A Study on CAMEL concept of the co operative bank soceity

CHAPTER - I

1.1 INTRODUCTION TO THE STUDY

1.1.1. Introduction
The acronym "CAMEL" refers to the five components of a bank's condition that are assessed: The expansion of the first letter in CAMEL are given below. The banks performance are rated by using the following. Capital adequacy Asset quality Management Earnings Liquidity A sixth component, a bank's Sensitivity to market risk , was added in 1997.

1.1.2. Capital Adequacy

Capital adequacy ultimately determines how well financial institutions can cope with shocks to their balance sheets. Thus, it is useful to track capital-adequacy ratios that take into account the most important financial risksforeign exchange, credit, and interest rate risks by assigning risk weightings to the institutions assets. A Capital Adequacy Ratio is a measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures. Also known as Capital to Risk Weighted Assets Ratio (CRAR).

Capital adequacy is measured by the ratio of capital to risk-weighted assets (CRAR). A sound capital base strengthens confidence of depositors. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. 1.1.3. Asset Quality Asset quality determines the robustness of financial institutions against loss of value in the assets. The deteriorating value of assets, being prime source of banking problems, directly pour into other areas, as losses are eventually written-off against capital, which ultimately jeopardizes the earning capacity of the institution. With this backdrop, the asset quality is gauged in relation to the level and severity of non-performing assets, adequacy of provisions, recoveries, distribution of assets etc. Popular indicators include non-performing loans to advances, loan default to total advances, and recoveries to loan default ratios. One of the indicators for asset quality is the ratio of non-performing loans to total loans (GNPA). The gross non-performing loans to gross advances ratio is more indicative of the quality of credit decisions made by bankers. Higher GNPA is indicative of poor credit decision-making. A. NPA: Non-Performing Assets

Advances are classified into performing and non-performing advances (NPAs) as per RBI guidelines. NPAs are further classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI. An asset, including a leased asset, becomes non-performing when it ceases to generate income for the Bank.

B.An NPA is a loan or an advance where: Interest and/or installment of principal remains overdue for a period of more than 90 days in respect of a term loan; 1. The account remains "out-of-order'' in respect of an Overdraft or Cash Credit (OD/CC); 2. The bill remains overdue for a period of more than 90 days in case of bills purchased and discounted. 3. A loan granted for short duration crops will be treated as an NPA if the installments of

principal or interest thereon remain overdue for two crop seasons; and 4. A loan granted for long duration crops will be treated as an NPA if the installments of principal or interest thereon remain overdue for one crop season.

The Bank classifies an account as an NPA only if the interest imposed during any quarter is not fully repaid within 90 days from the end of the relevant quarter.

This is a key to the stability of the banking sector. There should be no hesitation in stating that Indian banks have done a remarkable job in containment of non-performing loans (NPL) considering the overhang issues and overall difficult environment. For 2008, the net NPL ratio for the Indian scheduled commercial banks at 2.9 per cent is ample testimony to the impressive efforts being made by our banking system. In fact, recovery management is also linked to the banks interest margins. The cost and recovery management supported by enabling legal framework hold the key to future health and competitiveness of the Indian banks. No doubt, improving recovery-management in India is an area requiring expeditious and effective actions in legal, institutional and judicial processes.

1.1.4. Management Soundness

Management of financial institution is generally evaluated in terms of capital adequacy, asset quality, earnings and profitability, liquidity and risk sensitivity ratings. In addition, performance evaluation includes compliance with set norms, ability to plan and react to changing circumstances, technical competence, leadership and administrative ability. In effect, management rating is just an amalgam of performance in the above-mentioned areas. Sound management is one of the most important factors behind financial institutions performance. Indicators of quality of management, however, are primarily applicable to individual institutions, and cannot be easily aggregated across the sector. Furthermore, given the qualitative nature of management, it is difficult to judge its soundness just by looking at financial accounts of the banks.

Nevertheless, total expenditure to total income and operating expense to total expense helps in gauging the management quality of the banking institutions. Sound management is

key to bank performance but is difficult to measure. It is primarily a qualitative factor applicable to individual institutions. Several indicators, however, can jointly serveas, for instance, efficiency measures doas an indicator of management soundness. The ratio of non-interest expenditures to total assets (MGNT) can be one of the measures to assess the working of the management. . This variable, which includes a variety of expenses, such as payroll, workers compensation and training investment, reflects the management policy stance. Efficiency Ratios demonstrate how efficiently the company uses its assets and how efficiently the company manages its operations. 1.1.5. Earnings & Profitability

Earnings and profitability, the prime source of increase in capital base, is examined with regards to interest rate policies and adequacy of provisioning. In addition, it also helps to support present and future operations of the institutions. The single best indicator used to gauge earning is the Return on Assets (ROA), which is net income after taxes to total asset ratio.

