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Title of Research work: Financial Performance of District Central Cooperative

Banks in Punjab
Name of Scholar: Priya Goel
Subject: Management (Finance)
Registration No: 090299900251
a) Name of Guide: Dr. Anindita Chatterjee
Assistant Professor
Faculty of Management Studies
Manav Rachna International University
Faridabad
b) Name of Co Guide: Dr. Devendra Pathak
Vice Chancellor
APG Shimla University
Himachal Pradesh












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Index
Contents Page No.
1. ABSTRACT 2
2. INTRODUCTION 3-5
3. REVIEW OF LITERATURE 5-15
4. OBJECTIVES 15
5. RESEARCH METHODOLOGY 15
6. TENTATIVE CHAPTER PLAN 17
7. REFERENCES 18-20
8. ANNEXURE-I 21











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Financial Performance of District Central Cooperative Banks in Punjab
Abstract:
The Indian cooperative banks have a unique position in the rural credit delivery system of India.
Challenges before the cooperative banks are two folds, on the one hand they are supposed to provide
cheap and timely credit to rural masses and on the other hand they have to ensure their profitability
and viability in turbulent interest regime. To be able to create a balance between their social objectives
and economic compulsions, these banks were needed to change working strategy. So as a result,
cooperative banks have diversified their areas of operation. Business diversification process in
cooperative banks started in the year 1992. A need was felt to conduct a study to know the impact of
diversification on banks. For the purpose of study, The Punjab state has been divided into three
homogeneous agro-climatic zones on the basis of cropping pattern, soil texture, soil quality, rainfall,
underground water, etc. The sampling design of the study will be based on multistage random sampling
technique. Two District Central Cooperative Banks from each zone will be selected randomly. 100 bank
officials and an equal number of borrowers from all selected District Central Cooperative Banks will be
randomly selected for studying the perceptions of bank officials about non performing assets and of
borrowers, the factors determining their repayment performance. Primary as well as secondary data will
be collected. The secondary data will be related to advances outstanding and non-performing advances
for the period of 2001-2012 ending on 31
st
March. For the purpose of primary data collection, two
separate questionnaires will be developed, one for bank officials and the other for borrowers.
Key Words- District Central Cooperative Banks in Punjab, non performing assets, diversification of
banks, repayment performance.







