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CHAPTER I

NATURE, SCOPE, OBJECTIVES, RESEARCH METHODOLOGY OF

THE THESIS AND SURVEY OF LITERATURES

� Introduction

� Co-Operative Banking in India

• Introduction of co-operative banks

• History of co-operative banks in India

• RBI Policies for co-operative banks

• Types of Co-operative Banks

• Functions of co-operative banks

• Problems of Co-operative Banks

• Rationale behind the Study

� Major Challenges before the UCB

� Objectives of Thesis

� Hypothesis

� Scope of Study

� Research Methodology

� Abbreviations used in Chapter

� UCB :- Urban Cooperative Bank

� AIRCSC:- All India Rural Credit Survey Committee

� NABARD :- National Bank for Agriculture and Rural

Development

� RBI :- Reserve Bank of India

� CRR :- Cash Reserve Ratio

� SLR:- Statutory Liquidity Ratio

� ATM :- Automated Teller Machine

� DTL:- Demand or Time liabilities

� NEP :- New Economic Policy

� CAMELS:- Capital Adequacy, Asset Quality, Management,

Earning, Liquidity, System and Controls

� CALCS :- Capital Adequacy, Liquidity, Compliance and

Systems

� RBS :- Risk Based Supervision

� RRB :- Regional Rural Bank

� FI : Financial Institutions

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� CRAR :- Capital to Risk Weighted Asset Ratio

� NPA :- Non Performing Assets

� IT :- Information Technology

� UCO Bank :- United Commercial Bank

� SBI :- State Bank of India

� ICICI :- Industrial Credit and Investment Corporation of

India

� HDFC :- Housing Development Finance Corporation

� ARC :- Asset Reconstruction Company

� SHG :- Self Help Groups

� NGO :- Non- Governmental Organizations

� LIC :- Life Insurance corporation of India

� PAN :- Permanent Account Number

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Chapter I

Nature, Scope, Objectives, Research Methodology of thesis and survey of

literatures

Introduction

The chapter briefly deals with the history of cooperative banking with

special reference to cooperatives. The nature and scope of the thesis and

research methodology is discussed. The thesis data is based on both

exploratory and descriptive research. The last part of the thesis covers the

literature review.

Co-operative banks: - Nature, Scope and Significance

Co-operative movement was founded in England in 1793, when the

ethics of co-operation were foremost propagated by Robert Owen, a poor

Welshman, who is called as the “Father of Modern Co-operative Movement”.

The co-operative movement was first occurrence in England. The

commencement of co-operation was on 24th

October, 1844, when the

Rochdale Pioneers established the first consumers’ co-operative store under

the name of “Rochdale Equitable Pioneers Society” at Rochdale near

Manchester so that the flannel weavers of Rochdale secure their household

requisites at wholesale price to get rid of exploitation by the retailers. On

historian of Co-operative ideas, G. Mladenat has classified co-operatives into

three main groupings or systems. These three systems are the Rochdale

System, The Raiffeisen System and Schulze’ -Delitzsch System. These three

systems were adapted to the needs of particular social categories i.e.

Consumers, farmers, and independent artisans or traders. Mr. Schulze founded

his first loan society in 1850 to provide cheaper credit to the artisans in the

cities and to inculcate the habit of thrift among them. Thus, there came into

existence the first urban credit society in the world.

The idea of co-operation or interdependence in India is not entirely “a

new device". However, the use of the word in the modern sense is not native

to the country. Co-operation in India has been evolved since time immemorial.

Our Vedas, Upanishadas, and Bhagawat Purana have fully described to co-

operative existence. In Vedas, prayers have been made to the Almighty God to

give the human being power and desire to work together, to live together and

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to think together. In Bhagawat Purana, individual ownership is permitted only

to the extent of requirement of food. The Arthashastra of Kautilya also

mentioned the co-operatives. Even a close study of our present day village life

in any part of the country convinces the deep-rooted spirit of co-operation

permeating all socio-economic activities

The Co-operative Credit Movement in India, in the former sense is a

State sponsored movement. The movement in progress to set frees the farmers

from i.) clutches of moneylenders, ii) to eradicate poverty and to iii) provide

credit to agriculture sector. Government of India under British Rule had

entrusted this task to Sir Fredrick Nicholson in 1892. He studied the theory

and practice of agricultural land banks in Germany, Egypt and Europe and

reported, “Every village must find Raiffeisen”. In his two exhaustive Reports

(1897 and 1899) he recommended starting of credit co-operative societies in

Indian villages. The Famine Commission of 1898 also strongly advocated the

thought of co-operation for Indian agriculturist. At the same time Mr.

Dupernex of Indian Civil Service in UP., published a book named “People’s

Bank for Northern India”.

The above milieu, briefs a root of corporatism in the human history,

especially Indian leaning. The cooperative banking along with other types of

cooperatives ,later on strengthens the cooperative spirit .Co-operative banking

is one of the most important economic systems, run on self-governing lines to

attain economic escalation with social and economic social equality both agro-

rural and industrial -urban sectors and people in them. In fact, urban people

with a small means are unable to offer any tangible security other than their

own personal security. They do not satisfy the standards followed by the

commercial banks, thus they do not get adequate credit. Thus, urban people

have obtained credit from moneylenders. The circumstances needed an

agency, which will provide cheaper and adequate credit to extricate the urban

people with a limited means from the clutches of the usurers. From the

inception of the planning era in the country, the thrust of the government

policy has been the development of agricultural and allied activities as,

initially, the rural areas deserved urgent attention than the urban areas.

Nevertheless, ameliorative programmes concerning the urban lower middle

and poor classes could not receive due attention up to the First Five Year Plan.

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Therefore, a large number of urban and semi-urban people were left without

any institutional finance agency

A co-operative bank is a financial entity which belongs to its members,

who are at the same time the owners and the customers of their bank. Co-

operative banks are often created by persons belonging to the same local or

professional community or sharing common interest. Co-operative banks

generally provide their members with a wide range of banking and financial

services (loans, deposits, banking accounts etc.). Co-operative banks differ

from stockholder banks by their organization, their goals, their values and

their governance. In most countries, they are supervised and controlled by

banking authorities and have to respect prudential banking regulations, which

put them at a level playing field with stockholder banks. Depending on

countries, this control and supervision can be implemented directly by state

entities or delegated to a co-operative federation or central body.