Strong earnings and profitability profile of banks reflects the ability to support present and future operations. More specifically, this determines the capacity to absorb losses, finance its expansion, pay dividends to its shareholders, and build up an adequate level of capital. Being front line of defense against erosion of capital base from losses, the need for high earnings and profitability can hardly be overemphasized. Although different indicators are used to serve the purpose, the best and most widely used indicator is Return on Assets (ROA). However, for in-depth analysis, another indicator Net Interest Margins (NIM) is also used. Chronically unprofitable financial institutions risk insolvency. Compared with most other indicators, trends in profitability can be more difficult to interpretfor instance, unusually high profitability can reflect excessive risk taking. 1.1.6. Liquidity An adequate liquidity position refers to a situation, where institution can obtain sufficient funds, either by increasing liabilities or by converting its assets quickly at a

reasonable cost. It is, therefore, generally assessed in terms of overall assets and liability management, as mismatching gives rise to liquidity risk. Efficient fund management refers to a situation where a spread between rate sensitive assets (RSA) and rate sensitive liabilities (RSL) is maintained. The most commonly used tool to evaluate interest rate exposure is the Gap between RSA and RSL, while liquidity is gauged by liquid to total asset ratio. Initially solvent financial institutions may be driven toward closure by poor management of short-term liquidity. Indicators should cover funding sources and capture large maturity mismatches.

The term liquidity is used in various ways, all relating to availability of, access to, or convertibility into cash. An institution is said to have liquidity if it can easily meet its needs for cash either because it has cash on hand or can otherwise raise or borrow cash. A market is said to be liquid if the instruments it trades can easily be bought or sold in quantity with little impact on market prices. An asset is said to be liquid if the market for that asset is liquid.

The common theme in all three contexts is cash. A corporation is liquid if it has ready access to cash. A market is liquid if participants can easily convert positions into cashor conversely. An asset is liquid if it can easily be converted to cash.

A.The liquidity of an institution depends on: The institution's short-term need for cash; Cash on hand; Available lines of credit; The liquidity of the institution's assets; The institution's reputation in the marketplacehow willing will counterparty is to transact trades with or lend to the institution?

The liquidity of a market is often measured as the size of its bid-ask spread, but this is an imperfect metric at best. More generally, Kyle (1985) identifies three components of market liquidity: Tightness is the bid-ask spread;

 Depth is the volume of transactions necessary to move prices; Resiliency is the speed with which prices return to equilibrium following a large trade. Examples of assets that tend to be liquid include foreign exchange; stocks traded in the Stock Exchange or recently issued Treasury bonds. Assets that are often illiquid include limited partnerships, thinly traded bonds or real estate. Cash maintained by the banks and balances with central bank, to total asset ratio (LQD) is an indicator of bank's liquidity. In general, banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals. Credit deposit ratio is a tool used to study the liquidity position of the bank. It is calculated by dividing the cash held in different forms by total deposit. A high ratio shows that there is more amounts of liquid cash with the bank to met its clients cash withdrawals.

CHAPTER-II INDUSTRY PROFILE 1.2 INDUSTRY PROFILE

1.2.1 PROFILE OF CO-OPERATIVE MOVEMENT IN INDIA Around the world modern cooperatives have developed for over 200 years. Cooperative institutions exist all over the world providing essential services which would otherwise be unattainable. In many Third World countries, cooperatives such as credit unions and agricultural organizations have been very successful in helping people to provide for themselves where private and other corporate capitals do not see high profitability. In 90 countries of the world, over 700 million individuals are members of cooperative institutions. Globally, cooperatives have been able to elevate its position as a powerful economic model. In some countries they are a sizeable force within the national economy.

1.2.2 GROWTH OF CO-OPERATIVE SECTOR IN INDIA

India has basically an agrarian economy with 72% of its total population residing in rural areas. The rural people need lot of services in daily life which are met by village cooperative societies. The seeds of cooperation in India were sown in 1904 when the first Cooperative Societies Act was passed. Since then, the cooperative movement has made significant progress. Cooperatives have extended across the entire country and there are currently an estimated 230 million members nationwide. The cooperative credit system of India has the largest network in the world and cooperatives have advanced more credit in the Indian agricultural sector than commercial banks. The village cooperative societies provide strategic inputs for the agricultural sector, consumer societies meet their consumption requirements at concessional rates; marketing societies help the farmer to get remunerative prices and co-operative processing units help in value additions to the raw products etc. In addition, co-operative societies are helping in building up of storage go-downs including cold storages, rural roads and in providing facilities like irrigation, electricity, transport and health.3 Various development activities in agriculture, small industry marketing and processing, distribution and supplies are now carried on through co-operatives.

In fertilizer production and distribution the Indian Farmers Fertilizer Cooperative (IFFCO) commands over 35 percent of the market. In the Production of sugar the cooperative share of the market is over 58 percent and in the marketing and distribution of cotton they have a share of around 60 percent. The cooperative sector accounts for 55 percent of the looms in the hand-weaving sector. Cooperatives process, market and distribute 50 percent of edible oils. Dairy cooperatives operating under the leadership of the National Dairy Development Board and through 15 state cooperative milk marketing federations has now become the largest producer of milk in the world. The groundwork for this was laid in the early 1970's when the largest dairy development programme in the world - Operation Flood was launched. Operation Flood was a national marketing strategy linked to a dairy infrastructure development programme that created a chain of dairy processing plants, collection stations and a national milk transportation grid. With the passage of the Insurance Act, cooperatives have been allowed to entry into the insurance business. 1.2.3 STRUCTURE COOPERATIVE CREDIT The cooperative structure in India consists of different constituents. At the bottom of this structure are the primary societies which render various types of services. Of this large

number about 80% is concerned with agriculture. Most of these societies, about 60% deal with credit only. Thus a large majority of primary societies are related to agriculture and credit. They perform various functions such things as credit, irrigation, marketing, transports etc. These are generally divided into two groups (i) (ii) credit societies and non credit societies Each o f these two sub groups is further split up into sub groups: (a) Agricultural societies and (b) Non agricultural societies..

