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CHAPTER - 2

URBAN CO-OPERATIVE BANKS


– A HISTORICAL PROFILE
2.1 Introduction 10

2.2 History of the co-operative movement 10

2.3 Co-operative movement in India 11

2.4 The Indian Co-operative credit structure 14

2.5 Urban Co-operative bank – Concept 16

2.6 Objectives of the Urban Co-operative bank 17

2.7 Growth and development of UCBs in India 17

2.8 Growth and development of UCBs in Gujarat 26

2.9 Development of the UCBs in South Gujarat 28

2.10 Role of the UCBs in Indian banking system 31

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CHAPTER - 2
URBAN CO-OPERATIVE BANKS
– A HISTORICAL PROFILE

2.1 Introduction:-

This chapter contains information regarding the historical background of the UCBs
in India since inception, Indian co – operative credit structure, concept and objectives of
the UCBs, growth and development of UCBs in India, in Gujarat and in Surat city, the
role of UCBs in Indian Banking System, problems, prospects and the future of UCBs etc.

UCBs oriented and developed as a result of the co-operative movement to provide


self help to needy sections of society. The co-operative movement came into existence in
the late 1700s in England where Robert Owen – a great philosopher advocated the
establishment of co-operative communities to mitigate the sufferings of the exploited
class in the wake of the industrial revolution. But the modern co-operative movement
began in 1844 near Manchester, England when 28 flannel weavers established “The
Rochadale Society of Equitable Pioneers” to increase their wages.

In India the co-operative movement was introduced as a remedy for the proverbial
poverty of the small agriculturalists. It was the government of Madras (Chennai) who
grasped the possibilities of co-operative movement in India. The origin of urban co-
operative credit societies in India can be traced to the close of 19 th century. Inspired by
the urban co-operative credit institutions organized in Germany by Mr. Hermann Schulze
(1860) and in Italy by Prof. Luigi Luzzatti (1866), the first urban co-operative credit
society named “ANYONYA SAHAKARI MANDALI” was established in Baroda on 5 th
February, 1889, under the guidance of Shri V.L. Kavthekar. But the co-operative credit
societies got legal status only in 1904, when the govt. of India passed the first “Co-
operative credit societies Act, 1904” with a view to encourage thrift, eradicate rural
indebtedness and provide credit to the needy and weaker sections of the society in rural
areas. This act has widened the scope of co-operative enterprises in India.

2.2 History of the Co-operative movement:-

Robert Owen (1771-1858) fathered the co-operation movement. A Welshman who


made his fortune in the cotton trade. Owen believed in putting his workers in a good
environment with access to education for themselves and their children. These ideas were
put into effect successfully in the cotton mills of New Lanark, Scotland. It was here that
the first co-operative store was opened. Spurred on by the success of this, he had the idea
of forming “Villages of co-operation” where workers would drag themselves out of
poverty by growing their own food, making their own clothes and ultimately becoming

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self – governing. He tried to form such communities in Orbiston in Scotland and in New
Harmony, Indiana in the United States of America, but both communities failed.
Although, Owen inspired the co-operative movements, others such as Dr. William
King (1786 – 1865) took his ideas and made them more workable and practical. King
believed in starting small, and realized that the working classes would need to set up co-
operatives for themselves, so he saw his role as one of instruction. He founded a monthly
periodical called The Co-operator, the first edition of which appeared on May 1, 1828.
This gave a mixture of co-operative philosophy and practical advice about running a shop
using co-operative principles. King advised people not to cut themselves off from society,
but rather to form a society within a society and to start with a shop because, “We must
go to shop every day to buy food and necessaries – why then should we not go to our
own shop?” He proposed sensible rules, such as having a weekly account audit, having
three trustees and not having meetings in pubs (to avoid the temptation of drinking
profits). A few poor weavers joined together to form the Rochdale Equitable Pioneers
Society at the end of 1843. The Rochdale Pioneers, as they became know, set out the
Rochdale Principles in 1844 which form the basis of co-operative movement today.
Co-operative communities are now wide spread with one of the largest and most
successful examples being at Mondragon in Basque country of Spain. Co-operatives were
also successful in Yugoslavia under Tito where workers council gained a significant role
in management.
In many European countries, co-operative institutions have a predominant market
share in the retail banking and insurance businesses.
The Indian co-operative movement was initiated by the government. It spread and
diversified with the encouragement and support of the government. Its present condition
on is also to a great extent because of the intrusive involvement of and interference by the
government.

2.3 Co-operative movement in India:


Co-operation emphasizes on the idea of a voluntary association of individuals for
the achievement of common goals. Fredric Nicholas suggested the idea of using co-
operation in India as a means to combat indebtedness; no legislation was put in place to
this effect. In 1889, ANNOYANAYA SAHAKARI MANDALI was established at
Baroda, which is the first Urban Co-operative Bank of India. It was only in 1904, the co-
operative credit societies Act was encourage thrift habits in people and to reduce the
dependence on money lenders, besides the control and registration of co-operative credit
societies. In 1992, co-operative act was passed which removed the shortcomings of the
act of 1904. The new act encourage the establishment of non credit co-operative
societies, registration of co-operative apex banks, federation of co-operative banks and
the development of the co-operative banking institution in India. The movement got
momentum with the enactment of the act of 1919 under which “Co-operation” became a
provincial / state subject. The act of 1912 has been replaced by provincial acts in Mumbai
in 1925 and in Madras (Chennai) 1931. The government of India appointed the royal
commission on agriculture in 1927 and the central co-operative banking enquiry
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committee in 1929 for the purpose of reconstructing the co-operative credit movement.
With the establishment of the reserve bank of India in 1934, it introduces many measures
to strengthen the co-operative credit movement in India. In 1951 rural survey committee
was appointed to suggest measures to strengthen the co-operative system in India.

