PERFORMANCE EVALUATION OF DCCBs IN INDIA - A STUDY

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1 169 PERFORMANCE EVALUATION OF DCCBs IN INDIA - A STUDY ABSTRACT THIRUPATHI KANCHU* *Faculty Member, University College, Department of Commerce and Business Management, Satavahana University, Karimnagar, A.P. 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 a common interest. Cooperative 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. Present paper attempts to examine the growth of DCCBs in India through selective indicators, it analyzes the Deposits, Credits and C/D Ratios of DCCBs. This paper also studies the growth of investment, working Capital and Cost of Management position in DCCBs. To achieve the objectives of the paper data has been collected from various secondary sources and analyzed by using various statistical tools. KEYWORDS: Credit, Deposit, Cooperative Bank, District Central Cooperative Banks (DCCBs), Interest. 1.0) INTRODUCTION OF CO-OPERATIVE BANKS 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 a 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 is retail and commercial banking organized on a co-operative basis. Co-operative banking institutions take deposits and lend money in most parts of the world. Cooperative 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.

2 170 The structure of commercial banking is of branch-banking type; while the co-operative banking structure is a three tier federal one as follows, 1. A State Co-operative Bank works at the apex level (ie. works at state level). 2. The Central Co-operative Bank works at the Intermediate Level. (ie. District Co-operative Banks ltd. works at district level) 3. Primary co-operative credit societies at base level (At village level). 1.1) REVIEW OF LITERATURE Enugandula et al. used different financial ratios to evaluate performance of Karimnagar District co-operative central bank, Andhra Pradesh, and he concluded that the Bank had not maintained a reasonable level of solvency position and was unable to cover its medium and long time obligations. The credit deposit ratio declined which indicated a better deposit mobilization. The gross ratio for the study period was 108.8, which reflected a higher level of expenditure over the gross income leading to losses for the bank. The net worth decreased over the years and the net capital ratio was unity indicating that the assets of the bank were not sufficient to cover its liabilities C.R. REDDY, has conducted a survey on Working of the Primary cooperative agricultural Development Banks. He expressed the view that linking of credit with marketing of crops is an essential ingredient in supervision and follow up action. It safeguards against overdues. Dr. C. S. Rathod has attempted to study the Management of Cooperative Banks which dealt with the management of CCBs in Gujarat state, in terms of management of funds mobilization of resources, and purpose-wise financing and various sections of cooperative activities. A study titled performance of Cooperative banks in supply of loans to farmers in Karnataka was undertaken by Sri B.N. Ganvir, Sri D.L. Sale and Sri N.L. Kale with the objective to know the performance of different cooperative Banks in respect of distribution of short-term, medium-term and long term loans. The study concludes that there was considerable increase in loans, outstanding loans and also overdues. A study has been made by Dr. Lakshmanan and A. Dharmendran entitled financial performance of DCCB in Tamil Nadu taking into account some selected financial indicators namely deposits, loans and advances and over dues of DCCBs in Tamil Nadu for a period of seven years. The study revealed that deposits, loans and advances, and annual growth rate are positive and the total over dues is negative annual growth rate.

3 ) OBJECTIVE OF THE STUDY Following are the Objectives of my study 1). To examine the growth of DCCBs in India through selective indicators 2). To analyze the Deposits, Credits and C/D Ratios of DCCBs. 3). To study the growth of investment by DCCBs in India. 4).To understand the working Capital and Cost of Management position in DCCBs. 1.3) METHODOLOGY OF THE STUDY Methodology describes the research route to be followed, the instruments to be used, universe and sample of the study for the data to be collected, the tools of analysis used and pattern of deducing conclusion. 1.4) SAMPLE OF THE STUDY This paper is an attempt to study the financial performance of the DCCBs. These banks were purposely selected for the study, keeping in view they role and involvement in shaping the economic condition, especially in terms of Number of banks, Branch offices, Membership, Employees, Deposits, Credits, CD Ratios, Working Capital, Cost of Management and Investments. 1.5) LIMITATIONS OF THE STUDY The present paper studies only the average performance of the District Central Cooperative Banks in India. However, the results may not be proved similar in case of individual bank s study. The present study considers the performance of DCCBs only 10 years period from to ) DATA IN TOOLS The present study is mainly based on secondary sources drawn from National Federation of State Cooperative Banks Ltd (NFSCOB) reports, RBI bulletin and other web sites, papers, books and journals relating to Co-operative banking sector. Data were collected for period of ten years from to For analysis of the data, various statistical tools (Mean, S.D, C.V, Trend analysis) has been used to arrive at conclusion in a scientific way. 1.7) ANALYSIS OF THE STUDY The establishment of central cooperative banks (DCCBs) at the district level was to serve as a link between the ultimate credit disbursing outlets, viz., Primary Agricultural Credit Societies (PACS) at the base level, District Central Cooperative Banks (DCCB) at the

