Comparative Study of Public and Private Sector Banks

Chapter 6

       A Comparative Study of Public and Private Sector Banks

Customers' Perception on E-Banking Services

Introduction

In India, Commercial banks are providing electronic services for their customers for few decades. In electronic channel, ATM, mobile, internet and phone banking are the major services. The main aims of these services are to reduce the cost, speedy transactions and paper less work for both bankers and customer's side. Under these services commercial banks are offering various facilities like balance checking, cash withdrawal, mini statement, utility bills payments, fund transfer etc. In the present scenario banks are providing compulsory ATM cum debit cards for their customers and also they can avail mobile, internet and phone banking channels according to their willingness. Therefore, the researcher intended to know the level of awareness, factors influencing and level of satisfaction of customers on E-Banking services.

In this chapter an attempt has been made to analysis of data and information collected for the study to expose the customers' perception on E-Banking services. The data has been collected through structured interview schedule which is designed to seven segments. Part one consists of demographic profile, part two contains banking details of customers, part three contains awareness level of core banking system and E-Banking channels, part four contains ATM banking services, part five contains mobile banking services, part six contains internet banking services and part seven contains phone banking services. Percentage analysis is applied to know the personal profile and bank details of customers. One sample T-test is used to identify the level of awareness, factors influencing and level of satisfaction on customers. Factor Analysis by principal component method is brought to bear on the customers' perception on identifying the predominant factors of ATM, mobile banking, internet banking and phone banking channels. One way analysis of variance is applied to know the factors influencing the customers on E-Banking services. Cluster Analysis is used to classify the customers of E-Banking users with various heterogeneous groups which are homogenous within them. A non parametric Chi-Square test is used to identify the association between various clusters of customers with respect to elements of ATM, mobile banking, internet banking and phone banking.

Demographic Profile and Banking Details of Customers

The demographic profile of the customer is closely associated with banking transactions. The banking transactions are differing from customer to customer. Therefore, it is important to study about the customers' demographic profile. The present study considers place of living, gender, age, educational qualification, occupation, marital status, income, type of family, number of family members, type of account, more than one account in another bank, duration of having account with commercial banks, purpose for having account with commercial banks, frequency of visiting branch and source of information of knowing E-Banking facilities in commercial bank, usage of ATM facility, frequency usage of ATM facility, usage of mobile banking facility, frequency usage of mobile banking facility, usage of internet banking facility, frequency usage of internet banking facility, usage of phone banking facility and frequency usage of phone banking facility. In this juncture, the researcher applied percentage analysis to ascertain the socio-economic profile of the customers.

Place of Living wise Categorization  

Rajasthan contains urban, semi-urban and rural areas. Commercial banks are spread in ten corporations of Rajasthan. Customers are divided into three categories on the basis of the place of living viz., (a) Urban, (b) Semi- Urban and (c) Rural. The following table reveals the distribution of customers by their place of living around E-Banking facility provided by the commercial bank.

Table No. 4.1

Place of Living wise Categorization

Place of Living	Number of Respondents	Percentage (%)
Urban	364	48.50
Semi- Urban	277	37.00
Rural	109	14.50
Total	750	100.00

Source: Primary Data

From the above table, it is found that the maximum of 48.50 % of customers are living in urban places followed by 37.00 % of customers in the semi urban. A minimum of 14.50 % of customers are living in rural area.

Gender wise Categorization

In a tradition bound society, men have to earn and women have to manage the family and also save money. But the modem trend is that both husband and wife want to be employed in order to earn and live comfortably. Normally, the attitude and interest will differ from male to female. Hence, customers are classified into two categories viz., (a) Male and (b) Female.

The following table exhibits that the distribution of customers by their gender about E-Banking facilities provided by commercial bank.

Table No. 4.2

Gender wise Categorization

Gender	Number of Respondents	Percentage (%)
Male	524	69.90
Female	216	28.80
Transgender	10	1.30
Total	750	100.00

Source: Primary Data

The above table expresses that the maximum of 69.90 % of customers are male and followed by 28.80 % of female customers. A minimum of 1.30 % is represented by the Trans gender.

Age wise Categorization  

Age is an important factor to decide the satisfaction level as well as convenience of the banking services. In present study the researcher considered the age groups (a) up to 30 (b) 31 to 40 (c) 41 to 50 and (d) above 51.

The following table reveals the distribution of customers by their age E-Banking provided by commercial bank.

Table No. 4.3

Age wise Categorization

Age	Number of Respondents	Percentage (%)
Up to 30	198	26.40
31 to 40	313	41.70
41 to 50	176	23.50
Above 50	63	8.40
Total	750	100.00

Source: Primary Data

Educational Qualification wise Categorization  

The above table indicates that a maximum of 41.70 % of customers are in the age group 31 to 40, followed by 26.40 % of customers in the age group 30, 23.50 % of customers are in the age group 41 to 50. A minimum of 8.40 % customers are in the age group above 51.

