1

SUMMER INTERNSHIP TRAINING

PROJECT REPORT
on
A Study On Trends And Patterns Of Non-performing
Assets And Performance Of Urban Co-operative
Bank

POST GRADUATE DEPARTMENT OF

BUSINESS MANAGEMENT

Guided By:-
Dr. HITESH PARMAR

Submitted By:-
Vivek Rathod

Roll No:- 210102

Division:- B

M.B.A.2021-23
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Declaration
I humbly declare that this report is based on the work, carried by me and no part of it
has been presented previously for any higher degree. The report was conducted in
Post Graduate Department of business management. It is also declared that this report
has been prepared for academic purpose alone and has not been/will not be submitted
elsewhere for any other purposes.

Date:- Vivek Rathod

MBA
[2021-2023]
 3

Preface

The learning process of classroom is incomplete without any practical

field experience it is because of the lesson that out institute provides practical training
as internship program I had my internship with my captain.

These factors in mind the students are required to prepare a sum-

mer internship training project report. In this regard, I have prepared summer intern-
ship industrial project report on “A Study on Trends and Patterns of Non-
Performing Assets and Performance of Urban Co-operative Banks in India”

What I learnt from RAJKOT NAGARIK SAHAKARI BANK

LTD during internship this is presented in the best possible manner and to the best of
mobility.
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Acknowledgement

It is great pleasure for me to acknowledge the kind of help and guidance received to
me during my project work. I was fortunate enough to get support from a large num-
ber of people to whom I shall always remain grateful.

I am very thankful to Dr. HITESH PARMAR and for his inspiration and for initiating
diligent efforts and expert guidance in course of my study and completion of the pro-
ject and I am very thankful to my project guide for giving me timely and concrete
guidance for making this project successful.

I would like to thankful to staff members of RAJKOT NAGARIK SAHAKARI

BANK LTD. for helped me during the project report and providing me more and
more valuable information for my project report.
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Abstract
AACS As Applicable To Cooperative Societies
Capital Adequacy, Assets Quality, Management, Earnings,
CAMELS
Liquidity, System And Control
CRAR Capital To Risk-Weighted Assets Ratio
CRCS Central Registrar Of Cooperative Societies
DCCB District Central Co-Operative Banks
GNPA Gross Non-Performing Assets
IVPs Indira Vikas Patras
KVPs Kisan Vikas Patras
NIM Net Interest Margin
NNPA Net Non-Performing Assets
NPA Non-Performing Assets
NSCs National Saving Certificates
PACS Primary Agricultural Credit Societies
PCARDB Primary Co-Operative Agriculture And Rural Development Banks
RBI Reserve Bank Of India
RCS Registrar Of Cooperative Societies
ROA Return On Assets
ROE Return On Equity
SCARDB State Co-Operative Agriculture And Rural Development Banks
STCB State Co-Operative Banks
UCBs Urban Co-Operative Banks
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INDEX
SECTION TITLE PG NO
1. Background of study 7

2. Concept of co-operative bank 8

3. Structure of co-operative bank 10

4. Co-operative movement banking sector in india 11

5. Non-performing assets (NPA) 13

6. Meaning and norms of NPA 15

7. Concept related to NPA 20

8. Background of Rajkot Nagarik Sahakari Bank Ltd 21

9. Overview of Rajkot Nagarik Sahakari Bank Ltd 22

10. Research methodology 30

11. Title of study 30

12. Research design 31

13. Data collection method 31

14. Importance of study 33

15. Problem statement 34

16. Objective of study 35

17. Method of data collection 36

18. Limitation of study 37

19. Data analysis and interpretation

• Trends and patterns of Non-performing as-
sets
• Comparative analysis of Non performing 38
assets of urban and rural co-operative Bank
• The urban co-operative bank indicators
20. Findings 45

21. Suggestion 46

22. Conclusion, Reference & appendix 47

 7

Background of Study
An urban cooperative bank plays an important role in the region-
al economic growth of urban space. Through its intermediate activities, the banking
sector nurtures the production, distribution, exchange and consumption processes in
the local urban economic system. It stimulates the flow of funds in the economy and
fuels urban economic growth.

Concept of equality, equity and self-help increased the opinions of

self responsibility and self-administration which resulted in introduction of co-
operative. The origin on co-operative movement was one such happening rising out of
a situation of crisis, exploitation and sufferings.

Co-operative banks are an assembly of financial organizations

organized under the provisions of the cooperative society’s act of the states. These
banks are basically cooperative credit societies organized by members to meet their
short and medium period financial requirements. A co-operative is an autonomous
association of persons united voluntarily to meet their common economic, social and
cultural needs and ambitions through a jointly owned and constitutionally enterprise.
Common co-operation leads to co-operatives.

UCB’s are established on co-operative principles of voluntary as-

sociation, self help and mutual aid and one share one vote of members. In India these
banks are registered under the Co-operative Societies Act 1904. Also regulated by the
Reserve Bank of India (RBI) and governed under the Banking Regulations Act 1949
& Banking Laws (Co-operative Societies) Act, 1965.

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

fined, but it refers to primary cooperative banks located in urban and semi-urban are-
as. UCB’s were geographically located in traditional localities and on work places of
such peoples. They essentially lent to small borrowers and businesses. Today, their
scope of operations has increased tremendously. Therefore the increased number of
UCB’s all over the India indicates that it as an institution consisting of a number of
individuals who join together to pool their surplus savings for the purpose of eliminat-
ing the profits of the commercial bankers or money lenders with a view to distributing
the same amongst the depositors and borrowers. In general members are assembled on
similar characteristics of occupation education, religion, social and cultural basis
within the same defined community or geographical area.
 8

Concept of Co-operative Bank

A co-operative Society is an association of persons came to-
gether voluntarily to meet their common economic, social, and cultural needs and as-
pirations through a jointly created and owned enterprise.

Co-operatives banks are based on the principles of self-help,

self-responsibility, democracy, equality, equity and solidarity. Traditionally founder
members of cooperative bank believe in the ethical values of honesty, openness, so-
cial responsibility and caring for others.

The principles and rules of co-operative are guidelines for

putting the values into practice.
Co-operative banks are voluntary organisations, which are
open to all persons who are able to use their services and willing to accept their re-
sponsibilities such as membership, without religious discrimination.

Co-operative societies are democratic organisations which

are control through their managing committee members, and take decisions. Male and
female are elected as managing committee members and are accountable to the mem-
bers. In primary cooperatives members have equal voting rights and co-operatives at
other levels are also organized in a democratic manner.

The benefit of cooperative principles available to all the

members, they receive limited compensation, on capital subscribed by them. Balance
of surplus is appropriated for statutory reserve as a part to set aside and certain part of
it provided to the member as a part of service. The concept of cooperative society
provides equality and independence to the society. On the autonomy basis society is
able to regulate the activities.

When cooperative societies enter into agreements with oth-

er organisations, or governments, or for raising the capital from external sources, it
ensures to maintain the democratic control so that co-operative autonomy should not
get disturbed.

Every co-operative organization provides education and

training to its members, it also organizes for educating its members, elected represent-
atives, managers, and employees so they can contribute effectively to the develop-
ment of their co-operatives. Cooperative societies inform in general about its nature
and benefits to the society.
Co-operative societies provide facilities to their members
efficiently by working together at regional, local, national, international structures. It
 9

takes into consideration the activity of community for the sustainable development of
their communities through cooperative principles.

. In general cooperative can define “A cooperative society is

a voluntary association of members to meet their common economic, social and cul-
tural needs and aspirations through jointly owned and democratically controlled activ-
ities”.

Presently, majority of the world people believe in their liv-

ing as members of a cooperative. Because of cooperative awareness sustainable
growth took place and it increased and opportunity for business diversity. Co-
operative societies function as per the needs of its members.

In this concept, Co-operative bank performs all the main

banking functions of mobilization and supply of credit and provision of remittance
facilities. These belong to the money market as well as capital market. These banks
provide limited banking products and are functionally specialists in agriculture related
products. Recently, cooperative banks have started providing housing loans to its
members. Basically cooperative bank operate in both the regions rural and urban. The
Urban cooperative Banks (UCBs) comes out in the supportive environment of nation-
al banking sector. Now a day’s some of them are well recognizing on basis of their
operative development.

