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CHAPTER – 1
INTRODUCTION
Introduction
The economic development of any country largely depends on its financial system, it
includes efficient and effective mobilizing and allocation of financial resources. There are
different type of banks and financial institutions that perform this function, one of them is
“Urban Co-operative Banks (UCBs)”. UCBs banks are unique financial institutions that
performs the special task of providing banking facilities to the urban and semi urban areas
especially for nonagricultural sectors i.e. Trades, small manufacturers, distributers,
technical and nontechnical service providers.
These societies protect lower and middle class people from the exploitation of profit
hungry businessmen. The profits of the society are distributed among members in the ratio
of purchases made by them during the year.
Consumer's cooperatives or cooperative stores are working mainly in urban areas in India.
Super bazar working under the control of Government is an example of consumers'
cooperative society.
2. Producers cooperatives
Producers or industrial cooperatives are voluntary associations of small producers and
artisans who join hands to face competition and increase production. These societies are of
two types.
The members produce goods at a common place or in their houses. The society sells the
output in the market and its profits are distributed among the members.
3. Marketing Cooperatives
These are voluntary associations of independent producers who want to sell their output at
remunerative prices. The output of different members is pooled and sold through a
centralized agency to eliminate middlemen. The sale proceeds are distributed among the
members in the ratio of their outputs.As a central sales agency, the society may also
perform important marketing functions such as processing, grading and packaging the
output, advertising and exporting products, warehousing and transportation, etc.
Marketing societies are set up generally by farmers, artisans and small producers who find
it difficult to face competition in the market and to perform necessary marketing functions
individually. The National Agricultural Cooperative Marketing Federation (NAFED) is an
example of marketing cooperative in India.
In their individual capacity, they are unable to use modern tools, seeds, fertilizers, etc.
They pool their lands and do farming collectively with the help of modern technology to
maximum agricultural output.
5. Housing Cooperatives
These societies are formed by low and middle income group people in urban areas to have
a house of their own. Housing cooperatives are of different types. Some societies acquire
land and give the plots to the members for constructing their own houses.
They also arrange loans from financial institutions and Government agencies. Other
societies themselves construct houses and allot them to the members who make payment in
installments.
6. Credit Cooperatives
These societies are formed by poor people to provide financial help and to develop the
habit of savings among members. They help to protect members from exploitation of
money lenders who charge exorbitant interest from borrowers.
Credit cooperatives are found in both urban and rural areas. In rural areas, agricultural
credit societies provide loans to members mainly for agricultural activities. In urban areas,
non-agricultural societies or urban banks offer credit facilities to the members for
household needs. In India, several national federations of cooperative societies have been
formed. National Cooperative Consumers Federation, National Federation of Cooperative
Sugar Factories, National Agricultural Cooperative Marketing Federation, National
Cooperative Dairy Federation, National Cooperative Housing Federation, All India State
Cooperative Banks Federation is some examples.
The origins of the urban cooperative banking movement in India can be traced to the close
of nineteenth century when, inspired by the success of the experiments related to the
cooperative movement in Britain and the cooperative credit movement in Germany such
societies were set up in India. Cooperative societies are based on the principles of
cooperation, - mutual help, democratic decision making and open membership.
Cooperatives represented a new and alternative approach to organization as against
proprietary firms, partnership firms and joint stock companies which represent the
dominant form of commercial organization.
The Beginnings
The first known mutual aid society in India was probably the "Anyonya Sahakari
Mandali" organised in the erstwhile princely State of Baroda in 1889 under the guidance of
Vithal Laxman also known as Bhausaheb Kavthekar. Urban co-operative credit societies,
in their formative phase came to be organised on a community basis to meet the
consumption oriented credit needs of their members. Salary earners" societies inculcating
habits of thrift and self-help played a significant role in popularizing the movement,
especially amongst the middle class as well as organized labour. From its origins then to
today, the thrust of UCBs, historically, has been to mobilise savings from the middle and
low income urban groups and purvey credit to their members - many of which belonged to
weaker sections.
The enactment of Cooperative Credit Societies Act, 1904, however, gave the real
impetus to the movement. The first urban cooperative credit society was registered in
Canjeevaram (Kanjivaram) in the erstwhile Madras province in October, 1904. Amongst
the prominent credit societies were the Pioneer Urban in Bombay (November 11, 1905),
the No.1 Military Accounts Mutual Help Co-operative Credit Society in Poona (January 9,
1906). Cosmos in Poona (January 18, 1906), Gokak Urban (February 15, 1906) and
Belgaum Pioneer (February 23, 1906) in the Belgaum district, the Kanakavli-Math Co-
operative Credit Society and the Varavade Weavers" Urban Credit Society (March 13,
1906) in the South Ratnagiri (now Sindhudurg) district. The most prominent amongst the
early credit societies was the Bombay Urban Co-operative Credit Society, sponsored by
Vithaldas Thackersey and Lallubhai Samaldas established on January 23, 1906.
The Cooperative Credit Societies Act, 1904 was amended in 1912, with a view to broad
basing it to enable organisation of non-credit societies. The Maclagan Committee of 1915
was appointed to review their performance and suggest measures for strengthening them.
