NPA ratio of 11.6 percent in 2010-11 from 12.9 percent

of the 2009-10. The average improvement 5.75 percent was registered

compared to NPA amount of Rs.15300 crores of 20010-11 with NPA

amount of Rs.16234 crores of 2009-10. The recovery ratio of DCCBs

showed a consistent increase, while the NPA ratio posted a decline.

In a net cell during the study period of 2005-06 to 2010-11. It was

observed that, the increased trend of NPA in initial period like 2005-06,

2006-07 and 2007-08 but latter it was started declining in the year 2008-09,

2009-10 and2010-11. This is a positive sign which indicates DCCBs

concern about the NPA management. The reason for this improvement was

104

decline in one of the category of NPA i.e “doubtful debt” in terms of amount

as well as in terms of percentage.

Sub standard category of NPA was found fluctuating in terms of

amount and percentage through out the study period. However it was

observed that during 2007 substandard asset was lowest with 38.65 percent

as compared to other study period but during 2008-09 it was found highest

with 45.1 percent.

During 2005-06 and 2006-07 regarding doubtful debt category of

NPA were increased in terms amount as well as in terms of percentage. In

2007-08, doubtful asset was increased in terms of amount but declined terms

of percentage as compared to the previous years. During the rest of the study

period doubtful asset was found declining in terms of percentage as well as

amount which shows positive improvement in it.

Loss category of NPA increased in terms of amount every year

except during 2009-10 where as in terms of percentage it was fluctuated

during the study period. In the initial year i.e during 2005-06 it was found

13.4 percent of the NPA which was less as compared to the other years.

During 2009-10 the amount of loss category was less in terms of amount but

it was more in terms of percentage compared to any other year of study.

The percentage of recovery of loan increased during the study period

except during 2007-08. It shows the efficiency of recovery increased year by

year which is a good sign for DCCBs. Due to increase in recovery of loan

percentage, percentage of NPA to loan decreased to 12.9 percent during

2009-10 compared to 19.8 percent of 2005-06. During the study period

provisions made were significantly exceeded the provisions required.

105

Weaknesses and Shortcomings of DCCBs

The working of District Central Co-operative Banks is not free from

complaints. The most important weaknesses and shortcomings of DCCBs

are:

• They violate the principle of co-operatives by working on the lines of

commercial banks.

• They do not appoint experts to examine the creditworthiness of the

primary societies. Hence, there has been a problem of recovery and

over dues.

• They combine financing and supervisory work together. As a result,

supervisory work has been a failure in many cases.

• Some CCBs have been utilising their reserve fund as working capital.

This is not a very sound practice.

• Many CCBs are financially and organisationally weak.

• Defect in investment policy.

• Inadequate and improper planning for medium term financing

• High level politicisation in the management of DCCBs.

106

PRIMARY AGRICULTURE CREDIT SOCIETIES (PACS)

PACS lie at the root of the co-operative credit structure of the

country. They are at the local or base level. In rural areas, they cater to short

and medium term credit needs of the farmers. They directly deal with the

farmers. PACS is linked to a Central Co-operative Bank for its own

requirements of finance, which in turn is linked to a State Co-operative

Bank. Now in India PACS exist on an average one for six villages, this

ensures mutual knowledge of the members who can exercise mutual control.

PACS operates at the village level and maintains direct contact with

the farmers. The main functions PACS are to provide short and medium

term credit to its members. It may supply agricultural and other production

inputs and undertake marketing of agricultural produce. In addition to these,

the co-operative may help in formulating and implementing a plan for

agricultural production for the village and undertake such educative,

advisory and welfare functions as the members might be willing to take up.

According to the committee on co-operative credit (1959), the credit

society should undertake the following functions;

1) To associate itself with program of production

2) To lend adequate amount to its members for consumption purposes

limited to their paying capacity.

3) To barrow adequate fund from the central financial agencies for

helping the members adequately for the above purposes;

4) To protect the farmers from the clutches of money lenders and from

the alienation of land and help them in effecting permanent

improvement in their lands.

5) To attract local savings for share capital and fixed deposits.

6) To supervise use of loans (especially medium-term loans) and to see

that they are paid punctually.

107

7) To distribute fertilizers, seeds, insecticides, agricultural implements

etc., either on its own behalf or through agent;

8) To supply certain consumer goods in common demand such as

kerosene; sugar etc.

9) To store the produce of the members till it is sold; to collect or

purchase produce, where necessary on behalf of a consumer’s

society, marketing society or government.

10) To associate itself with programmers of economic and social welfare,

for the village.

PACS are generally organised on the Raiffeison Model. Their

members have unlimited liabilities. However, the co-operative planning

committee (1996) and the All India Rural Credit Survey Committee (1954)

were of the view that, the unlimited liability has not been very helpful to the

progress of co-operative credit. Thus, in view of this observation, there has

been a shift from unlimited liability or conversion of existing unlimited

liability societies into limited liability.

PACS raise their fund by way of share capital, membership fees,

deposits of members and non members, and loans from DCCBs and the

government. The members who contributed to capital elect the president,

chairman, secretary and other members of the managing committee among

themselves. All elected bodies work on an honorary basis.

In the following part, an attempt has been made to study the

performance of PACS at national level.