Under the cooperative approach bank give loans and advances

to individuals borrowers which may be categorized as standard asset which means a
loan which has not defaulted in repayment and if defaulted then it becomes non-
performing asset (NPA) based on its (recovery) performance. Most of the UCBs are
not developed as well as shut down within a shorter period, and some of them are
running with the burdens like Nonperforming Assets (NPA). Historically cooperative
examples are explained such as Worldwide Cooperative Credit unions, Rockdale So-
ciety of Equitable Pioneers etc.
 10

Structure of cooperative Bank

The structure of co-operative banking in India is multi-

tiered, with urban and rural co-operatives as its main pillars. UCBs are classified as
scheduled and non-scheduled, based on their inclusion or otherwise in the second
schedule of the Reserve Bank of India Act, 19343, and their geographical outreach
(single-state or multi-state). Rural co-operatives, on the other hand, are classified into
two arms—short-term and long-term. At end-March 2021, there were 98,042 co-
operatives, consisting of 1,534 UCBs and 96,508 rural co-operatives.
 11

Cooperative movement of Banking Sector In India

In comparison with international cooperative financial sec-

tor in India it is found in very week manners. The co-operative banks in India are or-
ganized groups of people and jointly managed and democratically controlled enter-
prises. The co-operatives try to serve their members to 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 involved in an individual. Co-
operative bank has to update itself with latest information and technology. It is indeed
necessary for co- operative 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 existence in

India. They play a very important role in the financial system. The co- operative
banks in India form an integral part of our money market today. Therefore, a brief re-
sume of their development should be taken into account. The history of co- operative
banks goes back to the year 1904. In this year the co-operative credit society act was
enacted to encourage cooperative movement in India. But the development of co- op-
erative banks from 1904 to 1951 was the most disappointing one. It indicates as com-
pare to international cooperatives India cooperative movement was very minute.

The first phase of co-operative bank development was the

formation and regulation of co- operative 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. Then
Mumbai Government has passed the first State Co- operative 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, self-help and mutual aid.” This
has made the remarkable sign in the history of Co-operative Credit Institutions in In-
dia.

In general there was assumption that urban banks have an

important role to play in economic structure. This statement was asserted by organiz-
ers of committees. 39th Banking Enquiry Committee has observed that urban banks
will help the small business and middle class people. According to Mehta-Bhansali
Committee 1939 the recommendation made regarding societies which had fulfilled
the criteria of financial functioning of banks. The Co-operative Planning Committee
1946 went on record to say that urban banks have been the best agencies for small
people in whom Joint stock banks are not generally interested. The Rural Banking
Enquiry Committee 1950 impressed by the feature of low cost of establishment and
operations recommended the establishment of such banks even in smaller regions than
talukas and towns. In reality development of co-operative banks took place after the
 12

recommendations of All India Rural Credit Survey Committee, which were made with
the view to fasten the growth of co-operative banks.
The UCB’s are expected to perform some duties, namely,
extend all types of credit facilities to customers in cash and kind, advance consumer
loans, extending of banking facilities in rural areas, mobilize deposits etc. The needs
of co-operative bank are different. UCB’s have faced a lot of problems, which result-
ed in negative development of co-operative banks. Therefore it was necessary to study
this concept.
The first review study of Urban Co-operative Banks was
taken up by RBI in the year 1958-59. The Report published in 1961 indicated en-
larged and financially sound framework of urban co-operative banks. It emphasized
the need to establish primary urban co-operative banks in new centers and suggested
that State Governments to give active support for their development. During 1963,
Verde Committee recommended that UCB’S should be organized at Urban Centers
with a population of 1 lakh or more and not by any single community or caste. The
committee also suggested that the equation of minimum capital requirement and the
criteria of population for defining the urban center, where UCBs were incorporated.

Cooperative banks fail with scandalous regularity and end

up duping depositors who often get just 10% to 15% of their money after a decade-
long liquidation process. Often, they only get Rs1 lakh each through the Deposit In-
surance Guarantee Corporation (DIGC). According to Rajendra Phanse, director of a
cooperative bank 165 UCBs have been shut down in Maharashtra in the past 30 years.
It is a negative effect generated by NPAs of UCBs.

According to Report of the High Powered Committee on

Urban Co-operative Banks, 2015 it observed that Size and Complexity of Business.

The total deposits and advances of the UCB sector which

together constitutes its business size grew from Rs.1398.71 billion and Rs. 904.44 bil-
lion as on March 2008 to Rs. 3155.03 billion and Rs. 1996.51 billion as on March
2014 registering a growth of 125.6% and 120.7% respectively. However, this growth
was not common among all the UCB sector as some of them UCBs grew exponential-
ly during the concern period. As such, some UCBs have shown such unprecedented
growth in their balance sheet size over the years, that they have acquired the size of
commercial banks.
While the number of UCBs has declined since 1770 to
2014, there was consistent growth in deposits and advances; it recorded a CAGR of
14.52% and 14.11% respectively which is surprising. List of large UCBs by busi-
ness/assets size:
 13

Non-performing Assets (NPA)

According to RBI explanations NPA is an asset, including a

leased asset, becomes non-performing when it ceases to generate income for the bank.
A ‘non-performing asset’ (NPA) was defined as a financing facility which results in
overdue of interest and/ or installment of principal for certain period. The specified
period was reduced from four quarters to two quarters since 1995. There are various
reforms and Acts that has been implemented to overcome this intense problem. Up-
gradation of restructured substandard accounts which were in respect of principal in-
stallment or interest amount, by whatever modality, would be eligible to be upgraded
to the standard category only after the certain period i.e., a period of one year after the
date when first payment of interest or of principal, whichever is earlier, falls due, sub-
ject to satisfactory performance during the period. The amount provided for earlier for
the sacrifice shall also be reversed after the one year period. During this one year pe-
riod, the sub-standard asset will not get deteriorate in its classification, if satisfactory
performance of the account is shown. In case, the satisfactory performance during the
one year period is not evidenced, the classification of the restructured account would
be governed as per the applicable prudential norms with reference to the pre-
restructuring payment schedule.

According to RBI, NPAs is 6% as of 2022. The gross nonper-

forming assets (NPAs) ratio of bad loans as a percentage of total loans of the Indian
banking system could reach 9.5% by September 2022, the Reserve Bank of India's
(RBI) financial stability report (FSR) may 8.1% by september 2022. In september
2022 may go to the gross NPA of 10.10%.

According RBI governor NPAs movement is ongoing mecha-

nism which depends on functioning of the UCBs. He further quoted that “This is an
ongoing process and my hope is as the banks recognise more of what needs to recog-
nise and they deal with the stressed assets,” it means fresh policy measures with re-
spect to some of the stressed sectors are expected to help ease the pressure to some
extent, the results may take time to manifest themselves fully.
It is considered that among the bank-groups, public sector banks (PSBs)might contin-
ue to register the highest NPA ratio. “Their GNPA ratio may go up to 6.3% by Sep-
tember 2016 from 6.2% as of September 2015 and may improve thereafter to 5.8% in
March 2017,” the report said, adding that under a severe stress scenario, it may go up
to 8.0% by March 2017. Several prudential, payments, integrating and provisioning
norms have been introduced to improve efficiency and trimming down the NPAs‟ to
improve the financial health of the banking sector. In this sense present study observ-
ing the small part of NPAs which comes under the UCBs of Thane district.
 14

Basically there are four types of assets are observing in the

UCBs, those are i) Standard assets: it is generating regular income to the bank. ii)
Sub-standard assets: it is overdue for a period of more than 90 days but less than 12
months. iii) Doubtful assets: it is overdue for a period of more than 12 months and iv)
Loss assets: these are doubtful and considered as non-recoverable by bank, internal or
external auditor or central bank inspectors.

NPA generally found observed three assets; in Sub-standard assets, Doubtful assets and loss assets
due to

i) Default: “One of the main reasons behind NPA is default by borrowers,”

ii)Economic conditions: “In Economic sense if region is affected by natural calamities

it may cause regional NPA”,

iii) No more proper risk management: Rumor is one of the major reasons behind de-
fault. Sometimes banks provide loans to borrowers with bad credit history. Such cases
result in maximization of default.

iv) Miss-management: Often ill-minded borrowers bribe bank officials to get loans
with an intention of default.

v)Diversion of funds: Many times borrowers use the funds for the purposes other than
mentioned in loan documents. It is very difficult to recover loanfrom these kinds of
borrowers.

“DEEP SURGERY” is must for the clean-up that would require an “anesthetic” in the form of
reorganizing NPA’s on their books. Raghuram Rajan, Ex. Governor Reserve Bank of India.

The UCBs are part of banking sector. It traces mainly an importance in the regional
economic growth by serving the goals of economic policies enunciated in successive
five-year development plan. The efficiency of UCBs is helping in the determination
step of development in regional economy. In academic view the post independence
period, the Banking sector has played important and commendable role in supporting
the government to achieve its social and economic objectives through deposit mobili-
zation, mass branch networking, and priority sector lending, employment generation
etc.

