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Chapter - III



Review of existing literature is a prerequisite for any study. The review is

undertaken to take stock of existing knowledge base and to identify the research gap.

For the purpose of this study the available literature is thematically classified and

reviewed starting from a macro analysis related to the UCBs and ending with

literature that have a close bearing on the subject of investigation in this study. First,

the studies related to the overall performance of the banking sector and that of the

UCBs are reviewed followed by studies that deal with issues of fund/financial

management by the banks in general and the UCBs in particular. In both the cases the

macro level studies and micro level studies are included.

A study by RBI (1991) has explained how the second phase of reforms, is an

improvement in the organizational efficiency of banks and the most critical area in the

improvement of profitability of banks is the reduction of the NPAs.

Puyalvanan (1997) in his article “Structural Reforms – Implication on Urban

Co-operative Banks” has elucidated upon the impact of structural reforms on the

Urban Co-operative Banks (UCBs). He stressed on the need for a diversification in

the banking activities and called upon the UCBs to utilize the recent capital adequacy

norms and credit policy measures initiated by the RBI to their advantage in order to

compete in the new economic environment. When compared to other banks, co-

operative banks have the advantage of dealing with small borrowers at low cost which

should be tapped to their advantage.

Gupta (1997) in his article, “NPA Management: Innovation is the Key”, has

concluded that the NPAs affect the profitability of the banks and lead to liquidity

crunch and slow down in the growth in GDP.


Ajit and Banger (1998) presented a comparison of the performance of private

sector banks Vs public sector banks over the period of 1991-1997, using a number of

indicators such as profitability ratio, interest spread, capital adequacy ratio, and the

net NPA ratio. The conclusion is that Indian private banks outperform public sector


Thomasopiyoodegi, (2001) presented an analytical Study of Resource

Mobilization and Utilization of funds by Export-Import Bank of India. The main

objective of the study is to analyze the mobilization of resources and utilization of

funds by export import bank of India. The findings of the study shows that the

major portion of the funds mobilized by the bank has been used for providing loans

and advances and a certain amount of funds are also parked in current assets. The

study also gives some valuable suggestions for prudent funds management by the

export and import bank of India. The findings of this study have many issues of

significance to other banks including UCBs.

Rajitha Kumar (2001) in his article “Working of Urban Co-operative Banks-

A Case Study” has analyzed the working of the Palani Urban Co-operative Bank Ltd,

Palani in Tamilnadu. An analysis was made in terms of deposit mobilization giving

loans and advances and ability to earn profit. The author finds out that the bank’s

performance in mobilization of deposit was good during the ten years from 1980-1981

to 1998- 1999. At the same time during this period the trend of giving loans and

advances by the bank also showed increasing trend. But the credit deposit ratio

revealed that it has reduced during this period and in 1996-1999, this ratio was below

50%. It indicates that the bank could not utilize the deposit to the maximum extent

for giving loans and advances, so the bank keeps more surplus funds. The analysis of

recovery performance of the bank also showed that it was not so satisfactory. The


author suggested that the bank should take initiative to assess the need of the people

in its area of operation and frame need based loan schemes instead of conventional

method of loans to attract more and more people to take loans and advances from the


Gurumoorthy (2002) in his article “Performance of Urban Co-operative

Banks” mentioned that UCBs are parking centers for deposits. Their rate of interest

for deposits is more than the public sector banks. It is the need of the hour to utilize

the mobilized deposits profitably.

Kishore Kant Singh (2002) in his article “Critical Analysis of Profitability of

Commercial banks in India” analyze the productivity and profitability of commercial

banks particularly after nationalization and suggests measures to strengthen their

profit earning capacity. The major findings of the study includes that there was a

rapid expansion of banking services with the opening of bank branches in rural and

semi-urban areas and there was not considerable improvement in the profitability

position of the commercial banks.

Regnaraj (2002) in his article “Mobilization of Deposits by Co-operative

Central Banks in Andhra Pradesh” discusses the deposit mobilized by the selected

Central Co-operative Banks in Andhra Pradesh. Further, the study also probes into the

administrative arrangement made by the DCCB level for the purpose of securing

deposits at various business centers. The study reveals that the membership is

extraordinarily high in politically active and faction ridden district such as Anantapur,

and Cuddaph with regard to sources of deposits to the DCCBs the quantitative

analysis explains that the share of individual and institutional sources together is

greater than share of Co-operative societies. The study shows that the services

provided by the bank to depositors are not much attractive.


Santi Gopal Majii and Sorna Dey (2003) in their article entitled, “Management

of NPAs in Urban Co-operative Bank – A Case Study” has studied about Khatra

People’s Co-operative Bank and have analyzed amount-wise, age-wise, loan head

wise, sector wise classification of NPAs and identified the factors responsible for the

growth of the NPAs.