108

TABLE : 2.11

PROGRESS OF PRIMARY AGRICULTURE CREDIT SOCIETIES

IN INDIA

(Amount in Crores)

Particulars 2005-

06 2006-

07 2007-

08 2008-

09 2009-

10 2010-

11 No. of PACS 106384 93225 94950 95633 94647 93413 Total Members

125197 125792 131530 132350 126419 121225

Capital 5644 6138 6596 7007 7148 7551 Reserve 3647 4900 4387 4888 5330 6904 Owned Fund 9292 1103 10983 11805 12478 14455 Deposits 19562 23484 25449 26245 35286 37238 Borrowings 41017 43714 47847 48938 51763 54000 Working Fund

73386 79958 88106 94584 135191 144221

Loans & Advances Issued

42919 49612 57642 58786 74937 91303

Loans & Advances Outstanding

51778 58620 6566 64044 76479 87767

Demand 50979 54112 67292 84633 95496 90240 Collection 35503 38360 43289 46697 55972 67543 Balance of Overdue

15476 15752 24003 37936 39524 22697

% of Over Due to Loan Outstanding

29.90 26.87 36.55 59.23 51.68 25.86

Over All Profit

-856 -1653 -5711 -1072 -1215 -200

No. of PACS at Profit

44321 33983 38307 37291 40936 44554

No. of PACS at Loss

53050 48078 48520 45869 41679 38065

% of Profit Making PACS

45.51 414.41 44.11 44.84 49.55 53.93

109

Particulars 2005-

06 2006-

07 2007-

08 2008-

09 2009-

10 2010-

11 % of Loss Making PACS

54.49 58.59 55.89 55.16 50.45 46.07

Total No. of Employees

241609 229007 278842 222173 215529 290540

No.of Borrowers

46076 47910 51074 46219 59800 52388

Deposits per PACS

18.39 25.19 26.80 27.44 37.28 39.86

Ratio of Membership to Borrowers

36.8 36.08 38.83 34.92 47.3 43.72

CRAR 17.95 18.83 16.73 18.43 16.31 19.05 Source: NAFSCOB

The above table reveals that number of PACS stood at 106384 at the

end of the March 2006 declined to 93413 at the end of the March 2011.

During the six years period, figures of number of PACS shows declining

trendexcept during 2008 and 2009 where number of PACS found slightly

increased. The reasons for decline in number of PACS during the period

were due to implementation of reorgansation programme of strengthening

and future development of co-operative structure.

Capital and Reserve which constitutes as owned fund increased in all

the years of the study period. PACS owned fund which was Rs.9292 Crores

during 2005-09 increased to Rs.14455 Crores during 2010-11, it seems that

it increased to 56 percent and with an average growth of 9.33 percent. The

increased figure indicates PACS are moving towards self reliance of the

fund.

Total deposits of PACS which were around Rs.19562 Crores as on 31

March 2006 increased to Rs.37238 Crores as on 31 March 2011 registering

an average growth of 15 percent.

110

The average deposits per PACS registered a modest growth during

the period of 2005-06 to 2010-11. It works out to Rs.0.18 crores during

2005-06 and increased to Rs.0.40 crores during 2010-11. The deposits per

PACS are more than double in the study period. The increased performance

in deposits indicates that PACS have increased trends in mobilising the

deposits.

The borrowing of PACS constitutes more than half of the total

resources (working fund) of PACS during the period of the study. The total

borrowings of PACS stood at Rs.41017 crores during 2005-06 and increased

to Rs.54000 crores registering an average growth of 5.28 percent. It shows

PACS dependency and importance on external funding along with the

internal sources.

The amount of working fund of PACS doubled from 2005-06 to

2010-11. The amount which was Rs.73386 crores during 2005-06 increased

to Rs.144221 crores during 2010-11. This sharp enhancement in the working

fund was taken mainly from financed by borrowings and contributions from

owned fund.

The loans and advances issued by PACS stood at Rs.42919 crores

during 2005-06 and it increased to Rs.91303 crores during 2010-11. Loans

and advances issued by PACS shows an average annual growth of 112

percent during the study period.

The percentage of over due to total loans outstanding, which is a

rough indicator of the non-performing assets of PACS, witnesses a

fluctuating trend in the study. During 2006-07 the percentage of over due to

total outstanding loan declined to 26.87 from the 29.90 percent in the year

2005-06, reflecting the improved recovery performance. The percentage

111

increased to 36.55 percent and 59.23 percent respectively during 2007-08

and 2008-09 which indicates failure in the performance of recovery. During

2010-11 the percentage of over due to total outstanding loan declined to

25.86 percent. It reflects the improvement in recovery performance.

During the period of 2005-06 to 2010-11 total demand and total

collections increased significantly. Collection improved every year during

the study period but it is always lesser than loans issued and loans

outstanding and demand.

PACS showed negative profit during all the years of the study period.

The maximum negative profit found was Rs.5711 crores during 2007-08 and

minimum was Rs.200 crores during 2010-11.

The above table reveals slow decline in the percentage of loss-making

PACS over recent years, particularly from 2008-09. Despite the decline, the

percentage of loss-making PACS competed closely with the percentage of

profit-making PACS. Still more than fifty percentage of PACS are

functioning under loss in the country, which indicated need of urgency for

its improvement for long term sustainability. The reasons for negative

financial performance of PACS were high operating cost and non

performing assets.

The borrower to member ratio of PACS provides an insight into

whether PACS are able to cater to the credit needs of the vulnerable sections

of the rural population or not. It is thus a reflection of the role of PACS in

the financial inclusion process. The ratio of borrowers to members during

the study period varied between 36.08 percent and 47.3 percent. The ratio

found remained below fifty percent in all the years under study, which

indicates that only about less than half of the members of PACS access

credit.