Co-operative banking institutions take deposits and lend money in

most parts of the world. Co-operative banking, includes retail banking, as

carried out by credit unions, mutual savings and loan associations, building

societies and co-operatives, as well as commercial banking services provided

by manual organizations (such as co-operative federations) to co-operative

businesses. The structure of commercial banking is of branch-banking type;

while the co-operative banking structure is a three tier federal one. - A State

Co-operative Bank works at the apex level (i.e. works at state level).- The

Central Co-operative Bank works at the Intermediate Level.(i.e. District Co-

operative Banks ltd. works at district level)- Primary co-operative credit

societies at base level (At village level).Besides this , an Urban Cooperative

Banks(UCBs) are organized in urban areas. Even if co-operative banks

organizational rules can vary according to their respective national

legislations, co-operative banks share common features as follows:

Customer-owned entities: In a co-operative bank, the needs of the

customers meet the needs of the owners, as co-operative bank members are

both. As a consequence, the first aim of a co-operative bank is not to

maximize profit but to provide the best possible products and services to its

members. Some co-operative banks only operate with their members but most

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of them also admit non-member clients to benefit from their banking and

financial services.

Democratic member control: Co-operative banks are owned and

controlled by their members, who democratically elect the board of directors.

Members usually have equal voting rights, according to the co-operative

principle of “one person, one vote”.

Profit allocation: In a co-operative bank, a significant part of the

yearly profit, benefits or surplus is usually allocated to constitute reserves. A

part of this profit can also be distributed to the co-operative members, with

legal or statutory limitations in most cases. Profit is usually allocated to

members either through a patronage dividend, which misrelated to the use of

the co-operative’s products and services by each member, or through an

interest or a dividend, which is related to the number of shares subscribed by

each member. Co-operative banks are deeply rooted inside local areas and

communities. They are involved in local development and contribute to the

sustainable development of their communities, as their members and

management board usually belong to the communities in which they exercise

their activities. By increasing banking access in areas or markets where other

banks are less present, farmers in rural areas, middle or low-income

households in urban areas - co-operative banks reduce banking exclusion and

foster the economic ability of millions of people. They play an influential role

on the economic growth in the countries in which they work in and increase

the efficiency of the international financial system. Their specific form of

enterprise, relying on the above mentioned principles of organization, has

proven successful both in developed and developing countries.

For the co-operative banks in India, co-operatives are organized groups

of people and jointly managed and democratically controlled enterprises. They

exist to serve their members and depositors and produce better benefits and

services for them. Professionalism in co-operative banks reflects the co-

existence of high level of skills and standards in performing, duties entrusted

to an individual. Co-operative bank needs current and future development in

information technology. It is indeed necessary for cooperative banks to devote

adequate attention for maximizing their returns on every unit of resources

through effective services. Co-operative banks have completed 100 years of

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existence in India. They play a very important role in the financial system. The

cooperative banks in India form an integral part of our money market today.

Therefore, a brief resume of their development should be taken into account.

The history of cooperative banks goes back to the year 1904. In 1904, the co-

operative credit society act was enacted to encourage co-operative movement

in India. But the development of cooperative banks from 1904 to 1951 was the

most disappointing one. The first phase of co-operative bank development was

the formation and regulation of cooperative society. The constitutional reforms

which led to the passing of the Government of India Act in 1919 transferred

the subject of “Cooperation” from Government of India to the Provincial

Governments. The Government of Bombay passed the first State Cooperative

Societies Act in 1925 “which not only gave the movement, its size and shape

but was a pace setter of co-operative activities and stressed the basic concept

of thrift, self-help and mutual aid.” This marked the beginning of the second

phase in the history of Co-operative Credit Institutions. 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 (CPC) (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 (RBEC) (1950), impressed by the low cost of

establishment and operations recommended the establishment of such banks

even in places smaller than taluka towns. The real development of co-

operative banks took place only after the recommendations of All India Rural

Credit Survey Committee (AIRCSC), which were made with the view to fasten

the growth of co-operative banks. The co-operative banks are expected to

perform some duties, namely, extend all types of credit facilities to customers

in cash and kind, advance consumption loans, extend banking facilities in rural

areas, mobilize deposits, supervise the use of loans etc. The needs of co-

operative bank are different. They have faced a lot of problems, which has

� ��

affected the development of co-operative banks. Therefore it was necessary to

study this matter. 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 co-operative 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 centre where UCBs were incorporated.

RBI Policies for co-operative banks

The RBI appointed a high power committee in May 1999 under the

chairmanship of Shri.K. Madhav Rao, Ex-Chief Secretary, Government of

Andhra Pradesh to review the performance of Urban Co-operative Banks

(UCBs) and to suggest necessary measures to strengthen this sector. With

reference to the terms given to the committee, the committee identified the

following broad objectives:

� To preserve the co-operative character of UCBs

� To protect the depositors’ interest to reduce financial risk

� To put in place strong regulatory norms at the entry level to sustain the

operational efficiency of UCBs in a competitive environment and

evolve measures to strengthen the existing UCB structure particularly

in the context of ever increasing number of weak banks

� To align urban banking sector with the other segments of banking

sector in the context of application or prudential norms in to and

removing the irritants of dual control regime

RBI has extended the Off-Site Surveillance System (OSS) to all non-

scheduled urban co-operative banks (UCBs) having deposit size of Rs. 100

Crores and above.

Types of Co-operative Banks

The co-operative banks are small-sized units which operate both in

urban and non-urban centers. They finance small borrowers in industrial and

trade sectors besides professional and salary classes. Regulated by the Reserve

Bank of India, they are governed by the Banking Regulations Act 1949 and

� ��

banking laws (co-operative societies) act, 1965. The co-operative banking

structure in India is divided into following 5 components:

Primary Co-operative Credit Society

The primary co-operative credit society is an association of borrowers

and non-borrowers residing in a particular locality. The funds of the society

are derived from the share capital and deposits of members and loans from

central co-operative banks. The borrowing powers of the members as well as

of the society are fixed. The loans are given to members for the purchase of

cattle, fodder, fertilizers, pesticides, etc.