The committee observed that such institutions were eminently suited to cater to the needs
of the lower and middle income strata of society and would inculcate the principles of
banking amongst the middle classes. The committee also felt that the urban cooperative
credit movement was more viable than agricultural credit societies. The recommendations
of the Committee went a long way in establishing the urban cooperative credit movement
in its own right.
In the present day context, it is of interest to recall that during the banking crisis of 1913-
14, when no fewer than 57 joint stock banks collapsed, there was a there was a flight of
deposits from joint stock banks to cooperative urban banks. Maclagan Committee
chronicled this event thus:
"As a matter of fact, the crisis had a contrary effect, and in most provinces, there was a
movement to withdraw deposits from non-cooperatives and place them in cooperative
institutions, the distinction between two classes of security being well appreciated and a
preference being given to the latter owing partly to the local character and publicity of
cooperative institutions but mainly, we think, to the connection of Government with
Cooperative movement".
There was the general realization that urban banks have an important role to play in
economic construction. This was asserted by a host of committees. The Indian Central
Banking Enquiry Committee (1931) felt that urban banks have a duty to help the small
business and middle class people. The Mehta-Bhansali Committee (1939), recommended
that those societies which had fulfilled the criteria of banking should be allowed to work as
banks and recommended an Association for these banks. The Co-operative Planning
Committee (1946) went on record to say that urban banks have been the best agencies for
small people in whom Joint stock banks are not generally interested. The Rural Banking
Enquiry Committee (1950), impressed by the low cost of establishment and operations
recommended the establishment of such banks even in places smaller than taluka towns.
The first study of Urban Co-operative Banks was taken up by RBI in the year 1958-59.
The Report published in 1961 acknowledged the widespread and financially sound
framework of urban co-operative banks; emphasized the need to establish primary urban
cooperative banks in new centers and suggested that State Governments lend active
support to their development. In 1963, Varde Committee recommended that such banks
should be organised at all Urban Centers with a population of 1 lakh or more and not by
any single community or caste. The committee introduced the concept of minimum capital
requirement and the criteria of population for defining the urban center where UCBs were
incorporated.
Duality of Control
However, concerns regarding the professionalism of urban cooperative banks gave rise to
the view that they should be better regulated. Large cooperative banks with paid-up share
capital and reserves of Rs.1 lakh were brought under the purview of the Banking
Regulation Act 1949 with effect from 1st March, 1966 and within the ambit of the Reserve
Bank supervision. This marked the beginning of an era of duality of control over these
banks. Banking related functions (viz. licensing, area of operations, interest rates etc.) were
to be governed by RBI and registration, management, audit and liquidation, etc. governed
by State Governments as per the provisions of respective State Acts. In 1968, UCBS were
extended the benefits of Deposit Insurance.
Towards the late 1960s there was much debate regarding the promotion of the small scale
industries. UCBs came to be seen as important players in this context. The Working Group
on Industrial Financing through Co-operative Banks, (1968 known as Damry Group)
attempted to broaden the scope of activities of urban co-operative banks by recommending
that these banks should finance the small and cottage industries. This was reiterated by the
Banking Commission (1969).
The Madhavdas Committee (1979) evaluated the role played by urban co-operative banks
in greater details and drew a roadmap for their future role recommending support from
RBI and Government in the establishment of such banks in backward areas and prescribing
viability standards.
The Hate Working Group (1981) desired better utilisation of banks' surplus funds and that
the percentage of the Cash Reserve Ratio (CRR) & the Statutory Liquidity Ratio (SLR) of
these banks should be brought at par with commercial banks, in a phased manner. While
the Marathe Committee (1992) redefined the viability norms and ushered in the era of
liberalization, the Madhava Rao Committee (1999) focused on consolidation, control of
sickness, better professional standards in urban co-operative banks and sought to align the
urban banking movement with commercial banks.
A feature of the urban banking movement has been its heterogeneous character and its
uneven geographical spread with most banks concentrated in the states of Gujarat,
Karnataka, Maharashtra, and Tamil Nadu. While most banks are unit banks without any
branch network, some of the large banks have established their presence in many states
when at their behest multi-state banking was allowed in 1985. Some of these banks are
also Authorised Dealers in Foreign Exchange
Recent Developments
Over the years, primary (urban) cooperative banks have registered a significant growth in
number, size and volume of business handled. As on 31st March, 2003 there were 2,104
UCBs of which 56 were scheduled banks. About 79 percent of these are located in five
states, - Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu.
Area of Operations
The area of operations of an urban co-operative bank is usually restricted by its bye-laws
to a municipal area or a town. In some cases it exceeds this area.
Membership
The membership of urban co-operative bank is composed of persons living in urban areas,
such as traders, merchants, salaried and professional classes etc. The conditions relating to
the membership are laid down in their bye-law
Management
The management of urban co-operative Bank rests in the board of Directors, who are
elected by General Body, consisting of all the members. The final authority in all matters
rests with the general body but actual conduct of the affairs of the bank rests with the
board of directors and the secretary of the bank.
The tenure of office of the Board of Directors varies in the states. The usual practices are
to hold elections (a) each year (b) once in three years, and (c) each year by rotation for one
third of the board. Holding the elections every year is not favored by the study group. The
advantages of holding elections once in three years are that expenses are kept at a
minimum and the board of directors has time to learn the working of the bank. It is also
observed that in a large number of institutions the same persons were elected to the board
of directors from term to term. It can be checked by incorporating the clause in the bye-
laws that prevents a person from contesting election more than one or two consecutive
terms.
