Performance Appraisal of Urban Cooperative Banks: A Case Study

Amit Basak*

Urban Cooperative Banks (UCBs) figure among the vital segments of the banking industry of the country. They essentially cater to the credit needs of persons of small means. Though some UCBs have performed creditably in the recent years, a large number of them have shown discernible signs of weakness. The operational efficiency is unsatisfactory and characterized by low profitability, ever-growing Non-Performing Assets (NPAs) and relatively low capital base. The large-scale sickness in the UCBs has shaken the public confidence in cooperative banks. In this context, this paper makes an attempt to examine the working and financial performance of the UCBs. To make the analysis simpler and presentable, the author takes up the Contai Co-operative Bank Ltd., one of the leading UCBs in West Bengal for a case study. The objective of the study is to identify and analyze the trend, progress and problems of this bank, to throw light on the problems of swelling NPAs and to offer some meaningful suggestions for improving the efficiency and effectiveness of this bank. The study is based on secondary data and other information provided by the bank in its published annual reports. The relevant data have been collected for the period from 1995-96 to 2006-07. This data have been analyzed with the help of statistical tools like ratios, percentages, averages and trend analysis, chi-square test, and multiple regression analysis.

Introduction
Cooperative movement owes its origin to England, where the noted philosopher, Robert Owen (1771-1858) gave the idea of self help through mutual help to mitigate the sufferings of the exploited class of society. The first ever effort towards the formation of a cooperative organization was made by 28 flannel weavers, at Rochdale near Manchester in England in the year 1844. Between 1855 and 1885, the urban cooperative movement in the global horizon received a filip following the success of the Urban Credit Institutions organized by Herman Schulze and Luigi Luzzatti of Germany and Italy, respectively. Likewise, the origin of urban credit movement in India dates back to February 5, 1889 when, under the guidance of Vithal Laxman Kavthekar, a mutual aid society was formed by some middle class Maharashtrian families in the State of Baroda. The cooperative movement in India gained momentum with the enactment of the Cooperative Credit Society Act, 1904. Thereafter, primary cooperative credit societies, called the Urban Cooperative Banks (UCBs), were set
* Senior Lecturer and Head, Department of Commerce, Susil Kar College, Champahati 743330, India. E- mail: amit.basak2008@gmail.com Performance Icfai University Press. All Rights Reserved. Case Study 2009 The Appraisal of Urban Cooperative Banks: A 31

up in the urban areas with the objective of promoting sustainable banking practices among the lower- and middle-income strata of the urban population. Today, the UCBs are vital components of the banking industry of the country. They essentially cater to the credit needs of people of small means. The spatial distribution of the UCBs across the country is skewed with significant concentration in the southern and western regions. Most of the UCBs (almost 80%) are concentrated in five states, namely, Maharashtra, Gujarat, Karnataka, Tamil Nadu and Andhra Pradesh. Operations of UCBs have expanded rapidly since 1966, when they were brought under the purview of the Banking Regulation Act, 1949. In 1966, there were about 1100 UCBs with deposits and advances of Rs. 167 cr and Rs. 153 cr respectively. At the end of 1996, the number of banks increased to 1,501 and their deposits and advances rose significantly to Rs. 24,161 cr and Rs. 17,927 cr respectively. The UCBs continued to grow at a fast pace till 2003, when their number increased to 1941 and their deposits and advances to Rs. 101,546 cr and Rs. 64,880 cr respectively. Subsequently, in 2007, the number of UCBs decreased to 1813 with total deposits of Rs. 120,983 cr and advances of Rs. 78,660 cr. At the end of March 2007, there were 51 UCBs in West Bengal with total deposits of Rs. 1,861 cr and total loans and advances of Rs. 1,211 cr. Though in recent years, some UCBs have performed reasonably well, a large number of them have shown discernible signs of weakness. The operational efficiency is unsatisfactory and is characterized by low profitability, ever-growing Non-Performing Assets (NPA) and relatively low capital base. Over a long period of time, the resource base of UCBs has been getting eroded due to non-recovery of interest and instalment of loan portfolio. Probably, the biggest challenge facing the banking sector, especially the UCBs, is the availability of quality assets. In case, banks are unable to generate income due to NPAs, it will put the banks into liquidity crunch. Besides this, other weaknesses which generally hamper this sector are: high levels of loan delinquency, erosion of capital base, paucity of funds for fresh deployment, ineffective credit planning, lack of professionalism in conduct and management, deficiency in application of computerized system, unimaginative Human Resource Development (HRD) policies, poor management information system, etc. In this context, the paper makes an attempt to examine the working and financial performances of the UCBs. To make our analysis simpler and more focused, we have taken up the workings of the Contai Co-operative Bank Ltd., one of the leading UCBs in West Bengal as a case study. Initially, the paper presents the backdrop and objectives of the study. It then presents the data and methodology, and deals with the profile of the bank. The analysis and interpretations are presented next and finally, the paper concludes by summarizing the findings of the analysis and suggesting certain remedial steps.