Central co-operative banks

These are the federations of primary credit societies in a district and

are of two types those having a membership of primary societies only and

those having a membership of societies as well as individuals. The funds of

the bank consist of share capital, deposits, loans and overdrafts from state co-

operative banks and joint stocks. These banks provide finance to member

societies within the limits of the borrowing capacity of societies. They also

conduct all the business of a joint stock bank.

State co-operative banks

The state co-operative bank is a federation of central co-operative bank

and acts as watchdog of the co-operative banking structure in the state. Its

funds are obtained from share capital, deposits, loans and overdrafts from the

Reserve Bank of India. The state cooperative banks lend money to central co-

operative banks and primary societies and not directly to the farmers.

Land development banks

The Land development banks are organized in 3 tiers namely; state,

central, and primary level and they meet the long term credit requirements of

the farmers for developmental purposes. The state land development banks

oversee, the primary land development banks situated in the districts and tehsil

areas in the state. They are governed both by the state government and

Reserve Bank of India. Recently, the supervision of land development banks

has been assumed by National Bank for Agriculture and Rural development

(NABARD). The sources of funds for these banks are the debentures

subscribed by both central and state government. These banks do not accept

deposits from the general public.

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Urban Co-operative Banks

The term Urban Co-operative Banks (UCBs), though not formally

defined, refers to primary co-operative banks located in urban and semi-urban

areas. These banks, till1996, were allowed to lend money only for non-

agricultural purposes. This distinction does not hold today. These banks were

traditionally centered on communities, localities, work place groups. They

essentially lend to small borrowers and businesses. Today, their scope of

operations has widened considerably. The origins of the urban co-operative

banking movement in India can be traced to the close of nineteenth century.

Inspired by the success of the experiments related to the cooperative

movement in Britain and the co-operative credit movement in Germany, such

societies were set up in India. Co-operative 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.

They mainly rely upon deposits from members and non-members and in case

of need, they get finance from either the district central co-operative bank to

which they are affiliated or from the apex co-operative bank if they work in

big cities where the apex bank has its Head Office. They provide credit to

small scale industrialists, salaried employees, and other urban and semi-urban

residents.

Functions of co-operative banks

Co-operative banks also perform the basic banking functions of

banking but they differ from commercial banks in the following respects

� Commercial banks are joint-stock companies under the companies’ act

of 1956, or public sector bank under a separate act of a parliament

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

society’s acts of different states.

� Commercial bank structure is branch banking structure whereas co-

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

apex level, central /district co-operative bank at district level, and

primary co-operative societies at rural level. There are also

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autonomous Urban cooperative Banks controlled by RBI/Govt as per

banking regulation Act and Cooperative Laws.

� 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

� The Co-operative banks function on the principle of cooperation and

not entirely on commercial parameters.

Problems of Co-operative Banks

Duality of control system of co-operative banks

However, concerns regarding the professionalism of urban co-

operative banks gave rise to the view that they should be better regulated.

Large co-operative 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’s

supervision. This marked the beginning of an era of duality of control over

these banks. Banking related functions (viz. licensing, area of operations,

inter-states dealings 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, UCB’s were extended the

benefits of deposit insurance. Towards the late 1960s there was debate

regarding the promotion of the small scale industries. UCB’s 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

these banks should finance the small and cottage industries. This was

reiterated by the Banking Commission in 1969.

The Madhavadas Committee (1979) evaluated the role played by urban

co-operative banking 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 utilization of bank’s 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 Madhav 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’ 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 Authorized Dealers in Foreign

Exchange.

Major Challenges before the UCB:

The scenario of lowered spreads continued. Banking became

synonymous with technology. It was observed that all technology driven

banks were comfortable with lower spreads but were offering a whole gamut

of technology driven services which could earn them fees. It is gradually

becoming inescapable to utilize ATMs as a distribution channel in a drive to

come still closer to the customers. Indian Banking is moving from being

largely domestic to a truly international one. Indian Banking costs are very

high as compared to other countries and this can be offset only if the loom to

economies of scale is adopted. Owing to this factor Indian Banking saw

mergers occurring, not the acquisition of weak by the strong, but mergers

between equals (HDFC Bank and Times Bank) (ICICI Bank & Bank of

Madura).Due to slackness in Industrial Sector and major industrial houses

going directly to the market, the portfolio of industrial advances showed

reduction and the overdue in industrial advances showed increase. This also

has necessitated a conscious shift in portfolio from industry to service sector.

Few UCBs have geared itself well for facing all these challenges. With better-

personalized customer service, efforts were made to increase business by

volumes. Owing to depressing industrial growth, the emphasis was given on

retail credit. Other areas attracting instantaneous attention are:

(i) Low cost of Funds.

(ii) Implementation of total Bank Computerization in an intense

(iii) Better Human Resource Management

� ����

(iv) Introduction of innovative services and products.

(v) Attainment towards Optimum Firm principles in banking

(vi) Public VS private Good

(vii) Customers/Borrowers/Depositors Satisfaction

(viii) Internal, External and General Public/Govt. Controls

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Rationale behind the Study

The need for the provision of credit facilities to town-dwellers was as

much urgent as it was in villages in order to combat usury. Joint stock banks

were not interested in developing the business of small loans, because the cost

of advancing and recovering them was high. Further, as joint stock banks were

not likely to have under ordinary circumstances full and intimate knowledge

of the standing and resources of persons of moderate means, they would not

advance loans on personal security. Ultimately, number of persons with

small means, residing in urban and semi-urban area like small traders, artisans,

townsmen, factory workers, servicemen, hawkers, feriwalas, cottage workers,

small industrialists, professionals, self-employed persons, petty shopkeepers,

retailers, etc. require credit for their productive and consumption needs. This

has given a rise to the movement of developing urban cooperative banking for

the use of urban dwellers.

Although the urban co-operative banks operate under the purview of

Banking Regulation Act, they are philosophically quite different from the

Commercial Banks. They are smaller, their area of operation is limited, and

they have limited but particular and committed clientele. The urban co-

operative banks have less of "Walk-in" customers. The deposit base of them

generally does include corporate and large institutional funds. The urban co-

operative banks being the co-operative institutions, they are abiding to follow

the co-operative principles and values (i.e. open and voluntary membership,

democratic management, equitable distribution of surplus, limited interest on

� ����

capital, co-operative education, co-operation among co-operatives and concern

for the community etc.) Considering the role, importance and responsibility of

urban co-operative banks, they must be viable, productive and operationally

efficient enough in performing their socio-economic responsibility in an

effective manner.