Resources
Owned funds and borrowed funds are main sources of finance of Urban Co-operative
Bank. Own funds include paid up capital, accumulated reserves created out of appropriate
from profits. Borrowed funds cover deposits of members and non-members and loan from
central co-operative banks.
Deposits
The percentage of deposits to working capital varied from state to state. It was 76% total
capital in 1967-68. These banks have succeeded in attracting deposits from non-members
also because of growing public confidence in their working. These banks generally accept
current deposits, saving deposits and fixed deposits. But with increasing competition by
the commercial banks, more intensive efforts will be required by urban co-operative banks
to attract more deposits.
Borrowing
Such borrowings of urban co-operative banks from other financing agencies are negligible.
These banks generally borrow from central co-operative bank, while a few borrowed from
the apex banks. The study group on credit co-operatives in the Non Agricultural Sector
(1963) that the urban banks should be affiliated with central co-operative banks and apex
banks should not finance them directly.
Loan Operation
The loan operations of UCB (Urban Co-operative Banks) consists of granting fixed loans
or cash credit loans to their members against mortgage of unencumbered immoveable
property, or on surety of one or more persons who are also members. The member is
eligible for loan against personal security up to 5 to 10 times the share capital paid by him.
UCBs provide facility of withdrawal of deposits by cheese and arrange for remittance of
funds to other center. Some banks collect pensions, pay regularly insurance premiums of
its members, discount hundis and bills.
Investments
The UCBs invest their surplus money in government and other trustee securities.
operation is whole of the country. It represent around 1600 Urban Cooperative Banks and
more than 50,000 Cooperative Credit Societies functioning all over India.
Vision
NAFCUB is committed to work towards building a strong and viable urban co-operative
banking and credit system across the Country, to strive for level playing field for the
institutions, to be an effective voice of the sector, to work towards eliminating visible
weaknesses and infirmities, to provide the training and other support and to knit the
institutions into a cohesive unit for them to benefit from strength of being in co-operative
system.
Mission
To do all it takes to ensure that urban co-operative banks are not denied level playing field,
not discriminated against and to create expertise within the Federation in support of the
goals to make urban co-operative banks and credit societies professionally managed,
technologically equipped, sound and healthy financial entities that are associated with
ethical practices, high levels of corporate social responsibility and high degree of empathy
towards economically less privileged sections of the society.
The UCBs which are generally considered as “Small People Bank” because of their
objective for Promoting thrift and cooperation among the lower and middle strata of the
society, has made its mark in the cooperative movement.
The Urban Banks federation representing 266 Urban Cooperative Banks in Karnataka has
been playing a pivotal role in implementing and organizing various activities for the
overall development of Urban Cooperative Banks in Karnataka. The federation being part
of various committees constituted by the Reserve Bank of India and Registrar of
Cooperative Societies, is directly contributing to the healthy growth of the Urban
Cooperative Banks in Karnataka
Vision
Ensure the emergence of sound and healthy network of jointly owned democratically
controlled and ethically managed UCB’s providing need based quality banking services,
essentially to the middle and lower middle classes and marginalized sections of the society
in Karnataka State
Mission
1. Encourage structured development of urban banking movement in the state
2. Ensure that all UCBs comply with the regulatory prescription in letter and spirit
3. Facilitate implementation if CBS and innovative banking products so as to be on
par with Commercial banks
4. Organize special programs for small and financially weak UCBs to educate such
banks about the need to come out of weakness
5. Endeavour to create healthy image of UCB sector in the state
6. Conduct extensive online training programs for the officials of the UCBs
7. Strive for adopting state of the art technological innovations in the UCB sector
8. Educate directors and employees of UCB sector through publication of newsletters
and magazines
Co-operative Principles
The co-operative principles are guidelines by which co-operatives put their values into
practice
from external sources, they do so on terms that ensure democratic control by their
members and maintain their co-operative autonomy.
Fund collection is necessity of all the banks but this bank’s prime goal is protection of
collected funds and useful investment. Today it contains 3 branches. The bank is also
planning to construct its own building and establish other branches in new cities. Building
of the branches are well planned and furnished with the modern equipments.
The bank is not lagged behind in customer services, by computerizing all its branches on
TBA (Total branch automation) basis including head office and CBS (Core banking
solution ) to provide its customers with facilities doing transaction in all branches. It’s also
providing modern facilities like NEFT, RTGS, and planning ATM cards.
The bank also has insurance cover of Rs. 3crore with the United insurance company ltd.