4 172 intermediate level and State Cooperative Banks (SCB) at the apex level. The details of growth of DCCBs in India are depicted in table-1. TABLE -1 GROWTH OF DCCBS IN INDIA Year No.of DCCBs No. of offices Total Membership (-1.35) (0.86) (18.85) (-0.81) (-1.03) (16.96) (-0.81) (-1.61) (16.78) (-0.27) (-0.59) (23.42) (0.00) (-1.07) (77.68) (0.27) (0.63) (84.87) (0.54) (1.26) (92.05) (0.27) (0.86) (116.37) (0.00) (1.98) (71.22) Mean S.D C.V Source; NAFSCOB Reports, Base Year; INTERPRETATION The above table reveals that, the growth of DCCBs in terms of number of banks, Offices and Membership. In terms of number of banks they have negative growth from 2002 to 06 and there is a fluctuating from 2007 to Similarly number of offices also have decreased growth

5 173 up to , from there is a positive fluctuating growth. In case of membership in DCCBs have been increased to % with the membership of (thousands) in when compare to with the membership of (thousands). There is a decrease in membership in with (thousands) with a percentage of TABLE 2 TREND OF CAPITAL, RESERVES AND BORROWINGS OF DCCBS IN INDIA (RS. IN LAKHS) Year Capital Reserves Borrowings Amount Trend % Amount Trend % Amount Trend % Mean S.D C.V Source; NAFSCOB Reports Base Year;

6 174 GRAPH- 1 TREND OF CAPITAL, RESERVES AND BORROWINGS OF DCCBS IN INDIA INTERPRETATION The above table analysed the funds of DCCBs and their trend in terms of Capital, Reserves and Borrowings. The amount of capital is Lakhs in , it has been gradually increased and reached Lakhs in with a percentage of ( ). In case of reserves, they are lakhs in where as in it was recorded lakhs with % ( ) growth trend. The borrowings are collected by the banks to meet the short term and long term credit needs. The borrowings of DCCBs in India during the year are lakhs, the growth of borrowings have fluctuating growth according to the credit needs of the bank, finally the borrowings are recorded lakhs in the year with % ( ) growth. The average growth of Capital, Reserves and Borrowings of DCCBs in India is %, % and % respectively. The S.D of capital is 45.63%, Reserves are 54.23%, and borrowings 35.38%. When compare to the Standard deviation of capital, reserves and borrowings, borrowings have more consistent than capital and reserves.

7 175 TABLE - 3 DEPOSITS, CREDITS AND CD RATIOS OF DCCBS IN INDIA (RS.IN LAKHS) Year Deposits Loans outstanding C/D Ratio (1.08) (1.04) (1.15) (1.08) (1.20) (1.22) (1.30) (1.30) (1.38) (1.69) (1.59) (1.90) (1.85) (1.92) (2.19) (2.08) (2.41) (2.43) Mean S.D C.V Source; NAFSCOB Reports Base Year;

8 176 GRAPH 2 DEPOSITS AND LOANS OUTSTANDING POSITION IN DCCBS INTERPRETATION The above table has been depicted that during the the Deposits are registered Rs Lakhs it has been increased to Rs Lakhs in The mobilization of deposits have been increased gradually during the study period, and the average deposits mobilized by bank is Whereas credit deployment of DCCBs in India is just Rs Lakhs in , it has been increased to 2.43 times with an amount of Lakhs in the year The average credit issued by the banks is Rs lakhs. These banks are Service oriented institutions which supply Credits to industry, trade and commerce, agriculture in the form of loans and advances for their smooth functioning. While, the proportion of the Credit deployed to the deposit mobilized, popularly known as C/D Ration, is one of the Parameter to assess the performance of a bank. The C/D Ratio of a bank in general, indicates the extent to which the depositor s money is invested in credit. The Credit Deposit Ratio of DCCBs from 2002 to 2011 is shown a fluctuating trend. The highest C/D Ratio of the banks estimated with 92.71% in and the lowest C/D Ratio 71.76% is recorded in the year The average C/D ratio during the study period 78.17%. with a variance of 9.54%. The S.D is 7.46 which is very less it indicates high degree of uniformity of observations as well as homogeneity of the series.

