to study the lending practices of … banks also provide the facility of current as well as saving...

International Journal Of Advancement In Engineering Technology, Management and Applied Science (IJAETMAS)

UGC APPROVED JOURNAL (Number-63082)

ISSN: 2349-3224 || www.ijaetmas.com || Volume 05 - Issue 02 || February-2018 || PP. 159-173

www.ijaetmas.com 59

TO STUDY THE LENDING PRACTICES OF

COOPERATIVE BANKS IN INDIA

1.Yasmeen Banu

2.Dr. Varun Kumar

1.

Research Scholar , Arunachal University of Studies, Arunachal Pradesh, Namsai, Arunachal Pradesh, India 2.

Research Supervisor, Arunachal University of Studies ,Arunachal Pradesh, Namsai, Arunachal Pradesh, India

Abstract

Banking industry is growing at a rapid speed world-wide. This industry plays a meaningful

contribution in economic development. Banking business is so popular where a person

deposits money for saving and that same money is lended to another person. Thus, flow of

money is continuous. In the absence of banking business, the entrepreneurs would not be in

the position to get enough money to survive in the competitive market. Cooperative movement

was initiated by Indian government in 1904. The basic objective of this movement is to

develop the cooperatives so that they can make important contribution to the economy of the

nation. A cooperative credit system has been built by these cooperative banks and financial

aid is provided to the cooperatives. The current article highlights the lending practices of

cooperative banks.

Keywords: Bank, Cooperative, Lent, NABARD

Introduction

Cooperative Banks are small-size units located in Rural and Urban areas. The financial

service of these banks in rural region includes providing loan for farming, land, cattle, crops

etc. Whereas, the main function of these banks in urban area is to provide funds to Small

scale Industries, Cottage Industries, Micro business and Entrepreneurs.

Cooperative Banks also provide the facility of current as well as saving accounts for the

customers. Their banking services are not supposed to be better than private sector banks but

they are much better as compared to public sector banks.

Cooperative Banks provide loans to the customers. Proper record of the loan holders is kept

by the bank. If a customer or entrepreneur does not return the borrowed money on time then

appropriate steps are taken by the banks to recover the amount. In this case, the account of




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the indebted persons or entrepreneurs is blocked and their properties are seized by the banks

to recover the borrowed money as per law.

Cooperative Banks provide loans from small range to higher one. It is reported that most of

the clients take the loan of above 1 lakh on average. The study also suggests that in most of

the cases, the loan is taken for more than three years.

It is also observed that cooperative banks provide reasonable interest rates to the customers

and it encourages them to take loan. When a comparison is made between Public Sector

Banks and Co-operative Banks regarding documentation process it is found that these is less

documentation process in Co-operation Banks. Majority customers are taking house loan and

personal loan as compared to education or vehicle loan.

Also, Cooperative Banks provide easy methods of repayments of the loan so it looks quite

comfortable for the client to take loan from these banks. The average time of processing of

loan in these banks is found to be 7 days generally. These are some reasons which show why

Co-operative Banks are preferred by the customers in comparison with public and private

sector banks.

Objectives of the Study

The objectives of the current research work are as follows:

1. To know the lending practices and policies of cooperative banks in India.

2. To measure and compare the types of loans and the efficiency of Cooperative Banks

in this regard.

3. To suggest ways for the improvement of the efficiency of Cooperative banks.

4. To know the satisfaction level of the Cooperative Bank’s customers.





Review of the Literature

After various studies and number of suggestions were sought out to bring effectiveness in the

working and operations of the Cooperative financial institutions. In the year 1991 Narsimham

Committee emphasized on capital adequacy and liquidity, in 1995 Padamanabhan

Committee, suggested CAMEL rating in the form of rations to evaluate financial and

operational efficiency, in 1997 Tarapore Committee examined Non-performing assets and

assets quality, in 1998 Kannan Committee gave opinion on working capital and lending

modes, in 1998 and also revised in 2001 Basel Committee recommended capital adequacy

norms and risk management measures. Many experts suggested various tools and techniques

for effective analysis and interpretation of the financial and operational aspects of the

Cooperative Banks.

Jain(2001) has done a comparative performance analysis of District Central Cooperative

Banks (DCCBs) of western India, namely, Maharashtra, Gujarat and Rajasthan and found

DCCBs of Rajasthan performed much better in profitability and liquidity as compared to

Gujarat and Maharashtra. Singh and Singh (2006) studied on Funds Management in DCCBs

of Punjab with special reference to analysis of financial margin. It noted that higher

performance of own funds and the recovery concerns have resulted in increasing margin to

the Cooperative Banks. Mavaluri, Boppana and Nagarjuna (2006) suggested that

performance of banking in terms of probability, productivity, asset quality and financial

management has become important to stable the economy. They found that public sector

banks have been more efficient than other banks operating in India. Pal and Malik (2007)

investigated the differences in the financial characteristics of 74 banks in India based on

factors, such as profitability, liquidity, risk and efficiency. It is suggested that foreign banks

were better performers, as compared to other two categories of banks, in general and in terms





of utilization of resources in particular. Andrew Campbell (2007) focused on the

relationship between Non-Performing Loans (NPLs) and bank failure and argued for an

effective bank insolvency law for the prevention and control of NPLs for developing and

transitional economies as these have been suffering severe problems due to NPLs.