Objectives of the Study

The main purpose of this study is to identify and analyze the trends, progress and problems of this bank. To achieve the main purpose, the following objectives are set forth:
32 The Icfai University Journal of Accounting Research, Vol. VIII, No. 1, 2009

 To analyze the performance of the UCB in mobilizing deposits. To identify the trends in the volume and direction of credit advanced by the bank. To identify the problem of swelling NPAs and examine whether the bank has initiated measures to keep NPAs under control and reduce these to the manageable level, so that the bank does not fall into a lower category. To evaluate the performance of the bank in terms of profit earned. To find out ways and means for improving the efficiency and effectiveness of the bank.

Data and Methodology

The present study is based on secondary data and other information provided by the bank in its published annual reports for the period from 1995-96 to 2006-07. The data collected are analyzed with the help of statistical tools like ratios, percentages, averages, trend analysis, chi-square test, correlation coefficient (r), multiple correlation and regression analysis, coefficient of determination (R2), linear regression, etc.

Contai Co-operative Bank Ltd. A Profile

Contai Co-operative Bank Ltd. (CCB), is one of the leading UCBs not only in West Bengal but also in India. It was registered on December 15, 1945 and was brought under the purview of the Banking Regulation Act, 1949 on November 18, 1986. The scope of membership of the bank includes the entire district of undivided Midnapur and the whole area of Kolkata Municipal Corporation. Initiated as a peoples bank way back in 1945 by five founder promoters, with a meager capital of Rs. 2,500, the bank has grown as a large and immensely popular bank in the state. At the end of March 2007, the capital and deposits of the bank stood at Rs. 9.26 cr and Rs. 284.38 cr respectively. The number of members, which was only 35 in 1945, rose to 66,124 at the end of March, 2007. Presently, it has 13 branches situated at Contai, Ramnagar, Egra, Haria, Manglamaro, Belda, Durgachak, Panskura, Mahisadal, Nandakumar, Barbarisha, Nandigram, Barabazar (Kolkata) and the main branch is within the premises of the head office at Kathi.

Analysis and Interpretations

Deposit Mobilization
Total deposits of the bank increased from Rs. 6,747.12 lakh in 1995-96 to Rs. 28,437.60 lakh in 2006-07, which implies an increase of more than 321%. Table 1 depicts the downward trend in growth of deposits over the years, as it had decreased from 32.92% in 1996-97 to 31.14% in 1997-98 and were 26.90%, 24.23%, 20.10%, 12.87%, 5.29%, 3.22%, 0.85%, 2.5% and 7.70% respectively in the subsequent years. Low-cost deposits (viz., savings account, current account, etc.), were Rs. 1,430.88 lakh in 1995-96 and Rs. 8,326.53
Performance Appraisal of Urban Cooperative Banks: A Case Study 33

Table 1: Financial Position of Contai Co-operative Bank Ltd.