9 177 TABLE - 4 COST OF MANAGEMENT PER EMPLOYEE AND PERCENTAGE OF COST OF MGT TO WORKING (RS. IN LAKHS) Year Working Capital Cost of Mgt No. of employees Cost of Mgt per Employee Cost of Mgt To Working Capital % Mean S.D C.V Source; NAFSCOB Reports INTERPRETATION Cost of Management of District Central Co-operative Banks includes salaries and other operating expenses. It is a parameter of the bank to measure the efficiency, the cost of management per employee decreases it is good sign, the bank is utilizing its resources effectively. If it is increases we can say that the bank is not properly utilizing its resources and the performance that bank not good. The Cost of management of DCCBs is shown in table no.4 it revealed that the cost management per employee has been increasing constantly year by year from Rs.2.56 lakhs ( ) to 6.04 lakhs ( ). The average cost of management is Rs lakhs and the S.D is with a variance of 19.43%. The low degree of

10 178 variance is recorded due to decrease in employees in the DCCBs in India. With regards to the percentage of cost management to working capital, it has been fluctuating from 2.14% to 3% during the study period. The lowest percentage was recorded in the year with 2.14% and the highest percentage was recorded in the year with 3%. TABLE - 5 GROWTH OF INVESTMENTS BY INDIAN DCCBS (RS.IN LAKHS) Year Investment % of Growth Mean S.D C.V Source; NAFSCOB Reports Base Year;

11 179 GRAPH-3 GROWTH OF INVESTMENT BY DCCBS INTERPRETATION The District Central Co-operative Banks have been investing it s funds in different investment avenues. The details of investment by DCCBs are investment in Govt Securities, Other trustee securities, purchasing the Debentures of Land Development Banks, fixed deposits and other investments. The table- 5 depicted growth pattern of investment by DCCBs, the investment in is Rs lakhs and it has been increased gradually year by year and recorded Rs lakhs in the year with a growth rate ( ). The average investment of the bank is lakhs during the study period. The Standard Deviation is lakhs and the C.V is 38.0 which is higher it indicates low degree of homogeneity as well as heterogeneity of the series. 1.8) CONCLUSIONS The financial performance of the District Central Co-operative banks in India is analyzed using different statistical techniques. From the above analysis, it is concluded that the growth of No.of DCCBs and their branches have negative trend up to certain period later there is negligible positive trend where as the membership in cooperatives have been increasing. The capital, reserves, and borrowings increased almost double during the study period, with a nominal percentage of variation. The cooperative banks have been maintaining on an average 78.15% of

12 180 C/D ratio. The cost of management per employee has been increasing during the study period due to decrease in number of employees, the management of DCCBs have to concentrate on cost of management. The DCCBs have been showing maximum growth in investment. It is suggested that government should formulate specific policies and they should be implemented for the upliftment of District Central Cooperative Banks in India. DCCBs should try to upgrade technology and should formulate customer friendly policies to face competition with commercial banks. REFERENCES 1). Enugandula Chandra Shekhar, Krishna Rao, G.V. and Pratap, K., 1998 Performance of Karimnagar District co-operative central bank,agric. Banker, 22 (20) : ). Shekhar, E.C., Rao, G.V. and Narender,I., 2003, Growth analysis - a critical review of the Karimnagar District Co-operative Central Bank. J. of Res. ANGRAU. 31 (2) : ).Shekhar, E.C., Rao, G.V.and Narender,I, 1999, Performance of the Karimnagar District Central Co-operative Bank (KDCCB) in Andhra Pradesh - an economic analysis. Ind. Co-op. Rev., 1999; 36(3): ). Rao, K. V. & Nirmala, D. (2006, October-December). Performance Evaluation of Urban Cooperative Banks. The Indian Journal of Commerce: Indian Commerce Association, ). Sharma, G. & Kawdia, G. (2006). Efficiency of Urban Co-operative Banks of Maharashtra: A DEA Analysis. The ICFAI Journal of Bank Management: The ICFAI University Press, ). Dayanandan, R. and Shashikumar, R., 1999, Performance evalution of the Central Cooperative Banks in Kerala. Ind. Co-op. Rev., 31 (2) : ). Kothari C.R. Business Research methods, Vikas Publications, New Delhi, p ). Dr. Mamoria, C.B. Rural credit and agricultural co-operation in India (Allahabad: Kitab Mahal, 1983), Sec. II p.p ). Sami Uddin & Mahfoozur Rahman, Co-operative Sector in India (New Delhi: S. Chand & Co.,1983), p ). Government of India, Report of the study group on Credit Co-operatives in the nonagricultural sectors (New Delhi: 1963), p.5. 11). Annual Reports of DCCBs in India 12).