Looking to importance of Urban Cooperative Banks, it is decided to

concentrate the study on the Finances of Urban Cooperative banks in

Maharashtra with special reference to Cost, Profitability and Utility during the

Era of Globalization. The Globalised economy has made tremendous impact

on various banking systems, including urban cooperative banking

Under the diverse settings, the various experts, working groups and

committees with the help of financial parameters in general and priority sector

lending in particular, continuously do the financial appraisal of commercial

banks and urban cooperative banks. As consequences, their financial

performance appraisal has remained un-masked and largely known to the

banking community, users of their services and Government. However, the

qualitative information was largely not given satisfactory treatment in the

analysis based on the financial statement especially focusing cost, profitability

and utility. In view of this, it is decided to explore not only the finances of

these banks but also more detection of qualitative facts under the caption as “A

Study of Finances of Urban Cooperative Banks in Maharashtra with special

reference to Cost, Profitability and Utility during the Era of Globalization

“.The study first time after 2000 covers the whole of Maharashtra and focuses

on the various financial parameters of UCBs in globalised economy.

There are various types of criterion to evaluate the performance of any

financial Institution including a bank. One of the important criterion's for

judging the efficiency of any business enterprise is its profitability. However,

there is a considerable difference of opinion to yardstick by which the

performance and efficiency of the banks and particularly of co-operative banks

may be assessed. The level of deposits, the height of advances, the echelon of

population covered by rendering banking services, growth of membership,

numbers of beneficiaries particularly of weaker section etc., may be the

measures of performance of co-operative bank to make the real assessment.

The urban co-operative banks are working under the purview of co-operatives,

� ����

and hence the level of co-operative principles followed and services rendered

by the banks to their members may judge their performance or efficiency. In

spite of these numerous yardsticks used in performance appraisal, the focal

objectives set for thesis were to assess the various facts, which are

instrumental for fund procurement and its productive/ efficient utilization by

UCBs.

In the perceptive of above intelligence, the following objectives are

framed for the thesis

Objectives of Thesis

Based on the previous discussion, the objectives of the thesis are set as ahead

� To highlight the Noteworthy Features Leading to Increase Profitability

& Utility

� To bring to light through the survey of literature the views of the

various authors and committees on the topic selected for the thesis

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� To know the Governance Measures in Augmenting Profitability &

Utility

� To find out how Utility Feel through Public Relations be able to aid in

Alleviating the Customer Related Challenges

� To appraise the cooperative Legal Governance over banking for

Smooth & Socially Useful Operations

� To do the schoolwork on Modern Technology in Banking Sector for

Profitable, Efficient & Useful Operations

� To Survey UCBs Officials’ and Customers’ to comprehend their

perceptions /Utility feel over the banking services

� To advanced the necessary Recommendations for increase in

profitability, utility of the banking services in minimum costs

Hypothesis

� There has been increasing impact of modern technology

leading to customers satisfaction and fast services (Table

No. 9.22)

� Customers Awareness to Modern Technology is of at low

level (Table No.9.13)

� ����

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Scope of Study

It covers the whole of the Maharashtra and is based on the annual

reports of the UCBs and sampled/experience survey of the respondents from

the selected UCBs from the State of Maharashtra.

Research Methodology:

The same consists of exploratory and descriptive types as given ahead:

(i)Survey of Literature

This was undertaken through the following sources:

a) Annual Reports, Audit Reports, other Documents and record of UCBs.

b) Legal provisions relating to Cooperative Banking

c) Newspapers and magazines having concern with Cooperative Banking.

d) Books, pamphlets, brochures, etc. relating to Cooperative

Development.

e) Reports on Cooperative Banking prepared by Government and private

bodies or individuals.

f) Office record of Cooperative Department

In order to get the above study material, the offices of Government and

various university Libraries were visited for the necessary information.

(ii)Experience Survey

There was a need to collect experiences of the people who are directly

or indirectly have concern to the subject selected for thesis. Because of this

need, UCBs Offices- Managers, / Directors / customers, Government officers,

etc. were contacted for collecting the information about working of UCBs. All

� ����

these persons or authorities are or were either working or

controlling/supervising/coordinating/participating the business of UCBs.

While selecting the respondents for interview, the care was taken to

select only those who possessed a competence, relevant experience and ability

to communicate. Some respondents were contacted at their homes. Prior to

get in touch with them, they were provided with the information about the

objectives of the research study. The respondents to be selected for

interviewing were from the different classes or from the different social status.

Efforts were made to ensure an appropriate representations of the different

types of experiences, including the respondents from all categories i.e.

Managers, Bank Inspectors, customers, leaders etc. During the course of

interviewing, each respondent was asked only the relevant questions; having

due regard to his relation with the Bank Business.

The number of persons to be contacted for enquiry was kept different

in number for different purposes. For example, the queries about utility of

services of banks were made with about dozen numbers of Bank customers or

borrowers. The queries about the role of Cooperative Department of the

Maharashtra State about bank profitability were made with few officers,

working in the UCB.

The experience survey provided in-depth vision about the various

problems and dimensions of UCB business environment that existed and also

provided vision over the matters of employees & customers having direct

concern to Banks. Another advantage of experience survey was that it

facilitated the suitable formulation of questionnaire for descriptive study

method.

(iii) Descriptive method

1. The main aim of UCB is to procure funds and use the same for advancing

by keeping some portion in the form of reserve or investment to

accomplish self financial resources and stability. The procurement of

funds in the form of share capital, deposits and borrowings entail the cost

which should be minimum while fund so procured is used for loaning for

the benefit/utility of the pubic as well as for yielding the profit or surplus

over and above the expenditure .The chapter No. iv categorically considers

� ���

all these aspects revolving around the financial ingredients i.e. Owned

Funds, Deposits, Investment and Advancing .A sample of about 30 UCBs

(One UCB from each dist.) from Maharashtra was taken by using

purposive sampling selection technique where weightage was given to the

strength of capital employed by the UCB. The data and other related

information of these 30 sampled UCBs was collected to appraise the issues

under questions

2. Survey of UCB Executives :-The II part of the chapter ix deals with the

analysis and interpretation of the data which is collected with the help of

questionnaire, personal interviews and discussions with 30 senior

Executives of the selected 10 UCBs @ 3 senior Executives per UCB.