112

Capital adequacy of PACS witnessed an improvement in 2006-07,

2008-09 and 2010-11 over the others periods. As data on risk weighted

assets for PACS were not available, the ratio of total capital and reserves to

total loans outstanding was taken as a rough indicator of capital adequacy.

Weaknesses of PACS

i) Many of PACS are non-viable due to inadequate membership and

low capital base.

ii) The financial assistance and support provided by PACS are grossly

inadequate as a result the farming population continue to be exploited

by money lenders even today.

iii) Inordinate delay caused in the sanction and disbursement of loans

results the farmers not getting the required financial help in time that

gives adverse impact over agricultural produce.

iv) Prevalence of ineffective and inefficient supervisory mechanism over

members and borrowers.

v) The operational efficiency of PACS is often very low due to

operation of personal and vested interest.

vi) The lack of professional management coupled with political and

bureaucratic interference which affected the very survival and

existence of PACS.

vii) Favoritism adopted by the management bodies while dealing with

loan proposals kept the genuine and needy farmers outside the

purview, whereas, unwanted and undesirable elements are being

extended undue advantages.

The Long Term Co-operative Credit Structure (LTCCS): The long term

credit co-operatives provides typically medium and long-term (LT) loans for

making investments in agriculture, rural industries and, in the recent period

for housing also. The LT co-operative credit structure has only two tiers, one

113

at the state level and the other at the taluka/tehsil level. Some states have

unitary structure with the state level banks operating through their own

branches.

The long term co-operative credit structure consists of the State

Co-operative Agriculture and Rural Development Banks (SCARDBs) and

Primary Co-operative Agriculture and Rural Development Banks

(PCARDBs) which are affiliated to SCARDBs. There are total 19

SCARDBs of which 10 have Federal Structure, 7 have Unitary Structure and

2 have Mixed Structure incorporating both the unitary and federal systems

(Himachal Pradesh and West Bengal). An integrated structure providing all

types of agricultural credit (both short term and long term) under ‘single

window’ credit system is present in Andhra Pradesh. In the North-Eastern

Region, only three states (Assam, Manipur and Tripura) have LT structure.

Generally, the states which do not have the LT structure, separate sections of

the State Co-operative Banks look after long term credit needs together with

other Rural Financial Institutions (RFIs) i.e. branches of Regional Rural

Banks and rural/semi-urban branches of Commercial Banks.

TABLE : 2.12

The Long Term Co-operative Credit Structure at a Glance -31st Mar

2011

No. of SCARDBs 19

No. of PCARDBs 714

No. of Branches of PCARDBs 1,056

No. of Branches of Unitary SCARDBs 761

Annual Lending Rs. 17,603.42 Cr

Total Membership 13.65 Million

Source: Report on trend and progress of banking in India of RBI.

114

CO-OPERATIVE MOVEMENT IN KARNATAKA

Karnataka has a fascinating history of Co-operative Movement.

Co-operative culture in various economic activities in the state is clearly

evident. It is deep-rooted, as it has been launched in 1904. The first Primary

Agricultural Credit Society established in the country was at Kanaginhal

(Gadag tq) of Gadag district. It was established on 8th May 1905, and it has

been still functioning. Similarly, the first Urban Co-operative Credit Society

was organised on 18th October 1905 in the state. It is at Betageri of Gadag

district now it is defunct. The Swadeshi Movement of 1905 inspired many

local leaders and social workers to start the co-operatives to cater to their

local needs. Bangalore City Consumers Co-operative Society started in

December 1905 is said to be the first Co-operative institution in princely

Mysore state. Such societies were started in Belgaum, Gokak, Hubli,

Dharwad and Sira by 1906.

The erstwhile princely Mysore State had promoted a unique breed of

financial institutions called “Agricultural Banks” in 1894, a decade earlier to

the official launching of the Co-operative Movement by the Government.

The modus operandi of agricultural banks was such that they had imbibed

co-operative principles though their constitution was of public company,

limited by guarantee.

The diversification of Co-operative Movement was started in 1912. In

the course of time, non-agricultural and non-credit societies emerged in

large number throughout the state. In the early years, the Governments of

Princely Mysore and the Bombay Presidency earnestly encouraged the

spread of the movement in rural areas by extending special incentives and

appointment of honorary co-operative supervisors to guide the co-operative

institutions.

115

It is interesting to know that in order to cater to the needs of the local

people, special economic activities like fencing, hunting, cattle breeding,

insurance, farming, grain banks, fisheries, forest labour, special marketing,

education, sugar, dairy, silk industry, irrigation, house building, construction

of godowns, consumer goods selling etc., were undertaken under

co-operative sector much earlier.

It was a regular feature in Bombay-Karnataka between 1920-1930 to

hold the taluk and district level co-operative conferences to review the

progress of the movement. In order to propagate the principles of

co-operation in the rural areas and to have a mass appeal there was a special

drama troupe to propagate the idea of Co-operation at Amminabhavi of

Dharwad district. Many of the District Central Co-operative banks, specially

the banks working at Dharwad, Madikeri, Sirsi, etc., came to the help of

suffering farmers, during the economic depression of 1929-30. During the

same period due to drought the movement had received a setback. Many

farmers could not pay their overdue to the banks. Though these Co-operative

banks purchased the pledged properties of the debtors, the same was

returned to them without any profit when the debt was cleared. This spirit of

co-operation helped the co-operative banks to grow further when the

economic conditions improved. Many banks arranged debt reconciliation

boards for settlement of loans.