(Rs. in Lakh)
Diversification Ratio (%) Share Capital CD Ratio (%) Reserve and Other Fund Loans and Advances Net Profit Working Capital Deposits

1995-96 200.13 1996-97 248.96 (24.40) 1997-98 303.28 (21.82) 1998-99 368.67 (21.56)

Year

401.32 565.07

7,348.57 9,782.12 (33.11)

6,747.12 8,968.09 (32.92)

5,348.17 7,141.21 (33.53) 8,956.11 (25.41)

175.08 197.71 236.26 202.17 355.17 464.89 564.13

79.26 79.63 76.15 71.75 72.01 62.14 58.37 58.17 60.45 66.16 70.92 69.62

2.83 2.61 2.32 2.14 1.98 1.49 1.31 11.72 15.06 1.53 3.58 3.98

753.94 12,818.30 11,761.10 (31.04) (31.14)

947.65 16,240.50 14,924.20 10,708.30 (26.70) (26.90) (19.56)

1999-00 439.16 1,361.89 20,341.20 18,540.10 13,351.50 (19.12) (25.25) (24.23) (24.68) 2000-01 496.24 1,562.65 24,325.20 22,266.30 13,835.90 (13.00) (19.58) (20.10) (3.63) 2001-02 557.48 2,006.85 27,695.70 25,131.40 14,670.20 (12.34) (13.85) (12.87) (6.03)

2002-03 628.34 3,352.72 30,442.20 26,461.10 15,392.70 1,153.98 (12.71) (9.92) (5.29) (4.93) 2003-04 698.45 4,466.26 32,476.90 27,312.20 16,509.10 1,155.47 (11.16) (6.68) (3.22) (7.25) 2004-05 783.09 4,658.84 32,521.30 27,079.40 17,915.70 (12.13) (0.14) (0.85) (8.52) 2005-06 859.81 5,653.73 32,916.74 26,403.20 18,726.10 (9.80) (1.22) (2.50) (4.52) 2006-07 926.14 6,264.02 35,627.76 28,437.60 19,797.40 (7.71) (8.24) (7.70) (5.72) 612.00 788.02 735.16

Note: Figures in the brackets denote growth rate or percentage change over the previous year.
Source: Annual Reports of Contai Co-operative Bank Ltd.

lakh in 2006-07. These deposits relative to the total deposits of the bank ranged between 21.21% and 29.28% during the study period.

Loans and Advances

Loans and advances play an important role in gross earnings and net profit of a bank and in promoting the economic development of a country. The balance of loans and advances of the bank was Rs. 19,797.40 lakh in 2006-07, as against Rs. 5,348.17 lakh in 1995-96 (Table 1). This implies a growth of 270% during the study period. The growth in this respect
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varied in the range of 19.56% to 33.53% during the period, 1996-97 to 1999-2000, then it reached its lowest at 3.63% in the following year, and again moved up to 6.03% in 2001-02. It increased to 8.52% in 2004-05 from 7.25% in 2003-04, and finally registered a growth rate of 4.52% and 5.72% respectively, during the last two years of the study period. The credit deposit ratio stood at 62.01% on average (Table 1).

Resource Management
The resources mobilized in the form of share capital, deposits and borrowings must be utilized in a judicious and profitable manner, as it is an important aspect of resource management of the banking sector. The Cash Reserve Ratio (CRR) and Statutory Liquid Reserve (SLR) maintained by the bank (as a percentage of Net Demand and Time Liabilities (NDTL)) during the last 12 years are given in Table 2. From Table 2, it is clear that the bank did not default in maintenance of CRR/SLR during the last 12 years. It maintained the cash reserve and liquid assets much above the statutory requirement, which is fixed at 3% and 25% of NDTL respectively, as per the Banking Regulation Act.

Table 2: Cash Reserve Ratio (CRR) and Statutory Liquid Reserve (SLR)
Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 CRR (%) 4.41 3.52 3.20 3.66 3.92 4.43 3.96 5.75 5.26 4.98 5.32 5.25 SLR (%) 30.60 31.26 32.66 31.45 30.89 31.29 33.26 30.56 32.58 34.37 35.12 34.21

NPA Management: Recovery of Loans and Advances

Source: Annual Reports of Contai Co-operative Bank Ltd.