Cooperative credit structure is the single largest institutional credit delivery system in the State. It provides credit to the people particularly in rural areas at reasonable interest rate thereby reducing the dependency of the farmers on the informal credit source and usurious rate of interest. Geographically and culturally it is the most convenient institutional arrangement for availing the credit by farmers. The cooperative credit structure in Tamil Nadu comprises of the following: (A) Short term and medium term credit structure consisting of Tamil Nadu State Apex Cooperative Bank at the state level, Central Cooperative Banks at the district level and Primary Agricultural Cooperative Banks at the village level. (B) Long term rural credit structure consisting of Tamil Nadu Cooperative State Agriculture and Rural Development Bank at the state level and Primary Cooperative Agriculture and Rural Development Banks at taluk/block level. (C) Urban credit structure comprising of Cooperative Urban Banks located in the urban and semi urban areas and catering to the credit needs of their members and the public. (A) Short Term Credit Structure The Short Term Cooperative credit structure in Tamil Nadu is a three tier structure with Tamil Nadu State Apex Cooperative Bank at State level with 45 branches, 23 District

Central Cooperative Banks at the district level with 717 branches and 4474 Primary Agricultural Cooperative Banks at the grass root level. (i) Tamil Nadu State Apex Cooperative Bank (TNSACB) Chennai The Tamil Nadu State Apex Cooperative Bank is the federation of the District Central Cooperative Banks. Being the Apex Bank, it raises resources and channelises them through District Central Cooperative Banks for both agricultural and non-agricultural purpose. It also channelises the refinance provided by National Bank for Agriculture and Rural Development (NABARD) towards short term and medium term agriculture and allied sector loans to District Central Cooperative Banks. As on 29.2.2008, the Tamil Nadu State Apex Cooperative Bank has a share capital of Rs.61.07 crores including Governments share of Rs.0.26 crore. It has the reserves of Rs.700.48 crores and deposits of Rs.3944.98 crores. Compared to the previous years level of reserves at Rs.517.95 crores and deposits at Rs.3263.50 crores, the growth in the reserves and the deposits in the current year have gone up by 35% and 21% respectively. The bank has earned a net profit of Rs.42.80 crores during 2007-2008 upto 29.2.2008. The Tamil Nadu State Apex Cooperative Bank maintains a fund called the Primary Cooperative Development Fund financed out of contribution of profit making Central Cooperative Banks and the Tamil Nadu State Apex Cooperative Bank. The fund is utilized to strengthen the infrastructure facilities of the Primary Agricultural Cooperative Banks in the State. As on 29.2.2008, Rs.29.84 crores is available in this account. A special scheme was launched by Honble Chief Minister Dr. Kalaignar to rejuvenate about 1192 weak Primary Agricultural Cooperative Banks with the help of this fund. Most of the societies in the above category had fallen dormant because of lack of resources and had stopped lending and other operations. To help them to restart lending, a special cash credit at the rate of Rs.20 lakhs per society is being provided by District Central Cooperative Banks at a concessional rate of interest and the difference between cost of funds and the concessional rate is being reimbursed to District Central Cooperative Banks from out of this fund. It is expected that these 1192 Primary Agricultural Cooperative Banks through this scheme will resume their normal operation of lending and to become financially viable in a course of 3 years, by securing breakeven level of business and through this, will offer adequate institutional credit to the farmers in their area of operation. As on 29.2.2008, 631 Primary Agricultural

Cooperative Banks have been sanctioned with cash credit to the tune of Rs.126.20 crores and the entire 1192 Primary Agricultural Cooperative Banks will be covered under this scheme before April, 2008. (ii) District Central Cooperative Banks (DCCB) There are 23 District Central Cooperative Banks in the State with 717 branches mostly in rural areas to serve the Primary Agricultural Cooperative Banks and the rural public. The District Central Cooperative Banks raise resources through public deposits and also from Tamil Nadu State Apex Cooperative Bank and channelise them through Primary Agricultural Cooperative Banks for agriculture and rural credit. In addition, they meet the credit needs of dairy, handlooms, sugar and such other affiliated cooperatives. They also lend directly to the public for non-agricultural purposes within the area of operation of their branches. As on 26.3.2008, the District Central Cooperative Banks have extended credit to Primary Agricultural Cooperative Banks to the tune of Rs.1323.20 crores for crop loan of which Rs.985.59 crores is from their own funds and Rs.337.61 crores from National Bank for Agriculture and Rural Development refinance. The details of District Central Cooperative Banks activities are given below:(Rs. in crores)