Karnataka has many firsts in the co-operative ventures in the country.

The Hubli Cotton Sales Society Ltd., Hubli, organised in 1915 is considered

to be the first Indian co-operative marketing society. The Farmers Service

Society (FSS) sponsored by Canara Bank in 1973 at Bidadi in Bangalore

district is such first society in the country. Similarly, the Sports Promotion

and Development Society at Chandargi of Belgaum district is a unique

organisation of all-India importance established in 1984. Hulkoti

116

Co-operative Education Society (1921), J.G. Co-operative Hospital at

Ghataprabha (1951, Belgaum district) and Rural Electricity Society at

Hukkeri of Belgaum district (1969) are some of the earliest special types of

co-operatives in the State. The Hiranyakeshi Co-operative Sugar Factory of

Sankeswar of Belgaum district which was in 1956 is considered as one of

the best co-operative sugar factories in the State.

Karnataka is one of the leading States in the country where the Urban

Co-operative Bank movement has emerged strong. Karnataka ranked 3rd in

the country next to Gujarat and Maharashtra. Karnataka is the first State in

the country to have the Federation of Urban banks (1965). It is conspicuous

that after the reorganisation of the State, the orbit of the co-operative

movement has been expanded in all its spheres. Some of the apex

institutions in the district and the State level have established their record

growth vertically and horizontally. Increased financial participation in the

form of share capital, subsidy, grants etc. by the Central and State

Government, N.C.D.C. etc., have facilitated the increase in the number of

co-operatives. Many major industries like spinning, cotton processing,

textile, sugar, tiles, food processing etc., have been started in the State in the

co-operative sector.

During 1976-77, most of the economically non-viable, weak primary

societies were amalgamated. This process of amalgamation on large scale,

strengthened the base of primary societies and their number was reduced

considerably.

The Institute of Co-operative Management was founded in Bangalore

1962 recognising the prominent position of the State in the co-operative

sector. In 1990, the National Agricultural and Rural Development Training

Institute was started in Bangalore to train the bank and co-operative sector

officials.12

117

TABLE : 2.13

GROWTH OF CO-OPERATIVE MOVEMENT IN KARNATAKA

(Rs. in crores)

Year No. of

Co-operatives Membership

societies Share

Capital Working

Fund

2008-09 34025 18788741 2786 32693

2009-10 34863 19904730 3171 38249

2010-11 35502 21533651 3479 41355

2011-12 36481 26399074 3022 51864

Source : Annual reports of the department of co-operation Govt. of Karnataka. From 2008-09 to 2011-12. The State of Karnataka is the 8th biggest State in the Country with a

population of 6.11 crores of which 61.43 percent is rural population. There

are 36481 Co-operative Societies with more than 2 crores membership, of

which 32029 societies are working. The total working fund is Rs. 51,864

crores. The number of Co-operative Societies under profit are 19,963 and

number of societies under loss are 16518.

The Short-term and Medium-term loans are provided in Karnataka to

the farmers through Karnataka Sate Co-operative Apex Bank, 21 DCCBs

and 4,697 PACS. Similarly, the long-term loans are made available from

Karnataka State Co-operative Agricultural and Rural Development Bank

(KSCARDB) through Primary Co-operative Agricultural and Rural

Development Bank. The loans are being provided from their own fund and

refinance from NABARD.

The non-agricultural finance is made available by the Urban Banks

Credit Co-operative Societies in the State. The Urban Co-operative Banking

Sector in the State has achieved a tremendous progress in the banking sector

and acquired third place.

118

The Co-operatives in Karnataka have the following fundamental

objectives and principles

1) To inculcate the spirit of cooperators among the people in the State.

2) To encourage people to promote co-operatives on a voluntary basis

3) To ensure that the co-operatives are formed and function on

democratic principles.

4) To ensure that the co-operatives in the state enjoy maximum

autonomy.

5) To ensure that the co-operatives are accountable to members.

6) To ensure that the co-operatives function as useful instruments to

bring about sustained improvement in the quality of life of their

members.

7) To ensure that the co-operatives function as instruments for poverty

alleviation and for the uplift of weaker sections of the society in order

to pave way for establishing an equalitarian society.

8) To encourage co-operatives to emerge as self supporting, economic

service- oriented business concerns.

9) To encourage co-operatives serve as multifunctional units.

10) To encourage efficient deposit mobilisation.

11) To encourage efficient deployment of human resources.

12) To achieve financial gains and to put mutual aim ahead of private

interest.

13) To provide equal opportunities to all the members.

14) To encourage co-operatives to emerge as peoples bank.

15) To prevent misuse by cooperators.

16) To ensure independent audit

17) To infuse professionalism in the management

18) To serve towards national objectives

19) To have Cooperators among the Co-operatives12

119

PROGRESS OF DCCBs IN KARNATAKA AND THEIR SHARE IN

ALL INDIA LEVEL

The origin of the co-operative Credit Movement in Karnataka and in

India started in the year 1904 after passing the first Co-operative Societies

Act, 1904. Since then the co-operative movement in Karnataka has achieved

noticeable progress in its various activities like the disbursement of loans,

distribution of fertilizers, creation of employment opportunities to weaker-

sections and construction of houses in urban as well as rural areas.

At present Karnataka state has 21 DCCBs and 4697 PACS to look

after the credit needs of agricultural sector in different parts of the state.

