URBAN CO-OPERATIVE BANKS (UCBs) IN INDIA PROBLEMS AND PROSPECTS

(Special Reference to Nagpur MS)

Prof. Nilesh S. Yemde Assistant Professor, Email: nileshyemde@gmail.com, Mobile Number -09326393538/07588520199 Dr. Prakash L. Neulkar Assistant Professor, Sharadchandra Arts and Commerce College, Butibori Nagpur Email: pneulkar68@yahoo.in, Mobile Number 09822697670

ABSTRACT
Urban Co-operative banking Sector is an important element of Multi Agency banking system operation in the country. These institutions play an significant role in the economic enlistment of lower and middle-income group of persons. The Reserve Bank of India in its annual report on trends and progress in banking states that urban banks are important purveyors of credit to small borrowers and to weak sections of the society but is not coming out with any supportive policies that will strengthen the role of UCBs. The aim of this contribution is to explain the problem and prospects of co-operative Urban Banks and to outline results of study which it was realized in urban co-operative banks. Key words: Urban Co-operative Banks, Reserve Bank of India, Economic Enlistment,

INTRODUCTION
Urban Co-operative Banks: The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas. These banks, till 1996, were allowed to lend money only for non-agricultural purposes. This distinction does not hold today. These banks were traditionally centered on communities, localities, work place groups. They essentially lend to small borrowers and businesses. Today, their scope of operations has widened considerably. Urban cooperative banks were set up with the objective of promoting sustainable banking practices amongst a relatively specific target clientele viz., the middle income strata of the urban population. They were brought under the regulatory ambit of the Reserve bank by extending certain provisions of the banking regulation act, 1949, effective from March 1, 1966.

 Structure of Cooperative Credit Institutions in India

Background of UCBs: The origins of the urban co-operative banking movement in India can be traced to the close of nineteenth century. Inspired by the success of the experiments related to the cooperative movement in Britain and the co-operative credit movement in Germany, such societies were set up in India. Co-operative societies are based on the principles of cooperation, mutual help, democratic decision making, and open membership. Cooperatives represented a new and alternative approach to organization as against proprietary firms, partnership firms, and joint stock companies which represent the dominant form of commercial organization. They mainly rely upon deposits from members and non-members and in case of need, they get finance from either the district central co-operative bank to which they are affiliated or from the apex cooperative bank if they work in big cities where the apex bank has its Head Office. They provide credit to small scale industrialists, salaried employees, and other urban and semi-urban residents. Co-operative Banks in India are registered under the Co-operative 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. A co-operative bank is defined as "a financial entity which belongs to its members, who are at the same time the owners and the customers of

their bank. The term Urban Cooperative Banks (UCBs), although not formally defined, refers to the primary cooperative banks located in urban and semi-urban areas. These banks, until 1996, were allowed to lend money only to non-agricultural purposes. This distinction remains today. These banks have traditionally been around communities, localities working out in essence, loans to small borrowers and businesses. Today their scope of operation has expanded considerably. Status of UCBs in India: Indian Banking system is on its sound footing UCBs in India are playing major role in servicing rural economy and there is no need to worry as evident from following data regarding UCBs in India. Total Number of Banks in India: 1770 Total Deposits: Rs.1, 12,000 crs Total Advances: Rs. 78,000 crs. Total No. of scheduled banks in India: 53 Total No. of Mahila Banks: 139 Total No. of Mahila Banks in Maharashtra: 27 Total No. of 1 Unit Banks: 900 Salary Earner Banks: 24 Total deposits of scheduled banks: Rs. 51,173 crs (42% of total deposits of UCBs) Total advances scheduled banks: Rs. 32, 884 crs Total Number of Non-Scheduled UCBs in Maharashtra: 484 Total Number of Scheduled UCBs in Maharashtra: 40 Total Number of Non-Scheduled UCBs in Nagpur region: 140 Total Number of Scheduled UCBs in Nagpur region: 05 As on December 31, 2012 Gradation of Banks all India level Grade-I Banks: Grade-II: Grade-III: Grade-IV: 690 430 390 260