The asset quality is a prime concern and influences various per-

formance indicators, i.e., profitability, intermediation costs, liquidity, credibility, in-
come generating capacity and overall functioning of UCBs. The reduction in asset
quality results in accumulation of Non-Performing Assets (NPAs).
 15

In connectivity of present study, on the growth of NPA in the

public and private sector banks in India, analysed sector wise non-performing assets
of the commercial banks by academicians. The present study focuses on the current
scenario of urban co-operative banking system with special reference to Non-
performing Assets (NPA) in Thane district, Maharashtra state of India, by mentioning
its need, brief history, current structure, improvement in financial position of UCBs,
contribution of UCBs towards economic development of the country. This study also
highlights the challenges faced under the NPA and its future effect on urban coopera-
tive Banks.

Meaning & Norms of NPA

NPA is defined as a loan asset, which has stopped to generate any

income for a bank whether in the form of interest or principal repayment. As per the
prudential norms suggested by the Reserve Bank of India (RBI), a bank cannot book
interest on an NPA on accrual basis. In other words, such interests can be booked only
when it has been truly conservative. Therefore, an NPA account not only reduces
profitability of banks by provisioning in the profit and loss account, but their carrying
cost is also increased which results in excess & avoidable management attention.
Apart from this, a high level of NPA also puts strain on a bank’s net worth because
banks are under pressure to maintain a desired level of performance; it tries to look
towards the internal financial strength to fulfill the norms thereby slowly eroding the
net worth Practical banking practice calls for efficient asset/liability management. A
good banker is one who manages interest yielding assets by acquiring an optimum
blend between risk-assets (Loan and Advances) and non-risk assets (treasury bills and
government bonds) so as to cover his interest cost to depositors, overhead costs and a
netreturn to share holders.

An asset becomes non-performing when it ceases to generate

income for the bank.
With the following of international best practices and to ensure greater transparency,
'90 days' overdue norms for identification of NPAs have been made applicable from
the year ended March 31, 2004. As such, with effect from March 31, 2004, a non-
performing asset shall be a loan or an advance where:

• Interest and / or installment of principal remain overdue for a period of more than
90 days in respect of a Term Loan.

• The account remains ‘Out of order’ for a period of more than 90 days, in respect of
an Overdraft / Cash Credit (OD/CC).
 16

• The bill remains overdue for a period of more than 90 days in the case of bills pur-
chased and discounted,

• In respect of agricultural loans, NPAs would be done on the same basis as non-
agricultural advances.

• Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.

Asset classification:
Banks should classify their assets into the following broad groups

• Standard Assets

• Sub-standard Assets

• Doubtful Assets

• Loss Assets

Standard Assets
Standard Asset is one which does not disclose any problems
and which does not carry more than normal risk attached to the business. Such an as-
set should not be an NPA.

Sub-standard Assets
With effect from March 31, 2005 an asset would be classified
as sub-standard if it remained NPA for a period less than or equal to 12 months. In
such cases, the current net worth of the borrowers/guarantors or the current market
value of the security charged is not enough to ensure recovery of the dues to the banks
in full. In other words, such assets will have well-defined credit weaknesses that jeop-
ardise the liquidation of the debt and are characterised by the distinct possibility that
the banks will sustain some loss if deficiencies are not corrected.

An asset where the terms of the loan agreement regarding inter-

est and principal have been re- negotiated or rescheduled after the commencement of
production, should be classified as sub- standard and should remain in such category
for at least 12 months of satisfactory performance

under the re-negotiated or rescheduled terms. In other words, the

classification of an asset should not be upgraded merely as a result of rescheduling
unless there is satisfactory compliance of this condition.
 17

Doubtful Assets
With effect from March 31, 2005, an asset is required to be clas-
sified as doubtful, if it has remained NPA for more than 12 months. For Tier I banks,
the 12-month period of classification of a substandard asset in the doubtful category is
effective from April 1, 2009. As in the case of sub- standard assets, rescheduling does
not entitle the bank to upgrade the quality of an advance automatically. A loan classi-
fied as doubtful has all the weaknesses inherent as that classified as sub-standard, with
the added characteristic that the weaknesses make collection or liquidation in full, on
the basis of currently known facts, conditions and values, highly questionable and im-
probable.

Loss Assets
A loss asset is one where loss has been identified by the bank or
internal or external auditors or by the Co-operation Department or by the Reserve
Bank of India inspection but the amount has not been written off, wholly or partly. In
other words, such an asset is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted although there maybe some salvage
or recovery value.

Income recognition
The policy of income recognition has to be objective and based on
the record of recovery. Income from non-performing assets (NPA) is not recognised
on accrual basis but is booked as income only when it is actually received. Therefore,
banks should not take to income account interest on non- performing assets on accrual
basis.

However, interest on advances against term deposits, NSCs, IVPs,

KVPs and Life policies may be taken to income account on the due date, provided
adequate margin is available in the accounts.

Fees and commissions earned by the banks as a result of re-

negotiations or rescheduling of outstanding debts should be recognised on an accrual
basis over the period of time covered by the re-negotiated or rescheduled extension of
credit.

If Government-guaranteed advances become 'overdue' and thereby

NPA, the interest on such advances should not be taken to income account unless the
interest has been realised.
 18

Reversal of Income on Accounts Becoming NPAs

If any advance, including bills purchased and discounted, be-
comes NPA as at the close of any year, interest accrued and credited to income ac-
count in the corresponding previous year, should be reversed or provided for if the
same is not realised. This will apply to Government guaranteed accounts also.
In respect of NPAs, fees, commission and similar income that have accrued should
cease to accrue in the current period and should be reversed with respect to past peri-
ods, if uncollected.
Banks undertaking equipment leasing should follow prudential accounting standards.
Lease rentals comprise of two elements -- a finance charge (i.e. interest charge) and a
charge towards the recovery of the cost of the asset. The interest component alone
should be taken to income account. Such income taken to income account, before the
asset became NPA, and remained unrealised should be reversed or provided for in the
current accounting period.

Provisioning norms:
In conformity with the prudential norms, provisions should be
made on the non-performing assets on the basis of classification of assets into pre-
scribed categories as detailed in paragraph 3 above.
Taking into account the time lag between an account becoming doubtful of recovery,
its recognition as such, the realisation of the security and the erosion over time in the
value of security charged to the bank, the banks should make provision against loss
assets, doubtful assets and sub- standard assets as below:

Loss Assets
(a) The entire assets should be written off after obtaining necessary approval from the
competent authority and as per the provisions of the Co-operative Societies Act /
Rules. If the assets are permitted to remain in the books for any reason, 100 percent of
the outstanding should be provided for.

(b) In respect of an asset identified as a loss asset, full provision at 100 percent should be
made if the expected salvage value of the security is negligible.
 19

Doubtful Assets
(a) Provision should be for 100 percent of the extent to which the advance is not covered
by the realisable value of the security to which the bank has a valid recourse should be
made and the realisable value is estimated on a realistic basis.

(b) In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 percent to 100 percent of the secured portion depending upon
the period for which the asset has remained doubtful:

Table 1.1: Provisioning Requirement for Urban Co-Operative Banks

Tier I and Tier II Banks Period for which the advance has remained in 'doubtful' cate-
gory Provision Requirement

Tier I and Tier II Banks Period for which the advance has remained in Provision Requirement
'doubtful' category

Up to one year 20 per cent

One to three years 30 per cent

Advances classified as 'doubtful for more than three years' on or after April 1, 100 percent
2010

Sub-standard Assets
A general provision of 10 percent on total outstanding should be
made without making any allowance for ECGC guarantee cover and securities availa-
ble.

Standard Assets
(a) From the year ended March 31, 2000, the banks should make a general provi-
sion of a minimum of 0.25 percent on standard assets.

(b) However, Tier II banks (as defined in Circular dated May 6, 2009) will be
subjected to higher provisioning norms on standard assets as under:
 20

The general provisioning requirement for all types of 'standard advances' shall be 0.40
percent. However, direct advances to agricultural and SME sectors which are standard
assets, would attract a uniform provisioning requirement of 0.25 per cent of the fund-
ed outstanding on a portfolio basis, as hitherto.