Singla (2008) emphasized on financial management and examined the financial position of

sixteen banks by considering profitability, capital adequacy, adopt-equity and NPA. Dutta

and Basak (2008) suggested that co-operative bank should improve there recovery

performance, adopt new system of computerized monitoring of loans, implement proper

prudential norms and organize regular workshops to sustain in the competitive banking

environment. Chander and Chandel (2010) analyzed the financial efficiency and viability of

HARCO bank and found poor performance of the bank on capital adequacy, liquidity,

earning quality and the management efficiency parameters.

Research Methodology

Descriptive research is used in this study in order to identify the lending practices of bank and

determining customer’s level of satisfaction. The method used was questionnaire and

interview of the experienced loan officers.

Primary Data

a. Interview Method

c. Structured Questionnaire

Secondary Data

a. Annual reports of the bank

b. Manual of instructions on loans and advances

c. Books

d. Articles and Research Papers

e. Websites





Sample Unit

Sample respondents comprising of agricultural farmers, Traders, Employees and others etc,

and sampling unit for study was Individual Customers

Sample Size

To get the opinion from the customers, a sample of 250 customers were selected basing on

convenient sampling.

5. Data Analysis and Interpretation

Table 1: Preferences of the customers for the loans

Modes of Loan No. of Respondent Percentage (%)

House Loan 70 33%

Personal Loan 63 30%

Consumer Loan 24 11%

Educational Loan 33 16%

Vehicle Loan 12 6%

Other 8 4%

Total 210

Figure 1: Preferences of the customers for the loans

33%

30%11%

16%

6% 4%

Prefernces of the Customers for the Loans

House Loan

Personal Loan

Consumer Loan

Educational Loan

Vehicle Loan





Interpretation: Present study reveals that majority of the respondents have taken house loans

& personal loans and less respondents prefer consumer, educational loan and vehicle loans.

Table: 2 Range of the Loans of Amount

Loan Amount No. of Respondent Percentage (%)

Less than 20,000 17 8

20,000 - 50,000 64 30

50,000 - 1 lakh 13 6

More than 1 Lakh 116 55

Total 210

Figure 2: Range of the amount of loans

Interpretation : Study reveals that 8 % respondent prefer loan less than 20,000, 20 %

respondents prefer 20,000 to 50,000,12 % prefer more than 1 lakh and 60% of the

respondents prefer more than 1 lakh.

8%

31%

6%

55%

Range of the amount of Loans

Less than 20,000

20,000 - 50,000

50,000 - 1 lakh

More than 1 Lakh





Table :3 Preferable Term of Loan

Term of Loan No. of Respondent Percentage (%)

Less than 1 year 25 12%

1 to 3 years 38 18%

more than 3 years 147 70%

Total 210

Figure 3: Preferable term of Loan

Interpretation: Study shows that 70 % respondents take loan for more than 3 years, 18 %

take loan for 1 to 3 years and 12% take loan for the period of less than 1 year.

Table: 4 Factors prompted the customers to take loan from

Cooperative Banks

Reason for taking loan No. of Respondent Percentage (%)

Rate of Interest 25 12

No. of Schemes 28 13

Less Formalities 59 28

12%

18%

70%

Preferable Term of Loan

Less than 1 year

1 to 3 years

more than 3 years





Easy payment 84 40

Any other 14 7

Total 210

Figure 4: Factors promoted the customers to take loan from Cooperative

Banks

Interpretation: Study reveals that 40 % take loan because banks provide easy payment, 28%

take loans because of less formality and other respondents take loan because of reasonable

rate of interest, more schemes.

Table:5 Average time taken for processing of Loan

Average time for processing loan No. of Respondent Percentage (%)

Less than 7 days 147 70%

Between 7 to 14 days 42 20%

More than 14 days 21 10%

Total 210

12%

13%

28%

40%

7%

Factors prompted the customers to take loan from Co-operative Banks

Rate of Interest

No. of Schemes

Less Formalities

Easy payment

Any other





Figure 5: Average time taken for the processing of the loan

Interpretation: Study reveals that 70% respondents says that average time taken for

processing of the loan is less than 7 days, 20% says that it takes 7 – 14 days and 10% says

that it takes more than 14 days.

Table 6: Ranking facilities provided by the Cooperative Banks

Ranks the facility No. of Respondent Percentage (%)

Above Average 76 36%

Average 126 60%

Below Average 8 4%

Total 210

Figure 6: Ranking facilities provided by the Cooperative Banks

70%

20%

10%

Average time taken for processing Loan

Less than 7 days

Between 7 to 14 days

More than 14 days

36%

60%

4%

Average time take for processing Loan

Above Average

Average

Below Average





Interpretation: Study shows that 60% of the respondent says that facility provided by the

bank are average, 36% say that its above average and 4% says that its below average.