Table 2.1
Progress of Co-operative Credit Movement in India
(Amount in Rs. Crore, ratio in percent)
Sr. Type of Item 2001-02 2002-03 2003-04 2004-05
No. Institution
1 2 3 4 5 6 7
1. Urban Co- Number 1,854 1,941 1,926 1,872
operative Banks Owned Funds 13,797 9,830 12,348 N.A.
(UCBs) Deposits 93,069 1,01,546 1,10,256 1,05,017
Borrowings N.A. 1,590 1,484 N.A.
Working Capital 1,15,596 1,11,746 N.A. N.A.
Loans Outstanding 62,060 64,880 67,930 66,905
C – D Ratio 67 64 62 65
2 State co-operative Number 30 30 31 31
banks (StCBs) Owned Funds 6,712 7,979 8,520 N.A
Deposits 36,191 39,386 43,486 44,338
Borrowings 11,672 12,200 12,457 14,624
Working Capital 54,262 57,600 58,889 N.A
Loan issued 34,663 38,118 34,466 38,319
Loans Outstanding 32,678 34,761 35,105 37,347
Recovery
Performance (as
per cent to demand) 82 80 84 N.A
C – D Ratio 90 88 81 84
3 District Central Number 368 367 365 367
Co-operative Owned Funds 14,141 16,836 19,131 N.A
banks (DCCBs) Deposits 68,181 73,919 79,153 81,013
Borrowings 18,820 19,639 20,256 20,899
Working Capital 99,424 1,08,265 1,14,372 N.A
Loan issued 55,915 59,544 58,964 55,764
Loans Outstanding 59,316 64,214 67,152 72,797
Recovery
Performance (as
per cent to demand) 66 61 62 N.A
C – D Ratio 87 87 85 90

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4 State Co- Number 20 20 20 20
operative Owned Funds 2,494 2,906 3,504 N.A
agriculture and Deposits 533 501 605 518
rural Borrowings 14,832 15,892 16,882 17,005
development Working Capital 18,735 20,609 21,250 N.A
banks Loan issued 2746 2,962 2,942 3,235
(SCARDBs) Loans Outstanding 14,110 15,354 16,212 17,435
Recovery
Performance (as
per cent to demand) 55 49 44 N.A
5 Primary Co- Number 768 768 768 730
operative Membership in 142 136 N.A N.A
agriculture and lakhs
ruaral Owned Funds 2,480 2,722 2,971 NA.
development Deposits 255 214 252 168
banks Borrowings 10,331 11,214 11,880 12,572
(PCARDBs) Working Capital 13,986 15,374 15,851 N.A
Loan issued 2,045 2,151 2,200 2,517
Loans Outstanding 10,005 10,809 11,209 11,877
Recovery
Performance (as
per cent to demand) 48 44 44 N.A
Source: Report on Trend & Progress of banking in India 2004-05 - RBI Page No. 309.
Figure 2.1

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2.4 The Indian Co-operative Credit Structure:

Co-operative credit institutions occupy an important position in the financial


system of the economy in terms of their reach, volume of operations and the purpose they
serve. They were the first ever attempt at micro credit dispension in rural, semi – urban
and urban area in India and are voluntary organized in a democratic setup by people
having common interest and high moral values with the aim of “Thrift” and “Self help”
through mutual help.

In India the co-operative credit structure is made up of agricultural and non –


agricultural credit institutions. Agricultural credit institutions play a pivotal role in the
rural credit delivery system dispensing short term, medium term, and long term credit to
rural weaker sections of society. Generally, short term and medium term agricultural
credit needs are satisfied by the state co-operative banks, the central co-operative banks
and the primary agricultural credit societies constituted at apex level, district level and
village level, town or city level respectively. While long term agricultural credit needs are
satisfied by state co-operative banks and primary co-operative agricultural and rural
development banks and Primary Co-operative Agricultural and Rural Development
Banks setup at the apex level and at the base level respectively. On the other hand, non-
agricultural credit institutions serve the urban areas and provide credit other than
agriculture having three tiers federal structure. In a three tier Federal structure of Co-
operative credit structure of the Co-operative credit system, UCBs come at the grass root
level but occupy an important place. They have got a unitary structure and advance short
– term loans to small traders, artisans, and salary earners in urban areas against personal
security as well as against gold, silver and other commodities and so on.

The second wing of non – agricultural co-operative institutions consists of State


Industrial Co-operative Banks and Central Industrial Co-operative Banks whose main
purpose is to provide credit for development of industries. Co-operative credit structure is
explained by figure as under:

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Figure 2.2
Structure of Indian Co-operative Credit Institutions
CO-OPERATIVE CREDIT INSTITUTIONS

Agricultural Credit Institutions Non – Agricultural Credit Institutions

Short term and Long State Co- State Industrial


Medium term term operative Co-operative
Banks Banks

Central Central
State Co- District Primary Co- Industrial
Operative Central Co- Agricultur operative Co-operative
Banks operative al Credit Banks banks
Banks Societies

Primary
Credit
Societies
Unitary Type Federal Soc.
UCBs Type

UCBs Employees Other


Land Co- Societies
Development operative
Banks Credit Soc.