Further, with effect from Dec 8, 2009, all UCBs (Both Tier I &
Tier II) are required to make a provision of 1.00 percent in respect of advances to
Commercial Real Estate Sector classified as 'standard assets'.
The standard asset provisioning requirements for all UCBs are summarised as under:

Category of Standard Asset Rate of Provisioning

Tier II Tier I
Direct advances to Agriculture and SME sectors 0.25 % 0.25%
Commercial Real Estate (CRE) sector 1.00 % 1.00 %
All other loans and advances not included in (a) and 0.40% 0.25%
(b) above

Concepts Related to NPA:

Gross NPA:
Gross NPAs are the sum total of all loan assets that are classified as
NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality
of the loans made by banks. It consists of all the non-standard assets like sub-
standard, doubtful, and loss assets.
It can be calculated with the help of following ratio:

Gross NPAs Ratio = Gross NPAs / Gross Advances

Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted
the provision regarding NPAs. Net NPA shows the actual burden of banks. Since in
India, bank balance sheets contain a huge amount of NPAs and the process of recov-
ery and write off of loans is very time consuming, the provisions the banks have to
make against the NPAs according to the central bank guidelines, are quite significant.
That is why the difference between gross and net NPA is quite high. It can be calcu-
lated by the following:

Net NPAs = Gross NPAs – Provisions / Gross Advances – Provisions

 21

Background of RAJKOT NAGARIK SAHAKARI BANK

LTD.
Rajkot Nagarik Sahakari Bank Ltd. is a leading co-operative bank,
having its headquarters at Rajkot city of Gujarat State in India. The Bank was estab-
lished on 5th October 1953 under the leadership of late Shri Keshavlal Amrutlal Pa-
rekh as Chairman and late Shri Janmashankar Antani as Managing Director with a
small capital amount of Rs.4,890 contributed by 59 members. It was the first co-
operative institution to start functioning in the erstwhile state of Saurashtra and was
inaugurated by "Sahakar Maharshi" late Shri Vaikunthbhai Metha. Bank has made
tremendous progress since its inception, achieving new heights in banking as well as
co-operative sector, becoming the pride of Saurashtra region under the leadership of
former Chairman late Shri Arvindbhai Maniar.

During past decades, the Bank has played vital & leading role in the
development of industries, business & economy of Rajkot city, development and
nursing of co-operative movement in Saurashtra. Bank has grown manifolds over the
years. Membership (share-holders) of bank is inching towards 3 lacs mark which is a
record by itself & provides an example of how a mass movement can be turned into
the instrument of social upliftment.

RNSB is one of the leading Urban Co-operative Banks from Gujarat

with presence in Gujarat and Maharashtra. RNSB have a committed work force of
nearly a thousand youngsters. Yes, you read it right the average age of our people is
just 35 years! Women form 26% of our strength.We are driven by customer service
and innovation and are always looking out for opportunities to serve the society in a
meaningful way.Work culture at RNSB is participative and conducive to professional
growth of its employees. The Bank strives to offer a safe, supportive and empowering
environment to all its staff. We encourage freshers first class graduates with Science
or Commerce or postgraduates or persons with professional qualifications (without or
with experience) to apply for positions in our Bank presently available or that may
arise from time to time in future.
 22

Overview of RAJKOT NAGRIK SAHAKARI BANK

Alike other banking institutions United Commercial Bank does not
produce any tangible product but it offers a variety of money related services to its
customers. However, this bank started as a small Bank and established itself as one of
the largest first generation banks in Rajkot. It distinguishes itself from other private
banks by its personalized services, innovative practices and effective management
system. Also a huge networking system of so many branches made it easier to suc-
cess. The Bank has its in different and diverse segments of banking like Retail Bank-
ing, SME Banking, Corporate Banking, Off-shore Banking, and Remittance etc. Raj-
kot nagrik sahakari Bank has lengthened its arena by diversion among different seg-
ments of banking like:

Retail Banking:

Retail Banking is a mass-market banking where customers use all

banking services from local branches of larger commercial banks. Services
include personal loans, opening and checking different account, issuing debit or
credit card etc.

SME Banking:

Small and medium enterprise banking works for creating jobs for
low income people. They help increasing economic growth, social stability, and
they contribute to the development of a dynamic private sector. Bank also assess
and monitor business loans, managing business financing risks, pricing products
and working for further development of SME.

Corporate Banking:
Corporate banking, also known as business banking, refers to the aspect of
banking that deals with corporate customers. It is also the source of regular write-
downs for loans that have sourced. Its Corporate banking serviceconsists of simple
business of issuing loans to more complex matters, such as
helping minimize taxes paid by overseas subsidiaries, managing changes in
foreign exchange rates or working out the details of financing packages necessary
for the construction of a new office, plant or other facility.

The Bank also provides its clients with both incoming and outgoing remittance
services. Thus the expatriates find an easy way to send money through proper chan-
nel. The Bank, aiming to play a leading role in the economic activities of the country,
is firmly engaged in the development of trade, commerce and industry by investing in
network expansion and new technology adoption to have competitive advantage.
 23

Products & Services Personal Banking

• Savings Accounts
• Salary Accounts

• Current Accounts
• Fixed Deposits

• Demat Account

• Safe Deposit Lockers

• Loans

• Debit Cards
• Payment Services

• NetBanking

• Mobile Banking
• ATM

Saving Account

Significant Features:

Any Individual can open this Account – singly / jointly

Minimum balance required to be maintained Rs. 500/-

Account can be opened by Minors too

Nomination facility is available

Fixed Deposit Facility available

Insta Card / ATM Card immediately issued with opening of account

Free Mobile Banking (IMPS/UPI) Facility

Free SMS Service

Free personalized Cheque-book Service

 24

ASBA Facilities for IPOs

Balance inquiry through Missed Call Facility

Rs.2 Lac PMJJBY Insurance cover at an annual premium of Rs.436/-

Rs.2 Lac PMSBY Insurance cover at an annual premium of Rs.20/-

Rs.1 Lac Janta AksmatVimaYojna Insurance cover at an annual premium of Rs.15/-

Rs.1 Lac accident cover on use of banks ATM Card

Requisites for opening of account:

Current Rate Of Interest 3.25%

Current Account
This Account Can be Opened for:

Any Individual - Singly or Jointly

Proprietorship Business

Partnership Business

Pvt. Limited Company

Limited Company

Any other Institution / Trust / Co-operative Society etc.

Significant features:

Minimum Balance Rs.1000/-

Nomination facility is available

NEFT / RTGS Facility

Free SMS facility

Personalized cheque-book facility

Golden Current Account facility with free RTGS/NEFT service

POS (Point of Sale) facility available

 25

Requisites for Opening of Account:

Two business proofs (Government recognized)

Duly filled Account Opening Form

2 Photographs of each signatory

Following details required of Individual / Proprietor / Partners / Directors / Trustees /

etc..
Photocopy of Pan Card or Form No.60Aadhar Card

In case of submission of Form 60, any one of the following five Officially Valid
Documents is required –

Passport

Driving License

Election Card

NAREGA Job Card issued by the State Govt.

Letter with Name & Address issued by National Population Register

Recurring

Recurring Deposit Account.

Ideal saving scheme for salaried investors.

Significant Features:

Any individual can open Recurring Deposit Account

Maximum 3 names are allowed in a joint account

Minimum amount of monthly Installment is Rs. 100/-

Recurring Deposit Account is Accepted for Minors too.

Nomination facility is available

Irregularity in the deposition of installment attracts penalty

Deposit installment on any day of the month

Get desired amount on maturity by selecting installment amount

 26

Loans at RNSB

1. Loan against FD

• GOLDEN INVESTMENT WAS RIGHT DECISION:

• To overcome immediate need of small people bank has a Gold loan Scheme

• Immediate Loan Sanction Facility

• Rate of Interest is 10 %

• Bullet Payment Facility for Advance up to Rs. 1,75,000/-

• Installment Facility available for advance where amount of loan is more than
1,75,000/-

• Valuation within Bank Premises

• Gold ornaments will be preserved in safe under supervision of Bank official.

• For installment repayment facility margine will be 25%

• For bullet payment facility margine will be 35%

2. GOLD Loan:

• To overcome immediate need of small people bank has a Gold loan Scheme

• Immediate Loan Sanction Facility

• Rate of Interest is 10 %

• Bullet Payment Facility for Advance up to Rs. 1,75,000/-

• Instalment Facility available for advance where amount of loan is more than
1,75,000/-

• Valuation within Bank Premises

• Gold ornaments will be preserved in safe under supervision of Bank official.

• For installment repayment facility margine will be 25%

• For bullet payment facility margine will be 35%
 27

Land & Building

Significant features:

• Duration of Repayment is 180 Months

• Rate of interest is 8.80

• Installment

• Loan amount can 80 to 100 % of Market Value or Document Value as the case may
be
• Repayment capacity is 50% of total income and evaluation is based on the income of
Applicant & Co-Applicant (Family Member)

• If Property is located at Nagarpalika then Advance will be furnished.

