2.   Progress of Credit Co-operatives

A.    Primary Co-operative Banks

3.4   Primary (Urban) Co-operative Banks (PCBs) have been set up with the objective of providing banking facilities to lower and middle income groups. The aggregate deposits of 1,416 reporting PCBs at end-March 1998 amounted to Rs.38,472 crore, recording an increase of 25.3 per cent in 1997-98 (27.1 per cent last year). Similarly, loans outstandings of PCBs aggregated Rs. 26,455 crore, a rise of 22.8 per cent as compared with Rs.21,550 crore (20.3 per cent) in the preceding year (Table III.2)¹.

Note: Figures in brackets are percentage variations.

1 There were 1,811 Primary (Urban) Co-operative Banks (PCBs) (including 90 salary earners' banks, and 105 mahila banks) with a network of 5229 offices at end-March 1998. Two salary earner's banks and 53 other PCBs were under liquidation as at the end of March 1998.

Analysis of scheduled Primary Co-operative Banks

3.5   The analysis of scheduled PCBs² also confirmed the deceleration in growth of deposits and credit (Table III.3). Aggregate deposits of scheduled PCBs showed a marked deceleration in deposit growth by 32.9 per cent in 1997-98 (60.5 per cent last year). Bank credit also decelerated during the same period with the growth rate of 33.1 per cent in 1997-98 (44.4 per cent last year). However, growth in deposits and credit of scheduled PCBs were well above the corresponding figures of scheduled commercial banks³. Furthermore, the average credit-deposit ratio of 65.7 per cent as on March 27, 1998 was considerably higher than that of scheduled commercial banks (Table III.3).

² This analysis is based on  scheduled PCBs accounting for 33.1 percent  of deposits of all PCBs as at the end of March 1998.
³ During 1997-98, deposits and credit of scheduled commercial banks grew at the rate of 19.7 per cent and  16.4 per cent, respectively (see Chapter II, Table II.1).

3.6   During the first quarter of 1998-99 (i.e., April-June, 1998), the operations of scheduled PCBs witnessed increases in both deposits and credit. While aggregate deposits as on June 26, 1998 at Rs. 14,326.4 crore recorded an increase of 12.4 per cent over March 27, 1998 (6.6 per cent in the preceding year), bank credit at Rs.8,494.6 crore rose by  1.4 per cent (0.5 per cent in the last year).

3.7   The financial performance of scheduled PCBs⁴  vis-à-vis scheduled commercial banks for 1996-97 reveals certain interesting results. scheduled PCBs had comparatively underlined a higher operating and net profits ratios than scheduled commercial banks. Besides, these PCBs had a higher spread of around 4 per cent in 1996-97 as compared with around 3 per cent for schedule commercial banks during the same period. As regards intermediation cost i.e., other operating expenses constituting substantial component by way of wages to total assets, they are comparable with  schedule commercial banks (Chart III.2).

Chart III.2 : Trend in Selected Financial Ratios of SCBs and PCBs - 1995-97 (April - March)

Refinance Facilities

3.8   PCBs are eligible for refinance facilities at Bank Rate under Section 17 (2)(bb) read with Section 17(4)(c) of RBI Act 1934 for advances granted to tiny/cottage industrial units. During 1997-98, refinance amounting to Rs.4.62 crore was granted to three banks.

Non-Performing Assets

3.9   The gross non-performing assets of PCBs⁵ marginally increased to 13.3 per cent in 1996-97 from 12.9 per cent in 1995-96 (Table III.4). Preliminary data for 1997-98 shows that Gross NPA has come down to 11.0 per cent during 1997-98.

⁴ The analysis is based on data relating to only 23 scheduled PCBs.
⁵ Reporting PCBs vary year to year.

3.10   During 1997-98 (July-June), the Reserve Bank carried out statutory inspections of 823 PCBs under Section 35 of the Banking Regulation Act, 1949 (as applicable to Co-operative Societies) as compared with 786 PCBs in the preceding year.

B. State Co-operative Banks

3.11   The total deposits of StCBs at Rs.21,584 crore, as at end-March 1998, posted a lower growth of 23.4 per cent in 1997-98 as compared with Rs.17,489 crore in the preceding year (30.2 per cent in 1996-97) (Chart III.3 and Appendix Table III.1). The loans issued by StCBs during 1997-98 at Rs. 28,141 crore showed a decline of 2.7 per cent (as against an increase of 4.2 per cent in last year). Among the States, Maharashtra mobilised maximum deposits of Rs.6,630 crore (30.7 per cent of total deposits), followed by Gujarat at Rs.2,322 crore (10.8 per cent) and Tamil Nadu Rs.1,635 crore (7.6 per cent). The outstanding credit of StCBs grew at slower pace of 2.7 per cent in 1997-98 as compared with a growth of 10.3 per cent in 1996-97. The CD ratio of StCBs also indicated substantial decline over the years. From 124 per cent in 1995-96, the CD ratio of StCBs declined to 87 per cent in 1997-98 (Appendix Table III.3). Borrowings from the Reserve Bank/NABARD during 1997-98 at Rs.8,617 crore were higher by 7.3 per cent than that of the preceding year-level of Rs.8,033 crore (1.6 per cent).  The analysis of borrowings of StCBs showed that during 1997-98, Andhra Pradesh had the largest share of Rs.2,834 crore (32.9 per cent of total), followed by Gujarat with Rs.792 crore (9.2 per cent) and Madhya Pradesh at Rs.727 crore (8.4 per cent).