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Financial Performance of District Central Cooperative Banks in Punjab
INTRODUCTION
An important segment of the Indian banking set-up is the cooperative banking system. A
cooperative bank is a credit agency with democratic management, responsiveness to felt needs and
local participation. In cooperative parlance, a cooperative is an organization of individuals, which intends
to promote economic interest of members. The cooperative banking system aims at mobilization of
savings from the middle-income groups and meet credit requirements of the middle and economically
weaker sections of the society. The Cooperative Credit Societies Act passed in 1904, paved the way for
the establishment of cooperative credit societies in rural and urban areas. The Cooperative Societies Act
of 1912 recognized the formation of non credit societies and the central cooperative organizations. The
state patronage to the cooperative movement continued even after 1947, the year in which India
accepted the concept of planned economy and cooperative organizations were assigned an important
role. Various committees appointed to examine the problem of rural credit, came to the same
conclusion. Without exception, there is no alternative, to cooperatives at the village level, in the Indian
context
Indian planners considered cooperation as an instrument of economic development of the
disadvantaged, particularly in the rural areas. The non-exploitative character of cooperatives, voluntary
nature of membership, the principle of one man-one vote, decentralized decision making and self
imposed curbs on profits, eminently qualified them as an instrument of development combining the
advantage of private ownership with public good. Since 1950s the cooperation in India has made
remarkable progress in the various segments of Indian economy. During the last century, the
cooperatives have entered sectors like credit, production, processing, marketing, housing, warehousing,
irrigation, transport, textiles and even industries. Today India can claim to have the largest network of
cooperatives in the world numbering more than half a million, with a membership of more than 200
million.
The rural cooperative credit institutions may be further divided into short term credit
cooperatives and long term credit cooperatives. At the central level (District level) District Central
Cooperative Banks (DCCB) function as a link between Primary Societies and State Cooperative Banks
(SCB). As against three tier structure of short term credit cooperatives, the long term cooperative credit
structure has two tiers, in many states with Primary Cooperative Agricultural and Rural Development
Banks (PCARDB) at the primary level and State Cooperative Agricultural and Rural Development Bank at
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the state level. However some states in the country have unitary structure with state level cooperative
operating through their own branches and in one state an integrated structure prevails. Punjab has two
tier structures for long term credit with Punjab State Cooperative Agricultural Development Bank at the
state level and Primary Cooperative Agricultural Development Bank at the Primary level.
Under the Banking Regulation Act 1949, only state cooperative apex banks, district central cooperative
banks and urban credit cooperatives are qualified to be called as banks in the cooperative sector. In
other words, only these banks are licensed to conduct fully fledged banking business.
Cooperatives have played an important role in the overall economic development of Punjab.
Cooperatives have engulfed almost all important areas of economic operation in Punjab whether it is
agriculture marketing, agriculture processing, housing sector etc.
Being an agrarian economy, availability of cheap and easy agriculture credit is of utmost importance. In
fact, two pillars of green revolution in Punjab are said to be Punjab Agriculture University (which
provided technical support and guidance to the farmers) and State Cooperative Banks which provided
short term credit facility to meet the working capital needs of the farmers and long term credit to meet
infrastructural development needs.
The Punjab State Cooperative Bank, Chandigarh is playing a vital role in the agriculture and rural
development. It has 19 branches and 1 extension counters in Chandigarh. There are 20 District Central
Cooperative Banks having 804 branches all over Punjab, mostly in rural areas of the State. The
unparalleled contribution made by this premier cooperative institution of the state not only helps in
promoting direct employment to people but also helps in raising the economic standard of the