Year 2004-05 2005-06 2006-07 2007-08*

Deposits 6275.78 6979.34 7286.62 7666.70

Direct Loans 1778.12 2005.33 2973.02 3292.53

* As on 29.2.2008

Compared to the last year, upto February 2008 the amounts of deposit have increased by 5.22%. Due to concerted efforts, better financial discipline and also adequate credit flow through waiver, as per final audit of the year 2006-2007, out of 12 District Central Cooperative Banks which were classified under Section 11(1) of Banking Regulation Act with negative net worth, 7 District Central Cooperative Banks have come out of this problem and it is expected that remaining 5 District Central Cooperative Banks also will record positive networth and come out of Section 11(1) by 31.3.2009. Efforts are being made to computerize all the branches of the District Central Cooperative Banks. (iii) Primary Agricultural Cooperative Banks (PACB) In Tamil Nadu, there are 4474 Primary Agricultural Cooperative Banks which provide credit to the farmers, distribute inputs like fertilizers and also run outlets under Public Distribution System. These banks provide short term and medium term credit for agriculture and allied activities. The short term loans are repayable within a period of 12 to 15 months and the medium term loans are repayable within 3 to 5 years. Crop loan is the prominent item of credit to the farmers by Primary Agricultural Cooperative Banks, provided without collateral security upto 10 acres in respect of registered sugarcane growers and upto Rs.1 lakh in respect of other crops. The loan amount exceeding this limit is secured with mortgage of property or pledge of jewels. Primary Agricultural Cooperative Banks also issue loans for other agricultural purposes like purchase of farm machineries and for non-agricultural purposes including loans for the purchase of consumer durables, housing loans, education loans and professional loans. The details of the loans issued by these banks from 2004-05 are furnished below: (Rs. In crores)

Year 2004-05 2005-06 2006-07

Crop Loans 1080.58 1132.18 1250.62

Other Loans 2609.07 2718.69 3082.20

2007-08

1323.20 (As 26.3.2008) on

3254.68 (As 29.2.2008) on

Considering the importance of increasing credit flow into the agriculture sector, Government has reduced the interest rate for the crop loans from 9% to 7% per annum from 2006-07, the interest differential being compensated by the Government. For the year 200607, Rs.18.28 crores was released and a sum of Rs.15.04 crores has been released for the year 2007-08 to the cooperatives as compensation to make up this interest subvention. The Government is taking all efforts to inculcate the habit of financial discipline among the farmers. As a special measure, Government have announced further reduction of interest from 7% to 5% for all crop loans being repaid promptly by the farmers. This has been further reduced to 4% in 2008-09. The Government lays emphasis on the timely disbursement of crop loan in adequate quantity. It is proposed to disburse Rs.1500 crores as crop loan during 2008-09. It is further proposed that the lending through Farmers Group will be encouraged by forming Joint Liability Groups which will benefit the farmers to get additional assistance by way of revolving fund to the tune of Rs.10 crores. This is expected to benefit the farmers in a great way to consolidate themselves and pool their resources in arranging their inputs supply, organizing cultivation activities and making joint efforts in marketing to fetch a better price for their produce. Ultimately this will pave way for consolidation of the farming activities by the farmers facilitating appropriate technological intervention for improving the productivity of the farm sector. As a policy, this Government is not for liquidation of any Primary Agricultural Cooperative Bank which has been set up for the specific purpose of serving the farmers in their respective operational areas. Though liquidation notices were issued for 199 Primary Agricultural Cooperative Banks upto 2005-06, as a follow-up of the announcement made in the year 2006-07 to revive them, all out efforts have been made to revive them and bring them back to normalcy. The Government is happy to inform that out of 199 banks, 197 banks

have already been revived and an amount of Rs.17.23 crores were issued as loans during 2006-07 to the members. During 2007-08, Rs.13.07 crores were disbursed as loans upto 29.2.2008. The efforts of the Government will continue for reviving the remaining two Primary Agricultural Cooperative Banks. Due to long years of neglect, several societies have been put into doldrums. The pathetic status of some of the societies have forced them not to pay even the salaries to their own employees for many months. Due to the efforts made by this Government, the condition of many of the societies have appreciably changed. Due to initiatives such as waiver of agricultural loan, revival of societies through the assistance from Primary Cooperative Development Fund (PCDF), subsidy for running public distribution system and through various other measures, the business of the societies have improved and the non payment of salary has been brought down significantly. The Government will continue its efforts to ensure that all the societies become financially viable and no employee in any of the societies goes without salary. The Primary Agricultural Cooperative Banks were permitted to mobilize deposits from the public for issue of loans and were unable to refund the deposits on due dates of maturity to the depositors by the Primary Agricultural Cooperative Banks. If this chronic problem continues then the confidence of the people will be shaken. This Government have made all out efforts to ensure that the depositors credibility is restored and their matured deposit amount with the interest is paid back to them. In this regard, an amount of Rs.170.62 crores as public deposit was pending on 30.6.2006 due to be refunded to the depositors. A promise was made in the Assembly that efforts will be taken to settle these deposits at the earliest. Due to the initiatives taken by the Government, Primary Agricultural Cooperative Banks were able to refund Rs.117.68 crores as on 29.2.2008 and further efforts are being made to refund the entire amount fully with due interest to the depositors. This Government considers that Primary Agricultural Cooperative Banks are the fulcrum on which integrated package of services such as credit, insurance, inputs, marketing and extension can be delivered to the farmers. Recognising the importance of increasing productivity in agricultural sector as envisaged in the XI Five Year Plan, Primary Agricultural Cooperative Banks will be actively engaged in provision of integrated service to the farmers and serve as a point of dissemination of the technology and the improved cultivation practices. It is expected to increase the prosperity of farmers by availing better