These senior Executives were selected by using judgment sampling

technique based on the seniority criteria of the Executives of the UCB.

3. Survey of UCB Customers:-The last part of the chapter ix deals with the

survey of Customers and the total number of customers selected under

convenience sampling method was being 200 from the selected five UCBs

@ 40 customers per UCB

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Chapter Scheme

I Nature, Scope, Objectives, Research Methodology of the thesis and survey of

literatures

II Noteworthy Features Leading to Increase Profitability & Utility of UCBs

III Cost, Profitability and effectiveness: Their Dimensions and Dilemmas (?)

IV Cost, Profitability and Utility Aligned With Management of Owned Funds,

Deposits, Investment and Advancing

V Governance Measures in Augmenting Profitability & Utility

VI Utility Feel through Public Relations to Alleviate the Customer Related

Challenges

VII Legal Governance over Banking Cooperatives for Smooth and Socially Useful Operations

VIII Modern Technology in Banking Sector for Profitable, Efficient & Useful

Operations

IX Survey of UCBs Officials’ and Customers’ perceptions /Utility feel over the

� ���

banking services

X Summary/Conclusion, Recommendations

Survey of Literature

The following survey of literatures brings out the various facts of commercial

bank finances in general, while few books delineate the same topic with

special reference to cost, profitability and utility. Though the study has main

object of covering the various issues of urban cooperative Banks, there are a

number of books on banking which in a roundabout ways provide the

hallucination over the subject under question. Some, significant amongst them

are referred/discussed ahead knowing that there are many other books

available.

Review of Literature The researcher has undertaken extensive literature review to strengthen her

research work. She has reviewed 24 references available in the form of books,

articles etc

1) Shri Parthia Ray and Shri Indranil Sengupta1(2003) suggest that “The bank

restructuring becomes more and more productive and profitable, and to certain

core issues like control over the cost, technology improvement etc

.Profitability of Indian banking system was based on measures for

restructuring the health of banking system and related regulatory and

supervisory Initiatives, when the reform process started in the Indian economy

after 1992, the recommendation of the committee of financial system. Issue of

relating to the financial sector including reduction of directed credit allocation,

liberalization of interest rate and ensuring increased competition and utility.”

2) Mr. Talwar S.P. 2

(2001) has said that “write on the financial stability and

role of the bank - regulation and supervision team work for bank utility and

any other financial institutions. After 1991 reform in banking business

globalization, liberalization, privatization, the management strategy based on

the three factor considerations, i.e.1) effective credit management for profit ,

2) employing risk management system and 3) improvising internal control

mechanism for financial stability with the cost control/reduction for more

profits ”. “Based on Indian banking sectors reforms, recommended by Shri. M

Narsimham Committee after 1992”. India is a developing country as the

government has viewed the primary entrepreneur in the economy. The

financial system was restricted to the function of channeling resources from

the saver to the allocated uses. Indian business based on “social control” after

nationalization of private commercial bank in 1969 and1980. But ‘Classic

Banking’ into ‘Mass Banking’ started, when Govt. raising resources from

banking business by fiat and by raising statutory liquidity requirement, deposit

mobilized, direct credit programmers and maintaining low interest rate..

� ����

3) Shri Indranil Sengupta3 (2003) says in this context that “profitability

through cost control is challenge to the banking system growing under Indian

experience” where a cost reduction would be problem for every banking and

financial institution. The RBI has now advised banks to monitor and

restructure the ‘special referred accounts’, which the bank feels could help in

cost control”.

4) Ajay Kumar Monhaty’s4 (2004) has said that every bank is required to

keep accounting standards relating specially to cash reserve, with itself or by

way of balance in the current account with RBI or Central / District Co-

operative Bank or net balance in all such way, of minimum prescribed %

amount of its DTL as of last Friday of fortnight . A return about this has to be

submitted to RBI before 15thof each month of alternate Friday. For schedule

Co-operative banks the minimum cash reserve prescribed is 5% under Section

42(1) of the Reserve Bank of India Act, 1935. For non-schedule UCBs cash

reserve is 3% as per Section 18 r. w. 56(j) of the Banking Regulation Act,

1949. Master Circular on this issue is UBD.CO.RET/MC No

12/12.33.000/2006-07 dated Nov. 1, 2006. {“Fortnight” means period from

Saturday to the second following Friday. Section 18 r. w. 56(j) (b)}

The provision under the above section facilitates to meet the demand

or Time liabilities(DTL) without any default ,Demand Liabilities” means

liabilities which must be met on demand of investor and “Time Liabilities’

means liabilities which are to be met in favour of investor after prescribed

time(date) expiry .The place of DTL is pivot in the bank functioning since on

which the overall banking operations are oscillated and hence the RBI

specifically defines and cares the Same to boost the public investors and their

confidence in banking business.

5) Mrs Ranjana Kumar5 says (2003); “� �� !�%���!� ������ ��� ���$���� ����

����� �� %��6� had severe drain on the profitability of the banks. � ���������%�!���� ��� %��6�� ��� ���� ��� %���� ��������� %�� � �� ������������� !�%�!����������) �� �;��������������������*�� ��'�@��*�(��6�� �7��������� ����� � �� ���������$�� ���6��� ���� ��� � �� ���!����������� ��� 2�)�#��������-�!���� 12#-3��) �����������%�!����)�!!��!��� �� ������!� ��!�� ���� �� ���������� ����&'(*�-������ ��� � ������!�������� � ������������������������� ������������������ �� ��������������������������������� ��%��6*� � ��������� � �� ����������� ��� ��������� ���%�!���� � ��� ��������%�!����%������� ����������%!�� ���������������%��6����� �����*�-������%�!���� ��� �� ���� �!!�� ���!����� � �� �$���!!� ����������� ��� �� %��6� ��������������%�!�0���������$���������!����� ������$�������*�6) Shri R Venkatararam

6 (2003) says “RBI guideline require a very careful

reading to repayment of principal as well as payment of interest by the

borrower. RBI did not guide for making provisions for the principal

repayments at the discount value.”In this article, the RBI guides on treatment

of restructured account. It helps the industries to ease over liquidity problem

due to recession, through restructuring of their dues on the one hand and the

minimizing the provision requirements on other . An improvement in this

sphere by upgrading the skill of practical bankers dealing with the borrowers

at the grass root level will go a long way by increasing the profitability and

utility of the banks in the future.