These District Central Co-operative Banks have 608 branches in Karnataka

providing employment nearly to 4300 people.

With this backdrop in this section an attempt is made to bring out the

growth of DCCBs in Karnataka and its share in All India level.

TABLE: 2.14 PER DCC BANK MEMBERSHIP IN KARNATAKA AND INDIA

(Figures in Nos.)

Total Membership No. of DCCBs Per Bank Membership Year

Karnataka India Karnataka India Karnataka India

2005-06

29942 2267850 21 366 1425.81 6196.31

2006-07

71620 (139.20)

3264849 (43.96)

21 371 3410.48 8800.13

2007-08

78163 (9.14)

3396881 (4.04)

21 371 3722.05 9156.01

2008-09

82866 (6.02)

3528802 (3.88)

21 370 3946.00 9537.30

2009-10

64032 (-22.73)

3975660 (12.66)

21 370 3049.14 10745.03

2010-11

69630 (8.74)

3146070 (-20.87)

21 370 3315.71 8502.89

AAG 28.07 8.74 Avg. 3145 8823 Source: National Federation of State Co-operative Banks Ltd. Per Bank Membership=Total Membership/No of DCCBs. Note: Figures in brackets show the average annual growth rates.

120

Table 2.14 shows the growth in the membership of DCCBs in

Karnataka and in all India level during 2005-06 to 2010-11. The number of

DCCBs at India level found were 366 in 2005-06 which has gone up very

marginally to 371 and later declined to 370. At the same time number of

DCCBs in Karnataka stagnated to 21 in all the years of the study.

However, there was an impressive growth rate with regard to the total

membership of DCCBs of Karnataka and India noticed during the study

period. Membership of DCCBs in Karnataka found highest in 2006-07 with

AAG rate of 139.20 percent compared to its previous year. During 2009-10

AAG rate in membership found negative 22.73 percent due to

implementation of reorgansation programme of strengthening and future

development of Co-operative structure.

At India level total membership of DCCBs showed 43.96 percent

AAG rate in 2006-07 but later this trend decreased drastically even in

membership trend in Karnataka. The negative AAG rate of 20.87 percent

showed by the end of the study period. It was the lowest growth observed in

six years.

The AAG rate of 28.07 percent of membership to DCCBs in

Karnataka found much better than the India level AAG rate with 8.74

percent. This status provides a positive impression that the co-operative

movement in Karnataka has been absorbing more number of members into

its fold. But the membership per DCCBs showed in Karnataka is 3145

which is lower compare to 8823 membership per bank at India level.

121

TABLE : 2.15 TRENDS OF DCCBs OWNED FUND IN KARNATAKA AND INDIA

(Rs. in Crores)

Capital Reserves Owned Fund

Year India Karnataka

Share in all India

Level (%) Karnataka India

Share in all India Level

(%) Karnataka India

2005-06 4748 236.88 4.99 76.31 18702 0.41 313.19 23450

2006-07 5458

(14.95) 267.13 (12.77)

4.89 66.21

(-13.24) 20722 (10.80)

0.32 333.34 (6.43)

26180 (11.64)

2007-08 5939 (8.81)

290.87 (8.89)

4.90 225.24

(240.19) 22467 (8.42)

1.00 516.11 (54.83)

28406 (8.50)

2008-09 6578

(10.76) 321.77 (10.62)

4.89 257.39 (14.27)

23227 (3.38)

1.11 579.16 (12.22)

29792 (4.88)

2009-10 7309

(11.11) 397.37 (23.50)

5.44 344.78 (33.95)

24061 (3.59)

1.43 742.15 (28.14)

31370 (5.30)

2010-11 7950 (8.77)

451.73 (13.68)

5.68 355.22 (3.03)

25040 (4.07)

1.42 806.95 (8.73)

32990 (5.16)

AAG 10.88 13.89 55.64 6.05 22.07 7.10 Source: Report on Trend and Progress of Banking in India and Annual Reports of the Karnataka State Co-operative Apex Bank Ltd. Note: Owned Fund= Total Share Capital +Total Reserves. Note: Figures in brackets show the average annual growth rates.

122

Table 2.15 explains with the growth in the capital, reserve and its

combined amount called as owned fund of DCCBs in Karnataka and all

India level during 2005-06 to 2010-11.

The above table explains that the amount of capital of Karnataka and

India showed increasing trend during the period of study. Karnataka’s share

of capital in India level found between 4.89 to 5.68 percent. The AAG rate

of Karnataka regarding capital stood at 13.89 percent which is slightly more

than AAG rate of 10.88 percent at India level capital. The reserves which is

one of the components of the owned fund showed more fluctuation in

Karnataka’s DCCBs compared to India level. The AAG rate in reserve fund

of Karnataka varied -13.24 percent to 240.19 percent where as India level it

was noticed 3.38 to 10.80 percent. The AAG rate of 55.64 percent of

Karnataka’s reserve showed higher due to heavy reserve creation made in

2007-08 compared to India level AAG rate of 6.05 percent.

The above table clearly shows DCCBs in Karnataka have registered a

significant growth in the owned fund. In 2005-06, the owned fund of all

DCCBs in Karnataka amounted to Rs.313.19 crores. This figure has gone up

considerably and it reached to Rs.806.95 crores in 2010-11. The growth of

owned fund has growned to double during the study period. In other words

there was 157.66 percent rise in these fund with AAG rate of 22.07 percent.