Education is one of the important factors to ascertain the wisdom of an individual. Any new schemes introduced by the government can reach the right person only. Educated people visit a number of places; work in many organizations and the read many newspapers, advertisement, etc. In the present research study, the researcher has considered the educational qualification namely (a) Illiterate, (b) school level, (c) U.G, (d) P.G, (e) Professional and (f) Others.

The following table reveals that the distribution of customers by their educational qualification who are involved in E-Banking.

Table No. 4.4

Educational Qualification wise Categorization

Education	Number of Respondents	Percentage (%)
Illiterate	21	2.80
School level	103	13.70
U.G	197	26.30
P.G	263	35.10
Professional	136	18.10
Others	30	4.00
Total	750	100.00

Source: Primary Data

From the above table, it is clear that the maximum of 35.10 % of customers are post graduates followed by 26.30 % of graduate customers, 18.10 % is represented by the professional customers, 13.70 % customers educated up to the school level, 4.00 % is represented by the customers with other qualifications and a minimum of 2.80 % are illiterate customers.

Occupation wise Categorization  

Occupation is one of the important factors which influence the level of satisfaction of an individual. Now-a- days, most of the employees are drawing their salary through the bank and they do not find time to go to bank during working hours. Therefore, they may wish to have E-Banking facility. In the present study, the researcher considered different occupation namely, (a) Government employee (b) Private employee (c) Farmer (d) Business (e) Professional (f) Student and (g) Others.

The following table reveals the distribution of customers by their occupation who is involved in E-Banking provided by commercial banks.

Table No. 4.5

Occupation wise Categorization

Occupation	Number of Respondents	Percentage (%)
Govt employee	154	20.50
Private employee	253	33.70
Farmer	26	3.50
Business	131	17.50
Professional	110	14.70
Student	44	5.90
Others	32	4.20
Total	750	100.00

Source: Primary Data

From the above table, it expresses that maximum of 33.70 % of customers are working in private enterprises followed by 20.50 % of customers in the government offices, 17.50 % is represented by the customer who are businessmen, while 14.70 %is represented by the customers who are professionals, 5.90 % is represented by the customers are students. 4.20 % of customers in the others occupations. A minimum of 3.50 % is represented by farmers.

Marital Status wise Categorization  

Marital status establishes the rights and obligations between spouse, children and family members. Hence, in the present study, the researcher considered marital status namely (a) Married and (b) Unmarried.

The following table reveals the distribution of customers by their marital status among E-Banking customers.

Table No. 4.6

Marital Status wise Categorization

Marital Status	Number of Respondents	Percentage (%)
Married	482	64.30
Unmarried	268	35.70
Total	750	100.00

Source: Primary Data

From the above table, it is identified that maximum of 64.30 % of customers married and 35.70 % are unmarried.

Family Income wise Categorization  

Income is the most important factor that enables a person to determine to open an account in the bank, when the income increases, their needs and wants also increases. In the present study, the researcher considers family income namely (a) Up to Rs.10, 000 (b) RS.10, 001 to Rs.20, 000 (c) Rs. 20,001 to RS.30, 000 and (d) Above Rs.50, 000.  The following table reveals the distribution of customers by their family income among E-Banking customers.

Table No 4.7

Family Income wise Categorization

Family Income	Number of Respondents	Percentage (%)
Not earn Income	41	5.50
U to RS.1 0000	178	23.70
RS.1 0001 to RS.20000	312	41.60
RS.20001 to RS.30000	155	20.70
Above RS.50000	64	8.50
Total	750	100.00

Source: Primary Data

It has been extracted from the above table that maximum of 41.60 % of customers' family income is Rs. 10001 1 to Rs.2000, followed by 23.70 % from the respondents family income is up to Rs.10, 000, 20.70 % of the customers family income is Rs.20, 001 to Rs.30, 000, 8.50 % the customers family income is above Rs.50, 000. A minimum of 5.50 % is represented by customers who do not have any source of income.

Type of Family wise Categorization  

The family composition in India is generally, based on an undivided joint family system. When literacy increases, the members of a family pursue different jobs in different parts of the country or the start their own business in various places which leads to nuclear families. For the purpose of this study, the types of family are consider two heads viz., (a) Joint family and (b) Nuclear family.

The following table reveals the distribution of customers by their type of family involved in E-Banking.

Table No. 4.8

Type of Family wise Categorization

Type of Family	Number of Respondents	Percentage (%)
Joint	410	54.70
Nuclear	340	45.30
Total	750	100.00

Source: Primary Data

It is clear from the above table that maximum of 54.70 % of customers are joint families and a minimum of 45.30 % are from nuclear family.

Family Size wise Categorization  

Number of members in the family is an important factor that determines the level of awareness about E-Banking. When the family has more number of members, there is a possibility to interact often. At the same time, information can be shared by each other. Customers are classified into three categories on the basis of number of members in the family viz., (a) Below 3 (b) 4 to 6 and (c) Above 7.

The following table reveals the distribution of customers by their number of family members among E-Banking customers.