Subbiah and Rajitha (2004) conducted a study entitled “Progress of Urban Co-

operative Banks in India”. In their study they found out that there is an increase in the

amount of owned funds, deposits, borrowings, working capital and loan outstanding,

over dues and the like.

Avinash Raikar (2004) in his article “Performance, Problems and Prospects

of the Urban in Co-operative Banks in Goa” reviews the initiatives that are

undertaken by the RBI to reform the UCBs in India and assess the impact of these

changes on the UCBs in Goa. The study uses the concepts of ‘Linear Growth Rate

(LGR)’ Compound Growth Rate (CGR), to study the trend in the indicator of the

UCBs. The indicators that are used here are share capital, owned funds, deposits,

investments, loans and advances, net profits and credit deposit ratio. The study

analyses the data for the period between 1980-81 and 2002-03 and concludes that the

reforms have slowed down the growth rate of some of the above indicators. In recent

years, the competition between the banks has intensified but this has not adversely

affected the capacity of the UCBs to grow and make profit.

Amit Shrivastava (2005) in his article “Recovery of Advances; A Big Problem

for the Urban Co-operative Banks”, stated that the proliferation of the Urban Co-

operative Banks all over India Since 1996 has been quite impressive. They have been

able to mobilize more than Rs. 1 lakh crores in term of deposits and over Rs. 60,000

crores in terms of advances. In one way they have been trying to deposits and liberal


attitude towards interest on deposits has become a headache of this sector. Public

confidence in these banks suffered a severe setback. While this image will not be

easy to change, strictly adhering prudential norms and following disclosure

requirements can do much.

Ravi (2005) has analysed the performance of five Urban Co-operative Banks

registered in Virudhunagar District of Tamilnadu. He focuses on the overall

efficiency of the five UCBs in deposit mobilization and in lending loans and advances

to their members and comparison was made between the performance of the UCBs at

district and National level.

Saveeta Saggar (2005) in her book, “Commercial Banks in India” analysed the

productivity and profitability behavior of commercial banks in India. Further, he

analysed the relationship between the NPAs and banks profitability. In his analysis he

highlighted the factor determining profitability of different categories of banks and

suggested steps to improve profitability.

Surychandra Rao (2006) in his article “Reforms in Indian Banking Sector:

Evaluation Study of the Performance of Commercial Banks” analyses the impact of

reform measures on the efficiency, profitability and overall performance of 27 public

sector banks and 30 private sector banks functioning in India. The study evaluates the

performance of public and private sector banks separately and compared with eleven

indicators and then their performance with regard to the adherence to prudential

norms relating to asset classification and capital adequacy norms. The study also

examines the customers’ perception towards service offered by the scheduled banks.

The major finding of the study shows that the response of the banks to the reforms has

been impressive. The bank has been adjusting very well to the new environment. The

reforms have not enhanced opportunities but at the same time throw challenges as


well. There is shift of focus from process based management to risk based

management. The financial health of the banks improved due to prescribed prudential

norms. Further, to improve the capabilities to cope up with challenges of the dynamic

environment it also gives various suggestions.

Desai Suresh (2006) in his article “Performance Appraisal of Urban Co-

operative Banks in North Gujarat” analyzes the financial performance of twenty urban

Co-operative banks. The study covers a period of seven year commencing from 1997-

98 the Urban Co-operative Banks in North Gujarat and in the changed banking

business environment particularly after enactment of new economic policy. The

financial performances of sample banks during the period of study are good.

Samwel and .Selvam (2006) in their article” Financial Analysis of Urban Co-

operative Banks in Dindigul District in Economic Environment” revealed that the

deposits (80.13%) were the major source of funds of the UCBs in the district, of

which 51.20% were mobilized in the form of credit. The solvency position and

recovery position of the banks were found good. The study suggests innovative loan

schemes, diversification and intervention in new markets for additional income

generation by the UCBs. Besides that study urged for adequate fund management,

linking salary to productivity, efficient and effective business skills, and de-

bureaucratization of co-operative banking system to achieve competitive edge in the

era of economic liberalization and globalization.

Ramu (2006) in his article “SWOT Analysis of the Urban Co-operative

Banking Sector in India” has identified some of the major strengths and weaknesses

/problems areas of the UCBs vis-à-vis opportunities and threats of the UCBs due to

the impact of New Economic Polices / Reforms on Co-operative Sector. An attempt

has been made by an in-depth SWOT analysis for the UCB sector to cope with the


challenges thrown up by the reforms in the banking sector. In a way, it forces the

UCB to re-position themselves in the increasingly competitive environment.