beneficiaries. There is no arena of life where this premier institution has not played its part. From a
farmer, artisan, trader man to big industrialist everybody has been covered in the fold of this institution.
The green, white, blue and sweet revolutions in the State of Punjab are some of the major achievements
of the state in which this institution has played a vital role. It was timely, adequate and easily accessible
financial assistance to the rural peasantry in agriculture and allied activities such as dairy, poultry,
sugarcane etc. which has been instrumental in making these activities most successful.
During the 1990s, the banking scene in India has undergone tremendous changes. Narsimham
Committee came out with its recommendations. It emphasized on shift from centralized planning to
indicative planning. Thus, the Committee shifted its onus from ownership to efficiency and
competitiveness while ensuring the integrity and operational autonomy of the banks. Financial sector
reforms started on basis of Narsimham Committee recommendations aim at fostering financially strong
banking companies to be cooperative in a competitive world.
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As a result of these financial sector developments, policy makers and social thinkers were
apprehensive that cooperative banking sector will be facing the challenges of increasing competition,
emerging opportunities and withdrawal of government support and may have to abandon its social
objectives. But cooperative banking system has some inherent strength in the form of its sound
infrastructure and intimate relations with its customers, these banks have made a vital contribution to
nations development. Cooperative banking system has progressively matured and is preparing itself to
successfully meet new challenges. The Indian cooperative banks have a unique position in the rural
credit delivery system of India. This sector of banking industry plays a crucial role in the dispensation of
credit for agriculture and rural development. Over the years, they have remained the prime institutional
agencies with their vast network, wide coverage and outreach extending to remotest part of the
country.
Challenges before the cooperative banks are two folds, on the one hand they are supposed to
provide cheap and timely credit to rural masses and on the other hand they have to ensure their
profitability and viability in turbulent interest regime. Financial sector reforms, globalization of financial
services and technology revolution have strengthened the commercial banking system to a great extent
and have improved their internal working systems. All these changes have resulted in improved
productivity and profitability of the commercial banking system which enabled them to offer low cost
services to customers. But all these changes have created problems for cooperative banking system. Due
to its inbuilt weaknesses, structural loopholes and dependence upon agrarian loans, cooperative banks
were not able to sustain their profitability. To be able to create a balance between their social objectives
and economic compulsions, these banks were needed to change working strategy. So as a result,
cooperative banks have diversified their areas of operation. Business diversification process in
cooperative banks started in the year 1992. More than 15 years have passed but its impact on working
of cooperative banks has not been studied yet. No major study has been conducted to assess the impact
and/or performance of this cooperative credit structure under the ages of new economic policy regime.
REVIEW OF LITERATURE
Overdue is planted when the loan is granted. Admitting to this opinion, it is emphatically stated that
the NPAs of the banks should be within allowable limits, and if it exceeds this limit, the entire loaning
structure gets diluted. The NPAs freeze the financial institutions liquidity, cripple the operations and
reduce the flow of credit.
Reddy (1993) in his empirical study observed that there had been a growth in the magnitude of
overdues of cooperative banks in Andhra along with the phenomenal growth in the flow of the rural
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credit. Among the reasons identified by him for the alarming position of over dues were ineffective
credit appraisal , lack of adequate arrangements for supply of farm inputs, absence of climate for
recovery, failure of crops due to natural calamities and adverse agro climatic conditions, the present
democratic role, directly or indirectly is a major responsible factor. Favouritisms and red tapism in
sanctioning loans and in recovery of loans have resulted in deferring the legal proceedings against the
defaulters, which led to mounting overdues.
Thinalaya (1994)