Table No. 4.9

Family Size wise Categorization

Family Size	Number of Respondents	Percentage (%)
Below 3	274	36.50
4 to 6	376	50.10
Above 7	100	13.30
Total	750	100.00

Source: Primary Data

The above table expresses that maximum of 50.10 % of customers are from the family consisting of 4 to 6 members, followed by 36.50 %customers are from the family size of below 3. A minimum of 13.30 %is represented by number of family members above 7.

Type of Account wise Categorization  

Customers are having different types of account based on their source of income. Based on the types of accounts they are classified into three groups viz., (a) savings account (b) Current account and (c) Both.

The following table exhibits the 'data of customers are having various types of account with commercial banks.

Table No. 4.10

Type of Account wise Categorization

Types of Account	Number of Respondents	Percentage (%)
Savings Bank Account	453	60.40
Current Account	162	21.60
Both	135	18.00
Total	750	100.00

Source: Primary Data

From the above table, it shows that 60.40 % of customers are having savings bank account, 21.60 % of customers are having current account and only 18.00 % of customers are the holders of both accounts.

More than one Account in another Bank wise Categorization  

The following table displays the information about customers regarding more one account for which they are having account with another bank including public sector, private sector and foreign banks. They are classified into two group’s viz., (a) Yes and (b) No.

Table No. 4.11

More than one Account in another Bank wise Categorization

More than one	Number of	Percentage
Account	Respondents	(%)
Yes	414	55.20
No	336	44.80
Total	750	100.00

Source: Primary Data

From the above table, it indicates that 55.20 % of customers are having accounts in other bank and only 44.80 % of customers are not having other bank accounts.

Duration of having Account wise Categorization  

The following table shows that information about regarding the duration of holding accounts by customers in commercial banks. The duration is classified into four group’s viz., (a) Up to 1 year (b) 2 to 3 years (c) 4 to 6 years and (d) Above 6 years.

Table No. 4.12

Duration of having Account wise Categorization

Duration of having	Number of	Percentage
Account	Respondents	(%)
Up to 1 year	120	16.10
2 to 3 years	315	42.10
4 to 6 years	168	22.40
Above 6 years	147	19.60
Total	750	100.00

Source: Primary Data

The above table highlights that 42.10 % of customers are operating their account between the period 2 to 3 years, 22.40 % of customers are operating their account between the periods of 4 to 6 years, 19.60 % of customers are operating their account for more than 6 years and only 16.10 % of customers are operating their account within 1 year.

Purpose for having Account wise Categorization  

The following table displays the information about customers regarding the purpose for which they are having account with commercial banks. The purpose is classified into five group’s viz., (a) Personal (b) Business (c) Professional (d) All and (e) Others.

Table No. 4.13

Purpose for having Account wise Categorization

Purpose	Number of Respondents	Percentage (%)
Personal	327	43.60
Business	172	22.90
Professional	111	14.80
All	109	14.50
Others	31	4.10
Total	750	100.00

Source: Primary Data

The above table shows that 43.60 % of customers are having bank account for their personal purpose, 22.90 % of customers are having bank account for their business purpose, 14.80 % of customers are having bank account for their professional purpose, 14.50 % of customers are having bank account for general purpose and only 4.10 % of customers are having bank account for other purposes.

Frequency of Visiting Branch wise Categorization  

The following table reveals data regarding the frequency of customers to visiting branches. The frequency is classified into four group’s viz., (a) Daily, (b) weekly (c) Monthly and (d) Rarely.

Table No. 4.14

Frequency of Visiting Branch wise Categorization

Frequency	Number of Respondents	Percentage (%)
Daily	88	11.70
Weekly	312	41.60
Monthly	133	17.70
Rarely	133	17.70
Total	750	100.00

Source: Primary Data

From the above table, it is depicted that a maximum of 41.60 % of customers visit the branch weekly once, 17.70 % of customers visit the branch monthly once and rarely and a minimum of 11.70 % of customers visit the branch daily.

Source of Information of knowing E-Banking Facilities wise Categorization  

The following table displays information about customers regarding the sources of information which promoted them to know about E- Banking facility in commercial banks. The source is classified into six groups’ viz.; (a) By own interest (b) Internet (c) News paper magazine (d) Television and Radio (e) Bank staff (f) Friends and Relatives.

Table No. 4.15

Source of Information of knowing E-Banking Facilities wise Categorization

Sources	Number of Respondents	Percentage (%)
By own Interest	143	19.10
Internet	202	26.90
News paper Magazine	80	10.70
T.V and Radio	77	10.30
Bank staff	198	26.40
Friends and Relatives	50	6.70
Total	750	100.00

Source: Primary Data

The table shows that 26.90 % of customers have come to know out E-Banking through internet, 26.40 % of customers have come to mow about E-Banking through bank staff, 19.10 % of customers know out E-Banking by own interest, 10.70 % of customers have come to know about E-Banking through news papers and magazine, 10.30 % of customers know about E-Banking through Television and Radio and only 6.70 % customers have come to know about E-Banking through friends and relatives.

Usage of ATM Facility wise Categorization  

The following table displays the information about customers regarding the -age of ATM facility provided by commercial banks. The period of usage is classified into three group’s viz., (a) Up to 2 years (b) 3 to 5 years and (c) Above 5 years.