The ability of a bank in serving as an active channel of fund mobilization largely determined by its recovery of loans, otherwise there will be stagnation in credit flow. The main reason for this is the mounting overdues, which clog the process of credit recycling.
Table 3: Gross NPA and Net NPA
(Rs. in Lakh)
2000-01 Gross Advances Gross NPA Gross NPA (%) NPA Provision Net Advances Net NPA Net NPA (%) 13,835.95 3,395.79 24.54 1,747.91 12,088.04 1,647.88 13.63 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 19,797.40 4,207.36 21.25 5,553.46 14,243.94 1346.10 9.46

14,670.24 15,392.70 4,218.67 28.76 2,171.92 4,145.27 26.93 3,320.11

16,509.14 17,915.72 18,726.10 4,453.92 26.98 4,333.29 4,482.69 25.02 4,974.22 4,741.03 25.32 5,359.16

12,498.32 12,072.59 2,046.75 16.38 825.16 6.83

12,175.85 12,941.50 13,366.94 120.63 0.99 491.53 3.80 618.02 4.62

Source: Annual Reports of Contai Co-operative Bank Ltd.

Performance Appraisal of Urban Cooperative Banks: A Case Study

35

A perusal of the NPA position of the bank, reveals that during the period 2000-01 to 2006-07, the amount of NPAs were Rs. 3,395.79 lakh, Rs. 4,218.67 lakh, Rs. 4,145.27 lakh, Rs. 4,453.92 lakh, Rs. 4,482.69 lakh, Rs. 4,741.03 lakh and Rs. 4,207.36 lakh being 24.54%, 28.76%, 26.93%, 26.98%, 25.02%, 25.32% and 21.25% respectively relative to total loans and advances. The relative share of gross NPA was 25.55% on an average over the study period, which is much higher than the stipulated level of 15% (as per the RBI norms). The percentage of net NPA to net advances has declined to 0.99% in 2003-04 from 6.83% in the preceding year. It had initially increased to 16.38% in 2001-02 from 13.63% in 2000-01. The NPA provisions made by the bank during the last three years were much higher than the gross NPA, which ultimately implies negative NPA (Table 3).

Profitability
Although the primary objective of the cooperative bank is service and the profit motive is incidental, there is a ceiling on the return on capital, i.e., dividend, so that the bulk of the profit is used for strengthening the owned resources. But in the present competitive environment, unless a bank earns profit, it cannot survive and ultimately falls into lower grades. From Table 1, it is clear that net profit of the bank increased from Rs. 175.08 lakh in 1995-96 to Rs. 735.16 lakh in 2006-07, which implies an increase of nearly 320% during the study period.

Trend Analysis of Selected Financial Parameters

Trend of Deposits
Deposits, trend values of deposits and deposit indices of CCB presented in Table 4, reveal that the deposits exhibit an increasing trend throughout the study period. As compared
Table 4: Trend of Deposits
(Rs. in Lakh) Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Actual Value 6,747.12 8,968.09 11,761.10 14,924.20 18,540.10 22,266.30 25,131.40 26,461.10 27,312.20 27,079.40 26,403.20 28,437.60 Indices 100.00 132.92 174.31 221.19 274.78 330.01 372.48 392.18 404.80 401.35 391.33 421.48 Trend Value (Yc) 8,964.68 11,032.19 13,099.70 15,167.21 17,234.72 19,302.23 21,369.74 23,437.25 25,504.76 27,572.27 29,639.78 31,707.29 Deviation 2,217.56 2,064.10 1,338.60 243.01 1,305.38 2,964.07 3,761.66 3,023.85 1,807.44 492.87 3,236.58 3,269.69

Source: Annual Reports of Contai Co-operative Bank Ltd.

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The Icfai University Journal of Accounting Research, Vol. VIII, No. 1, 2009

to 1995-96, the indices of deposit increased from Rs. 132.92 in 1996-97 to Rs. 404.80 in 2003-04, and then declined in the two subsequent years. Finally, it increased to Rs. 421.48 in 2006-07. Yc in Table 4 stands for computed value of deposits obtained based on the least squares equation: Yc = a+bX. Considering the year 1995-96 as the origin, we get: Yc = 6,897.17 + 2,067.51X where the unit of X = one year and Y = Rupees in lakh. The average increase in deposits was Rs. 2,067.51 lakh per year. The trend values of deposits show upward movement throughout the study period. It is apparent from Table 4, that in the period 1999-2000 to 2003-04, actual deposits were greater than their trend values, whereas, in the rest of the years, there were shortages in deposits. The significance of the difference between the actual and the trend values of deposits has also been examined by applying the statistical chi-square (2) test . The calculated value of 2 (3,509.24) is greater than the tabulated value of 2 (19.675) at 5% level of significance with 11 degrees of freedom, which implies that the difference between the actual values and the trend values of deposits are significant.