State Co-operative Primary Co-operative


Agricultural & Rural Agricultural & Rural
Development Banks Development Banks
(SCARDBs) (PCARDBs)

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2.5 Urban Co-operative Bank – CONCEPT:

As the name suggests, a bank operating in urban areas on the basis of co-operative
principles is known as Urban Co-operative Bank. There was no well defined concept of
an Urban Co-operative Bank before 1939. Initially UCBs were organized as credit
societies in India and later converted into Urban Banks. It was the Mehta Bhansali
Committee (1939) which made the first attempt to define an Urban Co-operative Bank.
Subsequently in 1966, when banking laws were made applicable to co-operative banks,
provision of section 5 [CCV] of Banking Regulation Act 1949 [As applicable to co-
operative societies (AACS)] defined an Urban Co-operative Bank as a Primary Co-
operative Bank other than a Primary Agricultural Credit Society –
1. the primary objective or principal business of which is the transaction of
banking business,
2. the paid up share capital and reserves of which are not less than one lakh
rupees,
3. the by – laws of which do not permit admission of any other co-operative
society as a member1.

Provided that this sub – clause shall not apply to the admission of a co-operative
bank as a member by reason of such a Co-operative Bank subscribing to the share capital
of such Co-operative society out of fund provided by the State Government for the
purpose.

In short, UCBs are Primary Co-operative Banks organized on Co-operative basis,


operating in metropolitan, urban and semi – urban areas to cater the needs of specific
types or groups of members pertaining to certain class of community, small scale
industrial units, trade, professions, etc. They are of two types:
a unit banking type and
b branch banking type.

Besides providing main banking service to their customers, they also provide
various other banking and subsidiary services to their customers and have developed a
nice market for them to survive and thrive.
__________________
1.
John D‟Silva (Chief Editor): Co-operative Banker‟s Hand Book – Cum – Diary 2009,
Mumbai, 32nd Ed. Page No. 1.

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2.6 Objectives of the Urban Co-operative Bank:

The UCBs are generally considered as “Small People‟s Bank” and they are
organized for promoting thrift and co-operation among the lower and middle strata of the
society. The objectives of the UCBs are summarized in two categories, which are as
follow:

[A] Principal objectives:

(i) to promote thrift, self help and mutual co-operation among the members,
(ii) to mobilize resources i.e. to borrow funds form members and non members
to utilize for giving loans to their members,
(iii) to provide credit to the members at reasonable rates for productive purposes,
(iv) to undertake collection of bills drawn, cheques, drafts, etc. accepted or
endorsed by members and approved constituents, to remit funds and to
discount cheques and bills of approved members subject to rules and by laws
on their behalf,
(v) to arrange for safe custody of valuables and documents of members and
constituents, and
(vi) to provide all other banking and subsidiary services.

[B] Subsidiary Objectives:

(i) to give possible help and necessary guidance to traders, artisans etc. who are
members of the bank,
(ii) to do every kind of trust and agency business and particularly do the work of
investment of funds, sale of properties and of recovery and acceptance of
money,
(iii) to undertake every kind of banking and sharaffi business and also give bank
guarantee and letters of credit on behalf of members.

2.7 Growth & Development of UCBs in India:

Evolution of urban co-operative banking movement in India can be traced through


3 distinct phases which can be discussed in the succeeding paragraphs.

Phase I (1904 – 1966):

Inspired by the success of the urban co-operative credit movement in Germany and
Italy, the first mutual aid society „ANNONYA SAHAKARI MANDALI‟ was organized
in the then princely State of Baroda in 1889 under the guidance of Late Shri Vithal
Laxman Kavthekar. The enactment of Co-operative Credit Societies Act, 1904, however,
gave the real impetus to the movement of the first urban co-operative credit society was
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registered in Canjeevaram town in the then Madras Province in October 1904. Thereafter,
a few more societies were organized in Madras and Bombay provinces.
In 1912, some major amendments were brought in the Act with a view to broad
basing it to enable organization of non – credit societies. The Maclagan Committee‟s
recommendations, as mentioned above, have much to contribute in evolving the urban
co-operative credit movement. With the transfer of the subject of “Co-operation” from
Central to Provincial Governments, as a sequel to the constitutional reforms popularly
known as “Montague Chelmsford Reforms” and passing of the Act of 1919, the then
provincial Govt. of Bombay passed the first State Co-operative Societies Act in 1925”
“which not only gave the movement its size and shape but was a pace setter of co-
operative activities and stressed the basic concept of thrift, self help and mutual aid.”

In the formative phase, urban co-operative credit societies came to be organized on


community basis and their leading operations were confined to meeting the consumption
oriented credit needs of their members. The term „bank‟ was very loosely used by many
societies in the initial phase. Many urban banks which were organized in the early part of
this century were essentially credit societies but later convered themselves into UCBs.
Many urban credit societies which were not engaged in any banking functions also used
the word „bank‟ or „banker‟. There was no well defined concept of urban co-operative
bank. It was the Joint Reorganization Committee popularly known as Mehta Bhansali
Committee (1939) in the then Bombay province, which, for the first time, made an
attempt to define an urban co-operative bank. It defined a credit society as an Urban Co-
operative Bank (UCB) whose paid up share capital was Rs. 20000 or more and was
accepting deposits of money or current accounts or otherwise subject to withdrawals by
cheques, draft of order. In Madras province, urban co-operative credit societies accepting
current account deposits and maintaining certain amount of liquid resources, as
prescribed by registrar of Co-operative Societies, had come to be known as Urban Co-
operative Banks (UCBs) irrespective of size of their share capital. Subsequently, in 1966,
when banking laws were made applicable to co-operative banks, provisions of section
5(CCV) of Banking Regulation Act, 1949[ As Applicable to Co-operative Societies
(AACS) ] defined an Urban Co-operative Bank, as a primary co-operative society other
than a primary agricultural credit society:

(i) the primary object of which is the transaction of banking business;


(ii) the paid up share capital and reserves of which are not less than Rs. 1 lakh
and
(iii) by the law of which do not permit admission of any other co-operative
society as a member.