It reveals that the growth in the total reserves has mainly contributed to the

strength of its own fund. The owned fund at India level showed progress at

AAG rate of 7.10 percent which is lower than Karnataka’s AAG rate 22.07

percent. The amount of owned fund observed increasing trend which was

Rs.23450 crores in 2005-06 has gone up to Rs.32990 crores in 2010-11

resulting 40.69 percent raise in owned fund. In overall, performance relating

to owned fund of Karnataka’s growth showed much better than the India

level DCCB’s growth.

123

TABLE : 2.16 CREDIT DEPOSIT RATIO OF DCCBs IN KARNATAKA AND INDI A

(Rs. in Crores)

Total Deposits Total Loans Outstanding CD Ratio

Year Karnataka India

Share in All India Level (%)

Karnataka India Share in All India Level (%)

Karnataka India

2005-06 4090.31 87532 4.67 4099.56 79202 5.18 100.23 90.48

2006-07 4396.91 (7.50)

94529 (7.99)

4.65 4210.00 (2.69)

89038 (12.42)

4.73 95.75 94.19

2007-08 5141.93 (16.94)

109597 (15.94)

4.69 5184.46 (23.15)

101221 (13.68)

5.12 100.83 92.36

2008-09 5837.36 (13.52)

127623 (16.45)

4.57 5882.98 (13.47)

99729 (-1.47)

5.90 100.78 78.14

2009-10 7088.51 (21.43)

153585 (20.34)

4.62 6822.66 (15.97)

110665 (10.97)

6.17 96.25 72.05

2010-11 7906.8 (11.54)

166489 (8.40)

4.75 7672.73 (12.46)

131280 (18.63)

5.84 97.04 78.85

AAG 14.19 13.83 13.55 10.84 Avg. 98.48 84.35 Source: Report on Trend and Progress of Banking in India and Annual Reports of the Karnataka State Co-operative Apex Bank ltd. Note: C-D Ratio is calculated as Ratio of Loans Outstanding to Deposits. Note: Figures in brackets show the average annual growth rates.

124

Table 2.16 explains with the growth in total deposits and total

outstanding advances of DCCBs in Karnataka and the all India level during

2005-06 to 2010-11.

The above table explains that the amount of deposits of Karnataka

and India showed increasing trend during the period of study. The

Karnataka’s share of deposits in India level found significantly constant and

it found in between 4.57 to 4.75 percent. The AAG rate of Karnataka

regarding Deposits stood at 14.19 percent which is slightly more than AAG

rate of 13.83 percent of India level deposits.

Outstanding loan of Karnataka in relation to India level moved almost

opposite direction in most of the year. The share of Karnataka in India level

varied in between 4.73 to 6.17 percent during six year period. The AAG rate

of outstanding loan of Karnataka found higher with 13.55 percent than the

India level with 10.84 percent. The higher AAG rate speaks about

inefficiency of recovery management and needs attention for immediate

action to improve in recovery.

The size of lending of any financial institution is justified through its

CD ratio. The CD ratios of DCCBs in Karnataka and India have shown

fluctuating trend during the study period. CD ratio of the Karnataka found

higher in every year compared to CD ratio of India level. The average CD

ratio of 98.48 percent of Karnataka indicates higher than the India level

average CD ratio of 84.35 percent. The higher CD ratio of Karnataka

indicates better lending performance than India level.

125

TABLE : 2.17

TRENDS OF BORROWINGS AND WORKING FUND OF DCCBs IN K ARNATAKA AND INDIA (Rs. in Crores)

Borrowings Working Fund Share of Borrowings in

Working Fund Year

Karnataka India Share in all India Level

Karnataka India Share in all India Level

Karnataka India

2005-06 1388.77 24217 5.73 6637.18 135199 4.91 20.92 17.91

2006-07 1559.94 (12.33)

29912 (23.52)

5.22 7565.65 (13.99)

150621 (11.41)

5.02 20.62 19.86

2007-08 2076.83 (33.14)

26096 (-12.76)

7.96 8834.24 (16.77)

153836 (2.13)

5.74 23.51 16.96

2008-09 2533.15 (21.97)

27664 (6.01)

9.16 10343.28 (17.08)

185079 (20.31)

5.59 24.49 14.95

2009-10 2160.70 (-14.70)

28735 (3.87)

7.52 11207.47

(8.36) 206509 (11.58)

5.43 19.28 13.91

2010-11 2426.42 (12.30)

42400 (47.56)

5.72 12638.82 (12.77)

231700 (12.20)

5.45 19.20 18.30

AAG 13.01 13.64 13.79 11.53 21.34 16.98 Source: Report on Trend and Progress of Banking in India and Annual Reports of the Karnataka State Co-operative Apex Bank Ltd. Note: Figures in brackets show the average annual growth rates.

126

Table 2.17 illustrates about borrowings and working fund of DCCB’s

in Karnataka and India level and share of Karnataka DCCB’s in India level.

It also shows the portion of borrowings in the total working fund during

2005-06 to 2010-11.

From the above table it is noticed that the borrowings share of

Karnataka’s in India level found fluctuating trend. The minimum share

found in 2006-07 was 5.22 and maximum was 9.16 percent in 2008-09. The

AAG rate of Karnataka found was 13.01 which was slightly lesser than the

India level of 13.64 percent which indicates dependency on borrowing

amount is leaser than the India level.

The term working fund represents the total finance available for

lending operations. The share of Karnataka’s working fund in India level

varied in between 4.91 to 5.74 percent. The AAG rate of 13.79 percent of

Karnataka’s found higher than the India level of 11.53 percent during the

study period.