Logo :
Share capital : Rs. 99.80 lacks
No. of branches : 3
1. Current account
a. For Individual
b. For Society
c. For Institution
2. Savings account
( 6% P.A. Interest on all type Saving account )
a. For Individual
b. For Society
c. For Institution
3. Fixed deposit account
(Interest rates on Fixed deposited
o For 30 to 45 days 6.5% P.A.
o For 46 to 180 days 7.5% P.A.
o For 181 to 364 days 8% P.A.
o For 365 days 9.5% P.A.
o For 13 to 36 months 10% P.A.)
a. For Individual
b. For Society
c. For Institution
4. Recurring deposit account
(Interest rates on Recurring deposites
o For 12 to 36 months 10% P.A.
o For above 36 months 9% P.A.)
a. For Individual
b. For Society
c. For Institution
5. Pradhan Mantri Jeevan Jyoti Bima Yojana
6. Pradhan Mantri Suraksha Bima Yojana
CHAPTER – 2
ORGANIZATION STRUCTURE
In simple structure is a pattern in which various parts components are related and inter
connected. So, organization structure is a pattern of relationships among various activities
and positions. The structure defines the relationships among people in the organization.
Organization structure plays a vital role in achieving the organizational goals. Organization
structure should be properly designed to facilitate the smooth functioning of the
organization. Organization structure of MUCO Bank consists of BODs at the top. Then
president, under whom there is the Managing Director. M.D. is the person who is
responsible for smooth functioning of the organization. After Managing Director there are
General Managers and Assistant Mangers of various departments who are responsible and
accountable for the activities of their respective departments. There are subordinates,
Branch Manager and employees who are directly linked with department managers.
In line organization a separate person will look after the activities of the department and he
has full control over the department. The same level executives do not give or receive
orders amongst themselves. But they receive orders from their immediate boss and give
orders to their subordinates. Hence, all heads are responsible to Managing Director.
Division of work and specialization takes place in line and staff organization
The whole organization is divided into different functional areas to which staff
specialists are attached.
Efficiency can be achieved through the features of specialization.
There are two lines of authority which flow at one time in a concern :
o Line Authority
o Staff Authority
Power of command remains with the line executives and staff serves only as
counselors.
1 Managing directors 1
2 General Managers 1
8 Drivers NA
9 Attenders/Sipayi 8
Total 28
Board of Directors
For the success of Co-operative enterprise, effort and involvement of persons and groups
working at various levels of management are responsible. Normally we speak of top
administration, middle management and lower level management as parts of the total
organisation. The board of directors in the final responsible agency the success or failure
of a corporate business organization. Board of for Directors takes policy decisions and
leaves the execution of these decisions to the executive management. Usually, the Board in
a cooperative is viewed as a trustee of member’s funds and responsible as such for the
administration and management of these funds. It will not get itself involved in the day to
day management. Decision about all principal issues from a policy angle is their primary
function and it controls and ensures its implementation with suitable follow up action
through managers.
The entire administration and management of the Bank is vested in the hands of Board of
Directors and subject to the control of the Board in a committee which is constituted by the
Board of Directors from among themselves. The Board shall and exercise all such powers
and enter into all such arrangements, take all such proceedings, and do all such acts and
things as may be necessary or proper for due management of the affairs of the Bank and
for carrying out the objects for which the Bank has been established and for securing and
furthering its interests subject to the provisions of the Karnataka Cooperative societies Act.
To pay the Preliminary expenses incurred in the promotion and registration of the
Bank.
To purchase, buy take on lease or otherwise acquire any building or land (whether
free hold or otherwise) for the purpose from any person with or without house, or
houses building or buildings there on in Karnataka or elsewhere and to erect,
construct and build or sell or alter any of buildings for the purposes of Banking
House or Houses. Shops or Godown, office or offices or as residence of the
employees of the Bank and to pay for such land and buildings whether purchased,
leased or acquired or built or constructed by the Bank either in cash or otherwise
and purchase all furniture and other things necessary for the Banking house, offices
and residence with all things which the Board may deem necessary or convenient
for carrying on business of the Bank.
Subject to the previous approval of the Registrar to appoint, remove, suspend or
otherwise punish the General Manager and to fix his remuneration.
To appoint and promote other officers and members of the staff to assist the
Managing Director in the day to day management of the Bank and to remove,
suspend, or otherwise punish them and to fix their remuneration.
To authorize President the Executive Committee and Managing Director or other
officers of the Bank for the time being to exercise and perform all or any of the
powers and authorities and duties conferred or improved upon the Board by these
presents subject to such restrictions and conditions as the Board may think proper to
impose from time to time.
To raise or borrow such sums of money as may be required from time to time for
the purpose of the Bank in accordance and subject to be provisions of these Bye-
laws and the act and rules framed there under and to pledge government securities,
debentures, shares and other assets of the Bank as securities for loans, cash credit
limits, overdrafts in current accounts from the Reserve Bank of India, State Bank of
India and other notified nationalized commercial banks or from the government.
To draw, accept, endorse, negotiate and sell bills of exchange, and other negotiable
instruments with or without security.
Chairman/President
The term of the President and Vice-President elected by the Board shall be 3 years. The
President and Vice-President so elected shall be eligible for reelection for another term
but no one shall hold office of the President, Vice-President continuously for more than
two terms. A person who holds office of the President and Vice-President for two terms
not exceeding 6 years shall be eligible for re-election only after a lapse of two years since
his ceasing to be President and Vice-President.
To preside over the meetings of General Body, The Board of Directors, except the
meetings in which he himself a candidate for election and the Executive Committee.
To exercise general control over the functions and the working of the officers of the
Bank.
To sanction within the provisions of the approved budget all expenditures of
contingent nature for which powers do not vest in the Managing Director or the
General Manager.