Service class applicant:

• Form 16 or Salary Slip (Last 3 Month)

• Confirmation from employer for allowing deduction of EMI straight from the salary.
• FOR PROPRIETOR / PARTNERSHIP / COMPANY / PROFESSIONAL / VOCA-
TIONAL:

• Self Declaration of Income

• Financial Statement (Last 3 Years)

• Income Tax Return (Last 3 Years)

• Shop Act License

• VAT / CST / SSI Certificate

• Service Tax Certificate

• Partnership Deed – Latest

• Registrar of Firms

• Certificate of Incorporation

• MOA or AOA
 28

Guarantor compliance:

• If one guarantor want to furnish then Guarantor must has immovable property,
otherwise furnish Two Guarantor.

• PURPOSE BASED RULES (CONSTRUCTION WORK):

• Estimate of Cost of Construction

.
• Authorized / Approved Plan.

• Requisite Permission

• Purchase

• Recent Document Deed (Register within 1 Years from the Date of Application)

• Satakhat (Register within 1 Years from the Date of Application

Loans To professionals.
• Easy loans to professionals at process charge of Rs.500 only.

• For purchasing Equipments / Machines / Technological Equipments / Soft-

wares / Furniture / Laboratory / OT / Offices.

• Rate of Interest 8% for Doctors and 8.50% for other professionals.

• 90% Collateral Security.

Loans For Machinery

• Available for greenfield project also.

• 60% security is required.

• Our Bank is authorised for all type of subsidy scheme under CLCSS, TUFS,
PMEGPY etc.

• Rate of Interest is 9.00%

 29

Loans For Furniture

• Available for Office / Home furniture.

• Easy loans upto Rs.25 Lacs.

• Rate of Interest is 10%

• Repayment Period 60 months.

• 100% Collateral Security.

Education Loan
• 85% of total expense including foreign travel, books, hostels can be consid-
ered.

• Rate of Interest is8.50%

• Loan is available for any degree, diploma, post graduation, master profession-
al courses.
 30

Research Methodology

This chapter explains introduction of phraseology with title, im-

portance, methods used in study. It also explains geographical, economic situation of
Thane district, selection of problem for research, objectives and specific hypothesis of
the present study. Further explains testing of hypothesis, tools, data-collection & data
analysis with questionnaire, sampling techniques, analytical tools, data collection pro-
cess, scope and limitation of study and lastly chapter plan.

Introduction

Research in common phraseology refers to search for knowledge.

Research means search back. It means again and again searching for knowledge. One
can also define research as a scientific topic. Research can be considered as a move-
ment, a movement from the known to the unknown. In fact, it is an art of scientific
investigation. It's an art for finding new ways in systematic and scientific ways. In
order to understand the stated objectives, the researcher used a mutual approach that
holds features of both expressive and analytical research designs. The qualitative and
quantitative methods used for this research study tries to evaluate asset quality of ur-
ban cooperative banks. Researcher collected secondary data. Using the secondary data
information of topics researcher developed the tools for data collection under the sci-
entific approach.

Title of the Study

The present research work, the titled ‘A Study on Trends and Pat-
terns of Non-Performing Assets and Performance of Urban Co-operative Banks
in India’ from this research work the researcher aims at studying about NPA and its
impact on profitability of UCBs.The present study focuses on the current scenario of
urban co-operative banking system with special reference to Non-performing Assets
(NPA) in india. Study mentioning its need, brief history, current structure, improve-
ment in financial position of UCBs, contribution of UCBs towards economic devel-
opment of the country. This study also highlights the challenges faced under the NPA
and its future effect on urban cooperative Banks.
 31

Research Design:

A research design is the specification of method and procedure for

accruing the information needed. It is overall operational pattern of frame work of
project that stimulates what information is to be collected for source by those proce-
dures.
Descriptive Research design is appropriate for this study.
descriptive study is used to study the situation. This study helps to
describe the situation. A detail descriptive about present and past situation can be
found out by the descriptive study. In this involves the analysis of the situation using
the secondary data.

Method of Data Collection

Methodology means the method, techniques and way of collecting

information about which we want in every sector; every work is related with specific
method. Research methodology is the kind of research taken to know the market ap-
praisal strength and weakness of a company.

In this project I collected data from discussion and observation.

Data Collection

Data collection is a term used to describe a process of preparing and

collecting data. The purpose of data collection is to obtain information to keep on rec-
ord, to make decision about important issues, to pass information on to others. Data
collection usually takes place early on in an improvement project and is often formal-
ized through a data collection plan.

• There are two types of data collection:

1.Primary Data
2.Secondary Data

1.Primary Data

In primary data collection, you collect the data yourself using methods such as discus-
sion with the assembly workers and self observation. The key point here is that the
data you collect is unique to you and your research and until you publish, no one else
has access to it.
 32

There are many methods of collecting primary data and the main methods include:

• Discussion
• Observation

The primary data, which is generated by the above method, may be

qualitative in nature (usually in the form of words) or quantitative (usually in the form
of numbers or where you can make counts of words used).

The primary data collection methods used for the project are:

A very few amounts of primary data is used for the study with
various department heads of discussion and observation.

2.Secondary Data

The secondary data on the other hand, are based on second hand
information. The data which have been already collected, complied and presented eas-
ier by any agency may be used for the purpose of investigated such data may be called
“secondary data”. Collecting the information with the help of annual reports, maga-
zines, internet and reference book.

Paper-based sources – books, journal, periodicals, abstracts, in-

dexes, research paper, conference paper, market reports, annual reports, internet rec-
ords of company, newspaper and magazines.

The secondary data collection sources used for this study.

 33

Importance of Study

The main purpose of any person is the utilization money in the finest
manner. Urban society has problem of running the family in the most efficient man-
ner. However urban people faced numbers of problem till the development of the full-
fledged banking sector. The UCB sector came into the developing nature mostly after
the 1991 government policy. The UCBs has really helped the urban people to utilize
the money in the best manner as they want. People now have started investing their
money in the UCBs and UCBs also provide good returns on the deposited amount.
Thus, UCBs have help the people to attain their socio economic objectives. The UCBs
not only accept the deposits of the people but also provide them credit facility for
their development.

UCB sector has the nation in developing the business and service
sectors. But recently the urban cooperative banks are facing the problem of credit risk.
It is found that overall people and business people borrow from the banks but due to
some genuine or other details are not able to repay back the amount drawn to the
banks. The amount which is not given back to the banks is known as the non-
performing assets. Almost all the UCBs are facing the problem of non-performing
assets which hampers the business of the UCBs. Due to NPA the income of the UCBs
is reduced and have to make the large. number of the necessities that would curtail the
profit of the UCBs and due to that the financial performance of the UCBs would not
show good results the main aim behind making this report is to know how Urban Co-
operative Sector are operating their business and how NPA play its role to the opera-
tions of the UCBs. Thus, the study would help the decision makers to understand the
financial performance and growth of selected UCBs as compared to the NP
 34

Problem statement

One of the major objectives of banking sector reforms was to encourage

operational self-sufficiency, flexibility and competition in the system and to improve
banking standards in India to the international best practices. There is very difficult to
understand financial share of urban cooperative banks in Thane district. According to
Shri R. Gandhi, Deputy Governor, Reserve Bank of India. ‘The growth in NPAs was
much higher than the growth in advances during the last four years’.

The present financial analysis on non-performing assets of the urban

cooperative anks is crucial part. NPA management as per the RBI instructions is prac-
tically difficult to urban cooperative banks. A safety point of view it is very necessary
to study NPA of urban cooperative bank.

Therefore, Researcher selected to do research about the financial anal-

ysis of UCBs in which his main focus is on NPA of the banks, because from last fif-
teen years number of co-operative banks are not performing well due to high NPA
ratios. So that it can be verified regarding effectiveness of urban co-operative bank
within the study region.

According to the recommendations of the Board UCBs will manage

to consolidate their position and improve their asset quality and as a result in the next
phase they are expected to get on to the growth path. Currently, the Gross Non-
Performing Assets (NPA) of UCBs is less than 5% while Net NPA is at 3%, which
puts them at par with several public sector banks.

Gandhi believes that despite the new banks coming in the system
UCBs will remain unaffected. UCBs are small community banks and have limited
operations. They are not growing much but at a low level equilibrium. It is very un-
likely that if a payment bank or small finance bank come then they will lose their
business.