� ����

7) Rajesh Sood7 (2003), says “Risk based supervision look, at how well a bank

identifies, measures, control, and monitors its costs. The Risk identifying

system provides an opportunity to monitor banks, performances and

CAMELS/ CALCS approach”. CAMELS means Capital Adequacy, Asset

Quality, Management, Earning, Liquidity, System & Controls – applicable to

all banks and CALCS stands for Capital Adequacy, Liquidity, Compliance and

Systems –applicable to Indian operation of banks incorporated outside India.

The RBI now makes implementation of Risk Based Supervision (RBS) for all

commercial banks to set up to match cost management system based on new

Basel Accord .The bank discloses in its balance sheet, risk management

policies, procedure and practices, which affect not only reduce cost but also

promotes major processes of profit, deposits, advances, inspection and action

etc. The RBI introduced the RBS approach that how a bank should develop its

responsibility and utility for its services.

8) Rakesh Malhotra8 (2003) says This article throws light on the wide

performance of RRBs, which has 198 banks in whole country having 14300

branches which have been operated by 70200 employees. RRBs established

under Indian Act of Parliament is called Regional Rural Bank Act 1976, and in

consultation with NABARD. RRBs financial parameters developed on human

resource; RRBs have sponsored some schemes at districts level. Its

performance is in the ratio based on productivity of per employee, interest

expenditure, credit deployment, profitability and utility of banking services.

The author views are also applicable to UCBs and hence the article is useful

for the thesis.

9) T. P. Misra9 (2003), says “the profitability of the financial institution

largely depends upon the level of income generated though optimum use of

assets after paying the cost of funds for acquiring them and other

administrative costs. Which not only have cost of funds involved but also

requires to be provided as per prudential norms. This article visualizes new

approach of reliability of income to develop credit management profit and risk

approach. Banks have to perform well to achieve the targets for cost reduction

as per international standard. Bank by improving the overall quality of loaning

and recovering, naturally leads to decrease the cost of advances. The problem

of profitability is not a matter of concern for Banks and FIs, as economic

growth of the country and any bottleneck in the smooth flow of credit are

bound to create adverse repercussion in the economy “It is the responsibility

of banking institutions to maintain the quality of their credit portfolio. Direct

credit, per se does not lead to non–performing assets; banks have a choice of

borrowers. There is evidence to show that the proportion of nonperforming

assets among banks can be effectively used in monitoring accounts and

improving the overall quality to loans assets.”

10) S. S. Tarapore10

(1998), article throws light on this aspect “The concept of

narrow banking has raised considerable debate in the Indian financial sector.

Central to the concept of narrowing banking is that a bank with low

profitability should taper down its incremental credit deposit ratio. The

essence of this line of reasoning is that banks with very weak credit

� ����

management structure would merely invite more NPAs. Strategy is

consolidation and recovery. The arguments against narrow banking are that

the profitability would be affected, that Government securities would reduce

the income of banks” The article as above discusses the narrow banking

concept which may weaken the bank, credit deposits - ratio, credit

management and generates elevated cost. However, it has not been

successfully used by Indian banks. The narrow banking concept has been use

in most of international banks if we use narrow banking concept in the bank to

expand credit deposit ratio, means provide more loan to the borrower and

increase their credit portfolio. The proportion of deposit would fall and the

clean balance sheet would appear.

11) Dr. C Rangarajan11

(1997) pointed out that “Another weak link in urban

co- operative sector is lack of professionalism. In a competitive financial

milieu where the customers look for innovative products and efficient service,

the UCBs cannot insulate themselves from the rising demands of their

clientele”. Urban co operative sector is facing with a serious problem of weak

and sick banks. As per Report on Trade and Progress of banking in India ( RBI

) 1990 –2000, the number of weak UCBs showed rise and stood at 261 as on

31/3/2000 as against 250 as on 31/3/1999.TheMadhav Rao committee

identified the problems that being faced by the UCBs are dual control,

increasing incidence of weakness, low level of professionalism, absence of

compliance with prudential norms and the absence of timely identification of

sickness ; they have been the majority of contributory factor behind present

weaknesses of certain UCBs to get warning signals. The Madhav Rao

Committee recommended certain criteria of CRAR, NPA and history of losses

for identification of weak/sick banks. These banks may be placed under

moratorium under the Banking Regulation Act and

reconstruction/rehabilitation may be carried out.

12) Dr .K M Bhattacharya12

(2002), says, phase of introduction of Information

Technology in our banks is over. It has to come to stay and it is going to

decide not only efficiency of banking in profit making but its survival depends

on how one manages Information Technology? Staff union agreement of

October 2009 has paved a way to latest technology in every area and at all

levels of management barring perhaps, rural and semi – urban branches;

questions ahead of us are “To be (?)” or “Not to be (?)” in IT, How many

branches to be computerized, How many systems analysts’ to be employed or

hired, How much to be spent on IT &, which vendors hardware to be hired or

purchased? The dimensions and issues related to Information Technology are

all together dissimilar now.

Information Technology has now being accepted a strategic response

and therefore we have to prepare ourselves for future challenges. In recent

years, the global scene of banking and financial business is undergoing rapid

transformation. Apart from deregulation and liberalization, information

technology has been mainly responsible for bringing about this change. These

changes more pronounced than in the field of banking and finance, as the stake

of manufacturers of Information Technology product is very high in this field.

Old ways and methods of work are rapidly yielding ways to new technologies,

for example: records ledgers etc. are now available only on machine readable

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form. The possibilities of controlling costs and profits in the new emerging

environment are increasing – Thanks to the availability of new knowledge and

skill.