services particularly in the area of technological intervention. In this process, Primary Agricultural Cooperative Banks will actively collaborate with Agriculture Department and the Research & Development organisations and provide all inputs and services under one roof. The Primary Agricultural Cooperative Banks will also act as Paddy Procurement Centres on behalf of Tamil Nadu Civil Supplies Corporation and will procure paddy at the minimum support price announced by the Government in the non delta areas apart from Direct Purchase Centres operated by Tamil Nadu Civil Supplies Corporation. Primary Agricultural Cooperative Banks will also assist the Cooperative Marketing Societies, Tamil Nadu Cooperative Marketing Federation and National Agricultural Cooperative Marketing Federation of India (NAFED) to procure the agricultural produce directly from the farmers. Primary Agricultural Cooperative Banks will expand their produce pledge loan operations substantially to prevent distress sale by the farmers during peak harvest. A target of Rs. 100 crores will be set for disbursal under produce pledge loan by Primary Agricultural Cooperative Banks in 2008- 09. Most of the Primary Agricultural Cooperative Banks are operating under manual system of record maintenance and face a serious threat from the new generation banks using latest banking technology to penetrate the rural areas. To counter such threat, state-of-art banking technology will be introduced and all the Primary Agricultural Cooperative Banks will be computerized by the end of 2008. (B) Long Term Credit Structure Long Term Cooperative Credit Structure consists of Apex Bank viz., Tamil Nadu Cooperative State Agriculture and Rural Development Bank, Chennai and 180 Primary Cooperative Agriculture and Rural Development Banks at taluk/block levels. These credit institutions are providing investment credit to the members for activities like minor irrigation, horticulture, plantation crops and other agriculture and allied sectors.

(i) Tamil Nadu Cooperative State Agriculture & Rural Development Bank (TNCSARDB) The Tamil Nadu Cooperative State Agriculture and Rural Development Bank raises the funds necessary for its lending by floating ordinary and special development debentures. As the National Bank for Agriculture and Rural Development refinance could not be availed from 2004, due to National Bank for Agriculture and Rural Developments insistence on automatic debit mechanism, Tamil Nadu Cooperative State Agriculture and Rural Development Bank could not make available required resources to Primary Cooperative Agriculture and Rural Development Banks for lending to agricultural sector. As on today the Bank is extending small quantum of loans for Non-Farm Sector using its own resources. As on 29.2.2008, the share capital of the Bank stood at Rs. 40.29 crores and reserves Rs.566.10 crores and deposits Rs.1.19 crores. Due to virtual suspension of lending operations, the bank is in cumulative loss of Rs.143.84 crores as on 29.2.08. (ii) Primary Cooperative Agriculture and Rural Development Banks (PCARDB) There are 180 Primary Cooperative Agriculture and Rural Development Banks at taluk/block levels. The Primary Cooperative Agriculture and Rural Development Banks provide long term credit for purposes like minor irrigation, land development, purchase of agricultural machineries, horticulture, animal husbandry and other allied activities. The period of repayment of such loans ranges from 5 to 15 years. Due to non-availability of refinance from National Bank for Agriculture and Rural Development, the lending activity by these Banks is practically nil for the last four years. During 2007-08, efforts were made to revive the activities of Tamil Nadu Cooperative State Agriculture and Rural Development Bank and Primary Cooperative Agriculture and Rural Development Banks by mobilizing resources through collection of overdues in Non-Farm Sector. From 1.4.2007 till 29.2.2008, Rs.72.91 crores was collected as against the overdue of Rs.278.43 crores under the Non-Farm Sector. Further through waiver, an amount of Rs.42.45 crores each for the year 2006-07 and 2007-08 were released to the long term credit structure as waiver compensation. This has increased the liquidity of both Tamil Nadu Cooperative State Agriculture and Rural Development Bank and Primary Cooperative Agriculture and Rural Development Banks.

1.2.4 TYPES OF COOPERATIVES

(1)The Primary Agricultural Credit/Service Societies

The agricultural co-operative credit structure in the Punjab State is broadly divided into two sectors, one dealing with the short-terms and medium-terms finance and the other with the long-term credit. In the State, the short-term and medium-term credit structure is based on a three-tier system, i.e., the Apex Co-operative Bank at the State level, the Central Co-Coperative Bank at the district/tehsil level and the Primary Agricultural Credit Societies at the village level. The major objectives of the primary agricultural credit service societies are to supply agricultural credit to meet the requirements of funds for agricultural production, the distribution of essential consumer commodities, the provision of storage and marketing facilities and for light agricultural implements and machinery.

(2) Agricultural Non-Credit Societies

While credit is and must remain for some time the chief concern of the Co-operative Movement relatively slow, since 1912, when the non-credit societies were brought officially under the aegis of the Movement. the World War II (1939-45) came as a God send boon with respect to the development of the Cooperative Movement. Prices of agricultural goods began to rise and touched new peaks. The repayment of loans was accelerated and deposits began to pour in. The number of societies also rose. Another interesting development in co-operative during the War wast the extension of the Movement to non-credit activities, viz. consumers co-operative marketing societies, consolidation societies, etc. The number of agricultural non-credit societies in the district was 38 in 1978-79.