in his article observed that mounting overdues is one of the major
problems faced by the banks today. While it is more pronounced in the case of rural credit, it is
subtle in the case of other advances where the amount involved is very huge. The delinquency
ratio is on the increase, which was more often due to unwillingness to repay rather than on
account of inability to repay. In his article he observed that industrial sickness was a major
problem which was causing great concern to the bankers as advances made to sick industries
were stuck up.
Balishter et al (1994) conducted a study to analyze the repayment performance of 175
defaulters from 3 development blocks of Agra District. He found that the large and medium farmers
accounted for 37 percent of total defaulters and over 57 percent of total overdues, while the marginal
and small farmers accounted for 63 percent of total defaulters and 43 percent of total overdues i.e.,
better class of farmers were responsible for large proportion of overdues. The amount of overdues and
its percent to demand also showed a rising trend during the period of study. It further highlighted that
out of 175 defaulters, 38 percent were willful defaulters and remaining 62 percent were non willful
defaulters. His study emphasized the need for proper supervision over end use of credit and personal
reminders to borrowers on the need to repay the loan as effective devices for checking the excessive
overdues.
Soni (1995) in his book, Leading Issues in Agricultural Economics analyzed , that despite the
fact ,that cooperative credit had increased its share in the rural finance, the expansion of the
cooperative credit suffered from various drawbacks, and the most important drawback in the
cooperative credit was the existence of high level of overdues. He pointed out that the overdues for
both the primary agricultural cooperative societies and the central banks constituted about 40 percent
of the loans advanced by them. Obviously, the high level of overdues hindered the process of re-cycling
of credit.
Reddy, Ramachandra and Reddy Ramakrishna (1995) made an empirical study
selecting 144 defaulters and 72 non defaulters to analyze the causes of default and concluded that
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the causes which were internal to the credit institutions were inadequate supervision over credit,
adverse weather conditions (particularly to droughts or floods),lack of forward and backward
linkages, unsound lending policies and unsatisfactory management of the credit institutions.
Hunderka (1995) in his study regarding productivity aspects in RRBs, suggested that (a) profit
planning and cost control measures should be improved (b) labour productivity improvement measures
to be taken (c) customer services by product development and diversification strategies to be promoted
(d) market development strategies for mobilizing more savings to be initiated (e) management audit for
controlling other administrative costs to be done (f) the recovery process to be streamlined (g) the funds
of bank should be effectively managed.
Reddy et, al (1996) conducted a study, using the multi stage sampling technique and
various statistical techniques like t-test, coefficient of variation, f-test and ANOVA, to examine
the reasons of default in case of 72 defaulters and 36 non-defaulters. They found that in case of
non-willful defaulters, the variables like proportion of cash crops to total cropped area, family
consumption expenditure, gross income from agriculture, initial amount of land borrowed and
total members showed positive signs for regression co-efficient i.e. had direct influence on
overdues. In case of willful defaulters, four variables i.e. land holding, political interference,
education and proportion of dependant members to total members showed positive relationship
to overdues.
Kanda (1996) critically evaluated the agricultural credit system, pointing out that inadequate
control over flow mechanism and poor end use monitoring have not only left some fundamental
concerns unaddressed but also sometimes had the unfortunate effect of exacerbating precisely those
pernicious evils, which the policies aimed to eradicate. The Cooperative Credit Delivery System is
susceptible to certain systemic deficiencies, which cause serious distortions like- Leakages in passage
between source and end use, poor management support etc, consequently leading to mounting
overdues. He suggested that it was necessary that at the level of Department of Agriculture,
Department of Rural Area Development, RBI and NABARD; efforts should be made to tighten the agro
credit delivery system and to circumscribe its dispensation to subsume the imperatives like adequacy,
timeliness, management, linkages, clustering of credit to improve the recovery performance for
reducing the alarmingly excessive overdues.
Murthy and Saraswathi (1996) undertook a study to evaluate the quantitative progress made in
respect of supply of institutional credit. Using the secondary data made available by RBI in statistical
statements relating to cooperative movement in India for a period of 6 years from 1978 to 1983 and
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assessing the loaning policies of Girijan Cooperative Corporation, Visakhapatnam, the study concluded
that the progress in respect of supply of credit was phenomenal over the period of study but this
progress pales into significance, if the magnitude of overdues is considered. The study suggested that
making cooperatives as exclusive institutions of weaker sections i.e. making them homogeneous would
not result in decline in overdues, as mere homogeneity was not a sufficient condition.
Sivaprakasam (1996) undertook a study, based on the analysis of a sample consisting of 160
defaulters, to analyze the socio-economic characteristics and the attitude of defaulters towards
repayment of dues. He emphasized that the concessions like write off loans to members by the
government were responsible for the increase in the number of defaulters because many farmers
became members with an ulterior motive of getting concessions from the government. Regarding the
socio-economic and political characteristics like age, sex, religion, community, education and size of
landholding, the study concluded that these had a direct bearing on the repayment of dues and
determined the attitude of the defaulters to repay their dues.
Veerashekharappa (1996) in his study of rural credit in two VIP districts (represented by two
former prime ministers) namely, Sultanpur and Raebareli of Uttar Pradesh attempted to examine the
influence of political intervention on the expansion and delivery of institutional credit during the period
1984-85 to 1988-89. There was a growth of disbursements of about 19 per cent in these districts and
the bulk of the lending went to the priority sector consisting of rural poor because of the launching of
several anti-poverty schemes in these districts. However, the position regarding recovery of over dues of
all rural financial institutions in these districts was quite dismal. The percentage recovery of total
demand of all credit agencies varied from 52.10 percent for Sultanpur and 52.29 percent to 59.04
percent for Raebareli during the period of study. The recovery position in Raebareli was a little better
because of declining VIP status of this district as it ceased to be Prime Ministers constituency after
October 1984
Baviskar & Attwood (1996) observed that the intermediate enterprise, based on local expertise
and responsiveness, in the shape of cooperative did not eventually turn out to be viable and sustainable
organization and these organizations lacked professional management, democratic set up, business
essence and financial prudence. They further pointed out that even the established and successful
cooperatives were lacking sound financial position and were dominated by rich and enterprising
members.
Deolalkar (1998)