Chart III.3 : Growth Rate of Deposits and Credit of State Co-operative Banks - 1993-94 to 1997-98

3.12   As at the end of March 31, 1997, the 28 StCBs had a network of 779 branches (Chart III.1 &Table III.1). The available figures on profit and loss for 1996-97 showed that 5 StCBs recorded losses out of total 28 StCBs. The profit made by 23 StCBs amounted to Rs.162 crore in 1996-97 as compared with Rs.170 crore by 26 StCBs in 1995-96.

3.13   To bring transparency in the balance sheets of co-operative banks, prudential norms including provisioning were made applicable to the StCBs from the year 1996-97. During 1996-97, StCBs implemented the application of prudential norms including provisioning. The gross NPAs to total loans6 and advances was less than 5 per cent in 6 StCBs in the States of Tamil Nadu, Haryana, Punjab, Madhya Pradesh, Karnataka and Gujarat, while the same was higher in the range of 21 to 50 per cent in 3 StCBs located in Orissa, Assam and Himachal Pradesh. For two more StCBs, it was in the range of 6 to 10 per cent (Delhi and Maharashtra) and for one StCB  located at West Bengal, the gross NPA was in between 11 and 20 per cent.

3.14   The audit classification serves as an indicator  of quality management as well as  strength of the co-operatives. During the year 1995-96, 25 StCBs⁷  have been classified into 4 categories⁸. Of the 25 StCBs rated on the basis of these norms; 16 StCBs were rated in A category; 4  StCBs in B category and 5  StCBs in C category for 1995-96.

⁷ StCBs in Punjab and Haryana are not awarded any classification by auditors. Audit of Karnataka StCB for 1995-96 not yet complete.
⁸ A = 60 per cent and above; B = 45-59 per cent; C = 30-44 per cent; and D = less than 30 per cent

3.15   The recovery performance ratio of StCBs (percentage to demand) showed declining trend over the last three years.  The ratio was 90 per cent in 1995-96 which has declined to 86 per cent in 1996-97 and further to 81 per cent in 1997-1998 (Appendix Table III.2). However, the long-term overdues (more than 3 years) of StCBs has declined from 34 per cent in 1995-96 to 24 per cent in 1996-97 (Table III.5). For other co-operative banks, this proportion has remained more or less constant during 1996-97.

C. Central Co-operative Banks

3.16    CCBs form an important part in the short-term structure of co-operative credit institutions. The total deposits of CCBs at Rs.33,931 crore as at end-March 1998indicated a lower growth of 11.6 per cent during 1997-98 as compared with Rs. 30,403 crore (23.9 per cent) in the previous year. The loans outstandings of CCBs grew at a lower pace of 4.3 per cent during 1997-98 as against 17.0 per cent in the previous year (Chart III.4 and Appendix Table III.1).The borrowings of CCBs from NABARD showed a smaller rise during the year 1997-98: it rose by 1.6 per cent in 1997-98 as compared with 4.7 per cent in 1996-97.

Chart III.4 Growth Rate of Deposit and Credit of Central Co-operative Banks - 1993-94 to 1997-98

3.17   The recovery performance (percentage to demand) of CCBs during 1997-98 was lower at 66 per cent as compared with 69 per cent in the last year.  State-wise, the provisional data of recovery performance of CCBs indicated that during 1997-98, it was significant at 88 per cent in Tamil Nadu, followed by Punjab 84 per cent, Kerala and Haryana at 79 per cent each.

D. State Co-operative Agriculture and Rural Development Banks

3.18   During 1997-98, the deposits of SCARDBs went up by 25.8 per cent to Rs.205 crore from Rs.163 crore (5.8 per cent) in the previous year.  The loans outstanding with SCARDBs during the year at Rs.9,148 crore indicated a lower  increase of 14.1 per cent in 1997-98 as compared with an increase  of 17.0 per cent in 1996-97 (Appendix Table III.1).

E. Primary Co-operative Agriculture and Rural Development Banks

3.19   During the year 1997-98, the deposits of PCARDBs have increased significantly  by 28.8 per cent  to Rs.76 crore from Rs.59 crore, whereas the loans outstanding recorded a decline of 1.1 per cent as against an increase of 20.5 per cent in the previous year. Overdue loans has not showed any improvement during 1996-97 (Appendix Table III.1).

F. Primary Agricultural Credit Societies

3.20   PACS form a pivotal part of the short-term structure of co-operative credit institutions.  As at end-March 1997, there were around 91,720 PACS with a total membership aggregating 982.2 lakh, of which borrowing membership constituted 40.2 per cent.  State-wise, borrowing membership was below all-India level: in Rajasthan at 30 per cent, followed by Uttar Pradesh (27 per cent), Himachal Pradesh (26 per cent), and Maharashtra (24 per cent).  During the last few years, PACS continue to depend mainly on borrowings from higher financing agencies to fund their operations.

3.21   As most PACS are totally dependent on the finance provided by CCBs, resource mobilisation is a weak spot in their growth.  The fact that most of the CCBs are not financially strong, this affects the credit expansion strategies of PACS. The total deposits of PACS as on March 31, 1996 aggregated Rs.3,450.2 crore, showing an increase of around 13.0  per cent over the previous year. Besides Kerala, the other leading States which have mobilised sizeable deposits were Tamil Nadu, Karnataka, Andhra Pradesh and Punjab for the period ended March 1996.

3.22   The total loans issued by PACS rose to Rs.11,805 crore in 1995-96 from Rs.10,459 crore in 1994-95, a rise of 12.8 per cent. In regard to loans outstanding, it rose by 9.5percent during 1995-96. Based on the criteria for viability determination of PACS, it has been estimated that as on March 31, 1996, only 65 per cent of the total PACS were viable and another 28 per cent have been considered to be potentially viable.