According to majority of the UCBs modus operand is similar in na-

ture as their strategies are framed by RBI as uniform for all. NPA is never finishing
notion for any financial institution. It is varying in UCBs during the study region. RBI
has advised UCBs to adhere to the short-sale limits, reporting and other risk manage-
ment requirements prescribed for eligible entities by the central bank from time to
time.
 35

Factually UCBs should adopt sound practice of lending as a part

of its banking business. The UCB has to identify risks and take adequate and timely
measures to minimize these risks. For various reasons or factors viz., under or over
financing, failure to judge the character and the sincerity of the entrepreneur to im-
plement the project, non assessment of the repaying capacity of the borrower, market
factors, lack of post credit supervision etc. the recovery of loan may be affected. And
when a UCB fails to recover the loan installment within time the respective loan ac-
count will come under NPA. A proper and scientific system for recognition of income
and classification of asset under 4 heads as prescribed by RBI (viz. standard, sub-
standard, doubtful and loss asset) on a prudential basis be made by a bank. Poor re-
covery of loan or rather poor recovery efficiency of a bank may lead it to a position
of high NPA. This is resulting as a problem of liquidity, reduction in earnings with
erosion of the share, reserve and ultimately the deposits of the bank.

Objectives

1. To study the functioning and management of Urban

Co-operative Bank:

The object of research was to verify the method of functioning and man-
agement of UCBs in the given region during the relevant period under research. RBI
pointed that they must function in a cohesive manner and provides proper leadership
for the functioning and management of Urban Co-operative Bank studies the Board
papers thoroughly and uses the good offices of the Chief. Welcome all constructive
ideas for the better management of the bank and for making valuable contribution.

2. To study the growth of non- performing assets in Ur-

ban Co-operative Banks:

The primary objective of this research was to found out at what rates
NPAs are developed in UCBs in the given region during the period under research.
Because of cooperative bank is an important constituent of the Indian financial sys-
tem. It plays an important role even today in rural financing. The business of coopera-
tive bank in the urban areas also has increased phenomenally in recent years due to
the sharp increase in the number of primary co-operative banks. Cooperative Banks in
India are registered under the Cooperative Societies Act. The cooperative bank is also
regulated by the RBI. They are governed by the Banking Regulations Act 1949 and
Banking Laws (Co-operative Societies) Act, 1965.
 36

3. To analyze the reasons of decline in profitability of Ur-

ban Co-operative Banks due to increasing NPA.

Verified the relevance of NPA upon profitability of UCB and how it

has affecte profitability of UCB in positive or negative sense, a number of studies re-
lated to performance of co-operative banking sector in India have been conducted
which various aspects and issues of this study such as analyze the economic perfor-
mance of Indian banking system as reflected by its output, price and profitability.

4. To recognize reasons that lead to NPAs and study of

various provisions of the Act with special emphasis on
reduction of NPAs:

With the help of this research an attempt made to find out provisions
applicable under various laws that will help to minimize NPA of UCBs.

5. To study facing the problem of swollenness NPAs even

after the passing of the Act to formulate methods for
efficient recovery in UCBs:

NPA of UCB is considered as swollenness to the banks and it is as-

sumed to be a decease which needs to cure by proper remedial actions against such
deficiency.

Method of data collection

The study has made use of secondary data compiled from the sources
published on the Reserve Bank of India website. The study has considered the years
1994-95 to 2020-21 for understanding the trends and patterns of the NPA in the UCBs
in India; and the years 2012-13 to 2020-21 for analysing the performance of the UCBs
in India.
 37

Limitation of Study:

Every study is bound to have some limitations, the present study

has some limitations and these are even though, utmost care is exercised in all aspects
of this research, certain limitations have been perceived and are acknowledged here-
with. The results of the study cannot be generalized to other urban cooperative banks
except selected six UCBs as the data are obtained with special focus.

The present study was conducted on NPA of urban cooperative

banks only Study region have concentration of all public, private and co-operative
banking sectors throughout the districts. Researcher had selected only co-operative
banking sector because of regional concepts can better explain the NPA in compare to
others. While collecting data of NPA of urban cooperative banks, collective and diag-
nostic approach was used for the analysis and study. NPA data already reflected in the
annual report of every UCB. The study is conducted for the period 2007-08 to 2014-
15. Influence of regulatory measures taken after the study period might influence the
findings of the study.

In this study researcher has considered an aggregate situation of

the reduction in asset quality resulting in accumulation of Non-Performing Assets
(NPAs). The intermediation process is the principal function of an every bank. It fo-
cuses on impact of selected UCBs in Thane district. Researcher had used quantitative
methods for generating the data.
 38

DATA ANALYSIS AND INTERPRETATION:

Trends and Patterns of Non-Performing Assets

Gross Non-Performing Assets

25
20
NPA RATE

15
10
5
0

2013-14

2018-19
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13

2014-15
2015-16
2016-17
2017-18

2019-20
2020-21
YEAR

The above graph represents the trend in the Gross Non-Preforming

Assets of Urban co-operative banks. The graph shows the trend of GNPA ratio from
1994-95 to 2016-17 years where the highest NPA recorded is 23.2 and in the year
2004-05. It is also observed that there is a fall in the GNPA ratio from the year 2006-
07 and a small increase after 2014-15. Between 2016-17 , 2017-18 ,2018 -19 the rate
of NPA are constant at 7.1%. while in 2019-20 , 2020-21 rate of NPA are increses.
 39

COMPARATIVE ANALYSIS OF NON-PERFORMING

ASSETS OF URBAN AND RURAL CO-OPERATIVE
BANKS.

A comparative analysis is made between Rural and Urban co-

operative banks to understand the status of GNPA of UCBs

To analyse this, data is taken from Handbook of Statistics on Indian

Economy which is published by RBI annually. The study has made use of 20 years of
data that is 1997-98 to 2016-17 years. This part of the report compares the magnitude
of NPA in UCBs to other sectors of co-operative banks under rural co-operatives. The
data shows the Gross NPA percentage for State Co-operative Banks, District Central
Co-operative Banks, Primary Agricultural Credit Societies under the short term struc-
ture and State Co-operative Agriculture and Rural Development Banks and Primary
Co-operative Agriculture and Rural Development Banks under the long-term structure
along with Urban Co-operative Banks.

differance
200
180
160
140
120
100
80
60
40
20
0

Rural Co-operative Banks Long-Term Structure PCARDBs Rural Co-operative Banks Long-Term Structure SCARDBs
Rural Co-operative Banks Short-Term Structure PACS Rural Co-operative Banks Short-Term Structure DCCBs
Rural Co-operative Banks Short-Term Structure STCBs UCBs
 40

▪ The average GNPA percentage in years 1997-98 to 2001-20 indicate that the UCBs
had 14.72% of GNPA whereas under short-term Rural Co-operative Banks, STCBs
had 12.44%, DCCBs had 18.12% and PACs had 34.6% of GNPAs. And under the
long-term Rural Co-operative Banks, SCARDBs had 19.1% and PCARDBs observed
21.42% of GNPAs. By this, it is observed that the UCBs maintained comparatively
lesser NPA among all the cooperative credit societies except for STCBs, which also
indicates better functioning and performance in these years.

▪ When the years 2002-03 to 2006-07 are observed, there is a huge increase of GNPA
▪ percentage in these UCBs. The average GNPA during these years was 20.42%
whereas STCBs saw 16.84%, DCCBs had 20.66% and PACs observed 33.62% of
GNPA under short-term structure. SCARDBs and PCARDBs had 28.38% and 34.5%
respectively. There had been a drastic increase in the NPA ratio in these years and
comparatively higher than the STCBs indicating a decline in the performance and
functioning of the UCBs.

▪ In the years 2007-08 to 2011-12, there is a major fall in the GNPA of UCBs and its
average GPA of this time period is 10.8%. And at the end of this time period, that is
2011-12, it had fallen to 7%. There is also a fall in the GNPA for STCBs up to 9.82%.
DCCBs saw 14.58% and PACs had 34.78% which is quite higher than the last time
period and among the short-term structure of RCBs. The SCARDBs and PCARDBs
observed 35.02% and 44.38% respectively and both these banks observed the highest
NPA in this time period amounting to 45% and 53.7% of GNPA respectively. But
UCBs saw an improvement in the NPA record which fell up to 7% in this time period.

▪ Years 2010-11 to 2013-14 in UCBs saw the lowest records of GNPA amounting to
8.4%, 7%, 6%, and 5.7% in these four years.