To sanction annual increments, all types of leave, tour program and travelling,
medical etc. bills of Managing Director.
To refer to the Board of Directors for consideration such decision of the Executive
Committee and other special committees as he considers repayment to the interest
of the Bank.
To exercise all such powers as may be from time to time be delegated to him by the
Board of Directors.
Vice-President
In case the President is obliged to remain absent on account of sickness, or otherwise
powers of the President shall be exercised by Vice-President.
To arrange for the holding of the meetings of the General Body, the Board and the
Executive Committee of the Bank, attend the meetings, arrange for the recording of
their proceedings and to sign them along with the President.
To sign and execute for and on behalf of the Bank all such documents bonds and
agreements to which the Bank is a party, provided that the share certificates of the
Bank will be signed by him jointly either with President or Vice-President or any
officer of the Bank authorized in this behalf.
To open and operate upon the Bank's accounts maintained with Reserve Bank of
India or any other Bank, to buy, sell, pledge, endorse and transfer, promissory
notes, government and to sign, endorse and negotiate cheques and other documents
connected with the business of the Bank.
To be the officer to sue and to be sure on behalf of the Bank.
Subject to such general guidelines at the Board of Directors may prescribe in this
behalf, to profitably manage and invest surplus funds of the Bank in approved
securities.
In emergent circumstances to sanction loans and credits in accordance with the rules
of the Bank and general directions of the Reserve Bank of India and the Registrar,
Co-operative Societies of Karnataka upto a maximum of Rs.5 lakhs, in each case.
Such cases will be placed before the next meeting of the Board/Executive
Committee for ratification.
To sanction for payment of bills of expenditure not exceeding Rs. 10,000/- in each
case on purchasing items and sanction bills of contingent expenditure not exceeding
Rs. 1,000/- in each case within the sanctioned budget.
To make appointments of subordinate staff namely, peons, night guards, drivers etc.
subject to the sanctioned strength and as per the procedure laid down in the service
rules.
To make postings and transfers of the staff with the prior concurrence of the
President or in his absence of the Vice-President for the most efficient functioning
of the Bank.
To take disciplinary action, hold enquiries and award punishment to The staff in
accordance with the service rules of the Bank.
To be the custodian of the Bank's properties.
To conduct or arrange for the conduct of periodical inspections of and supervision
over the branches and affiliated co-operative societies.
Generally to do all such acts as may be necessary or conducive for the efficient
management of the Bank.
The Managing Director may share any of his powers with the General Manager and
other officers of the Bank as he may deem necessary in the interest of the efficient
administration of the Bank.
General Manager
There shall be a General Manager of the Bank, who shall be appointed in terms of bye-
laws 66, on such terms and conditions as may be approved by the Registrar Co-operative
Societies. Subject to overall control of the Managing Director, the President and the Board
of Directors. The General Manager shall be responsible for the smooth functioning of the
Bank. He performs the following functions.
To do such other acts/discharge duties as may be assigned to him from time to time
by the Managing Director, President Executive Committee and the Board of
Directors.
Branch Manager
For the proper and smooth functioning of the Bank, each branch is headed by Branch
Manager. He performs the following functions
To carry on the work of the Branch according to the policy and within the powers
delegated with the assistance of staff and allot work to the staff.
To sanction casual leave to staff provided work will not suffer and no risk involved
or substitute is available.
Correspondence with head office and others according to need.
To achieve the annual targets of business, fixed by the management.
CHAPTER – 3
Accounts Section takes the responsibility of local purchases of stationery, jobs and
maintenance of vehicles etc. Under this section all the transactions and the business of the
bank is earned out. It maintains the accounts of all the transaction that takes place in the
bank apart from maintaining the accounts of sales, medical reimbursement and T.A. claims
of the bank employees.
It grants the all types of loans to the beneficiary’s i.e. short term, medium term and long
term. Formalities are completed and constantly monitored by this section. It monitors the
progress of recovery of various loans distributed by the bank. It also corresponds with the
state government and Registrar Cooperative Societies regarding the various schemes
programs launched by the government and consequently finalizes the modalities and its
impact on the performance of the bank.
This department analysis environment ( internal & external) and take decision like new
schemes, establishing new branches, adding new product(services), and also relating with
the taking feedback from the customers.
This branch deals with personnel problems of the bank, manpower management,
appointments, transfers and administrative matters. Service records of all the employees
are maintained by this section. Agenda for departmental promotion Committee (D.P.C.) is
also prepared by this section. All disciplinary actions against the erring officials, their
charge sheet memo etc. are served by this section. It conducts the enquiries in to the
complaints against the employees and hold departmental enquiries as and when need
arises. All these actions are taken on the direction of the higher bank authorities and its
records is maintained by the establishment section. It corresponds with various
government agencies and also helps the higher authorities in the enactment, amendment
and construction of bank manuals, acts etc. etc.
It deals with the conduct of audit and inspection of various branches of the bank. It
examines the accounts of the bank and procedures employed for their maintenance. It
detects the defalcations, embezzlement and misappropriation of funds and expenditure
incurred by the bank both on its employees and beneficiaries. At the head office no
expenditure is incurred without the approval of this section. It suggests the financial
procedure to prevent misuse of banking expenditure.