With the economic boom created by the Second World War, the urban banking
sector received tremendous impetus and started diversifying its credit portfolio,
branching out from meeting traditional consumption oriented credit needs into catering to
the needs of artisans, small businessmen and small traders.
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Phase II (1966-1993):
During this period, the demand for extension of deposit insurance was gaining
momentum on account of significant increase in the operations of Urban Co-operative
Banks and their volume of deposits and more particularly in the context of sad experience
of Palai Central Bank failure. As extension of deposit insurance to co-operative banking
sector presupposes some semblance of Reserve Bank control over them, some provisions
of B.R. Act, 1949 were made applicable to Urban Co-operative banks in 1966 after an
intense debate among State Governments, Government of India RBI. This was a
landmark in the evolution of urban banking movement in India. Consequently, the co-
operative banks came under duality of ontrol.

Between 1966-1993, the resources mobilized by the way of deposits by the UCBs
have registered a phenomenal growth. From a meager Rs. 153 crores at the end of June
1967, they rose to Rs. 13531 crores by the end of March 1993. The credit base surged
from Rs. 167 crores to Rs. 10132 crores during this period. Year wise key financial
indicators of UCBs are given in table below. The annual average growth of deposits and
advances was found to be quite impressive. The number of urban co-operative banks has
grown from 1106 to 1399 during the corresponding period.

A class of urban co-operative banks, which are popularly called, Salary Earners
Banks also emerged as a matter of course and had their own place in the urban co-
operative banking system over the years. These banks are essentially thrift societies set
up by employees of government departments/ PSUs/ large establishments for mutual help
on the principles of co-operation. These societies also started using the word „bank‟ and
were accepting deposits from the members of public. Since Reserve Bank of India did not
find any rationale for their continuing as banking entities, as they were essentially thrift
societies, they were advised to go out of the purview of the B.R. Act, after returning the
deposits to non – members. As a result, 599 salary earners banks were outside the
purview of the B.R. Act, during the period 1 March 1966 to 30 June 1977 by converting
themselves into co-operative credit societies. Marathe Committee had also endorsed this
view. As on 31 March 1999, there were 90 salary earners banks.

Yet another interesting feature of the history of the urban co-operative banking

movement is that despite the exit of so many salary earners banks from the ambit of B.R.

Act, the number of UCBs increased from 403 (excluding salary earners banks) to 1023

during 1 March 1966 and 30 June 1977. This increase in number of UCBs was not on

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account of liberal licensing policy stance of RBI but on offshoot of statute induced

expansion i.e., automatic conversion of Primary Credit Societies in to UCBs.

The only difference between a primary credit society and an urban co-operative

bank is level of owned funds. If the owned funds of primary credit society reach Rs. 1

lakh, automatically, it has to apply to RBI for a licence to carry on banking business. If a

primary credit society, after attaining Rs. 1 lakh of owned funds, does not meet the

criteria laid down by the RBI, it can carry on banking business till its licence application

is rejected by RBI. Due to this peculiar dispensation, a large number of primary credit

societies had necessarily to be brought under the ambit of B.R. Act. RBI has, therefore,

decided in 1978 that Registrar of Co-operative Societies should not register any new

primary credit society the object of which was to carry on banking business. Because of

this automatic entry of PCBs into the banking sector, today, there are as many as 181

unlicensed banks under RBI jurisdiction.

This period between 1966-1993 can be termed as an over regulated regime. The
licensing policy of RBI was too restrictive as it was governed by the dictum “one district
– one bank” notwithstanding the co-operative initiative demonstrated by the co-operators.
Urban co-operative banks were also not allowed to expand beyond municipal limits.
There was an embargo on their entry into rural areas and financing agricultural
operations. Branch licensing policy was linked to the “planned expansion of branches”.
There were also restrictions on development of UCBs‟ surplus resources outside the co-
operative fold. Growth of urban banking sector was confined to the states of Maharashtra,
Karnataka, Gujarat and Tamil Nadu where the co-operative movement had already taken
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strong roots. The regional disparities in the growth of urban co-operative movement
leadership in our states. But the liberal licensing policy stance of RBI, from May 1993,
some states such as Madhya Pradesh, Andhra Pradesh and a few other states have shown
signs of urban banking growth as is evident from the table below:
Table : 2.2
State wise growth of UCBs between 1993-1999
No. of Banks prior to May New Licences issued after
State
1993 May 1993 to August 1999
Andhra Pradesh 65 89

Madhya Pradesh 42 44

Rajasthan 26 15

Uttar Pradesh 47 32
Source: Report of the high power committee on UCBs – 1999-2000, page No. 14

Table 2.3
Key Indicators of Urban Co-operative banks during in India From 1967 to 1999
No. of
Owned Loans &
Year Reporting Deposits
Funds Advances
Banks
1966-67 (July – June) 1106 58 153 167
1967-68 925 50 156 157
1668-69 946 55 183 176
1969-70 989 52 179 177
1970-71 946 56 217 197
1971-72 964 66 264 229
1972-73 967 70 301 258
1973-74 1016 81 343 305
1974-75 1123 96 386 354
1975-76 1142 108 468 393
1976-77 1105 117 519 407
1977-78 1051 132 591 460
1978-79 1059 158 761 566
1979-80 1078 188 988 762
1980-81 1095 230 1331 1034
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1981-82 1174 282 1650 1377
1982-83 1207 345 1994 1711
1983-84 1245 429 2656 2102
1984-85 1260 511 3258 2525
1985-86 1280 613 3939 3046
1986-87 1293 734 4338 3694
1987-88 1308 886 5790 4636
1988-89 1324 1082 7232 5820
1989-90 1307 1256 8660 7802
1990-91 1306 1481 10157 8003
1991-92 (April – March) 1311 1765 11108 8713
1992-93 1306 2224 13531 10132
1993-94 1305 2723 16769 12172
1994-95 1300 3312 20101 14795
1995-96 1327 3848 24165 17908
1996-97 1355 4691 30701 21538
1997-98 1502 5985 40692 27807
1998-99 1499 6923 50544 32653
Source: Report of the high power committee on UCBs – 1999-2000 Page No. 100