observed that NPAs in Public Sector Banks were recorded at about Rs.457
billion in 1998. About 70 percent of gross NPA were locked up in hard core doubtful and loss assets,
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accumulated over years, pending either in courts or with Board for Industrial and Financial
Reconstruction (BIFR)
Vishwanthan (1998) in his article Measures For Revitalising Cooperative Banks highlighted the
need for a well crafted strategy consisting of a strong financial resource base through mobilization of
deposits and rural savings, promotion of managerial experience, trained human resources,
computerization and mechanization of loaning operations, adoption of capital adequacy norms, and
evolving practices and policies suited to the interests of both the depositors and the borrowers for
curbing the mounting overdues.
Pathania and Singh (1998) in their study observed that the performance of the HPSCB in terms
of membership drive, share capital, deposit mobilization, working capital and advances had improved
over the period of five years i.e. 1991-92 to 1995-96. However the recovery performance was
unsatisfactory and overdues had increased sharply due to inadequate professional manpower, training
and a sense of competition.
Kumar and Singh (2000)

conducted a study on overdues related to IRDP loan in Milch Animal
Scheme. The findings of the study were that out of 100 borrowing families, 77 percent were defaulters,
the number of defaulters being highest in case of landless laborers, with an average of 53 percent of
overdues to demand. He suggested that overdues resulted due to the lack of appropriate backward and
forward linkages as a result of which the borrowers could not augment their income. He indicated that
low repayment capacity, cropping intensity, consumption expenditure and income from dairy farming
significantly influenced the overdues.
Taori (2000) analyzed various factors contributing to NPAs and he pointed out that the
decade of 90s heralded an era of economic and monetary policy change brought about by the
Government of India and RBI to globalize the Indian Economy. According to him, the surest
way of containing NPAs was to prevent their occurrence. He emphasized on proper risk
management system in the banks, strong and effective credit monitoring, an open and
cooperative working relationship between banks and borrowers allowing for corrective action.
Verma and Bhagavan (2000) stressed that overdues could be minimized if the size of credit is
related to production on a scientific basis, loans are effectively supervised in relation to their utilization
and the cultivator is approached at the right time for repayment. He concluded that a majority of
borrowers became defaulters due to willful causes, which included misutilization of credit or of funds
generated through investment activity and political factors. The major non-wilful causes were failure of
crops, low market prices for the produce, inadequate income and natural calamities.
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Niranjanraj and Chitanbaram (2000) observed that cooperative banks also need attention in
developing models for evaluating their performance as they too are important part of Indian financial
market. They opined that while measuring the performance of the DCCBs, one has to consider not only
their economic performance but its performance as cooperative organizations. They developed a model
to assess performance of cooperative banks. They considered 23 parameters falling into four major
groups for measuring the performance of DCCBs and assigned appropriate weights to each parameter.
Viswanath (2001) made an analysis of the performance of Credit Co-operatives and their
overdues problems in India. He found that between the period 1950-51 to 1995-96, the total loans
advanced by them increased from Rs. 24 crores to Rs. 14,201 crores i.e. 587 times, but unfortunately
this increase was followed by a corresponding increase in overdues.
Das Debabrata (2001) made an attempt in his study to examine the repayment behavior of
loans in respect of the borrowers of Arunachal Pradesh State Cooperative Apex Bank Ltd. The study was
based on primary data collected through field survey, using a structured questionnaire covering the
period from 1994-95 to 1998-99. He concluded that the highest percent of defaulters were found
among the borrowers who were issued loan for livestock and poultry (72.41 percent), followed by
borrowers of agricultural loans (66.07 percent), horticulture (47.05 percent), small business and retail
trade (43.58 percent) and transport and other services sector with 41.46 percent of defaulters. Majority
of defaulters (67 percent) belonged to IRDP beneficiaries and borrowers who belonged to the group
drawing an amount of loan of Rs. 50,000 and above had lesser tendency (11.11 percent) of default. He
identified one of the main reasons of non-repayment or less repayment of loans as the unwillingness of
the borrowers to repay rather than their ability to pay.
Sachdeva and Singh (2001) indicated that low repayment capacity, cropping intensity,
consumption expenditure and income from dairy farming significantly influenced the overdues. They
observed that repayment of loans makes possible the recycling of public money for development and
also generates confidence among the banks in their clientele. Due to the increasing burden of overdues,
the outstanding loans get artificially enhanced thereby giving an indication of complacency and they
observed that rural lending was a losing proposition and was being pursued due to political and social
compulsions.
Kaveri (2001) in his article attempted to extend the study conducted by the Verma Committee
more specifically to ascertain whether enough signals of weakness were indicated much before the
event. The Verma Committee on restructuring of weak public sector banks identified weak banks, strong
banks, and potentially weak banks on the basis of seven efficiency parameters. They concluded that
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weak, strong and potential weak banks were adequately discriminated by loan default on one hand and
profitability on the other. Though banks in all three categories reduced the NPA percentage and
improved the position of profitability, what matter were their levels. This calls for corrective strategies.
Regarding loan default, two strategies are called for i.e. effective recovery and prevention of entry of
fresh NPAs. Credit monitoring in banks should be strengthened by creating a database.
Ramesha (2001)

in his article Credit Risk Management in Agricultural Cooperative Banks
emphasized that in the deregulated and competitive environment, agricultural cooperative banks need
to reposition themselves in order to survive and function as commercially viable institutions. Needless
to say, credit discipline should form the centerpiece of the strategies for the survival and growth of
cooperative banks. More importantly, inherent risk in lending to agriculture in a country like India makes
credit risk management all the more important.
Singh (2003) in his article observed that banks were continuously monitoring the (bad) accounts
as the RBIs new assets classification came into effect from March 31, 2004. He further added that NPAs
were in control and most of the PSBs had net NPAs of 4-4.5 percent of net advances. NPAs are not
galloping as it used to be in the past and many banks had a coverage ratio of as high as 85 percent.
Apprehending higher provisioning for NPAs and a lower net profit, he emphasized on the need for
change in the strategy to tackle with this problem.
Shekhar (2003)

in his study pointed out that the third and the most important dimension
of banking sector reforms was reduction of the non-performing assets. According to him the
whole effort to reform the banking sector would collapse if the banks are not able to contain and
reduce their NPAs. In a bid to help the banks and financial institutions to recover funds, the
government enacted the SARFAESI Act, 2002, with a hope that the problem would be resolved
amicably for the benefit of both the banks and the industry paving the way for the easy
availability of cheaper credit.
Gujral (2003-04)