3.6 IT Department
This department deals with the maintaining computer hardwires, software and networks.
CHAPTER – 4
SWOT - ANALYSIS
SWOT ANALYSIS
SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a person
or organization identify the Strengths, Weaknesses, Opportunities, and Threats related
to business competition or project planning. A study undertaken by an organization to
identify its internal strengths and weaknesses, as well as its external opportunities and
threats.
It is intended to specify the objectives of the business venture or project and identify the
internal and external factors that are favorable and unfavorable to achieving those
objectives. Users of a SWOT analysis often ask and answer questions to generate
meaningful information for each category to make the tool useful and identify their
competitive advantage.
Strengths and Weakness are frequently internally-related, while Opportunities and Threats
commonly focus on environmental placement.
SWOTs. If the objective is not attainable, they must select a different objective and
repeat the process.
4.1 STRENGTH
4.2 WEAKNESS
In sufficient resources
To compete with nationalized banks, MUCO Bank does not have that many
resources (Finance).
Lacking in Innovative technologies
In banking industries many new innovation took place like Internet banking, Mobile
banking, Banking in android app. MUCO Bank lacks in adopting innovative
technologies due to insufficient finance.
ATM
ATM play vital role in this modern and digital world. Banks ATM is still in under
planning.
Limited area of operation
MUCO Banks area of operations is limited to Raichur district only.
Higher Interest Rates
4.3 Opportunities
Opening new branches
Opening new branches in Hungund, Hutti and in some other towns.
Constructing own buildings.
Bank’s head office and the branches are operating in rented buildings. Bank has
opportunity to construct own buildings for all branches in respective towns with
modern infrastructure which will the reduce expenses of paying rent.
Establishing ATM centers.
Bank has opportunity to establish own ATM centers and to issue ATM Cards.
Government schemes
Make in India, Digital India, Women empowerment, Start up india, Jan Dhan
Yojana, Atal Pension Yojan, Pradhan Mantri Jeevan Jyoti Bima Yojana etc are
providing new opportunities to banking industry.
4.4 Threats
Changing policies
CHAPTER – 5
RESEARCH METHODOLOGY
Research Methodology
The detailed methodology adopted for carrying out the present study is outlined below.
The methodology discusses elaborately the type of research objectives and scope of the
study, sources and collection of data, period of study and the techniques used for the study.
The limitations of the study are also included in this section.
Type of Research
The present study is analytical in nature as it attempts to make use of facts or information
already available and analyze these to make a critical evaluation of the information.
Given the significant role played by MUCO Bank in the development of Mudgal region, it
is felt necessary to examine the financial performance and position of MUCO Bank. An
attempt has been made to evaluate the financial performance and position of Mudgal
Urban Co-operative Bank and offer constructive suggestions for improving the
performance of the organization. Apart from this primary objective, following secondary
objectives have also been set out to be achieved in this study.
7. To identify the strengths and weaknesses internal to the organization and explore
the opportunities and threats external to the organization.
To draw the conclusions, a number of mathematical, financial and technical tools and
techniques have been used in this study. The analysis has been carried out basically to
know the working of the organization and to ascertain the financial strengths and
weaknesses of the Corporation.
Apart from these, an attempt has been made to collect the information from primary
source, that is, unstructured telephonic interview with the MUCO Bank authority, to get
the information required in the study.
Ratio Analysis
Ratio Analysis is claimed to be a widely used tool of financial analysis. It is the principal
technique used in judging the operational and financial performance of the business
enterprise. The analysts, through ratio analysis, can examine not only the performance of
the concerned unit but also make a comparison with other units operating in the similar
field to find out the strengths and weaknesses of the organization.
The technique of ratio analysis involves five steps, namely, formulation of objective,
collection of data, computation of ratio, comparison of ratio with the standard one and the
interpretation and conclusion. The last two steps, i.e. the comparison, interpretation and
conclusion require careful study and sound judgments on the part of the analysts because
there is no clear cut standard for each and every ratio and the interpretation of ratio values
is based on careful thought as to the kind of insight the analysts wish to obtain.
While, studying the financial performance and position of MUCO Bank, it is felt to study
various important ratios falling under the category of liquidity, leverage and profitability.
Other Tools
Apart from financial techniques, diagrammatic and graphic representations are made to
provide a simplified way of presenting the data for vivid understanding of trends and
relationships.
2) The study is based mainly on secondary data collected from the published reports,
financial statements of the sample unit and also from different books. Therefore,
the limitations entailing in the secondary data and financial statements will exist in
the study.
3) As the present study deals with a single unit, the inter-firm comparison cannot be
made and hence, its actual performance in comparison to the other Urban Co-
Operative remains unanswered.
4) The study adopts the analysis through Ratios. Since ratio itself has many loop
holes, the study also resembles the defects present in the ratio analysis.
5) Ratios are stated in numbers. These numbers are objective. But, such numbers are
interpreted by analysts. Hence, according to personal bias, same ratio may be
interpreted differently by different analysts.
6) The results obtained from the analysis of 5 years’ figures cannot be generalized.
CHAPTER – 6
FINANCIAL ANALYSIS
6. To provide the way for effective control of the enterprise in the matter of achieving
the physical and monetary targets
7. To help management in discharging its basic functions like forecasting, planning,
coordination, communication, control, etc.