Phase III (Post 1993 – Scenario):

The year 1993 was watershed in the annals of urban co-operative banking
movement. After Narshimham Committee (Report I) addressed the ills of banking system
in 1991, and suggested a road map for liberalizing the banking sector, a similar need was
also felt to look de novo at the regulatory issues relating to UCBs. Accordingly, RBI
appointed the Marathe Committee in 1991 to address these issues. Recommendations of
this Committee were quite far reaching, particularly, in the realm of new bank licensing,
branch licensing and area of operation etc. Essentially, Marathe Committee, suggested to
dispense with the “one district one bank” licensing policy and recommended organization
of banks based on the need for and institution and potential for a bank to mobilize
deposits and purveying of credit. It also felt that existence of commercial banking
network should not prevent the co-operative initiative. RBI accepted these
recommendations and had come out with its new policy approach in May 1993, Between
May 1993, when the revised policy was put in place and 31 March 1999, RBI has issued
as many as 537 licenses for setting up new banks. The liberalized branch licensing
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policy‟s stress was more on bank‟s inherent financial strengths rather than assessing the
need for a branch and its viability in a given centre. As a result, the branch network of
UCBs has increased from 3691 as at the end of March 1993, to 6619 by 31 March, 1999.
Urban Co-operative Banks were also allowed to extend their areas of operation to entire
district without specific approval from RBI and banks, with deposits of Rs. 50 crores and
above, were permitted to cross the border of the states of their registration. Banks
complying with certain norms can now also open extension counters without RBI
permission.

RBI had also appointed a Working Group under the Chairmanship of Shri Uday M
Chitale in December 1995 to review the existing audit systems of UCBs, with deposits of
Rs. 25 Crores and above, be conducted by Charted Accountants, thus, ending the
monopoly of State Government‟s audit of UCBs. It has suggested a standard format of
audit for all the states. The working group also suggested revised audit rating models for
UCBs. Regrettably, none of the states, not even the co-operative advanced states, has
implemented the recommendations of Chitale Working Group.

Besides, easing regulatory restrictions, a number of policy pronouncements were


made in the operational sphere too. UCBs can now invest 10% of their deposits outside
co-operative fold. Ceiling on quantum of advances to nominal members has been
increased substantially and scheduled UCBs have been allowed to do merchant banking/
forex operations. Effective from November 1996, urban co-operative banks have been
given freedom to finance direct agricultural operations. The interest rates on the deposits
of urban banks have been deregulated from 21 October, 1997. They can also install
ATMs without prior approval of RBI.
Thus, in the post Marathe Committee dispensation, there was a paradigm shift in
RBI‟s regulatory approach. An Excessively controlled regime gave way to a thoroughly
liberalized dispensation. The shift in RBI policy on UCBs was a natural corollary of its
policy stance on financial sector. Strangely, State Governments who are co-regulators

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have not brought out any significant parallel reforms in tune with liberalization process
set in by RBI. The notable exception is Andhra Pradesh which enacted the Mutually
Aided Co-operative Societies Act, 1995 freeing the co-operative societies, registered
under this Act, form Government control as long as they do not solicit share capital or
seek guarantees form State Government.
Table 2.4
State – wise position of UCBs and their Branches (Offices) as on 31 March 1999 and 2009
No. of No. of
Sr. No. of
State No. of UCBs Branches/ Branches/
No. UCBs
Offices Offices
1 Andhra Pradesh 137 257 114 234
2 Assam 11 12 17 28
3 Bihar/Jharkhand 08 08 05 06
4 Chattisgarh - - 13 21
5 Gujarat 341 958 260 886
6 Jammu & Kashmir 04 15 04 16
7 Karnataka 299 723 273 828
8 Kerala 63 302 60 332
9 Madhya Pradesh 82 103 55 84
10 Maharashtra/Goa 623 3408 583 4148
11 Manipur 05 10 - -
12 Meghalaya 02 02 - -
13 Mizoram 01 01 - -
14 Nagaland 01 01 - -
15 New Delhi 19 63 15 62
16 Orissa 14 47 13 50
Punjab/Hariyana/Himachal
17 19 35 16 40
Pradesh
18 Rajasthan 40 115 39 149
19 Tamil Nadu/Pondicherry 138 290 130 310
20 Tripura 01 01 - -
21 Uttarakhand - - 05 49
22 Uttar Pradesh 73 161 70 179
23 West Bengal/Sikkim 55 104 49 100
Total 1936 6616 1721 7522
Source: Report of the high power committee on UCBs – 1999-2000 Page No. 101
& Trend & Progress Report of RBI- 2008-09 Pg. No. 168.
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Figure 2.3

Pie Chart showing presence of UCBs in Major States as on 31 march 1999 & 2009

Source: Report of the high power committee on UCBs – 1999-2000 Page No. 102
& Trend & Progress Report of RBI- 2008-09 Pg. No. 168.

After a relatively fast growth during the period, 1993 to 1999 the sector show a
substantial number of new urban co-operative banks coming up and growth rate of banks
being consistently higher than all India average for all the banks, the period of the year
2000-2001 till now has been that of sluggish growth and difficulties for the sector. The
share of urban banks in terms of resources grew from around 4% in 1993-1994 to over
9% in 2001-2002. A number of 2000 strong urban banks also grew at a fast pace during
this period. However, involvement of one of the largest co-operative banks in Gujarat in
the stock market scam of 2001 sent shock waves in the entire urban co-operative banking
and affected the sector‟s public image very badly. Since a very large number of urban
banks in Gujarat were having deposits with this Madhavpura Mercantile Co-operative
Bank (MMCB), which got involved in the scam, the public confidence, which had come
down very badly, has not been restored till date. Similarly, during these times there were
some problems in a few banks in Maharashtra on account of securities transactions and a
few banks in Andhra Pradesh on account of bad management. The responses of the
regulators have been by way of imposition of further stringent norms and rules in order
for them to be on par with those applied to commercial bank.