The share of borrowings in total working fund of Karnataka’s found

higher each year of the study period compared to India level. It is not

welcoming trend from the point of Karnataka’s DCCBs. Because the

percentage of borrowings in the working fund of the bank should be brought

down to a minimum level. It has to minimise the interest commitment to

borrowers. Even the AAG rate of borrowings to working fund was found

higher with 21.34 percent compare to 16.98 percent of India level.

127

TABLE : 2.18 TRENDS OF LOANS ISSUED AND OVERDUES OF DCCBs IN

INDIA AND KARNATAKA (Rs. in Crores)

Loans Issued Overdues Share of Overdues in Loans Issued Year

Karnataka India Karnataka India Karnataka India

2005-06 3892.50 69317.61 777.82 18136.07 19.98 26.16

2006-07 3620.67 (-6.98)

76703.81 (10.66)

983.24 (26.41)

21385.82 (17.92)

27.16 27.88

2007-08 4742.02 (30.97)

87229.09 (13.72)

916.07 (-6.83)

27535.78 (28.76)

19.32 31.57

2008-09 5350.93 (12.84)

88028.69 (0.92)

839.05 (-8.41)

26443.51 (-3.97)

15.68 30.04

2009-10 6464.18 (20.80)

110529.29 (25.56)

872.79 (4.02)

23763.32 (-10.14)

13.50 21.50

2010-11 7482.38 (15.75)

137757.17 (24.63)

609.24 (-30.20)

29049.42 (22.24)

8.14 21.09

AAG 14.68 15.10 -3.00 10.96 17.30 26.37 Source: National Federation of State Co-operative Banks Ltd. Share of Overdues in Loans Issued = Overdues/ Loans Issued. Note: Figures in brackets shows the annual growth rates. Table 2.18 exhibits about the loan issued and overdues of DCCBs in

Karnataka and India level and share of overdues to loan issued during 2005-

06 to 2010-11. The above table indicates that loan issued by Karnataka DCCBs

increased every year except in 2006-07 where it issued loans of Rs 3620.67

crores lesser than Rs.3892.50 crores of 2005-06 indicating decline of annual

average of 6.98 percent. In other side, the loan issued by India level DCCBs found increasing

trend. Both Karnataka and India level DCCBs issued loans almost double at

the end of the study period compared to beginning of the study period. The

AAG rate of 15.10 at India level found little higher than the Karnataka’s

AAG rate of 14.68 percent.

128

The overdues which represent non recovery of the principal and

interest amount on due date showed fluctuating trend of both Karnataka as

well as India level. But it is interesting to note that AAG rate of overdues

showed negative, indicating good performance of the recovery management

and prompt payment of loan borrowers. The share of overdues to loans issued observed higher in all India

level each year of the study period. The overall average share of overdues to

loans issued found higher with 26.37 percent at all India level which is

higher than the 17.30 percent of Karnataka’s DCCBs.

TABLE : 2.19

TRENDS OF INVESTMENTS OF DCCBs IN INDIA AND KARNATAKA

(Rs. in Crores) Year Karnataka India Share

2005-06 1532.02 36628 4.18

2006-07 1757.41 (14.71)

41006 (11.95)

4.29

2007-08 2570.27 (46.25)

48228 (17.61)

5.33

2008-09 3375.77 (31.34)

64709 (34.17)

5.22

2009-10 3394.85 (0.57)

78913 (21.95)

4.30

2010-11 3921.03 (15.50)

85400 (8.22)

4.59

AAG 21.67 18.78 Source: Report on Trend and Progress of Banking in India and Annual Reports of the Karnataka State Co-operative Apex Bank ltd. The data in table 2.19 indicates the investment trends of DCCBs in

Karnataka and India. The data reveals that the amount of investments both

Karnataka’s DCCBs and India level DCCB’s increased every year. The

amount of DCCB’s investment in Karnataka is Rs.1532.02 crores in 2005-06

has gone up to Rs.3921.03 crores indicating raise of 155.94 percent during

the study period. Where as all India level total investment found Rs.36628

129

crores in 2005-06 increased to Rs.85400 during 2010-11 registering raise of

annual average of 133.15 percent. The investment share of Karnataka in all India level varied in

between 4.18 to 5.33 percent. The AAG rate of 21.67 percent observed in

investment of DCCB’s in Karnataka which is higher than the AAG rate of

18.78 percent of all India level.

TABLE : 2.20 TREND OF RECOVERY OF DCCBs IN KARNATAKA AND INDIA

(Rs. in Crores) Year Karnataka (%) India (%)

2005-06 69.96 69 2006-07 58.3 71.1 2007-08 73.49 55.6 2008-09 74.52 72 2009-10 81.42 75.7 2010-11 84.87 78.8

Avg. 73.76 70.37 Source: Report on Trend and Progress of Banking in India and Annual Reports of the Karnataka State Co-operative Apex Bank ltd. The above table exhibits the trend of recovery in Karnataka and India

level of DCCBs. During the study period Karnataka’s recovery found

increasing trend except in 2006-07 where the percentage of recovery gone

down to 58.3 percent from 69.96 percent of 2005-06. The over all recovery

performance found varied from 69.96 percent to 84.87 percent during the

study period. The recovery performance of India level also found increasing trend

except in 2007-08 where performance declined to 55.6 percent from its

previous year’s performance 71.1 percent. The recovery performance of

India level DCCBs found varied between 69 to 78.8 percent during the study

period.