(3) Agricultural co-operative Marketing Societies

Marketing has occupied a far smaller place in the co-operative picture in India than in many countries, notably Denmark and the USA, but not other non-credit line of co-operation, with the possible exception of the consolidation of land holdings and joint farming enterprises, seems to hold greater possibilities of help to the agricultural population of India. The

development of co-operative marketing in India is closely bound up with the problem of creditthe claims of the money-lenders commonly inhibiting the cultivators freedom of action in disposing of his crop. The full utilization of loans advanced depends upon the arrangements for the marketing of surplus produce. For this purpose, there the Punjab State Marketing Federation at the State Level, wholesale societies at the district level and marketing societies at the market level. These societies also provide other agricultural facilities and make arrangements for the supply of domestic items in the rural areas.

(4) Co-operative Farming Societies.

The Royal Commission on Agriculture in 1928 observed that it co-operation failed, there would fail the hope of the Indian agriculturist. Co-operative farming is a compromise between collective farming and the peasant proprietorship and gives all merits of large-scale farming without abolishing private property. It implies an organization of the farmers on the basis of common efforts for common interests. They are allowed to withdraw from the cooperative farm whenever they desire. In India, the exceedingly small size of holdings is perhaps the most serious defect in our agriculture. If agriculture has to be improved, the size of the holdings must be enlarged. The co-operative farming societies, thus, enable the cultivators to enjoy the economies of large-scale farming through the pooling of land management resources.

1.3 COMPANY PROFILE 1.3.1 INTRODUCTION:

Bank is an institution that deals in money and its substitutes and provides crucial financial services. The principal type of baking in the modern industrial world is commercial banking & central banking.

Banking Means "Accepting Deposits for the purpose of lending or Investment of deposits of money from the public, repayable on demand or otherwise and withdraw by cheque, draft or otherwise." -Banking Companies (Regulation) Act, 1949

The concise oxford dictionary has defined a bank as "Establishment for custody of money which it pays out on customers order." Infact this is the function which the bank performed when banking originated.

"Banking in the most general sense, is meant the business of receiving, conserving & utilizing the funds of community or of any special section of it." -By H.Wills & J. Bogan

"A banker of bank is a person, a firm, or a company having a place of business where credits are opened by deposits or collection of money or currency or where money is advanced and waned. -By Findlay Sheras

Thus a Bank: Accept deposits of money from public, Pays interest on money deposited with it. Lends or invests money Repays the amount on demand,

1.3.2 CLASSIFICATION ON BASIS OF OWNERSHIP:

On the basis of ownership banks are of the following types:

1. PUBLIC SECTOR BANK

Public sector banks are those banks which are owned by the Government. The Govt. runs these Banks. In India 14 banks were nationalized in 1969 & in 1980 another 6 banks

were also nationalized. Therefore in 1980 the number of nationalized bank 20. But at present there are 9 banks are nationalized. All these banks are belonging to public sector category. Welfare is their principle objective.

2. PRIVATE SECTOR BANKS

These banks are owned and run by the private sector. Various banks in the country such as ICICI Bank, HDFC Bank etc. An individual has control over their banks in preparation to the share of the banks held by him.

3. CO-OPERATIVE BANKS
Co-operative banks are those financial institutions. They provide short term & medium term loans to their members. Co-operative banks are in every state in India. Its branches at district level are known as the central co-operative bank. The central co-operative bank in turn has its branches both in the urban & rural areas.

Every state co-operative bank is an apex bank which provides credit facilities to the central co-operative bank. It mobilized financial resources from richer section ourban population by accepting deposit and creating the credit like commercial bank and borrowing from the money mkt. It also gets funds from RBI.

1.3.3 ACCORDING TO RESERVE BANK OF INDIA ACT 1935

Banks are classified into following two categories son the basis of reserve bank Act. 1934.

1. SCHEDULED BANK
These banks have paid up capital of at least Rs. 5 lacks. These are like a joint stock company. It is a co-operative organization. These banks find their mention in the second schedule of the reserve bank.

2. NON SCHEDULED BANK

These banks are not mentioned in the second schedule of reserve bank paid up capital of these banks is less then Rs.5 lacks. The no. such bank is gradually tolling in India.

1.3.4 FUNCTIONS OF BANKS o PRIMARY FUNCTIONS i. ii. iii. iv. v. vi. Acceptance of Deposits Making loans & advances Loans Overdraft Cash Credit Discounting of bills of exchange

o SECONDARY FUNCTIONS Agency functions Collection of cheques & Bills etc. Collection of interest and dividends. Making payment on behalf of customers Purchase & sale of securities Facility of transfer of fund o UTILITY FUNCTIONS: Safe custody of customers valuable articles & securities. Underwriting facility Issuing of travelers cheques letter of credit Facility of foreign exchanges Providing trade information Provide information regarding credit worthiness of their customer.