Table No. 4.16

Usage of ATM Facility wise Categorization

Usage	Number of Respondents	Percentage (%)
Less than 2 years	271	36.10
3 to 5 years	332	44.30
Above 5 years	147	19.60
Total	750	100.00

Source: Primary Data

The above table shows that 44.30 % of customers are using ATM facility less than 2 years, 36.10 % of customers are using the ATM for the past 3 to 5 years and 19.60 % of customers are using ATM for more than 6 years.

Frequency usage of ATM Facility wise Categorization  

The following table shows that the information about customers regarding the frequency of ATM facility. The frequency is classified into six groups viz.

(a) Daily

(b) Once in a week

(c) Once in a month

(d) Occasionally

(e) During urgency and

(f) When need occurs.

Table No. 4.17

Frequency usage of ATM Facility wise Categorization

Frequency of ATM Facilities	Number of Respondents	Percentage (%)
Daily	52	6.90
Once in a week	201	26.80
Once in a month	147	19.60
Occasional	112	14.90
During urgency	129	17.20
When need occurs	109	14.50
Total	750	100.00

 Source: Primary Data

From the above table, it is clear that 26.80 % of customers use ATM ices once in a week, 19.60 % of customers use it once in a month, 17.20 cent of customers use ATM services during emergencies, 14.90 % of customers use ATM services occasionally, 14.50 % of customers use ATM services when need occurs and only 6.90 % of customers use ATM services

Usage of Mobile Banking Facility wise Categorization  

The following table displays the information about customers regarding the usage of Mobile banking facility provided by commercial banks. The period of usage is classified into four groups viz.

(a) Not usage

(b) Up to 6 months

(c) Up to 9 months and

(d) Above 1 year

Table No 4.18

Usage of Mobile Banking Facility wise Categorization

Usage	Number of Respondents	Percentage (%)
Not usage	91	12.10
Less than 6 months	398	53.10
Up to 1 year	202	26.90
Above 1 year	59	7.90
Total	750	100.00

Source: Primary Data

From the above table, it is found that that 53.10 % of customers are using mobile banking services less than 6 months, 26.90 % of customers are using for the past up to 1 year, 12.10 % of customers are not usage of mobile banking services and 7.90 % of customers are using for more than one year.

Frequency of Mobile Banking Facility wise Categorization  

The following table shows that the information about customers regarding the frequency of mobile banking facility. The frequency is classified into seven groups viz.

(a) Not usage

(b) Daily

(c) Once in a week

(d) Once in a month

(e) Occasionally

(f) During need and

(g) When need occurs.

Table No. 4.19

Frequency of Mobile Banking Facility Wise Categorization

Frequency of Mobile Banking Facility	Number of Respondents	Percentage (%)
Not usage	91	12.10
Daily	36	4.80
Once in a week	138	18.40
Once in a month	122	16.30
Occasionally	127	16.90
During urgency	133	17.70
When need occurs	103	13.70
Total	750	100.00

Source: Primary Data

From the above table, it shows that 18.40 % of customers are using mobile banking services once in a week, 17.70 % of customers are using mobile banking services emergency, 16.90 % of customers are using mobile banking services occasionally, 16.30 % of customers are using mobile banking services once in a month, 13.70 % of customers are using mobile banking services when need occurs, 12.10 % of customers are not using mobile banking services and only 4.80 % of customers are using mobile banking services daily.

Usage of Internet Banking Facility wise Categorization  

The following table displays the information about customers regarding the usage of internet banking facility provided by commercial banks. The period of usage is classified into four groups viz.

(a) Not usage

(b) Up to 2 years

(c) 3 to 5 years and

(d) Above 5 years.

Table No. 4.20

Usage of Internet Banking Facility wise Categorization

Usage	Number of Respondents	Percentage (%)
Not usage	98	13.10            332                                  44.30                                     262                                  34.90                                       58                                      7.7
Up to 2 years	332	44.30
3 to 5 years	262	34.90
Above 5 years	58	7.70
Total	750	100.00

 Source: Primary data 

The above table shows that 44.30 % of customers are using internet banking facility up to 2 years, 34.90 % of customers use for the past 3 to 5 years, 13.10 % of customers not use internet banking facility and 7.70 %f customers use internet banking facility for more than 5 years.

Frequency of Internet Banking Facility wise Categorization  

The following table shows that the information about customers regarding the frequency of internet banking facility. The frequency is classified into seven groups viz.

(a) Not usage

(b) Daily

(c) Once in a week

(d) Once in a month

(e) Occasionally

(f) During urgency and

(g) When need occurs.

Table No. 4.21

Frequency of Internet Banking Facility wise Categorization

Frequency of Internet Banking Facility	Number of Respondents	Percentage (%)
Not usage	98	13.10
Daily	36	4.80
Once in a week	131	17.50
Once in a month	90	12.00
Occasionally	149	19.90
During urgency	143	19.10
When need occurs	103	13.70
Total	750	100.00

Source: Primary data

From the above table, it is clear that 19.90 % of customers are using internet banking services occasionally, 19.10 % of customers are using internet banking services during urgency, 17.50 % of customers are using internet banking services once in a week, 13.10 % of customers are not using internet banking services, 12.00 % of customers are using internet banking services once in a month and 4.80 % of customers are using internet banking services daily.