13) Dr Raravikar Yashwant13

(1999) says, ‘though the Indian banks have

made a quantitative progress in amount of deposits and loans and advances but

they have not successfully Complied with the qualitative norms such as credit

supply to the priority sector, capital adequacy and profitability etc. An annual

overall performance of the bank is decided on these qualitative parameter .One

more point in article is “Bad assets are increasing not only in absolute terms

but in percentage term too”, even if the overall size of the portfolio is

increasing. The government is forced to recapitulate weak bank from time to

time. Three banks namely UCO Bank, United Bank of India, Indian Bank

have made provision of Rs 1,300crore, proposed for recapitalization. Govt.

also set up the Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act 2002.The trade and industry has been

also affected on account of rising NPAs in banks.

14) Dr. C. Rangarajan14

(1999), “Deposits are source of funds for advancing

which fetch the return/profits to bank besides they are socially useful and

increases the bank goodwill and Public trust. Deposit is a Key Source of

Funds; it is the innermost pillar of Banking Institutions. In fact the ‘Deposit’ is

not only key business element to banking sector; it is also the backbone of

economic development of the country. Simultaneously banks advance to the

members from their deposits according to their needs with due protection to

depositors for their investment. To all the banks such deposit mobilization is

an extra special task. This is particularly practical in the case of UCBs for the

reason that the deposits figure the major source of working capital and there

are ill endeavors from the board members, their friends and their relatives to

share the maximum benefits from such public deposits.

15) Dinesh Mittal15

(2004), says, procedure for review of advances for

determining, identifying and categorizing Bad and Doubtful Debts is not

prompt. The BoDs are informed about this after much delay. There is a need to

inform promptly on such matters. Bank should have adequate system of

identifying and separately categorizing advances which are sick before they

are considered / classified as doubtful. Individual cases of advances, if bear

concern to the Board of directors or employees in the bank should be detected

and brought into notice. To-day this is avoided. The attention of management

is drawn to large accounts where some adverse features have been observed or

which require review. Such reporting is, however, vague and inadequately

supported by details. After reporting, the efforts are being made to suspend the

cases if any board member has any inclination to this direction. The interest on

over dues is not brought into notice. The provisions for doubtful advances are

inadequate and which lead to inflate the profit.

16) Reeta Mathur16

(2001) says, the RBI appointed a high power committee in

May 1999 under the chairmanship of Shri.K. Madhav Rao, Ex-Chief

Secretary, Government of Andhra Pradesh to review the performance of

Urban Co-operative Banks (UCBs) and to suggest necessary measures to

� ����

strengthen this sector. With reference to the terms given to the committee, the

committee identified the following broad objectives i.e., to preserve the co-

operative character of UCBs, to protect the depositors’ interest to reduce

financial risk, to put in place strong regulatory norms at the entry level to

sustain the operational efficiency of UCBs in a competitive environment and

evolve measures to strengthen the existing UCB structure particularly in the

context of ever increasing number of weak banks, To align urban banking

sector with the other segments of banking sector in the context of application

or prudential norms in to and removing the irritants of dual control regime.

RBI has extended the Off-Site Surveillance System (OSS) to all non-

scheduled urban co-operative banks (UCBs) having deposit size of Rs. 100

Crores and above.

17) K. K.Vivekanandan17

(2002) says “The present structure of banks in India

has been the result of historical evolution and barring the creation of regional

rural banks after 1975, the structure remain broadly what it was at the time of

nationalization of banks. The issue of restructuring of the public sector banks

has been studied at various times and by at least three committees in the past

and through recommendations were made in the direction of restructuring of

the system, an action was taken towards implementing these proposals in the

light of perceived administrative.” The above articles discuss the

recommendation issued for the committee to take action on large banks

specifically the rural areas and whose business predominantly based on

finance of agriculture and allied activities. After 1992 freedom of entry was

given to banking business because RBI established new banking system and

requirement of prudential norms. Result is liberalization and globalization,

system is in much better and shape and operates within set of internationally

recognized norms of income recognition assets classification, provisioning

against doubtful /bad debts and capital adequacy norms. The committee

believed that balance sheet of banks to be made with full transparent full

disclosure. Our time taken legal system has caused the blocking of the

recovery of huge funds willful defaulter, consequently formation of assets

reconstruction funds to take over bad debts of banks, so this financial year

SBI, ICICI Bank, HDFC, etc NPAs amount transferred to ARC, NPAs ratio is

declined o% to 3% .

18) Omkar Goswami Committee Reports18

(2005) on Industrial sickness and

corporate Restructuring aptly summed up the situation in its preamble thus

“There are sick companies, sick banks and unpaid workers. But there are

hardly any sick promoters. There lies the heart of the matter”. Loan turns bad

because of the incidence of industrial sickness. While some instances of

industrial sickness are no doubt because of the lack of foresight in business

environment and weak control of the management and poor standards business

of corporate governance are blamed. The reasons for the sickness are well-

known, the number of an industrial groups bleed a bank to sickness by

diverting borrowed funds and to invest them in others business.

19)T. T. Ram Mohan19

(2006) says “consolidation is required in the Indian

banking system it is among old private sector banks and co- operative banks. It

is, these banks that today pose a systemic risk with mergers, at least some of

� ����

them can emerge as viable regional players and lower the risk to the system”.

The article as above shows that how RBI has been working to restructuring the

private sector banks. New norms have been introduced for private sector

banking mainly to expedite the consolation process. The RBI asked the

promoters of the banks to bring down their stakes in banks to 10% and

provided the infuse capital to make the net worth of their bank Rs 1000/-crore

by 2007.But, the promoters do not raise capital either from the market or

through strategic investors by issuing fresh capital. Because old the

commercial banks which ever established in sans than- period (1920). NPA

percentage burdened by 3% and this problem has been faced by small banks

whose small paid up capital also reserves. For instance Ganesh Bank has only

Rs 1.67 crore in paid-up capital and Rs 8.66 crore reserves. Ratnakar Bank and

Sangli Bank have very small net worth.

