Current Developments in Corporate Banking in India

 Current Developments in Business Banking in India Dissertation

Current Developments in Cooperative Bank in India

Mandira Sarma

Indian Council for Analysis on Foreign Economic Relationships (ICRIER) Main 6A, India Habitat Centre, Lodi Road, New Delhi 110 003 India [email protected] res. in

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• The cooperative banks/credit institutions makes up the second segment of Of india banking program, comprising of about 14% with the total banking sector property (March 2007).

• Bulk of the supportive banks function in the countryside regions with rural coop banks accounting for 67% of the total asset and 67% of the total branches of all supportive banks.

• Share of rural cooperatives in total institutional credit was 62% in 1992-93, 34% in 2002-03 and 53% in 2006-07.

• Cooperative banks provide an impressive network of shops for institutional credit in India, particularly in country India (1 PACS every 7 villages).

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• In March 3 years ago, there were ninety-seven, 224 PACS in non-urban India against 30, 393 branches of commercial banks (more than three times of wall socket of house banks).

• In 03 2007, there are 102 financial savings A/C and 113 supportive bank people per a thousand rural in India.

• Cooperative banks (both rural and urban) cater to small and marginal clients. • Economic health in the cooperative credit rating institutions, particularly the rural cooperatives, has been found to be poor by several Committees.

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Framework of Supportive Banking (March 2007) Institution A. Country Cooperative Credit rating Structure (i) Short Term (ST) • Point out Coop Banking institutions (StCB) • District Central Coop Banking institutions (DCCB) • Primary Agri Coop Communities (PACS) (ii) Long Term (LT) • State Coop Agri and Rural Dev Banks • Main Coop Agri and Country Dev Banking institutions B. City Cooperative Banks (i) Principal Coop Financial institutions (PCB) (ii) Primary Non-Agri Coop Communities Number Number of br. Asst Talk about (%) 107497 106781 thirty-one 369 97224 716 twenty 696 49805 1770 48035 112891 111090 938 12928 97224 1850 1104 696 56600 8565 48035 67 58 12-15 29 18 8. 3 4. some 3. on the lookout for 33 twenty nine 4

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Concerns facing the cooperative bank segment in India

• Governance Issues – Dual Control and Borrower influenced structure • Management and HR Issues • Issues relating to Fund

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Governance Problems - Dual Control

• " Cooperation” is a State subject within the Indian Constitution; hence all cooperative communities are governed by the Cooperative Societies Action of the Point out. Registration, incorporation, management, amalgamation etc are governed by RCS of the particular Condition.

• Simultaneously, certain provisions of the Bank Regulation (BR) Act, 49, are applicable for the cooperative banks that recognize public first deposit. In the non-urban structure, StCBs and the DCCBs and in the urban framework, PCBs will be covered by these types of provisions of the BR Action.

• This kind of " duality” of control and control has given rise to serious complications in the governance structure (such as disturbance by the Condition Govt. because of combined position as prominent shareholder, manager, regulator, boss and auditor; further the precise demarcation of the powers between two regulators is eclectic. )

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Governance Issues -- Borrower Influenced Structure

• The rural cooperative structure in India is focused mainly on credit. The upper tiers refinance the lower divisions hence the structure is driven by simply borrowers whatsoever levels.

• Depositors happen to be either non-members or " nominal” people without voting rights as the borrowers have got full voting rights.

• This is sporadic to the notion of mutuality (thrift and credit going submit hand).

• This likewise prevents virtually any incentive forever governance since the depositors, whose money is being intermediated, do not say inside the management of...



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