Usage of Phone Banking Facility wise Categorization  

The following table displays the information about customers regarding the sage of phone banking services facility provided by commercial banks. The period of usage is classified into four group’s viz., (a) Not usage (b) up to 2 years (c) 3 to 5 years and (d) Above 5 years.

Table No. 4.22

Usage of Phone Banking Facility wise Categorization

Usage	Number of Respondents	Percentage (%)
Not usage	112	14.90
Up to 2 years	343	45.70
3 to 5 years	235	31.30
Above 5 years	60	8.00
Total	750	100.00

 Source: Primary data

The above table shows that 45.70 % of customers are using phone banking services Up to 2 years, 31.30 % of customers are using for the past 3 to 5 years, 14.90 % of customers are not using of phone banking services and 8.00 % of customers are using phone banking services for more than 5 years.

Frequency of Phone Banking Services wise Categorization  

The following table shows that the information about customers regarding the frequency of phone banking services facility. The frequency is classified into seven groups viz.

(a) Not usage

(b) Daily

(c) Once in a week

(d) Once in a month

(e) Occasionally

(t) During urgency and

(g) When need occurs.

Table No. 4.23

Frequency of Phone Banking Services wise Categorization

Frequency of Phone Banking Facility	Number of Respondents	Percentage (%)
Not usage	112	14.90
Daily	14	1.90
Once in a week	89	11.90
Once in a month	129	17.20
Occasionally	111	14.80
During urgency	165	22.00
When need occurs	130	17.30
Total	750	100.00

Source: Primary data

From the above table it is clear that 22.00 % of customers are using hone banking services during urgency, 17.30 % of customers are using hone banking services when need occurs, 17.20 % of customers are using hone banking services once in a month, 14.90 % of customers are not using hone banking services, 14.80 % of customers are using phone banking services occasionally, 11.90 % of customers are using phone banking services once in a week and 1.90 % of customers are using phone banking services daily.

The percentage analyses elucidate the demographic profile and banking details of customers of commercial banks. All the questions posed to customers in optional type. The question options and contribution of the sample. Units are explained in simple percentage. Besides these optional type questions the Likert's five point scale has been used to analyze the opinion of customers about core banking system. Therefore, in this juncture the parametric one sample T-test is applied to ascertain the opinion of customers on perception of core banking system.

Customers' Opinion on Core Banking System

E-Banking channels are functioning through core banking system. In core banking system, a bank connects all the branches under single server. This system facilitates to perform transactions anywhere and any branch banking for the customers. Therefore, awareness on core banking system is essential for customers. The researcher ascertained the response on core banking system through five statements using deposit processing system, loan accounting system, customer information system, and general ledger and reporting tools. The customers expressed their opinion in Likert's five point scale which ranges from strongly agree to strongly disagree. In this juncture a parametric one sample T-test is applied to know the opinion of customers on E-Banking services and the following results were obtained.

Table No. 4.24

One Sample Statistics for the Level of Awareness on Core Banking System

Particulars	N	Mean	Std. Deviation	Std. Error Mean
Deposit processing system	750	3.01	2.060	0.75
Loan accounting system	750	3.95	2.044	0.75
Customer information system	750	3.92	2.013	0.74
General ledger	750	3.84	1.971	0.72
Reporting tools	750	3.79	1.884	0.69

The above table indicated that the mean values of core banking variables ranges from 1.79 to 2.01 and standard deviation varied from 1.884 to 2.060 respectively. This leads to the computation of one sample T-test statistics as allows.

Urban Cooperative Banks: Problems and Prospects by JAGDISH CAPOOR

I am indeed proud to have been given the privilege of sharing with you some of my thoughts on the profile of Urban Cooperative Banks (UCBs) at this august gathering. In this brief session, I would like to highlight some of the salient features of the performance of UCBs and some of the emerging issues that are likely to be of significance to us.

I. Introduction:

One of the major areas of the macro economy that has received renewed focus in recent times has been the financial sector. One might attribute this to two reasons. Firstly, as Stiglitz (1999)1 has observed, the financial sector acts as the ‘brain’ of the economy: it acts as a conduit for channeling resources from final savers to final investors. As a result, the greater the ease of resource intermediation, the lower the cost at which these resources can be available to final investors, enhancing investment and growth. Secondly, the worldwide trend towards de-regulation of the financial sector, ascendancy of free market philosophy and the widespread banking problems that have plagued several economies since the eighties have raised a gamut of questions relating to the linkages between de-regulation, various categories of risks facing the banking sector and banking crises. According to Lindgren et.al. (1998)2 , since 1980, over 130 countries, comprising almost three fourths of the International Monetary Fund’s member countries, have experienced significant banking sector problems, with 41 instances of crisis in 36 countries and 108 instances of significant problems. Consequently, the banking sector, or for that matter, the financial sector in general, in most emerging economies are passing through challenging yet exciting times. In the Indian milieu, given the wide diversity within the financial sector itself, I would take this opportunity to throw some light on one particular facet of the financial sector, viz., the Urban Cooperative Banks.