Trend of Loans and Advances

Loans and advances, indices of loans and advances and trend values of loans and advances are presented in Table 5.
Table 5: Trend of Loans and Advances
(Rs. in Lakh) Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Actual Value 5,348.17 7,141.21 8,956.11 10,708.30 13,351.50 13,835.90 14,670.20 15,392.70 16,509.10 17,915.70 18,726.10 19,797.40 Indices 100.00 133.53 167.46 200.22 249.65 258.70 274.30 287.81 308.69 334.99 350.14 370.17 Trend Value (Yc) 6,570.05 7,835.38 9,100.71 10,366.04 11,631.37 12,896.70 14,162.03 15,427.36 16,692.69 17,958.02 19,223.35 20,488.68 Deviation 1,221.88 694.17 144.60 342.26 1,720.13 939.20 508.17 34.66 183.59 42.32 497.25 691.28

Source: Annual Reports of Contai Co-operative Bank Ltd.

The least square linear trend equation of loans and advances is obtained as: Yc = 5,304.72 + 1,265.33 X, where origin of X is 1995-96, X represents years and Y, loans and advances.
Performance Appraisal of Urban Cooperative Banks: A Case Study 37

The loans and advances show an increasing trend over the entire study period. The indices of loans and advances were 133.53, 167.46, 200.22, 249.65, 258.70, 274.30, 287.81, 308.68, 334.99, 350.14 and 370.17 respectively in the period, 1996-97 to 2006-07 with 1995-96 as the base year. The average increase in the value of loans and advances was Rs. 1,265.33 lakh per year. The trend values of loans and advances increased throughout the study period. The deviations between the actual values and the trend values were negative during the years 1995-96, 1996-97, 1997-98, 2002-03, 2003-04, 2004-05, 2005-06 and 2006-07, while in the remaining years the deviations were positive. To test the significance of the difference between the actual value and trend value of loans and advances, chi-square (2) test was applied. The calculated value of 2 is 681.7388, while the tabulated value of 2 is 19.675 at 5% level of significance with 11 degrees of freedom. As the calculated value of chi-square exceeds the critical value, it indicates that the differences between the actual values and the trend values of loans and advances are significant.

Trend of Net Profit

Net profit, net profit indices and trend value of net profit of the Bank are presented in Table 6.
Table 6: Trend of Net Profit
(Rs. in Lakh) Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Actual Value 175.08 197.71 236.26 202.17 355.17 464.89 564.13 1,153.98 1,155.47 612.00 788.02 735.16 Indices 100.00 112.92 134.94 115.47 202.86 265.53 322.21 659.11 659.96 349.55 450.03 419.90 Trend Value (Yc) 142.45 217.16 291.87 366.58 441.29 516.00 590.71 665.42 740.13 814.84 889.55 964.26 Deviation 32.63 19.45 55.61 164.41 86.12 51.11 26.58 488.56 415.34 202.84 101.53 229.10

Source: Annual Reports of Contai Co-operative Bank Ltd.

The least square linear trend equation of net profit is obtained as: Yc = 67.74 + 74.71 X, where origin of X is 1995-96, X represents years and Y represents net profit.
38 The Icfai University Journal of Accounting Research, Vol. VIII, No. 1, 2009

Net profit increased from Rs. 175.08 lakh in 1995-96 to Rs. 735.16 lakh in 2006-07. Thus, it recorded a growth of 319.90% during the study period. As compared to 1995-96, the indices of net profit increased from 112.92 in 1996-97 to 659.96 in 2003-04 and fluctuated over the next three years. The average increase in net profit stood at Rs. 74.71 lakh per year. The trend values of net profit show upward movement throughout the study period. The differences between the actual values and the trend values were positive during the years 1995-96, 2002-03 and 2003-04, while they were negative in the remaining years. The negative deviation of the year 2004-05 was comparatively higher. In this case, the calculated value of 2 is 824.9124, while the tabulated value of 2 is 19.675 at 5% level of significance. As the calculated value of chi-square exceeds the tabulated value, it signifies that the differences between the actual values and the trend values of net profit are significant.