COOPERATIVE MOVEMENT IN INDIA

The cooperative movement in India was started in the beginning 20th century (1904). At that time the major aim in establishing cooperative societies was to supply cheat credit and to protect them from exploitation by money lenders. The idea of forming co-operative society to solve the problem of rural indebtedness was first suggested by Fredrick Nicholson in his Report of 1895 97. The Famine Commission of 1901 also stressed the necessity of starting credit societies in India on co-operative basis. A real beginning of the co-operative movement was, however, made when the Co-operative Credit Societies Act of 1904 was passed. The object of this Act was to encourage saving, self-help and co-operation amongst agriculturists. Societies formed under the Act were given legal status and were authorised to raise funds and carry on business in a corporate capacity. They were classified as rural and urban; rural societies were bound to accept the principle of unlimited liability while urban bodies were given a free choice of limited or unlimited liability. This Act, however, was deficient in many respects. The Act of 1912 was, therefore, passed to fill in the lacunae of the earlier Act. It regularised certain practices of doubtful legal validity and made provision for further expansion under proper safeguards. The distinction between rural and urban societies was abolished and a more scientific classification based on the nature of the availability of members, whether limited or unlimited, was adopted. Co-operative societies other than credit societies were allowed to be formed. Registration of unions and federal bodies like central banks was expressly legalised and a number of minor improvements were introduced. The simplicity and elasticity of the old Act were at the same time preserved and a wide rule-making power was left to provinces to enable them to develop on their own lines. Cooperative movement in Maharashtra: After passing the first cooperative law in India in the year 1904 the cooperative movement started in India. Since last 100 years many cooperative societies are working in Maharashtra. Maharashtra has played an important role to channalise the cooperative movement in India. The establishment of central cooperative bank today which is known as Maharashtra state cooperative bank in the year 1911 in Mumbai by the efforts of Late Samaldas is the best example of the origin of cooperative movement in Maharashtra. Before that the chief promoter and the promoting members of the first rural cooperative movement cooperative credit society established in India in the year 1889 were from Maharashtra itself. As per the provision given in the report of Maclagan Committee in the year 1915 the people were motivated to establish the cooperative credit societies or banks in the Non-agricultural sector along with the agriculture sector. After the formation of the Maharashtra state in the year 1960 the new cooperative act of Maharashtra was passed and implemented from 26th January, 1962.

 Cooperative movement in Nagpur: The first co-operative society in the Nagpur district was the Nagpur Government Press, Cooperative Society registered at Nagpur on 20th September' 1907. It was an urban credit society which after working for a period of 17 years went into liquidation. By this time other cooperative societies, especially primary agricultural credit societies, were gradually started in the district. The establishment of the Nagpur Central Co-operative Bank gave an drive to the organisation of these societies during the period from 1911 to 1930. In the thirties, however, there was a sudden fall in the values of lands which were offered as securities for loans, with the result that over dues of societies went on increasing and the societies suffered great losses. In the Pre and post independence, the crop loan delivery mechanism was carried out through Central Financing Agency (C.F.A.) i.e. DCCB under the Short Term Cooperative Credit Structure (STCCS) came into existence by the first cooperative law in the year 1904. Accordingly, Cooperative Banks of Nagpur district, catering the needs of farmers, rural poor & artisans in particular & Banking facilities in general for other sector in the Nagpur district. The quadrilaterals socio-economic development of the country in general and in particular to Nagpur district, the Cooperative Bank of Nagpur also expanded its banking services to a substantial desired level with a continuous satisfactory performance under satisfaction of Reserve Bank's guidelines, banking regulations cum obligations, NABARD's guidelines, Govt. of India, State Govt.statutory. Structure of Co-operative Societies and Banks of Nagpur Region Following is the constitution, the structure and the progress of the various co-operative societies in the Nagpur district.