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2.8 Growth & Development of UCBs in Gujarat:

Gujarat holds second position in the development of UCBs in India and is known
as the “Mother Land” of the co-operative as the first co-operative body of India was
formed in 1889 in Baroda named “ANNOYANA SAHAKARI MANDALI”. Similarly,
the first registered UCB of India named “THE SURAT PEOPLES CO-OPERATIVE
BANK LTD” was established in Surat City of Gujarat on March 1922. That was the
dawn of co-operative banking. Inspired by the success of this bank, similar UCBs
developed very fast in other parts of Gujarat State. By the year ended 31 st March 2008,
out of 1721 UCBs of India, 274 UCBs alone provided service in Gujarat having a
network of about 601 branches spread over 18 districts of the state. The progress of the
UCBs in Gujarat is shown in the table below:
Table 2.5
PROGRESS OF URBAN CO-OPERATIVE BANKS IN GUJARAT
SALIENT FEATURES
(Rs. In Crores)
Sr. Particulars 31/03/00 31/03/01 31/03/02 31/03/03 31/03/04 31/03/05 31/03/06 31/03/07 31/03/08
No.
1. No. of 341 350 351 351 352 306 295 293 274
Banks
2. No. of 728 800 762 779 736 690 603 624 601
Branches
3. Deposits 16703 17791 16506 16345 15894 14804 14353 15006 15983
4. Share 363 418 436 451 425 405 395 442 474
Capital
5. Total 2271 2487 2968 3332 5053 4247 3632 3723 3799
Reserves
6. Working 21120 23520 21633 22833 22087 20905 N.A. 19022 19801
Capital
7. Advances 10468 11864 11004 11304 9825 9198 8420 9084 9413
8. Profit 294 273 241 213 201 147 137 131 178
9. No. of 3242829 3303662 3245699 3321357 3251276 3178360 2862866 3037879 3095742
Members
10. No. of 11009558 11634435 10998814 10641234 10284650 11541410 N.A. 8966502 8855443
Depositors
11. No. of 997619 1091005 1006030 935198 804860 757716 N.A. 626483 631524
Borrowers
12. No. of Staff 17393 17473 17190 16692 15538 14209 12443 12628 11905
Members
Source : Statistical Hand Book – 2008 – GUCBS Federation, Ahmedabad, Pg. 11.

It is apparent form the above table that the UCBs in Gujarat have recorded
commendable achievement in the entire sphere of banking operations. Further more, out
of the 53 scheduled UCBs by the end of March 2008, 29 of them were registered in
Gujarat itself, having deposits of more than 100 crores. In addition, 14 Mahila UCBs
also marked a regional imbalance in Gujarat as out of 274 UCBs, about 219 are
located in 9 districts of Gujarat, viz. Ahmedabad, Kheda, Baroda, Mehsana, Surat,
Panchmahal, Sabarkantha, Bhavnagar and Rajkot – as shown in table as under:

26
Table 2.6
STATEMENT OF DISTRICT WISE STATISTICAL DATA OF URBAN CO-OPERATIVE BANKS AS ON 31/03/2008
(Rs. In Lakhs)
Total Investments No. of No. of No of
Sr. District No. of Paid up Deposits Reserves Advances Working Profits No. of Borrowers
Banks Branches Depositors Staff
No. Share and Other Capital Members
Capital Funds
1. Ahmedabad 48 171 10878.99 490598.99 126741.41 306904.08 230564.60 543144.85 5209.25 481114 1885696 118159 2839
2. Kheda 32 07 1523.07 55354.55 20853.17 26511.65 45170.66 85071.40 384.87 214417 491673 34323 551
3. Baroda 31 54 3519.96 92704.67 24649.37 50385.14 55859.88 126455.11 1154.11 300496 747216 49879 931
4. Mehsana 31 76 6202.79 166596.78 28708.13 99369.45 84506.33 171547.44 1712.58 296695 1007053 55134 1100
5. Surat 22 98 7763.62 270908.33 27340.03 152097.31 146909.21 352471.28 3215.74 320369 1207458 67972 2123
6. Panchmahal 19 10 2118.50 46256.38 11238.91 25651.19 28534.55 64642.58 335.42 152767 388652 32578 405
7. Sabarkantha 14 07 1039.78 35036.83 7247.43 19789.44 21914.56 48444.28 282.99 111606 327814 32528 363
8. Bhavnagar 11 13 1577.77 27927.13 13506.37 20730.19 21528.76 51923.70 158.69 129973 351628 38027 436
9. Rajkot 11 67 5057.56 217614.14 47659.77 132411.71 71602.92 276579.95 2354.32 565907 1220432 75003 1158
10. Bharuch 09 01 626.28 12594.55 3881.94 7050.19 7488.94 18310.20 186.06 100121 110055 12795 132
11. Junagadh 09 15 590.03 15878.60 2790.51 8832.21 9424.16 21097.70 91.31 34660 159685 13835 238
12. Banaskantha 06 23 782.51 25276.36 4550.08 15471.92 12899.56 32828.91 242.87 66072 150417 20961 365
13. Amreli 06 01 507.33 9882.71 1725.58 6414.60 4481.08 13247.74 189.02 25927 59104 23325 123
14. Surendranagar 06 14 799.24 15752.64 3452.66 10392.07 5002.75 18521.94 29.79 131618 178256 14314 276
15. Jamnagar 06 10 2060.14 42247.58 6706.16 24633.80 18888.28 55480.33 1219.40 32716 166106 9290 232
16. Kutch 05 17 654.27 33461.06 9473.72 11104.91 29408.23 45367.74 605.14 21042 137707 7544 297
17. Valsad 05 05 582.01 11696.55 1090.62 6463.64 7302.93 15254.09 133.42 51321 70715 6744 135
18. Gandhinagar 03 12 1122.30 28564.71 8237.60 17079.32 17544.82 39713.76 249.46 58921 195776 19113 201
TOTAL 274 601 47406.15 1598352.56 379853.46 941292.82 819032.22 1980103.00 17745.44 3095742 8855443 631524 601