Urban Cooperative Banks were set up with the avowed 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.

It might be useful to briefly recount the basic structure of the cooperative banking sector and locate Urban Cooperative Banks as a group within that framework. The cooperative banking sector may be viewed as consisting of Rural Cooperative Banks and Primary (Urban) Cooperative Banks. Leaving aside the structure of Rural Cooperative Banks, Primary Cooperative Banks, numbering 1,936, have a network of over 6,300 branches catering to the banking requirements of the lower and middle income groups in urban and semi-urban areas.

II. Recent Performance:

As at the end of March 1999, 1,936 PCBs were functioning in the country with 6,308 offices, including 90 salary earners’ banks and 117 mahila banks. The total number of licensed PCBs increased to 1,692 as at the end of March 1999. The data available up to end-December 1998 indicates that the growth of both deposits as well as credit of PCBs slackened during the first three quarters of 1998-99. The year-to-year growth in deposits upto March 1999 at 28.9 per cent was lower than that of 32.9 per cent recorded in the previous year. Similarly, the outstanding loans of PCBs at Rs. 30,999 crore at the end of December 1998 registered an annual growth of 22.0 per cent as compared with the growth of 29.0 per cent during 1997-98. Continuing the trend of the previous two years, the growth of deposits of PCBs outpaced the growth of credit in 1998-99. As a result, the credit-deposit (C-D) ratio of PCBs declined to 63.8 per cent as at the end of December 1998 from 68.3 per cent in end-March 1998.

The performance of the cooperative banking sector as a whole has attracted considerable attention in the recent years especially in the context of the ongoing phase of financial sector reforms. Compared to their rural counterparts, the Primary Cooperative Banks (PCBs), which operate in the urban areas, have posted better performance. Not surprisingly however, there is significant heterogeneity in the performance of PCBs which number more than 1,900 at present. While a large number of these banks have shown creditable performance, a fair number of them, on the other hand, have shown discernible signs of weakness. This conference should provide excellent opportunity to discuss this issue more intensively.

It is of interest therefore to analyse the profit and loss accounts of all reporting PCBs. As data reveals, out of the 1,500 PCBs, 1,295 of them registered profits while, the remaining 205 PCBs reported losses during 1997-98. The percentage of gross NPAs to total advances of PCBs remained at around 13.0 per cent during 1995-96 and 1996-97, declined to 11.7 per cent as at the end of March 1998 and further to 10.8 per cent as at end of March 1999. It is, therefore, a healthy sign so far as recovery management of PCBs is concerned. I would take this opportunity to congratulate the urban banking movement for its Endeavour in this regard.

In my view, an important contributory factor for this positive feature is the fact that these banks have maintained close proximity with their borrowers. An indiscriminate branch expansion would perhaps erode this vital strength. UCBs would, therefore, do well to keep this in mind while planning their expansion in terms of branches. Secondly, they have developed a certain client profile which has proved to be its strength in the long run.  It is important that these banks continue to draw upon this strength and provide much needed financial support to the segment of society which does not have easy access to large commercial banks.

Scheduled Primary Cooperative Banks

Statistics reveal that the outstanding deposits of 29 scheduled PCBs at Rs.16,429 crore as on last Friday of March 1999, posted a lower annual growth of 28.9 per cent as compared to that of 32.9 per cent during the previous year. The outstanding credit of scheduled PCBs at Rs. 10,112 crore recorded a growth of 20.7 per cent in 1998-99, which was lower than that of 33.1 per cent in 1997-98. The Credit-Deposit ratio of scheduled PCBs declined from 65.7 per cent as at the end of March 1998 to 61.5 per cent in end-March 1999.

It needs to be recognised that deposits are the major source of funds for the scheduled PCBs and their share in total liabilities was well over 70 per cent as at the end of March 1999. Capital and reserves constituted about 9 per cent of the total liabilities of the scheduled PCBs. On the asset front, loans and advances constituted the most significant component, followed by investment. During the year 1998-99, the composition of assets of scheduled PCBs did not show any appreciable change. The share of loans and advances declined from 46.6 per cent to 44.2 per cent, while that of investments increased from 25.3 per cent to 26.4 per cent.

The total income of the scheduled PCBs increased significantly by 24 per cent to Rs. 2,535 crore during 1998-99. The greater share of the total income came from interest income (95 per cent). Total of interest and other operating expenses, however, grew at a higher rate of 28 per cent to Rs. 2,140 crore causing the spread (i.e., net interest income), as a percentage to total assets, to decline from 3.78 per cent in 1997-98 to 3.25 per cent in 1998-99. In absolute terms, the operating profits amounted to Rs. 395 crore and recorded a growth of 5 per cent during 1998-99. As a percentage to total assets, operating profits declined from 2.03 per cent in 1997-98 to 1.67 per cent in 1998-99. The provisioning requirements in 1998-99 declined by 26 per cent from Rs. 290 crore in 1997-98 to Rs. 214 crore in 1998-99. As a result, the scheduled PCBs as a group posted much higher net profits of Rs. 181 crore during 1998-99 as compared with that of Rs. 86 crore in the previous year. As a percentage to total assets, net profits of scheduled PCBs increased from 0.46 per cent in 1997-98 to 0.76 per cent in 1998-99. I must mention here that in view of the increasing competition being currently witnessed in the banking segment, PCBs would need to go in for increased customer orientation and greater product sophistication in order to sustain and increase their market share in the medium to long run.