 Recent Developments of Urban Co-operative Banking Sector Over the years, primary (urban) cooperative banks have registered a significant growth in number, size and volume of business handled. As on 31st March, 2003 there were 2,104 UCBs of which 56 were scheduled banks. About 79 percent of these are located in five states, - Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. Recently the problems faced by a few large UCBs have highlighted some of the difficulties these banks face and policy endeavors are geared to consolidating and strengthening this sector and improving governance. Cooperative movement is quite well established in India. The first legislation on co-operation was passed in 1904. In 1914 the Maclagen committee envisaged a three tier structure for co-operative banking viz. Primary Agricultural Credit Societies (PACs) at the grass root level, Central Cooperative Banks at the district level and State Co-operative Banks at state level or Apex Level. The first urban co-operative bank in India was formed nearly 100 years back in Baroda. Cooperative Institutions are engaged in all kinds of activities namely production, processing, marketing, distribution, servicing, and banking in India and have vast and powerful superstructure. Co-operative Banks are important cogs in this structure. In the beginning of 20th century, availability of credit in India, more particularly in rural areas, was almost absent. Agricultural and related activities were starved of organized, institutional credit. The rural folk had to depend entirely on the money lenders, who lent often at usurious rates of interest. In the formative stage Co-operative Banks were Urban Co-operative Societies run on community basis and their lending activities were restricted to meeting the credit requirements of their members. The concept of Urban Co-operative Bank was first spelt out by Mehta Bhansali Committee in 1939 which defined on Urban Co-operative Bank. Provisions of Section 5 (CCV) of Banking Regulation Act, 1949 (as applicable to Co-operative Societies) defined an Urban Cooperative Bank as a Primary Co-operative Bank other than a Primary Co-operative Society was made applicable in 1966. With gradual growth and also given Philip with the economic boom, urban banking sector received tremendous boost and started diversifying its credit portfolio. Besides giving traditional lending activity meeting the credit requirements of their customers they started catering to various sorts of customer
s viz. self-employed, small businessmen / industries, house finance, consumer finance, personal finance etc. While reviewing the progress made by the urban co-operative banks during the last 10 years, it was observed that the performance has by and large been satisfactory. Though there has been reduction in the number of UCBs from 2004 onwards, the total banking business (deposits plus advances) of UCBs has shown steady increase signifying that the banks have been able to garner more business.

 Review of Growth of Urban Co-operative Banking Sector

While reviewing the progress made by the urban co-operative banks during the last 10 years, it was observed that the performance has by and large been satisfactory (Table- 2.1). Though there has been reduction in the number of UCBs from 2004 onwards, the total banking business (deposits plus advances) of UCBs has shown steady increase signifying that the banks have been able to garner more business.

Table- 2.1: Performance of UCBs Deposits and Advances As on March 31 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 No. of UCBs 1618 1854 1941 1926 1872 1853 1813 1770 1721 1674 1645 Deposits (` Crore) 80840 93069 101546 110256 105021 114060 121391 138496 158733 182862 209949 Advances (` Crore) 54389 62060 64880 67930 66874 71641 79733 88981 97918 110303 135104

Note: Provisional data as on March 31, 2011 is based on OSS statements.

Market Share of Urban Co-operative Banks in Total Banking Sector The business growth of UCBs was not, however, commensurate with the overall growth in the banking sector. There has been a gradual fall of the share of UCBs business in the overall business of the banking sector (Table-2.2).Despite the presence of large number of UCBs, their share in the total deposits and advances of the banking sector is insignificant and the share is reduced year after year. From the market share of 6.3 per cent as on March 31, 2001, it had reduced to 3.5 per cent as on March 31, 2010.This reflects to a large extent the effect of the policy of not permitting UCBs, including the healthy and well managed ones, to open new branches for six years contributing thereby to their inability to garner their share in the growing economy Table- 2.2: Market Share of Urban Co-operative Banks in Banking Business in Banking Sector (In Percentage)

As on March 31 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

UCBs 6.3 6.4 6.3 5.8 5.3 4.6 4.0 3.7 3.4 3.5

DCCBs & State RRBs CBs 7.2 2.9 7.2 3.0 7.0 3.0 6.6 3.1 6.3 3.1 5.4 2.9 4.7 2.7 4.1 2.7 3.9 2.6 3.7 2.7

Commercial Banks 83.6 83.4 83.7 84.5 85.3 87.2 88.6 89.5 90.1 90.1

Table- 2.3: Market share of Urban Co-operative Banks in Banking Sector as on March 31, 2010 Urban Co-operative Rural Co-operative Banks Banks 1674 Banks 401 Banks Share in Total Deposits (In %) 3.5 3.7 Share in Total Loans and Advances (In %) 2.9 3.8 Regional Rural Banks 82 Banks 2.7 2.1 Scheduled Commercial Banks 83 Banks 90.1 91.2

It may be observed from the Table-2.3 that despite the fact that the UCB sector has the maximum number of entities as compared to any other group, its market share continues to be meagre. This is to be seen in the light of the fact that almost half of the UCBs are unit banks and the total number of branches of the 1674 UCBs as at March 31, 2010 is around 7900 branches as against over 77000 branches of just 83 scheduled commercial banks. Another reason may be that due to the poor capital base of UCBs, coupled with individual and group credit exposure ceilings they are not in a position to lend high value advances. The other reason could be that the clientele of these banks is mainly confined to the lower and middle strata of the society.

OBJECTIVES
The objective of this paper is to study the development of urban Co-operative Banks in India. To study the present scenario of urban Co-operative Banks in Nagpur City. To identify the prospects and problem of urban Co-operative Banks.