▪ Considering the time period 2012-13 to 2016-17 the average GNPA of UCBs in this
time period was 6.22% and the lowest compared amongst other previous time periods.
In 2013-14 we see that the UCBs observed 5.7% GNPA which is lowest among all the
years from 1997-98 till 2016-17.The STCBs observed 5.02% on an average in this
time period, DCCBs and PACs have observed 9.88% and22.06% respectively under
short term structure. SCARDBs and PCARDBs have seen 28.7% and 36.3% respec-
tively. From the above results we can observe that the UCBs are comparatively work-
ing better on maintaining lesser NPA compared to other co-operative banks. The per-
formance and liquidity are also contributed well by these levels of NPA among UCBs.

▪ The UCBs are performing better than other co-operative societies which are indicated
by low NPA present in their banks. The NPA levels are very high in the rural co-
operative banks compared to UCBs, except in the STCBs.
 41

THE URBAN CO-OPERATIVE BANKS’ PERFOR-

MANCE INDICATORS AND NON-PERFORMING
ASSETS.

This section studies about the asset quality of the assets

through NPA and other financial indicators in UCBs from
the years 2008-09 to 2017-18.

Chart Title
12

10

0
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

NNPA as % of Net Advances Return on Assets Return on Equity Net Interest Margin

▪ In the year 2008-09 the UCBs, notwithstanding the slowdown in economic activity
and expectation about high loan defaults after the global economic crisis, there was a
decline in the NPA ratio from 15.5% to 13.0% and there was also a decline in GNPA
from ₹14,037 crores to ₹12,862 crores. This also indicated improvement in financial
soundness . This year, there was an improvement in capital adequacy of UCBs indi-
cated by increasing proportion of UCBs having CRAR of 9% and above which ful-
filled the regulatory minimum benchmark. The performance indicators’ ratios of
UCBs like Return on Assets recorded 0.8%, Return on Equity showed 6.8% and Net
Interest Margin at 3.1% percentages.

▪ The year 2009-10 saw an improvement in the assets quality. But there was a decline
in the number of UCBs. The assets quality was indicated by a decline in the GNPA
ratio and also the absolute numbers of GNPA. The GNPA ratio fell to 10.1% from
13.0% from the previous year. The GNPA declined from ₹12,862 crores to ₹11,399
 42

crores. There was also an increase in the provisioning coverage ratio indicating an
improvement in the financial soundness of the sector.
▪ In this year, a major portion of UCBs were complying with the CRAR norm of
minimum 9%. But 13.7% of total UCBs could not meet the requirement. This was
more seen in scheduled banks compared to non-scheduled UCBs. Nearly 41 sched-
uled UCBs and 1,403 non-scheduled UCBs maintained more than 9% of CRAR.
There was a decline in the Return on Assets to 0.7%, Return on Equity to 5.2% and
Net Interest Margin at 2.8%.

▪ The year 2010-11 saw growth in GNPA though there was a fall in the GNPA and
NNPA ratio from 10.1% to 8.5% and 3.9% and 2.5% respectively. GNPA rose from
₹11,399 crores to ₹11,500 crores. This implied an improvement in asset quality. Al-
most 90% of the UCBs maintained CRAR more than 9% but only 20% of the sched-
uled UCBs failed to maintain prescribed minimum CRAR.
▪ There was a drastic increase in performance indicators. ROA increased to 0.9%, ROE
▪ increased to 7.10% and NIM rose to 3.10% which indicated improvement in the
▪ performance of the banks of this sector.

▪ in the year 2011-12 there was an introduction of a system to grade UCBs on their
financial health for regulatory and supervisory purposes. It was called CAMELS (cap-
ital adequacy, assets quality, management, earnings, liquidity, system and control)
rating model. In this year, about 61% of UCBs had composite grade of A and B ac-
counting to 78% of banking business by the UCB sector, the other 32% of UCBs that
accounted for 18% of the banking business was graded C and 7% of remaining banks
was graded D representing weak financial health. There was growth in assets which is
supported by the rising trends in the performance indicators. There has been an im-
provement in asset quality. Decline in NPA, both in ratio and also in absolute terms.
GNPA had fallen from ₹11,500 crores to ₹11,000 crores and the ratio from 8.4 to 7.0.
UCBs had also reported negative growth in GNPA. CRAR was fulfilled by most of
the banks but the previous year’s UCBs, which came below 9%, kept deteriorating
and few banks observed negative CRAR. In this year also there was a steep increase
in the performance indicators where return on assets increased to 1.13%, return on
equity increased to 9.73% and net interest margin rose to 23.31%.

▪ 2012-13 year had reported a slight fall in the GNPA from 11,000 to 10,900 and
GNPA ratio from 7.0 to 6.0. The CAMELS grading model had rated 67% of total
UCBs under A and B which accounted to 85% of the banking business. 27% of UCBs
were rated C and accounted to 13% of the banking business. The remaining 6% were
graded D implying weak performance of the banks. There was an increase in the as-
sets concentration in this year from 37% to 50%. NPAs declined in ratio as well as
absolute terms. GNPA ratio had fallen from 7 to 6 and GNPA declined from ₹11,000
crores to ₹10,900 crores. About 1,190 UCBs maintained CRAR above 12% implying
 43

better performance. Provisioning coverage ratio had increased up to 80%. It is ob-

served that in this year there is a decrease in all the performance indicators along with
the NNPA ratio where the return on assets have decreased to 0.75%, return on equity
at 7.19% and net interest margin at 3.17%.

▪ In the year 2013-14, the CRAR of scheduled banks improved from 12.4 to 12.7. As
many as 1,259 banks out of 1,538 Non-scheduled UCBs maintained CRAR above
12%. The assets quality declined as their provisioning coverage ratio too declined.
▪ Based on CAMELS rating model, 87% of the total deposits were mobilised by 75% of
▪ UCBs which were graded A and B. Nineteen per cent of the total UCBs graded C had
▪ mobilised 10.7% of total deposits at UCBs. Only 5% percent of the remaining UCBs
were graded D. GNPA ratio declined during this time-period from 6.0% to 5.7% im-
plying improvement in the assets quality. But there was an increase in the GNPA in
absolute numbers. It had increased from ₹10,900 crores to ₹11,500 crores. In this
year, except for the net interest margin, the other two performance indicators, that is,
return on assets and return on equity has seen a growth where return on assets is at
0.87% and return on equity at 9.03%, whereas the interest margin decreased to 3.02%.

▪ The GNPA and NNPA ratios increased in the year 2014-15. The NNPA ratio in-
creased from 2.2% to 2.7% and the GNPA ratio from 5.7% to 6.2%. And the GNPA
had declined to ₹13,501 crores from ₹ 11,400 crores. About 82% of the UCBs main-
tained more than 12% of CRAR. Provisioning coverage ratio grew at a very lower
rate which is an indication of the fall in the quality of assets. Under the CAMELS
grading system, 79% of UCBs which were graded A mobilised 85% of the deposits
and 16% of UCBs graded B mobilised10% of the deposits. At the same time, 5% of
the UCBs were ranked D, meaning the weak position of those banks. There is a de-
crease in return on assets and net interest margin whereas a slight increase in return on
equity where the return on assets stands at 0.80%, return on equity stands at 9.09%
and net interest margin at 3.0%.

▪ In the year 2015-16, there is an increase in the GNPA from ₹13,802 crores to ₹16,056
▪ crores and GNPA ratio has increased from 6.15% to 6.55%. The provisioning cover-
age ratio had seen a decline from 55.77% to 55.5%2 which means there is a decline in
the quality of assets. The CRAR ratio of UCBs had seen an improvement where 1,312
banks maintain more than 12% of CRAR. The CAMELS grading model had ranked
25.8% of the UCBs as A grade which was 28.4% the previous year. In this year, re-
turn on assets stands constant at 0.80% whereas the return on equity and net interest
margin has increased to 9.42% and 2.97% respectively.

▪ In the year 2016-17, 1,276 out of 1,562 UCBs had maintained more than 12% CRAR.
The CAMELS grading model had ranked 78% of the UCBs under A and B which
managed to mobilise 86% of the total deposits. Eighteen per cent of the banks were
 44

graded C which only pooled 12% of the deposits. The number of banks under grade D
had declined. There
▪ was an increase in the GNPA from ₹16,056 crores to ₹18,713 crores and GNPA ratio
▪ increased from 6.55 to 7.16. The provisioning coverage ratio had increased from
55.52% to 63.70%, which implied improvement in the assets quality and management
of NPAs. Return on assets has decreased to 0.77 %, return on equity declined to
9.11% and there was a decline in net interest margin up to 2.79%.