Source: Statistical Hand Book – 2008 – GUCBS Federation, Ahmedabad Pg. 12-13

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In spite of regional imbalance, it can be said that the UCBs in Gujarat have
established themselves as an integral part of the state economy by providing effective
service to weaker section of the semi urban population in their respective areas of
operations. During the last ten years, these banks have been moving towards
modernization of banking operations through computerized working, namely tele
banking, mobile banking, auto teller machine (ATM) etc. and there by is helping in the
development of the Indian economy.

2.9 Development of the UCBs in South Gujarat:

Surat is known as the birth place of UCBs of South Gujarat as India‟s first
registered UCB named “The Surat Peoples Co-operative Bank Ltd.” was established
by the late Shri Vrindavandas C. Jadav on March 10, 1922 in Surat (South Gujarat).
Today it commands the largest market share in urban banking in Surat with utmost
satisfaction of the customers. Amongst banks having deposits over 100 crores, this
bank won “The Best Bank Award for Excellence” at a seminar of National Federations
of the UCBs and Credit Societies at New Delhi on 21st April, 2000. The progress of
the UCBs in South Gujarat took place slowly and steadily. Prior to independence, only
7 UCBs were registered in South Gujarat. Only 3UCBs were established from 1951 to
1965, while during 30 years from 1966 to 1995 only 12 UCBs were established. But
majority of the UCBs were established after 1995 i.e. around 17 new UCBs were
established in five years and 7 of them in the year 1999 itself. By the year ended 31 st
March 2000, South Gujarat could boost of 42 UCBs with a network of 112 branches
having Rs. 372 crores owned funds, Rs. 2401 crores deposits, Rs. 1278 crores
advances and Rs. 2962 crores working capital. By the year ended 31 st March 2009,
South Gujarat could boost 33 UCBs with a network of 143 branches having Rs. 790
Crores owned funds, Rs. 3199 crores deposits, Rs. 1914 crores advances, Rs. 4105
crores working capital.

The above facts and figures delineate the growth of UCBs in South Gujarat. The
Table below (Table no.2.7) shows the progress of UCBs in South Gujarat.

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Table 2.7
PROGRESS OF URBAN CO-OPERATIVE BANKS IN SOUTH GUJARAT
(1974-75 TO 2007-08) (Rs. In Lakhs)
Year No. of No. of Deposits Paid up Total Working Advances Profit
Reported Branches share Reserves Capital
Banks capital
1974-75 20 4 1008.6 82.91 96.77 1335.19 620.48 30.72
1975-76 20 4 1140.79 89.26 127.44 1542.99 669.15 42.36
1976-77 20 4 1388.16 95.13 80.37 2099.89 804.65 50.48
1977-78 21 4 1833.59 105.94 104.72 2418.96 986.13 58.31
1978-79 21 4 2339.57 118.92 217.27 2952.78 1173.49 70.87
1979-80 21 5 2892.64 139.99 295.15 3660.23 1782.72 84.1
1980-81 22 6 3680.41 176.03 370.36 4712.76 2398.92 118.46
1981-82 24 9 4480.86 220.62 469.54 5843.5 3048.41 151.63
1982-83 24 15 5711.42 260.28 522.67 7350.15 3791.08 173.63
1983-84 25 19 7565.36 328.45 694.89 9723.16 4920.97 222.49
1984-85 25 21 9748.76 411.06 878.04 12702 6351.43 269.01
1985-86 25 21 11746.7 491.94 1214 15287.5 7918.51 318.35
1986-87 25 23 14325.5 552.66 1462.85 18759 8714.73 402.64
1987-88 25 23 17403.4 625.26 1946.49 22735.4 10316.1 472.96
1988-89 25 23 20853.8 720.23 2427.39 27346.5 12842.7 562.52
1989-90 24 28 29816.4 897.94 3651.51 38533.3 19285.6 903.59
1990-91 24 29 33513.7 11353.9 4534.15 44958.9 23467.1 1131.17
1991-92 24 29 35774.5 1152.45 6025.64 49425.8 26353.3 1452.96
1992-93 24 31 45935.1 1299.83 7973.01 62349.6 28126.2 1497.16
1997-98 34 76 143051 3478 18932 185963 80013 3831
1998-99 39 92 187974 4340 25408 241287 98215 4257
1999-00 42 96 236197 5468 30055 290527 125086 5134
2000-01 45 138 297546 6957.41 38315.1 380377 174536 5548.53
2001-02 45 131 312530 7623.61 45712.1 403629 177641 5292.22
2002-03 45 134 285772 8242.36 54388.2 369442 170103 4411.57
2003-04 46 126 287850 8334.59 55592.7 380038 144549 5128.87
2006-07 34 113 279932 8536.45 65785.2 373410 151455 2516.26
2007-08 34 111 312068 9512.2 69459.6 410495 176227 3651.26
Source: Statistical Hand Book 2004 and 2008 GUCBS Federation Ahmedabad.