Lest it be felt that UCBs as a group are totally segregated from the commercial banking sector, let me draw your attention to a number of commonalties in the operating environment between the scheduled PCBs and Scheduled Commercial Banks (SCBs). In essence, an attempt is made to compare the performance of these groups. By virtue of their retail market orientation and identified customer groups, the scheduled PCBs were able to achieve higher growth rates in deposits and credit than the scheduled commercial banks. A comparison of the financial performance of these two groups reveals that in relation to total assets, the spread of scheduled PCBs was higher and the operating expenses were lower than those of SCBs. However, the gap in the operating profit ratios of scheduled PCBs and SCBs narrowed down due to higher share of ‘other income’ for SCBs. Still the profitability of scheduled PCBs was higher than that of SCBs. While comparing the expenditure pattern of PCBs and SCBs, it was also observed that the interest expenses accounted for a higher share of the total expenses in the case of PCBs but their establishment cost was of relatively lower order.

III. Emerging Challenges:

The second phase of financial sector reforms has brought about vast changes in the structure and operation of the Indian financial sector. However, the reform measures are yet to fully impact the system. Financial and managerial weaknesses of a good number of cooperatives have been a matter of concern for quite some time. State Governments and cooperatives have been demanding capital infusion for wiping out past losses. Unless the inherent weaknesses are adequately addressed, funds infusion alone may not solve the problem. In this respect, the areas that need careful examination include: (i)  the pattern of resources of cooperatives (owned funds, deposits, borrowings), (ii) the deployment of resources, (iii) the management and supervision, (iv) the role of cooperative banks in the financial system and (v) the regulatory framework for cooperatives.

The essential spirit of the regulatory and reform measures adopted for the commercial banks need to be extended to the cooperatives as well with necessary adaptations to suit the circumstances in which cooperative banks operate. This would imply that areas such as (i) strengthening of the regulatory and supervisory framework, (ii) enhancing capital adequacy standards (iii) introducing stringent licensing norms for new entrants into the sector (iv) enabling legal amendments and (v) corporate governance measures need to be given very close attention.

As a starting point, it would be useful to look at the Narasimham Committee recommendations. The Committee suggested that the RBI should review the entry norms in respect of UCBs and prescribe revised prudent minimum capital norms for them. To achieve an integrated system of supervision over the financial system, the Committee recommended that UCBs should also be brought within the ambit of the Board of Financial Supervision. In response to these recommendations of the Committee, the Reserve Bank set up a High Powered Committee on Urban Cooperative Banks under the chairmanship of Shri K. Madhava Rao, former Chief secretary to Government of Andhra Pradesh, to review the performance of UCBs and suggest measures to strengthen them.

Licensing Policy: In the new liberalized regime, licensing policy for new UCBs is expected to be not only transparent, but also precise and objective, based on established standards and procedures. Moreover, the procedures governing these licensing norms have to be simple and minimal. Furthermore, in the market driven system, as the role of the regulator moves away from micro management of individual entities towards macro or prudential management, it is desirable that appropriate entry point norms be laid down by the regulator to serve as an effective screening device and the subsequent potential and viability of a bank be left to the promoters’ judgement. In connection with the above, the Madhava Rao Committee enunciated two-fold licensing criteria, depending on the capital base of the bank.   This would need to be examined for developing a viable structure of cooperative banks.

Dual Control: One of the problem areas in the supervision of UCBs is the duality in control by the State Government and the Reserve Bank. Since UCBs are primarily credit institutions meant to be run on commercial lines, the responsibility for their supervision devolves on the Reserve Bank. Therefore, while the banking operations pertaining to branch licensing, expansion of areas of operations, interest fixation on deposits and advances, audit and investments are under the jurisdiction of the RBI, the managerial aspects of these banks relating to registration, constitution of management, administration and recruitment, are controlled by the State Governments under the provisions of the respective State Cooperative Societies Act. The Narasimham Committee (1998) recommended that this duality of control be done away with and the responsibility of regulation of UCBs be placed on the Board for Financial Supervision. This will require amendment of the Multi-State Cooperative Societies Act, 1984, State Cooperative Societies Act, and the Banking Regulation Act.

Corporate Governance: Good corporate governance is essential for the effective functioning of any financial entity. It is all the more important in the current liberalized environment when UCBs are expected to function as commercial entities in the face of increasing competition. To this end, the Madhava Rao Committee suggested that at least two directors with suitable professional qualification and experience should be present on the Boards of UCBs and that the promoters should not be defaulters to any financial institutions or banks and should not be associated with chit funds/ NBFCs/cooperative banks/commercial banks as Director on the Board of Directors. These recommendations would need to be examined intensively before formulating policy actions in this regard.