pointed out that considering the gravity of the situation, Reserve Bank Of India
has taken a number of constructive steps for arresting the incidence of NPAs like setting up of Lok
Adalats, Debt Recovery Tribunals (DRTs), One Time Settlement Scheme and the Corporate Debt
Restructuring (CDR) Scheme and promulgation of the SARFAESI Act, 2002. The banks and the law
enforcement agencies will have to fill the gaps that exist, to make this Act successful as intended.
Yeole (2004)

in his study observed that NPAs in Public Sector Banks were relatively higher than
the international standards and by Jan 2003, the NPAs of Co-operative Banks amounted to Rs. 11,471
crores i.e. 22 percent of total advances. He pointed out that the external factors like ineffective recovery
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tribunals, willful defaults and change of government policies were the main factors responsible for
overdues and internal factors like managerial deficiencies, poor credit appraisal and improper SWOT
analysis were responsible for the excessive overdues creating a pathetic state of Indian Banking System
Nair (2004) observed that by 2004, the formal institutionalized cooperative sector completed a
century of its service to the nation. Strength of the cooperatives is their omnipresence, coverage and
percolation. They are versatile in the sense that, they can take up any type of rural financing and rural
service activity at short notice and at lowest transaction cost. But besides excelling on all fronts, the
cooperatives are feeling handicapped due to mounting NPAs. Their overdue loans increased to
95,899.60 millions in 2000-01 as compared to 63.79 indicated in 1950-51, thereby subjecting them to a
sustained and systematic process of reviews, reorganisation and restructuring.
NABARD (2005) conducted a study to evaluate the financial performance of 1872 Urban
Cooperative Banks and 1, 06,919 Rural Cooperative Credit Institutions. The findings of the study were
that in all financial institutions in the rural sector (STCBs, CCBs, SCARDBS and PCARDBS), percent of NPAs
in the substandard category declined, while in the doubtful category, NPAs increased during 2003-04
suggesting deterioration in the asset quality. NABARD (2005)

suggested to the Cooperative Banks to
implement One Time Settlement system (OTS) and refer small value advances to Lok Adalats and high
value advances to Debt Recovery Tribunals (DTRS). Further, State Governments were requested to help
Cooperative Banks in reducing NPAs by taking special Recovery Devices.
Bhaumic (2005) conducted a study on the risk aversion behavior of banks in emergency credit
markets with special reference to India. Using the bank level date from India for nine years (1995-96 to
2003-04), he observed that credit market behavior of banks in emergency markets is determined by past
trends, the diversity of the potential pool of borrowers to whom a bank can lend and regulations
regarding the treatment of NPAs and lending restrictions imposed by RBI. He further suggested that
credit disbursal by banks can be facilitated by regulatory and institutional changes that help banks
mitigate the problems associated with enforcement of debt covenants and treatment of NPAs on the
balance sheets.
Bhat and Ahmed (2005) conducted a case study to assess whether cooperative finance resulted
in agricultural development and social upliftment in the state of Jammu and Kashmir. They observed
that an effective delivery system was must for improving the role of cooperative banks in agricultural
development consisting of integration of services, easily approachable and prompt cash to ultimate
borrowers. They emphasized on increasing the recovery period to prevent the sale of agricultural
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produce at lower prices and added that in case of default of loans due to natural calamities, the bank
should permit conversion of crop loans into term loans to prevent resultant NPAs.
Kakker (2005) discussed the role of Asset Reconstruction Companies in his article. According to
him a high level of NPAs in the banking system can severely affect the economy in many ways. The
issues arising from NPA stock need to be addressed on a priority basis and the ARCs, therefore, need to
have focus on expeditious resolution of NPAs in order to address concerns of the banking system (either
as investor or seller) and unlock the value in NPAs.CDR and ARCs are two pronged strategies to address
the NPA resolution. Co existence of CDR and ARCs is a mutually beneficial association.
Singh (2005) highlighted the importance of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Securities Interest Act (SARFAESI ACT 2002). He regarded this Act to be a
welcome legislation that will have a significant positive implication not only for the banking and financial
services sector but also for the economy as a whole. With the enforcement of this landmark Act, it is felt
that borrowers will no longer be able to take banks lightly and simply walk away with scarce public
money.
Economic Survey (2005-06)