29
The comparative position of the UCBs in India, in Gujarat and in South Gujarat
as on March 31st, 2000 and 2009 is shown in the table as under:

Table 2.8
Position of the UCBs as on 31st March 2000

(Rs. In Crores)
Particulars India Gujarat South Gujarat

Number of Reporting UCBs 1784 341 42

Funds Owned 9314 2634 372

Deposits 71189 16703 2401

Advances 45995 10468 1278

Working Capital 90302 21120 2962


Source: Report on Trend and Progress of Banking in India, 2000-2001, RBI and
Statistical hand book 2000-GUCBs federation, Ahmedabad.
Table 2.9
Position of the UCBs as on 31st March 2009

(Rs. In Crores)
South
Particulars India* Gujarat**
Gujarat***
Number of Reporting UCBs 1721 260 33

Funds Owned 20852 4273 790

Deposits 158733 25564 3199

Advances 97918 14091 1914

Working Capital 202264 19801 4105


*Source: Report on Trend and Progress of Banking in India, 2008-2009 RBI.
**Source: Report on Trend and Progress of Banking in India, 2008-2009 RBI.
***Source: Calculation based on Annual Reports of 33 UCBs.
Looking at the progress of the UCBs, it can be said that they have expanded by leaps
and bounds and increased their business over the last few decades. A walk down the streets
of Mumbai, Ahmedabad, Hyderabad, Surat, etc. reveals how widely they have spread their
tentacle across the nation. Every nook and corner displays the hoardings of the office of one
30
or the other UCBs. But an increasing number of failures of the UCBs have spoiled the image
of the UCBs and shaken the faith of their depositors and investors. The scam of the
Madhavpura Mercantile Co-operative Bank (MMCB) of Ahmedabad and Krushi co-
operative bank of Hyderabad have brought into light the fact that loopholes exist within the
banking system itself and the RBI failed to perform its duties as banking regulators. In the
case of the Krushi bank, it was found that the chairman and the vice-chairman got loans from
the bank without any collateral and the fund were siphoned off for other purposes. Similarly
in MMCB lending norms were violated and crores of rupees were given to Mr. Ketan Parekh
violating norms of the bank. In addition, Navsari People‟s Co-operative Bank, Navsari and
B.B. Shrof Bulsar People‟s Co-operative Bank, Valsad were liquidated due to high NPA
position. In Surat city alone as may as seven Co-operative banks were liquidated in last few
years The total number of liquidated co-operative banks in Gujarat state is round about 55.
Free entry of private financial institutions has also become a threat to their existence. So both
the RBI and the UCBs should try to establish the faith of public and should take care to
waive scandals or scams.
Table 2.10
Liquidated Co-operative banks in South Gujarat as on 31-03-2008

Sr. No Name of Liquidated UCBs


1. The Bharuch Nagarik sahakari Bank Ltd.Bharuch.
2. The Century Co-operative bank Ltd.,Surat.
3. The Diamond Jubliee Co-operative bank Ltd.,Surat.
4. The Navsari People‟s Co-operative bank Ltd.,Navsari.
5. The Metro Co-operative bank Ltd.,Surat.
6. The Royal Co-operative bank Ltd.,Surat.
7. The SBBS Balsar People‟s Co-operative bank Ltd.,Valsad.
8. The Suryapur Co-operative bank Ltd.,Surat.
9. The vikas Co-operative bank Ltd.,Surat.
10. The Visnagar Co-operative bank Ltd.,Visnagar.
11. Shree Vitrang Co-operative bank Ltd.Surat.

Source: Report of South Gujarat UCBs association –31st March 2008.

2.10 Role of the UCBs in Indian Banking System:


The performance of the co-operative banking sector as a whole has attracted
considerable attention in recent years. Today they have become an important
constituent of the Indian financial system and cover a large segment of society because
of their “PROMPT, PERSONALIZED AND COURTEOUS SERVICE”. They take
the responsibility of covering the unmonitored sector neglected by commercial banks
and are called “purveyors of credit to small and medium enterprises”. They provide
31
service with no bars of castes, creed, religion, language, etc. and thus spread the
feeling of “Unity in Diversity”. Some UCBs operate beyond their state of registration
and are governed by the Multi State Co-operative Societies Act, 1984. In addition to
their traditional retail banking business, some have also taken up diversified activities
like stock investment scheme, opening and maintenance of nonresident and ordinary
rupee accounts, merchant banking etc. They owe responsibility not only towards
customers but also towards employees and society.

Primary (Urban) co-operative banks play an important role in meeting the


growing credit needs of urban and semi – urban areas. UCBs mobilize savings from
the middle and lower income groups and purvey credit to small borrowers, including
weaker sections of the society. The number of UCBs stood at 1872 at the end of
March 2005, including 79 salary earners banks and 119 Mahila banks. Total no. of
scheduled UCBs was 55 at the end of March 2005. Scheduled UCBs are under closer
regulatory and supervisory framework of the Reserve Bank.

Various entities in the urban co-operative banking sector display a high degree
of heterogeneity in terms of deposits / assets base, areas of operation and nature of
business. In view of its importance, it is imperative that the sector emerges as a sound
and healthy network of jointly owned, democratically controlled and professionally
managed institutions. In order to achieve these objectives, the Reserve Bank took a
series of policy initiatives in 2004-05. The most significant initiative in this regard the
vision Document and Medium Term Frame work (MTF) for UCBs. With a view to
protecting depositors interest and avoid contagion on the one hand, and enabling
UCBs to provide useful service to local communities and public at large on the other,
a draft vision document was prepared and placed in public domain for eliciting
comments. Based on the feedback received from different quarters, the necessary
modifications were carried out in the vision documents to involve as the medium –
term frame work for the sector.

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