Capital Adequacy: The Narasimham Committee (1998) had raised the issue of extending capital adequacy prescription for cooperative banks. Accordingly, the Committee recommended that the cooperative banks should reach a minimum 8 per cent CRAR over a period of five years. The findings of the Madhava Rao Committee on UCBs also reiterated that a majority of the UCBs was in favor of extending the CRAR discipline to UCBs. However, the ability of the UCBs to raise additional capital for the purpose has been limited by certain features viz., inability to make public issue of capital and that, they can raise capital only from members, subject to an overall ceiling and restrictions imposed by the various Acts (State Cooperative Societies Act and Multi-State Cooperative Societies Act, 1984) which constrains the number of shares that an individual can hold. In view of the above, it is suggested that scheduled UCBs be brought under the ambit of the CRAR discipline in a phased manner with an immediate target of 8 per cent by March 31, 2001 and 9 per cent by March 31, 2002 and thereafter, the same as those for commercial banks; the norms for non-scheduled SCBs in this regard being slightly less stringent than the former.3

Legislative Reforms: The Narasimham Committee in its Report had rightly observed that a legal framework that clearly defines the rights and liabilities of the parties to contracts and provides for speedy resolution of disputes is essential bedrock of the process of financial intermediation and UCBs are no exceptions. Accordingly, the Government had appointed an Expert Group under the Chairmanship of Shri T.R. Andhyarujina, former Solicitor General of India, to suggest appropriate amendments in the legal framework affecting the banking sector. The Committee would address amendments in the various external Acts affecting banking sector such as, the Transfer of Property Act, foreclosure laws, Stamp Act, Indian Contract Act, DRT Act, etc. The Committee, in its Report submitted in April, 2000, recommended inclusion of a new law for granting statutory powers directly to banks (and financial institutions) for possession and sale of securities backing a loan, an enabling framework for securitization of receivables and strengthening the recovery mechanism. While these recommendations will need to be scrutinized to glean their implications for UCBs, at the micro-level, certain related issues deserve attention. As mentioned earlier, the removal of the duality of controls over UCBs necessitates the amendment of the various Acts in the Central and State statutes, including the BR Act.

Unlicensed and Weak banks: The existence of a large number of unlicensed banks has become a serious cause for concern to regulators. The main reason for proliferation of such banks has been a mild screening process in the past. In view of the regulatory discomfiture that such banks impose on the system as a whole, it has been suggested that these banks be licensed provided they satisfy the quadruple criteria of (a) minimum prescribed CRAR, (b) net NPA ratio not exceeding 10 per cent, (c) have made profits continually for the last three years, and (d) have complied with the RBI regulatory directions.

Incidence of sickness of UCBs has become a source of serious concern for regulators. It has been felt that inadequate entry point capital, lack of professionalism; absence of compliance with prudential norms and the absence of timely identification of sickness have been the major contributory factors behind persistent weakness of certain UCBs. As a need to flash early warning signals of incipient weakness, the Madhava Rao Committee enunciated certain criteria relating to CRAR, NPA and history of losses for the identification of sick and weak banks separately. Post identification, these banks may be placed under moratorium under the provisions of Section 45 of the BR Act and reconstruction/rehabilitation carried out. At the extreme case of reconstruction being impossible, the bank’s license to carry on business may be withdrawn. These remedial measures are being examined and their implications for policy formulation carefully studied before arriving at definitive conclusions.

One issue of serious concern regarding UCBs is the delay/ non-submission of returns within the stipulated time frame. In particular, PCBs are required to submit two types of returns (statutory returns and control returns) to the Reserve Bank with a view to exercise adequate supervision over them. Unfortunately, there is often a serious delay in the submission of these returns by individual banks. Non-availability of adequate and timely data would no doubt have serious effect on timely policy action. In this context, PCBs have to improve their statistical reporting system and bridge the wide gap in data availability as compared to that of commercial banks.

IV. Conclusion:

Within the constraints of time at my disposal, I have tried to throw some light on some of the issues that I believe are of primary importance to the urban cooperative banking sector. I believe that many of you will ponder over these issues and provide us with important feedback as inputs for policy making. Thank you for being kind enough to spare your time and listen to me.

*	Inaugural address by Shri Jagdish Capoor, Deputy Governor, Reserve Bank of India, at the 8th All India Conference of Urban Cooperative Banks and credit societies at Delhi on April 20, 2000.
1	Stiglitz, J.E. (1999): “Principles of Portfolio Regulation: A Dynamic Portfolio Approach”, Lecture delivered at NCAER.
2	Lindgren, C-J, G.Garcia, and M.Saal (1996): “Bank Soundness and Macroeconomic Policy”, Washington, International Monetary Fund.
3	For non-scheduled UCBs, it has been suggested that the CRAR discipline be fixed at 6 per cent as on March 31, 2001, to be raised subsequently to 7 per cent and 9 per cent, respectively, by March 31, 2002 and March 31, 2003, respectively.