1.4 CLASSIFICATION ACCORDING TO FUNCTION

On the basis of functions banks are classified as under:-

1. COMMERCIAL BANKS
The commercial banks generally extend short-term loans to businessmen & traders. Since their deposits are for a short-period only. They cannot lend money for a long period. These banks reform various types or agency job for their customers. These banks are not in a position to grant long-term loans to industries because their deposits are only for a short period. The majority of joint stock banks in India are commercial banks which finance trade & commerce only.

2. SAVING BANKS
The principle function of these banks is to collect small saving across the country and put them into productive use. These banks have shown marked development in Germany & Japan. These banks are established in HAMBURG City of Germany in 1765. In India a department of post offices functions as saving banks.

3. FOREIGN EXCHANGE BANKS

These are special types of banks which specialize in financing foreign trade. Their main function is to make international payments through purchase & sale of exchange bills. As it well known, the exporters of a country prefer to receive the payments for exports in their own currency. Thus these banks convert home currency into foreign currency and vice versa. It is on this account that these banks have to keep with themselves stock of the currency of various countries. Along with that, they have to open branches in foreign countries to carry on their business.

4. INDUSTRIAL BANKS
The industrial banks extend long term loans to industries. In fact, they also help industrials firms to sell their debentures and shares. Sometimes, they even underwrite the debentures & shares of big industrial concerns.

5. INDIGENOUS BANKS

These banks found their origin in India. These banks made a significant contribution to the development of agricultural and industries before independence. Mahajans, rural moneylenders have been the forerunner of these banks in India.

6. CENTRAL BANK
The central bank occupies a pivotal position in the monetary and banking structure of the country. The central bank is the undisputed leader of the money market. As such it supervises controls and regulates the activities of commercial banks affiliated with it. The central bank is also the higher monetary institution in the country charged with the duty & responsibility of carrying out the monetary policy formulated by

the government. India's central bank known as the reserve bank of India was set up in 1935.

7. AGRICULTURAL BANK
The commercial and the industrial banks are not in a position to meet the credit requirements of agriculture. Hence, there arises the need for setting up special type of banks of finance agriculture. The credit requirements of the farmers are two types. Firstly the farmers require short term loans to buy seeds, fertilizers, ploughs and other inputs. Secondly, the farmers require long-term loans to purchase land, to effect permanent improvements on the land to buy equipment and to provide for irrigation works.

There are two types of agriculture banks.

1. Agriculture co-operative banks, and

2.

Land mortgage banks. The farmer provides short-term credit, while the letter extends long-term loans to the farmers.

1.4.1 ORIGIN OF BANKING:

Its origin in the simplest form can be traced to the origin of authentic history. After recognizing the benefit of money as a medium of exchange, the importance of banking was developed as it provides the safer place to store the money. This safe place ultimately evolved

in to financial institutions that accepts deposits and make loans i.e., modern commercial banks. 1.4. 2 BANKING SYSTEM IN INDIA Historical perspective: Early phase from 1786-1969. Nationalization of banks and up to 1991 prior to banking sector reforms. New phase of Indian banking with the advent of financial banking. Banking in India has its origin as early or Vedic period. It is believed that the transitions from many lending to banking must have occurred even before Manu, the great Hindu furriest, who has devoted a section of his work to deposit and advances and laid down rules relating to the rate of interest. During the mogul period, the indigenous banker played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company it was the turn of agency house to carry on the banking business. The General Bank of India was the first joint stock bank to be established in the year 1786. The other which followed was the Bank of Hindustan and Bengal Bank. The Bank of Hindustan is reported to have continued till 1906. While other two failed in the meantime.

In the first half of the 19th century the East India Company established there banks, the bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Bombay in1843. These three banks also known as the Presidency banks were the independent units and functioned well. These three banks were amalgamated in 1920 and new bank, the Imperial Bank of India was established on 27th January, 1921.

With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly constituted SBI. The Reserve Bank of India (RBI) which is the Central bank was established in April, 1935 by passing Reserve bank of India act 1935. The Central office of RBI is in Mumbai and it controls all the other banks in the country. In the wake of Swadeshi Movement, number of banks with the Indian management were established in the country namely, Punjab National Bank Ltd., Bank of India Ltd., Bank of Baroda Ltd., Canara Bank. Ltd. on 19th July 1969, 14 major banks of the country were nationalized and on 15th April 1980, 6 more commercial private sector banks were taken over by the government.

1.4.3.COOPERATION:
There are 4,595 Primary Agricultural Cooperative Banks at the village level, providing short term and medium term credit facilities to the agriculturists. operational

These banks have covered as on 31.3.02 85.96% of the agricultural holdings in the State of which 79.57% belong to weaker sections.

A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts). In India co-operative banks are regulated with the RBI and governed by Banking Regulations Act 1949 and Cooperative Societies Act, 1965

The Bank was formed in 1872 in the city Manchester in UK. The Co-operative banks in INDIA have a history of almost 100 years. The Cooperative banks are an important constituent of the Indian Financial System. Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. These banks were conceived as substitutes for money lenders.

Co-operative bank performs all the main banking functions of deposit mobilization, supply of credit and provision of remittance facilities. Co-operative Banks belong to the money market as well as to the capital market. Co-operative Banks provide limited banking products and are functionally specialists in agriculture related products. However, cooperative banks now provide housing loans also. UCBs provide working capital loans and term loan as well.