▪ During the year 2017-18, the GNPA and provisioning coverage ratio had increased.
The GNPA increased from ₹18,713 crores to ₹19,903 crores and the GNPA ratio had
declined from 7.16% to 7.10%. The PCR had seen a slight increase from 63.70% to
63.75% which indicates an improvement in the assets quality and also the manage-
ment of NPA. The CAMELS model ranked 78% of the UCBs A and B grades which
managed to mobilise 86% of the total deposits. Eighteen percent of the UCBs were
graded B and the remaining 4 percent of the banks were graded D. The CRAR ratio
saw an improvement during this year. About 1,348 out of 1,551 UCBs maintained
more than 12% of CRAR. There is a drastic decrease in return on equity from 9.11%
to 8.65% whereas there is a slight decline in return on assets from 0.77% to 0.74%
and also in net interest margin from 2.79% to 2.97%.
▪ From the above analysis it is understood that the CRAR ratio is been improving and
also in the CAMELS model, there was an increase in the number of banks coming
under A and B grades and also decline in the number of UCBs graded under D.
▪ There is also an improvement in the overall position of the NPA in UCBs and also
increase in the provisioning coverage ratio which indicated improvement in the bank-
ing management and asset quality.
 45

Findings

The findings from the study are that the trend of GNPA ratio
from 1994-95 to 2016-2021 years where the highest NPA recorded is 23.2 and in the
year 2004-05 and later there is a fall in the GNPA ratio from the year 2006-07 and a
small increase after 2014-15. The annual growth rate of GNPA to Gross advances is
up to 4.3% annually. The UCBs are performing better than other co-operative socie-
ties and that is indicated by low NPA present in their banks. The NPA levels are very
high in rural co-operative banks compared to UCBs except for the STCBs. CRAR ra-
tio has been improving, and also in the CAMELS model, there was an increase in the
number of banks coming under the A and B grades and also decline in the number of
UCBs graded under.

There is also an improvement in the overall position of the

NPA in UCBs and increase in the provisioning coverage ratio which indicated im-
provement in the banking management and assets quality.
 46

Suggestion

▪ The cause of increasing NPA is because of poor evaluation of assets and the credit-
worthiness of the borrower. 27

▪ Proper credit rationing and valuation of assets during lending of loans is much need-
ed.
▪ The banks have to check the borrower’s creditworthiness and also the capacity to
repay the loan before lending.

▪ The insolvency and bankruptcy code should be strengthened so that banks can take
quick decisions regarding bad debts. There is an urgent need to strengthen the NPA
recovery tribunals.

▪ The management-level efficiency to handle political pressures and red-tape should be

important so that the managers can take quick decisions regarding the provisions of
loans and advances. Conclusion The report has made an attempt to analyse the growth
of NPA in urban co-operative banks through growth model and also through a com-
parative analysis between urban and rural co-operative banks where it is found that
NPA in UCBs is decreasing every year which is a sign of improvement in assets qual-
ity and management. The study also found that the status of UCBs is better than the
level of NPA in rural co-operative banks. The regulating authorities have to make sure
that the improvement in the status of NPA is maintained. The performance ratios, in-
dicating the health of the UCBs, also reveal the improvement in the efficiency of
banks which is also a necessity to maintain for the future.
 47

Conclusion:

The report has made an attempt to analyse the growth of NPA in

urban co-operative banks through growth model and also through a comparative anal-
ysis between urban and rural co-operative banks where it is found that NPA in UCBs
is decreasing every year which is a sign of improvement in assets quality and man-
agement. The study also found that the status of UCBs is better than the level of NPA
in rural co-operative banks.

The regulating authorities have to make sure that the improvement

in the status of NPA is maintained. The performance ratios, indicating the health of
the UCBs, also reveal the improvement in the efficiency of banks which is also a ne-
cessity to maintain for the future.
 48

References

Gupta, J., & Jain, S. (2012). A study on Cooperative Banks in India with special ref-
erence to Lending Practices. International Journal of Scientific and Research Publi-
cations, 2(10), 1-6.

Mitra, A. (2012). NPA Management of Urban Co-operative Banks A Study in Hoogh-

ly District of West Bengal. Voice of Research, 1(2).

Ramu, N. (2011). Financial Performance of Urban Cooperative Banks: A Study with

Reference to Tamil Nadu. Research Line, 4(1).

Singh, A. (2013). Performance of non-performing assets (NPAs) in Indian Commer-

cial Banks. International Journal of Marketing, Financial Services & Management
Research, 2(9), 86-94.

Singh, V. R. (2016). A Study of Non-Performing Assets of Commercial Banks and

it’s recovery in India. Annual Research Journal of SCMS, Pune, 4, 110-125.

Varadi, V. K., Mavaluri, P. K., & Boppana, N. (2006). Measurement of efficiency of

banks in India.

BankingRegulationsAct1949
https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/BANKI15122014.pdf

Brief history of urban cooperative bank in india

https://www.rbi.org.in/scripts/fun_urban.aspx

Handbook of Statistics on Indian Economy 2017-18

https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=18529

Master Circular - Income Recognition, Asset Classification, Provisioning and Other

Related Matters-UCBs
https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9850

primary (Urban) Co-operative Banks 'Outlook

https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications#!13

Report on Trend and Progress of Banking in India (Various years)

https://www.rbi.org.in/Scripts/AnnualPublications.aspx?head=Trend%20and%20Prog
re ss%20of%20Banking%20in%20India
 49

APENDIX
Gross Non-Performing Assets of Co-Operative Banks

Year (end-March) Gross Non-Performing Assets

1994-95 13.9
1995-96 13.0
1996-97 13.2
1997-98 11.7
1998-99 11.7
1999-00 12.2
2000-01 16.1
2001-02 21.9
2002-03 19.0
2003-04 22.7
2004-05 23.2
2005-06 18.9
2006-07 18.3
2007-08 15.5
2008-09 13.0
2009-10 10.1
2010-11 8.4
2011-12 7.0
2012-13 6.0
2013-14 5.7
2014-15 6.2
2015-16 6.1
2016-17 7.1
2017-18 7.1
2018-19 7.1
2019-20 10.1
2020-21 11.9

Sources: Handbook of Statistics on Indian Economy

 50

GNPA of Urban and Rural Co-operative Banks

Rural Co-operative Banks

Short-Term Structure Long-Term Structure
Years UCBs STCBs DCCBs PACS SCARDBs PCARDBs
1997-98 11.7 12.5 17.8 35.3 18.6 16.5
1998-99 11.7 12.6 17.8 35 19.2 16.1
1999-00 12.2 10.7 17.2 35.4 18.7 20
2000-01 16.1 13 17.9 34.9 20.5 24.3
2001-02 21.9 13.4 19.9 32.4 18.5 30.2
2002-03 19 18.2 21.2 38.2 20.9 33.8
2003-04 22.7 18.7 24 36.8 26.7 35.8
2004-05 23.2 16.3 19.9 33.6 31.3 31.9
2005-06 18.9 16.8 19.7 30.4 32.7 35.6
2006-07 18.3 14.2 18.5 29.1 30.3 35.4
2007-08 15.5 12.8 20.5 35.7 34.5 53.7
2008-09 13 12 18 44.8 30.1 39
2009-10 10.1 8.8 13 41.4 45.1 51.9
2010-11 8.4 8.5 11.2 25.2 32.3 40.6
2011-12 7 7 10.2 26.8 33.1 36.7
2012-13 6 6.1 9.7 24.7 36 37.7
2013-14 5.7 5.5 10.3 19 31.6 38
2014-15 6.2 4.9 9.5 22.4 30.3 36.2
2015-16 6.1 4.5 9.4 17.6 22 36.6
2016-17 7.2 4.1 10.5 26.6 23.6 33
2017-18 7.2 4.7 11.2 28.2 25.0 38.3
2018-19 7.3 4.3 11.9 45.2 26.5 39.3
2019-20 10.8 6.7 12.6 - 33.0 43.5

Source: Handbook Of Statistics On Indian Economy

0
 51

Performance ratios of UCBs

Net
NNPA as % of Return Return
Years Net Advances InterestMargin
onAs- onEqui-
sets ty
2008-09 5.9 0.8 6.8 3.1

2009-10 3.9 0.7 5.2 2.8

2010-11 2.5 0.90 7.10 3.10

2011-12 1.9 1.13 9.73 3.31

2012-13 1.4 0.75 7.19 3.17

2013-14 1.7 0.87 9.03 3.02

2014-15 2.7 0.80 9.90 3.00

2015-16 2.2 0.80 9.42 2.97

2016-17 2.7 0.77 9.11 2.79

2017-18 2.7 0.74 8.65 2.92

Source: Primary (Urban) Co-operative Banks' Outlook

52