8. To promote co-ordination among the departments and the staff by the study of
performance and efficiency of each department.
9. To point out the financial condition of business whether it is strong, questionable, or
poor and enables the management to take necessary steps
10. To act as an index of the efficiency of an enterprise.
CLASSIFICATION OF RATIOS
Accounting Ratios may be classified as under
1. Traditional Ratios
2. Functional Ratios
Traditional Ratios
Traditional Accounting Ratios are classified on the basis of the origin of the figures used in
the accounting ratios, i.e. on the basis of the Financial Statements from which ratios are
derived. The following ratios are usually included in this type of classification.
Ratios calculated, taking some items as appearing in the Balance Sheet and taking some
items as appearing in Profit & Loss Account, are called Mixed Ratios or Composite
Ratios, e.g. Return on Net Worth, Return on Investment (ROI), Capital Turnover Ratio,
etc.
FUNCTIONAL RATIOS
The other way of classifying the ratios in on the basis of functions they perform, what they
indicate, symptoms or characteristics, namely, liquidity, profitability, financial stability
and turnover relationship, etc. This classification assumes greater significance because it
distinctly the different aspects of business performance and helps the various users of
Financial Statements to take guard of their interest. For instance, short-term creditors are
interested to evaluate the liquidity position by analyzing the liquidity ratios, while long-
term creditors and investors are interested in the solvency and profitability position of the
organization and as such they study the solvency and profitability ratios.
1) Leverage Ratios
2) Profitability Ratios
3) Activity/Efficiency Ratios
There are, thus, two aspects of the long-term solvency of a firm: a) ability to repay the
principal when due and b) regular payment of the interest. Accordingly, there are two
different, but mutually dependent and interrelated, types of leverage ratios. First, ratios are
based on the relationship between borrowed funds and owner’s capital. These ratios are
computed from the Balance Sheet and reflect the relative / stake of owners and creditors in
financing the assets of the firm. In other words, such ratios reflect the safety margin to the
long-term creditors. The second category of such ratios is based on the Income Statement
and shows the number of times the fixed obligations are covered by earnings before
interest and taxes. In other words, they indicate the extent to which a fall in operating
profits is tolerable in that the ability to repay would not be adversely affected. In case
MUCO Bank is doing banking business (collecting deposits ) and also it not have any
fixed interest bearing security .
The relationship between borrowed funds and owners capital is a popular measure of the
long-term financial solvency of a firm. This relationship is shown by the Debt-Equity
Ratio. This ratio indicates the relative proportions of debt and equity in financing the assets
of a firm. It reveals the extent to which debt financing has been used in the business. It
discloses to the creditors the extent of their in interest being covered by the net worth by
the company. It can be computed by using the following formula.
Where,
20
15 DEBT - EQUITY RATIO
10
5
0
2012-13 2013-14 2014-15 2015-16 2016-17
Year
The term fictitious assets include preliminary expenses, deferred revenue expenditure,
discount on issue of shares and debentures, debit balance of Profit and Loss Account and
other losses shown on the assets side of the Balance Sheet.
TABLE 6.2 Showing Return on Assets of MUCO Bank
(RS. In Lakhs)
TOTAL
NET PROFIT AFTER INTEREST TANGIBLE RETURN ON
YEAR & TAX ASSETS ASSETS
32.08 1534.79 2.090188234
2012-13
50.75 1935.16 2.622522169
2013-14
62.87 2370.17 2.652552349
2014-15
58.89 2735.16 2.153073312
2015-16
54.33 3456.2 1.571957641
2016-17
RETURN ON ASSETS
3
2.5
1.5
0.5
0
2012-13 2013-14 2014-15 2015-16 2016-17
Return on Investment
Return on Investment is also known as ‘Return on Capital Employed’ or ‘Overall
Profitability Ratio’. It is calculated by establishing the relationship between the operating
profit earned and capital employed. It is an indicator of the earning capacity of the capital
invested in the business. It shows efficiency of the business as a whole. This ratio is
calculated by using the following formula :
Where,
(Or)
Capital Employed = Proprietors Funds + long-Term Loans.
RETURN ON INVESTMENT
3
2.5
1.5
0.5
0
2012-13 2013-14 2014-15 2015-16 2016-17
The Return on Investment was 1.6 in 2016-17 which implies that the Corporation was able
to earn Rs.1.6 on Rs.100 investment. It can be considered as reasonably satisfactory level
of return. The return slightly declined in the upcoming year. The Corporation earned
Rs.1.6 on Rs.100 investment which was the lowest during the study period. In the last year
of the study period there was a decline in the rate of return which is not a good sign for
MUCO Bank.
While there is no doubt that the preference shareholders are also owners of a firm, the real
owners are the ordinary shareholders who bear all the risk, participate in management and
are entitled to all the profits remaining after all outside claims including preference
dividends are met in full. The profitability of a firm from the owners’ point of view should,
therefore, be assessed in fitness of things, in terms of the return to the ordinary
shareholders. The ratio under reference serves this purpose. It relates net profit, finally
available to equity shareholders, to the capital employed by them. It is calculated as
follows:
The Return on Ordinary Shareholders’ Equity Ratio of the MUCO Bank for the last 5
years is presented in Table and Chart 6.4. The ratio values showed a fluctuating trend
during the study period. A close look at the figures reveals that the ratio values an
increasing trend in the first three years. The fourth year of the study period recorded a
declaim return which is continued in next upcoming year
By looking this trend we can concludes that those profit is increasing its portion is less
than shareholders capital.
dividing the profits available to the equity shareholders by number of outstanding shares.