highlighted that the position of NPAs had significantly improved in
banks due to wider options available to them for recovery of their dues on one hand and sale of their
NPAs to Asset Reconstruction Companies on the other hand. This resulted in NPAs declining by 6487
crores between March 2004 and end March 2005 for Commercial Banks. According to this survey
Monetary and Banking Developments, the target for institutional credit for agriculture by all the
agencies was fixed at Rs.105, 000 crores for the year 2004-05, ensuring 30 percent growth over previous
years achievement. The overall achievement by all agencies during 2004-05 was 1, 15,243 crores,
equivalent to 32 percent growth over the previous years achievement. It further highlighted that while
the Commercial Banks and Regional Rural Banks over performed vis--vis their target of Rs 57000 crores
and 8500 crores, there was a shortfall of over Rs.8000 crores by Cooperative Banks vis--vis their target
of 39,000 crores, attributing the same to low resource base and inefficient recovery system, thereby
leading to excessive overdues.
Bagchi (2006), made an attempt to analyze the performance of cooperative credit institutions
especially Primary Agriculture Credit Societies, and observed that PACS could not match up to the
increasing requirements of growth dimensions in the agriculture/rural developments in the post
independence period, although till the late 50s they were the only available source of institutional rural
finance. The dismal performance of cooperative bank was due to unnecessary government intervention
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and high NPAs which are due to the reason that cooperatives lend to farm sector which are more prone
to losses.
Pevekar and Ashvine (2006) emphasized in their article on the role of public relations personnel
in reducing the NPAs. The authors have tried to examine the current situation of the banks with respect
to NPAs and the consequences of further increase. Even a small percent decrease in NPAs can lead to
healthier bottom-lines for the bank. They observed that the origin of the problem of huge NPAs was in
the quality of credit risk management by the banks i.e. lack of adequate preventive measures like pre-
sanction appraisal responsibility and effective post disbursement supervision.
Noronha (2006) has outlined the causes and impact of NPAs. According to his findings,
inadequate preparation for financial liberalization particularly in respect of banking supervision, lack of
sincere corporate culture and bad loans, the adverse agro climatic conditions and floods, the large-scale
government involvement in the banking sector, lose control on connected lending, tendency of the
banks to lend liberally during the upswings of business cycles, were the factors contributing to excessive
overdues. He suggested measures to curb NPAs, which would in turn lead to a healthy growth of the
financial sector.
Venugopal (2006) highlighted the incredible saga of NPA management in the Indian
Banks in the recent years. With the guidelines laid down by RBI and the experience gained over
the years, most banks have now evolved a competent mechanism to handle out of court
settlements, be it a small borrower or a corporate client with different measures .The success
achieved in the management of NPAs should lead to a gradual improvement in the asset quality
of the banks. Banks cannot afford to be complacent just because they have an effective tool for
debt collection in the form of SARFAESI Act or OTS. They should aim for a gradual
improvement in asset quality through a proper evaluation and monitoring of credit, verification
of assets, ensuring adequate security or collateral backing and effective follow up of the end use
of credit, as asset quality holds the key to the sustainable NPA Management.
Shiralashetu and Akash (2006) observed in their study that the ineffective legal system was
responsible for the problem of mounting NPAs. They suggested that the banks should improve the
effectiveness of recovery management, credit management and legal system to deal with the problem
of mounting NPAs. They further added that Foreign Banks are more efficient in controlling NPAs as
compared to Public Sector and Private Sector banks in terms of total advances.
Castelino (2006) observed that the accretion to NPAs was a major problem in the 1990s.
Diversion of funds and willful default had become more common as per a study published in RBI Bulletin
15

in July 1999. Diversion of funds and willful default were found to be the major contributing factors for
NPAs in the cooperative banks.
Ghosh and Newar (2006) observed that even though the average size of the retail loan portfolio
is low compared to industry segments, the quality is extremely critical. With low interest rates,
diversification and fiscal sops, there has been a huge splurge in retail portfolio in the past few years. The
banks, while going on retail lending spree, overlooked some of the risk factors, resulting in excessive
NPAs. The crucial issue is the banks need to be more careful while giving out loans, be it retail or
otherwise.
John and Philip (2006) stressed that the NPAs is the most generally used yardstick to judge the
financial health of the banking system. Since the introduction of the prudential norms in 1992-93 the
NPAs of the Indian Banks have been drastically reduced. The percentage of Gross NPAs on Gross
Advances has been drastically reduced from 16.58 percent on 31
st
March 1996 to 5.34 percent on 31
st

March 2005.This decrease was the result of the stringent measures adopted by the Reserve Bank Of
India for the robustness of the banking system of the country. However, the sample studies done by the
authors show that the recovery through the speedy process of DRTs is very meager. Therefore, it can be
inferred that the bulk of the NPAs in the banking sector remains as an economic cost to the nation.
OBJECTIVES
1. To study the trends in sector wise loans advanced by and diversification in cooperative
banks.
2. To evaluate the extent of NPA in cooperative banks.
3. To identify the impact of diversification on business of banks.
4. To highlight the perceptions of bank management regarding diversification and NPA.
5. To identify the factors affecting repayment performance of borrowers.
RESEARCH METHODOLOGY
Locale of the study
The Punjab state will be the locale of the study. The Punjab state has been divided into three
homogeneous agro-climatic zones on the basis of cropping pattern, soil texture, soil quality, rainfall,
underground water, etc. All the three zones will be represented in the study.