20) Kishori J Udesh0020

(2004) says “World now turned to some of the issues

on which the RBI has taken action in the recent period. As part of a move

towards greater deregulation, banks fulfilling certain minimum criteria

regarding Capital to Risk Weighted Assets Ratio and Nonperforming Assets

have been given the discretion to pay dividend without the prior approval of

the RBI. In view of the ongoing shift towards financing borrowers based on

estimated cash flow rather than on collateral and in recognizing of the

availability of financial assistance through credit substituted via commercial

paper, bounds and debentures, there restriction on unsecured exposures was

withdrawn and banks boards are allowed to form their own policies on

unsecured exposures.

21) Rajendra Kakker21

(2004) says, “If an urban cooperative banker desires to

procure funds and use it advantageously he has no other option but to keep up

the Public Relations and boost utility” .In the competitive marketing world,

Public Relations have occupied a predominant role to gain the goodwill of the

people by enhancing utility of UCB. Public Relations in Bank Marketing

always aim at harmonious blending of relationship between the Bank and the

customer. In fact we can say that Public Relations are present whenever

Banker comes into contact with the people. Thus, today, Public Relations to

gain utility have emerged as key factor in every Bank with which the public

are concerned in one or other way. The Banking goals, services or products

are required to be promoted in a harmonious way by utilizing the Public

Relations techniques at banking floors. This assists to increase utility and

thereby marketing efficiency.

22) Dr H.N. Kunden22

(1994) says, “Many co-op banks become sick banks

because of non-following of business and co-operative and economic

principals in their day to day working. According to the new norms the profit

earning capacity of these banks is affected adversely and many banks have

come into the financial crisis. To improve their financial position, they have to

concentrate their attention on the proper security of loan proposals before

sanctioning the loan and on the end. As also have they concentrated on the

recovery of overdue by creating a separate loan recovery committee” To affect

recovery, one has to try various methods including persuasive and coercive

improper lending polices may lead to overdue and faulty documentation may

� ����

add to the problem in process. So far as responsibility of recovery is concerned

there is hardly anything specified anywhere though it is said that cooperator

are morally responsible. This moral responsibility is to be spelt out in specific

terms both in the act and the rules and bye laws of the society. Management

efficiency of concerned co operative also plays an important role in effecting

recovery. The management efficiency is composed of many factors so far as

recovery of credit is concerned it relates to proper lending policies and

advancing of loans effective and timely supervision over the utilization of loan

and prompt action for recoveries by adopting persuasive and coercive method

whenever necessary this is possible by proper planning, delegation of powers

and functions to executives and observing a discipline to non- interference in

the recovery process.

23) Mr. P.N.Joshi23

(2004) says “ The 90 days norms is irrelevant and

practical in Indian banking because our banking practices are elementary and

lending is basically deposit based. In USA a 30 year mortgage loan for

housing is almost immediately securitized and the loan goes out of banks and

escapes NPA threat. A more fundamental policy deficiency all these year has

been the fallacious assumption that every farmer is poor and rural India means

poor India. Based on such romantic assumptions, an attitude of benevolence

permeates the policy prescriptions, which are exploited by the few rural rich

admittedly, a large majority of the villagers are poor and therefore, helpless. In

this articles says that the recovery performance of rural portfolio. Indian

banking system is expected to re-orient its approach to rural lending. Rural

business mostly comprises 74 % of the population41% of middle class and

58% of disposable income. Agriculture, is dominating activity in rural sector,

banking services are mainly provided to the ubiquitous farmer. In the rural

area are also governed by the seasonal flow of cash to the farmer. Relaxation

given to the farmer in the competition of NPA need to be extended to entire

rural sectors activities. Farmer is poor, rural India that means poor India means

majority of the villagers are poor because of continuous receding water

,uncertain rains, over use of fertilizer, erratic power supply etc consequently

they do not improve basically .There are co-operative credit institutions

rudiment function in the rural sector of the country, facing badly the recovery

of their infused capital, required governance and effective professional

management The rural sectors are not developed as of years and it lacks a

sense of direction ,co- operative credit institution particularly at district level

should also promote SHGs and NGOs for then credit deployment and improve

their overall performance in terms of reducing transaction costs, improving

repayment performance etc.

24) K.V. Krishnamurthy24

(2002) says in his article, “the major culprits behind

high NPAs levels are willful default mismanagement and lack of planning.

Public money obtained from bank has systematically siphoned away from our

industries .The problem of NPAs has degenerated to such an extent wherein an

effort to assign the blame, even trade unions have ventured in recent time to

publish lists of defaulters because of whom, they consider that some banks are

in dire financial straits these lists are over and above the official listed

published by RBI of bank-wise defaulters of Rs one crore and above. “Finance

Minister Jaswant Singh’s statements in the Rajya Sabha that Non Performing

� ����

Assets of Rs 83,000/-crore is loot and not debt”.The solution to the problem of

NPAs should strengthen the credit portfolio of banks over a period by

removing the present deficiencies observed standard credit appraisal,

monitoring and follow-up an dim proving the overall lending polices of bank

as well as Governments Policies. The weak capital position of Indian banking

system is largely are reflection of growing assets – quality problems stemming

from weak underwriting and credit management systems and vulnerabilities of

the Indian banking sector to the impact of globalization on the country’s key

industrial sectors. The assets quality position has also suffered from

regulations with respect to lending to priority sectors. The problem of NPAs in

Indian banking system is very high because our credit policies are weak which

has made our so the banking system weak and unsound. The ripple effect of

NPAs as in the case of cancer is gradually felt in all parts of the economy i.e.

saving ,investment, production, employment, and services which affected

capital, economic growth. 5����!����� ���� ����!��������� � ������2-"�� ������!!� ���� ������� ������������ ������� )���� ���)������ ��� � �� 7�����5�$���������)�� � �� ��A����� ���������� � �� �� ���� ��� � ��&'(��������� ���� =������������� 6����� � ��� $��)� � �� !� �!� ��������� �%������ � ��� � ��7����� '�@�������$�� 7��������� "���?� B�!��� ��� � �� ��������$�� 7�����*�7���!��� ����!����� )���� �!��� ���)������ ��� ��!��@� 7����� &'(�*� � ���� ����!����� ��� ���� ��$��� !����� �$��!��� ��? ���������� %�� ���������?�� ���� ��!���$��?� ������ ��� ���������� ��� ) ��� ���������� ���� ������������������������)�!!��!������!�����������������!��������*

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