The profits available to the ordinary shareholders are represented by net profits after tax
and preference dividend. Thus,
2.5
1.5
0.5
0
2012-13 2013-14 2014-15 2015-16 2016-17
The Earnings per Share values of the MUCO Bank for the study period are fluctuating in
the above table and chart. It can be observed from the above table and chart that the Bank
is not maintaining the EPS uniformly . This is mainly due low income generated in certain
years. The bank is able to generate 2 thousand and more than per share. The income
generated is justifying the contribution made by the shareholders. On the whole, the EPS
of the Corporation is considered to be satisfactory.
Activity ratios make use of purchases and sales while calculating various ratios. But,
MUCO Bank is neither a trading company nor a manufacturing company. Hence, the
question of purchases and sales does not arise in the case of MUCO Bank. Therefore, the
activity/efficiency ratios cannot be calculated for MUCO Bank.
CHAPTER – 7
7.1 FINDINGS
Guarantor belongings are also hold by bank until loan amount is completely paid by
borrower because guarantor is also equal responsible with borrower for loan
amount.
Bank will sell the properties of borrowers if they fail to repay the loan amount.
Prior to providing assistance to a new firm an intensive study is done on the
technical feasibility and financial liability of the firm by enquiring appropriate
persons and documents.
Bank applies holding method to lend money for merchants.
MUCO Bank has norms to decide the repayment period for a loan. Apart from this
cash generation capacity of the customer is considered to fix up actual repayment
period.
MUCO Bank provides guidelines to the borrowers, supervises and monitors the
progress of a firm and makes follow up during the implementation of loan amount.
MUCO Bank offers a number of schemes with different features to meet the varied
needs and requirements of the clients.
A borrower can avail financial assistance under more than one scheme and can take
additional loan before repaying the previous loan. But this depends upon the
existing loan transactions with the bank.
MUCO Bank is providing banking services not only Mudgal region but also nearer
towns.
The bank is effectively utilizing its human resources.
7.2 Suggestions
7.3 Conclusion
Mudgal Urban Co-operative Bank was established in 1998. It has been significantly
contributed to the growth of Mudgal region, development and promotion of first
generation entrepreneurs. Its initially started with Rs. 11lack, share capital. It has near Rs.
1 crore of share capital and it issued Rs. 1759.21 lakhs of loans. MUCO Bank offers a
number of schemes to serve the different needs of its clients. Although it was established
in Mudgal region it has been providing Banking services to nearer town people. Now it has
3 branches. It’s specially helping uneducated merchants in establishing, smooth running,
and expanding their business by providing loans with easy steps without asking much
documents.
To assess the financial performance and financial condition of MUCO Bank, its financial
statements were studied and analysed with the help of ratios. It is observed that MUCO
Bank is more depended on debt and it goes on increasing. During the study period it is
higher. As far as its solvency position is concerned, it is found that MUCO Bank’s assets
were insufficient to honour its long term obligations. However, a close observation of the
figures of the last years of the study period reveals that its profit and Ratios like ROA,
ROI, ROE, EPS are in decreasing in trend by that we can conclude that MUCO Bank’s
financial position is in serious issue. The earnings available to the equity shareholders also
too marginal.
On the whole, it can be concluded that though the financial results were not appreciable in
the recent years of the study period, it was able to improve its performance over the
subsequent years. But, it still needs to raise its performance standards. So that obligations
of lenders (depositors) and shareholders can be fulfil.
BIBLIOGRAPHY
I.Books:
1. Financial Management, M.Y. Khan and P.K. Jain, Tata McGraw Hill
Publishers,2013.
2. Management Accounting, Bhattacharyya Debarshi, Pearson Education,2013.
3. Research Methodology, C.R. Kothari, New Age International
Publishers,2015.
APPENDEX
As at As at As at
Particular Schedule
30-03-2017 30-03-2016 30-03-2015
CAPITAL AND
Rs . In Lacks
LIABILITIES
Share Capital A 99.8 83.48 77.62
Reserve B 356.66 308.1 251.49
Deposits C 2938.2 2271.29 1983.18
Other liabilities D 19.61 20.02 10.48
Profit E 54.33 58.88 62.86
Total 3468.6 2741.77 2385.63
As at As at As at
Particular Schedule
30-03-2017 30-03-2016 30-03-2015
INCOME Rs . In Lacks
Interest Income K 251.68 232.21 217.47
Other Income L 116.34 74.99 80.17
Total 368.02 307.2 297.64
EXPENDITURE Rs . In Lacks
Interest on Deposits M 211.18 161.22 149.8
Personnel Expenses N 36.74 26.19 24.13
Administrative Expenses O 38.79 36.08 33.96
Depreciation/Amortization P 8.82 12.53 13.75
Other Expenses Q 18.16 12.3 13.14
Profit R 54.33 58.88 62.86
Total 368.02 307.2 297.64