1. Customer-owned entities: In a co-operative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both. 2. Democratic member control: Co-operative banks follow the principle of one person, one vote. 3. Profit allocation: Profit is usually allocated to members who are related to the

Co-operative bank do banking business mainly in the agriculture and rural sector. However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan areas

The State Co-operative Banks (SCBs), Central Cooperative Banks (CCBs) and Urban Co-operative Banks (UCBs) can normally extend housing loans up to Rs 1 lakh to an individual. The scheduled UCBs, however, can lend up to Rs 3 lakh for housing purposes. Agricultural co-operative society: An agricultural cooperative, also known as a farmers' co-op, is a cooperative where farmers pool their resources in certain areas of activity. A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various services to their individually farming members, and agricultural production cooperatives, where production resources (land, machinery) are pooled and members farm jointly

1.4.4 PROFILE OF THE CO OPERATIVE CREDIT SOCIETY

An agricultural cooperative, also known as a farmers co-op, is a cooperative where farmers pool their resources in certain areas of activity. A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various services to their individually farming members, and agricultural production cooperatives, where production resources (land, machinery) are pooled and members farm jointly. Examples of agricultural production cooperatives include collective farms in former socialist countries, the kibbutzim in Israel, collectively governed community shared agriculture, Longo Mai co-operatives and Nicaraguan production co-operatives. Worker cooperatives provide an example of production cooperatives outside agriculture

PERCENTTAGE ANALYSIS
Current ratio Cash Position Ratio Debtors to Total Current Assets Ratio Net Profit Ratio Gross Profit Ratio Stock Turnover Ratio Debtor Turnover Ratio Current Assets Turnover Ratio Total Assets Turnover Ratio Operating Profit Ratio Return on Equity Share Capital of Ratio

2.1.4.3 Current Ratio

This ratio shows the relationship between current assets and current liability of the company. It is an important measure of analyzing the firms ability to pay off its current obligations out of its short-term resources

2.1.4.4 Cash Position Ratio

This ratio is also known as super quick ratio/Absolute liquidity ratio. This is still a more vigorous test of liquidity position of a concern

Cash
Cash Position Ratio= -------------------------

Current Liabilities

2.1.4.5 Debtors to Total Current Assets Ratio

A metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt. Calculated by adding short-term and long-term debt and then dividing by the company's total assets. Debtor Debtors to Total Current Assets Ratio= -----------------------Total Current Assets

2.1.4.6 Net Profit Ratio

The two basic components of the net profit ratio are the net profit and sales. The net profits are obtained after deducting income-tax and, generally, non-operating expenses and incomes are excluded from the net profits for calculating this ratio.

Net profit Net profit ratio =--------------Sales

2.1.4.7 Gross Profit Ratio

A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.
Gross profit

Gross profit ratio=----------------Sales

2.1.4.8 Stock Turnover Ratio

Stock turn over ratio and inventory turn over ratio are the same.. Stock turn over ratio / Inventory over ratio indicate the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not.

Cost Of Goods Sold Stock Turnover Ratio=-----------------------------Average Stock At Cost

2.1.4.9 Debtor Turnover Ratio

This ratio throws light on the credit and collection policy pursued by concern. DTR is an important tool of analyzing the efficiency of liquidity management of a company

Net sales
Debtor Turnover Ratio=----------------Debtor

2.1.4.10 Current Assets Turnover Ratio

Current Assets Turnover Ratio indicates that the current assets are turned over in the form of sales more number of times. A high current assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in current assets. Higher the current ratio better will be the situation.

Current Assets

Current Assets Turnover Ratio=-------------------Total Assets

2.1.4.11 Total Assets Turnover Ratio

Total Assets Turnover Ratio (TATR) is used to measure the firm's ability to utilize its assets to generate sales. It is an indication to the firm's operation efficiency. A lower ratio means inefficient utilization of assets.

Sales Total Assets Turnover Ratio=---------------Total Assets

2.1.4.12 Operating Profit Ratio

The profit earned from a firm's normal core business operations. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes.

Operating Profit Operating Profit Ratio=---------------------------------Sales

2.1.4.13 Return on Equity Share Capital of Ratio

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested Net Profit after Tex Return on Equity Share Capital of Ratio=-----------------------------Equity share capital

STATISTICAL ANALYSIS Correlation Trend Analysis Spearmans rank Compound Annual Growth Rate Current Assets Position OBJECTIVE OF THE STUDY To do an in-depth analysis of the model. To analyze and get the desired results by using CAMELS as a tool of measuring performance. To analyze the performance of the PACCS Ltd for a specific period. (ie. Year from 2005 -2012) To analysis liquidity position of the PACCS Ltd. To study on Working capital of the PACCS Ltd.

SCOPE OF THE STUDY

To study the strength of using CAMELS framework as a tool of performance evaluation of PACCS Ltd..

In order to find the performance of the PACCS Ltd., various tools have been used. But to find the performance in sharply the CAMEL is taken as one of the analysis. In this study the methods Capital adequacy, Asset quality, Management, Earnings and Liquidity are used. The study has been under taken for a period from 2005 2012 ( 7 Years) . The future plans covers should be laid in view of firms financial strengths and weakness by properly establishing the relationship between the items of balance sheet and profit and loss account.