Table 7: Customer’s ranking service of the Bank

Rank the Customer Services No. of Respondent Percentage (%)

Excellent 63 30

Good 118 56

Average 21 10

Poor 8 4

Total 210

Figure 7: Customer’s ranking service of Bank

Interpretation: Study shows that 56% of the respondents says that customer service of the

bank is good, 30% says that it is excellent and another 10 % says its average and only 4 %

says its poor.

Table 8: Satisfaction of the customers with the loan and period of installment

Appropraiate Answers No. of Respondent Percentage (%)

30%

56%

10%

4%

Customer's ranking service of Bank

Excellent

Good

Average

Poor





Yes 147 70

No 34 16

Can't say 29 14

Total 210

Interpretation: Study reveals that 70% are satisfied with the amount and period of

installment, 16 % are not satisfied and 14 % can’t say.

Table 9: Preferable banks for borrowing loan facilities

Preferable Banks in future No. of Respondent Percentage (%)

Public Banks 21 10

Private Banks 71 34

Cooperative Banks 118 56

Total 210

70%

16%

14%

Satisfaction of the customers with the Loan & Period of installment

Yes

No

Can't say





Figure 9: Preferable banks for borrowing loan facilities

Interpretation: Study shows that 56 % of the respondents will prefer loans from co-

operative banks, 34 % from the private banks and 10 % from the public banks

Table 10: Customers who would like to refer the Cooperative Banks to their Friends

and Relatives

Banks refers to others No. of Respondent Percentage (%)

Always 168 80

Sometime 34 16

Never 8 4

Total 210

Figure 10: Customers who would like to refer the Cooperative Banks to their Friends

and Relatives

10%

34%56%

Preferable banks for Borrowing Loan Facilities

Public Banks

Private Banks

Cooperative Banks

80%

16% 4%

Customers who would like to refer the Co-operative Banks to their

Friends & Relative

Always

Sometime

Never





Interpretation: 80% of the respondents would like to refer the bank to their friends and

relatives which shows that they are satisfied from the services and lending practices of the

bank.

6. Findings of the Study

1.As per the study 33% majority of respondent were prefer housing loan from this bank.

2. Round 70% of the respondent prefer to take long term loans which is more than 3 years.

3.Simple procedure followed by bank for loan.

4.Easy payment and less formalities are the main factors determining to the customer’s for

selection of loans.

5. Customers are satisfied with the mode of payment of installment.

6. Average time for the processing of loan is less i.e. 7 days approx.

7. Suggestions

1. The banks should adopt the modern methods of banking like internet banking, Mobile

Banking, Credit cards, ATM, etc.

2. The banks should plan to introduce new schemes every year to for attracting new

customers and satisfying the present ones.

3. The banks should plan for expansion of branches as and when required.

4. The banks should enlighten the customers regarding their services and new schemes.

8. Limitations

1. The study is based on the data of past four years only.

2. The data for study mainly based on a single bank.

3. As majority of the customers are employees of the bank, they might be biased in giving the

information

4. The time period of the research was limited.





9. References

[1] Andrew Campbell (2011), "Bank insolvency and the problem of nonperforming loans",

Journal of Banking Regulation, 25-45.

[2] Beaver, W. H. (2012), "Financial ratios as predictor of failure-empirical research in

accounting", Journal of Accounting Research, No. 4, 71-111.

[3] Bhaskaran R and Praful Josh P (2010), “Non Performing Assets (NPAs) in Co-operative

Rural Financial System: A major challenge to rural development”, BIRD‟s Eye View

Dec.2010.

[4] Chander Ramesh and Chandel Jai Kishan (2010), “Financial Viability of an Apex

Cooperative Credit Institution- A Case Study of the HARCO Bank”, Asia-Pacific Business

Review Vol. VI, No.2, April-June 2010, pp 61-70

[5] Chandra, Buddhadeb (2013), “Performance of Burdwan Central Cooperative Bank in the

Development of the District”, Finance India, September, 2013.

[6] Dutta Uttam and Basak Amit (2011), “Appraisal of financial performance of urban

cooperative banks- a case study.” The Management Accountant, case study, March 2008,

170-174.

[7] Fulbag Singh and Balwinder Singh (2012), "Funds management in the central cooperative

banks of Punjab- an analysis of financial margin", The ICFAI Journal of Management, Vol.

5, 74-80.

[8] Geeta Sharma and Ganesh Kawadia (2013), "Efficiency of urban cooperative banks of

Maharashtra: A DEA Analysis", The ICFAI Journal of Management, Vol. 5, Issue 4.

[9] Harish Kumar Singla (2012), "Financial performance of banks in India", The ICFAI

Journal of Management, Vol. 7, Issue 1.





[10] Jain (2001),“Comparative study of performance of District Central Cooperative Banks

(DCCBs) of Western India i.e. Maharashtra, Gujarat & Rajasthan for the year 2009-2010

from the point of view of net profit/loss”, NAFSCOB Bulletin, April-June 2011.

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