16

These zones are observed as under:
Zone Type Cropping System
I Sub-Mountainous Zone Maize-Wheat
II Central Plain Zone Paddy-Wheat
III South-Western Zone Cotton-Wheat

Sampling Design
The sampling design of the study will be based on multistage random sampling technique. Agro-
climatic zone will provide the first stage of sampling unit. Two District Central Cooperative Banks from
each zone will be selected randomly. The list of all the District Central Cooperative Banks is given in
Annexure-I.
Selection of Bank Officials and Borrowers
100 bank officials and an equal number of borrowers from all selected DCCB, will be randomly
selected for studying the perceptions of bank officials about NPA and of borrowers the - factors
determining their repayment performance
Collection of Data
Primary as well as secondary data will be collected. The secondary data will be collected from
official websites of State Cooperative Bank, Punjab, Published Annual Reports, etc. while primary data
will be collected from bank officials and borrowers. The secondary data will be related to advances
outstanding, non-performing advances for the period of 2000-2001 to 2011-2012 ending on 31
st
of
March.
For the purpose of primary data collection, two separate questionnaires will be developed, one
for bank officials and the other for borrowers. The data will be collected from bank officials regarding
their perceptions about NPA in DCCBs in Punjab and the data regarding their repayment performance
will be collected from defaulter borrowers as well as non-defaulter borrowers.
Statistical Framework
Consistent with the objectives of the study, simple statistical techniques like frequencies,
percentages, averages, graphs, etc. alongwith advanced statistical tools like compound growth rates,
trend equations, chi-square test, r-test, regression analysis, Analysis of variance (ANOVA), t-test, etc. will
be applied to arrive at the logical outcome.

17

Tentative Chapter Plan
Chapter Title
I Introduction
II Review of Literature
III Research Methodology
IV Composition of Advances in The District Central Cooperative Banks in Punjab
V Non-Performing Advances in District Central Cooperative Banks of Punjab
VI Business Diversification-Impact on Business of Banks: A Management View Point
VII Perceptions of Borrowers Regarding NPAS and Factors Affecting Their Repayment Performance
VIII Summary, Conclusions and Recommendations
References












18

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19

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21

ANNEXURE-I
List of District Central Cooperative Banks in Punjab
Zone Sr. No. District Central Cooperative Bank
I 1. The Gurdaspur Central Cooperative Bank Ltd, Gurdaspur
2. The Hoshiarpur Central Cooperative Bank Ltd, Hoshiarpur
3. The Ropar Central Cooperative Bank Ltd, Ropar
4. The Nawan Shahar Central Cooperative Bank Ltd, Nawan Shahar
II 1. The Amritsar Central Cooperative Bank Ltd, Amritsar
2. The Kapurthala Central Cooperative Bank Ltd, Kapurthala
3. The Jalandhar Central Cooperative Bank Ltd, Kapurthala
4. The Ludhiana Central Cooperative Bank Ltd, Ludhiana
5. The Patiala Central Cooperative Bank Ltd, Patiala
6. The Moga Central Cooperative Bank Ltd, Moga
7. The Tarn Taran Central Cooperative Bank Ltd, Tarn Taran
III 1. The Bathinda Central Cooperative Bank Ltd, Bathinda
2. The Ferozepur Central Cooperative Bank Ltd, Ferozepur
3. The Faridkot Central Cooperative Bank Ltd, Faridkot
4. The Sangrur Central Cooperative Bank Ltd, Sangrur
5. The Mansa Central Cooperative Bank Ltd, Mansa
6. The Mukhtsar Central Cooperative Bank Ltd,, Mukhtsar
Newly
Formed
Districts
1. The Fatehgarh Sahib Central Cooperative Bank Ltd, Fatehgarh Sahib
2. The SAS Nagar Central Co-operative Bank Ltd., SAS Nagar
3. The Fazilka Central Cooperative Bank Ltd. , Fazilka