RESEARCH METHODOLOGY
This study is totally based on secondary data. A clear benefit of using secondary data is that much of the background work needed has already been carried out, for example, literature reviews, case studies might have been carried out, published texts and statistics could have been already used elsewhere, media promotion and personal contacts have also been utilized. Tools for data collection Secondary data has been used in the present study. Data were collected from books, journals and other published reports

LITERATURE REVIEW
Different studies were conducted on UCBs in India by the committees appointed by the RBI and the Govt. of India. Outlines of the major ones are given below: The Indian Central Banking Enquiry Committee (1931), observed as follows: The duty of these urban banks should be to try to do for the small trader, the small merchant and the middle class population. The Working Group on Industrial Financing through Co-operative Banks (1968), (known as Damry Group) appointed by the Reserve Bank recognized the key role which urban banks could play in providing finance to cottage and small-scale industries. The Madhavdas Committee (1979), evaluated the role played by urban co-operative banks in greater details and drew a roadmap for their future role recommending support from RBI and Government in the establishment of such banks in backward areas and prescribing viability standards. The Madhava Rao Committee (1999), focused on consolidation, control of sickness, better professional standards in urban co-operative banks and sought to align the urban banking movement with commercial banks.

DATA INTERPRETATION
Problems: Major Problems faced on the UCBs relate to the following aspects: Restrictions relating to share capital. Automatic conversion of credit societies.

Dual control and regulations by the RBI and respective state governments on UCB leads to delay and difficulties. Other problems like lack of professionalism, unsatisfactory etc., Acciditing standards connected lending, loans level of technology etc.

Suggestions: Licensing Policy should be transparent, precise and simple Corporate governance is essential for the effective functioning of any financial organization. The UCBs appointed directors in the board should require suitable professional qualifications, experience and they should not have any relationship with other banks. In addition to its own funds, the UCBs should generate funds from outsources UCBs should make changes in their regulatory frame work for strengthening recovery mechanism UCBs should maintain computerized reporting system for ready information and competing the commercial banks. UCBs should be ready for doing functions of modern banks like commercial banks for increasing their income sources.

CONCLUSION
Presently, the UCBs occupy an essential place in the Indian Financial system. However the UCBs strengthen their individuality and growth in the banking industry and it is necessary to take certain measures like for strengthening the UCBs sector sustenance of its growth is attendant to professionalization of its management, inculcating good corporate governance, technology absorption and meticulous loyalty to regulatory framework. Explosive growth in IT has changed the way individuals interact with banks and the way banks respond. In the changed scenario, success will depend on the ability of banks to leverage the human potential and capabilities, Marketing of Banking products, G-sec Market, Customer value added services, competitive pricing of deposits and advances, good corporate governance, information & Technology. Co-operative banking The challenges ahead In recent years, there has been a considerable widening and deepening of the Indian financial system, of which banking is a significant component. With the beginning of liberalization, Co-operative banks in India are under pressure to change the ways in which they do business.. With greater liberalization, the financial system has come to play a much larger role in the allocation of resources than in the past and its role in future can be expected to be much larger than at present. The growing role of the financial sector in the allocation of resources has significant potential advantages for the efficiency with which our economy functions. Net profits of UCBs improved in 2010-11 as compared to the

previous year owing to higher growth of their total income. But the gross as well as net NPA ratio of UCB sector declined. . Let us hope that the urban cooperative banking sector will learn from its past experiences and adjust to new realities since banking is risky business, In future the urban cooperative banks are ready to face many challenges in the cutthroat environment of both Public and Private sector banks, but also from non-bank financial institutions expansion activities both vertically and horizontally

REFERENCES (1) Murleedharan, D., 2009, Modern Banking: Theory and Practice, Delhi, PHI Learning Private Ltd. (2) Bexley, James B., Banking Management: A Guide To More Profitable Banking, Gulf Publishing Company (3) The Maclagen committee Report year 1914-15, envisaged a three tier structure for co-operative banking. (4) Fredrick Nicholson Report year 189597. Formal structure of Co-operative banks (5) The Famine Commission Report Year 1901-02 stressed the necessity of starting credit societies in India on co-operative basis. (6) Co-operative Credit Societies Act of 1904 was passed (7) The report of Indian Central Banking Enquiry Committee (1931) (8) The report of Madhavdas Committee (1979), (9) The report of Madhava Rao Committee (1999),

ELECTRONIC REFERENCES: (1) http://nagpur.nic.in (2) www.rbi.org.in