Khandare (2007) in his study titled, Viability of Urban Co-operative Banks in

Maharastra found excess viable during the study period 1992-2004. He studied

almost all the parameters like owned funds, deposits, advances, working capital,

credit-deposit ratio, business per employee and overdue to advances.

Mukul Asher (2008) in his article “Reforming Governance and Regulation of

Urban Co-operative Bank in India” finds that if the UCBs are to remain relevant and play

a significant developmental role in India, they will require same quality of governance

and regulation as well as professionalism and modernization as the main stream

commercial banks. The governance and regulatory structure need to be brought in

conforming with India’s current and prospective and prospective economic structure and

relevant laws modernized. This requires a paradigm shift in the role of the UCBs.

Jeur Rajendra Dhanappa (2009) in his article “Disproportionate Progress of

Urban Co-operative Banks in India” has studied the share capital, reserves, deposits

mobilization and disbursement of loans and advances of the Urban Co-operative Bank

in India. He has pointed out that the business of the Urban Co-operative Banks has

highly concentrated in the five major states. Since the inception of the LPG Policy

the RBI is continuously imposing stringent norms to the UCBs as equal to

commercial banks. As a result, the progress of the UCBs has hampered. It is

observed that the banking sector reforms have seriously hindered the UCB sector in

the developed states than in the less developed states.

Devasigamani (2009) in his article “Ratio Analysis: Urban Co-operative Bank

Working Capital” has stated that the working capital is the life blood of the urban Co-

operative Banks. If the banks face negative working capital position, they cannot


save their life. He said that the ratio like current ratio, liquid ratio, inventory to sales

ratio, average collection period, working capital turnover ratio and current assets to

total assets should be undertaken effectively by the urban Co-operative banks. It will

enable the urban Co-operative banks to manage their resources more efficiently and


Joseph Xavier and Rajeswari (2010) in their article “ Performance Analysis of

the Sivakasi Co-operative Urban Bank” have analysed the profitability performance

of Sivakasi Co-operative urban bank through examination of income and expenditure

pattern and its liquidity and solvency position using percentage using percentage

analysis, growth rate, correlation, trend analysis and ratio analysis. They have

concluded that the profitability performance of the Sivakasi Co-operative Urban Bank

Ltd is highly appreciated.

Senthil (2010) in his article “Positive impact of Urban Co-operative Banks in

Service Sector” had exhibited the importance of urban co-operative banks for the real

growth of service sector.

Nimbalkar and Nimbalkar (2010) in their article “Urban Co-operative Banks-

SSI and NPAs” analyzed the financial performance and priority sector lending of all

the UCBs and also priority sector lending by public, private and foreign banks. They

have stated that the priority sector lending to micro and small enterprises by public,

private and foreign banks are less than the UCBs. But this performance of the UCBs

is not adequate, because these banks are facing the problem of Non-performing assets.

Avudaiammal and Vansanthi (2011) in their article” A Study on Non-

performing Assets of Urban Co-operative Banks in Tamil Nadu “state that the Non-

performing assets have negative impact on the productivity, achievement of capital

adequacy level, fund deployment and mobilization policy, credibility of the banking


system and overall economy. Therefore, concerted efforts are required at the Ministry

of Finance, the Reserve Bank of India and Banks level to control the menace of the

non-performing assets.

Kannapiran (2011) in his article, “A Study on the progress and Deposit

Mobilization pattern of Coonoor Co-operative Urban Bank Limited in Nilgiris District

of Tamil Nadu”, has analysed the deposit mobilization pattern of the Coonoor Co-

operative Urban Bank Limited. He has concluded that the bank is not progress well

during the study period (1999-2000 to 2008-2009) and also suggested one of the

important activities of the bank to be undertaken in future is decreasing fixed deposits.

The bank must also undertake safe lending practices to reduce the over dues.

The review of literature clearly establishes that issues related to financial

management in financial instsitutions such as banks have attracted lot of research

interest. Apart from studies sponsored by institutions such as RBI, there have been

many studies on specific issues related to fund and investment management in

financial institutions.

However, majority of the studies focus on pubic and private sector banks and

genrally neglect the Co-operative banks in general and UCBs in particular. Even the

studies that have focus on UCBs deal with partial segment of fund and investment

management by taking small micro examples.

There is no study that takes UCBs of an entire state as domain of study. Since

Co-operation is a State subject and there are distinct features of UCBs in each State it

is necessary to consider the State as a unit of study. Further, there is also a need to

consider all categories of the UCBs in the study, in order to make specific policy

recommendations. The present study attempts to address this need.