130

The inference get from the above table is that the average recovery

performance of Karnataka’s DCCBs is 73.76 percent comparatively higher

than the average recovery of 70.37 percent at India level.

Hypothesis

For the comparison, the following null hypotheses were formed and

tested with the help of one of the Statistical tool i.e independent ‘t’ test: H01 There is no significant difference between the growth rates of

membership per bank of DCC banks in India and the growth rates of

membership per bank of DCC banks in Karnataka during the study period. H02 There is no significant difference between the growth rates of owned

fund of DCC banks in India and the growth rates of owned fund of DCC

banks in Karnataka during the study period. H03 There is no significant difference between the growth rates of total

deposits of DCC banks in India and the growth rates of total deposits of

DCC banks in Karnataka during the study period. H04 There is no significant difference between the growth rates of

outstanding loans of DCC banks in India and the growth rates of outstanding

loan of DCC banks in Karnataka during the study period. H05 There is no significant difference between the growth rates of

borrowings of DCC banks in India and the growth rates of borrowings of

DCC banks in Karnataka during the study period. H06 There is no significant difference between the growth rates of

working fund of DCC banks in India and the growth rates of working fund

of DCC banks in Karnataka during the study period. H07 There is no significant difference between the growth rates of loan

issued from DCC banks in India and the growth rates of loan issued from

DCC banks in Karnataka during the study period.

131

H08 There is no significant difference between the growth rates of

overdues of DCC banks in India and the growth rates of overdues of DCC

banks in Karnataka during the study period. H09 There is no significant difference between the growth rates of

investments of DCC banks in India and the growth rates of investments of

DCC banks in Karnataka during the study period.

Results

After applying independent ‘t’ test to AAG rate of various parameters

of India level and Karnataka level DCC banks, the results are shown in the

following table:

TABLE : 2.21 SUMMARY OF THE HYPOTHESES TEST RESULTS

Tabulated Value Sl. No Hypothesis

0.01 0.05 Calculated Value

DF 8 Results

1 H01 3.355 2.306 -.652 Reject 2 H02 3.355 2.306 1.642 Reject 3 H03 3.355 2.306 -.107 Reject 4 H04 3.355 2.306 -.576 Reject 5 H05 3.355 2.306 .049 Reject 6 H06 3.355 2.306 -.690 Reject 7 H07 3.355 2.306 .054 Reject 8 H08 3.355 2.306 1.168 Reject 9 H09 3.355 2.306 -.320 Reject

Source: Computed

H01 is rejected, So, it concludes that during the study period, there is

significant difference between the growth rates of membership per bank of

DCC banks in India and the growth rates of membership per bank of DCC

banks in Karnataka. H02 is rejected, So, it concludes that during the study period, there is

significant difference between the growth rates of owned fund of DCC

banks in India and the growth rates of owned fund of DCC banks in

Karnataka.

132

H03 is rejected, So, it concludes that during the study period, there is

significant difference between the growth rates of total deposits of DCC

banks in India and the growth rates of total deposits of DCC banks in

Karnataka. H04 is rejected, So, it concludes that during the study period, there is

significant difference between the growth rates of outstanding fund of DCC

banks in India and the growth rates of outstanding fund of DCC banks in

Karnataka. H05 is rejected, So, it concludes that during the study period, there is

significant difference between the growth rates of borrowings of DCC banks

in India and the growth rates of borrowings of DCC banks in Karnataka. H06 is rejected, So, it concludes that during the study period, there is a

significant difference between the growth rates of working fund of DCC

banks in India and the growth rates of working fund of DCC banks in

Karnataka. H07 is rejected, So, it concludes that during the study period, there is

significant difference between the growth rates of loan issued of DCC banks

in India and the growth rates of loan issued of DCC banks in Karnataka. H08 is rejected, So, it concludes that during the study period, there is

significant difference between the growth rates of overdues of DCC banks in

India and the growth rates of overdues of DCC banks in Karnataka. H09 is rejected, So, it concludes that during the study period, there is

significant difference between the growth rates of investments of DCC

banks in India and the growth rates of membership per bank of DCC banks

in Karnataka.

133

References

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New Century Publications, New Delhi, 2010. pp 6.

2 Government of India, Ministry of Agriculture, High Powered

Committee on Cooperatives, May 2009. pp 6.

3 Government of India, Ministry of Personal, PG & Pensions, Dept. of

Administrative Reforms & Public Grievances, Second Administrative

Reforms Commission 9th Report , pp 134-135.

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5 Haugh E.M., “The Co-operative Movement in India”, Oxford

University Press, Bombay, 1967

6 Fay C.R, “Co-operation at Home and Abroad”, London Staples Press

London, 1948.pp5.

7 Dennis Campbell, “Comaprative Law Year Book of International

Business”, Wolters Kluwer, Vol. 31, 2009. pp 282.

8 www.nabarad.org/pdf/nabard_act.pdf. retrieved on 21-05-2012.

9 Kulkarni P. R., “Co-operative Banking”, Macmillan publishers India

Ltd., 2010. pp 7-9.

10 Sharda V., "Theory of Cooperation”, Himalaya Publishing House,

Bombay, 1986. pp 123.

11 Nakkiran S., Co-operative Banking in India, Rainbow Publications,

Coimbatore, 1980. pp 162.

12 Hand Book of Karnataka, 2012. pp 265-266.

13 www.karnatakaapex.com retrieved on 15-06-2012.