Multiple Regression Analysis

In the present study, an attempt has been made to empirically determine the impact of different selected parameters on the performance of the bank. To measure the relationship between profitability and other important parameterscapital adequacy, asset quality, management capacity and liquidityof UCBs, it is important to study the different performance indicators such as, Capital to Risk Weighted Assets Ratio (CRAR), Non-Performing Assets to Total Loans (NPATL), Business Per Employee (BPE), Credit Deposit Ratio (CDR) and Return on Capital Employed (ROCE) in the light of CAMEL rating (Table 7).
Table 7: Performance Indicators of the Bank
Year 2002-03 2003-04 2004-05 2005-06 2006-07 Average ROCE (%) 3.79 3.56 1.88 2.39 2.06 2.74 CRAR (%) 10.84 11.95 17.24 21.32 24.08 17.09 NPATL (%) 26.93 26.98 25.02 25.32 21.25 25.10 BPE (Rs. in Lakh) 268.29 280.91 288.43 270.88 255.72 272.85 CDR (%) 58.17 60.45 66.16 70.92 69.62 65.06

Note: Here data for five years have been considered, because RBI implemented CRAR norms to UCBs in a phased manner with effect from April 1, 2002, although this was introduced to commercial banks in 1993.
Source: Annual Reports of Contai Co-operative Bank Ltd.

In this context, an attempt has been made to examine the composite impact of capital adequacy, asset quality, management capacity and liquidity on the profitability through a sophisticated statistical technique. The multiple regression model used in this case is as follows:
Performance Appraisal of Urban Cooperative Banks: A Case Study 39

ROCE = + 1.CRAR + 2.NPATL + 3.BPE + 4.CDR In this analysis, ROCE is the dependent variable and CRAR, NPATL, BPE and CDR are the explanatory variables. The multiple correlation coefficients between the dependent variable, ROCE, and independent variables taken together is 0.98. It indicates that the profitability was highly influenced by CRAR, NPATL, BPE and CDR. It is also evident from the coefficient of determination (R2 = 0.961), that 96.1% of the variation in ROCE was accounted for by the joint variation in CRAR, NPATL, BPE and CDR (Table 8).
Table 8: Multiple Correlation and Multiple Regression Analysis
Variable Constant CRAR NPATL BPE CDR Regression Coefficient 12.00800 77.60200 0.26700 0.03928 0.08090 Standard Error 5.576 0.136 0.018 0.047 t-value 2.153 1.970 2.152 1.731 Significance 0.277 0.299 0.277 0.333 Multiple Correlation Coefficient (R) = 0.98. Coefficient of Determination (R2) = 0.961 Adj. R2 = 0.845

Source: Annual Reports of Contai Co-operative Bank Ltd.

Conclusion
From the analysis the following were concluded: A perusal of the NPA position of CCB, reveals that gross NPA relative to total loans and advances during the period 2000-01 to 2006-07 were 24.54%, 28.76%, 26.93%, 26.98%, 25.02%, 25.32% and 21.25% respectively and on an average it stood at 25.55%, which is much higher than the stipulated level of 15% (as per the RBI norms). The net profit of the bank increased from Rs. 175.08 lakh in 1995-96 to Rs. 735.16 lakh in 2006-07, which implies an increase of nearly 320% during the study period. The percentage of deposits to working capital remained above 82% throughout the period of study. On the other hand, the relative share of the share capital in working capital was in the range of 2.02%-2.78% only. The credit deposit ratio stood at 68.72% on an average throughout the study period, which is more than the optimum level of 60%. The diversification ratio of the bank was very low, which was just 4.21% on an average. It implies that income from sources other than banking activities was very negligible and insignificant.
40 The Icfai University Journal of Accounting Research, Vol. VIII, No. 1, 2009

 The low-cost deposits of the bank were very low. These deposits ranged between 21.21% and 29.28% of total deposits of the bank during the period under study, and was only 24.92% on an average. The bank did not default in maintenance of CRR/SLR during the last 12 years. It maintained the cash reserve and liquid assets much above the statutory requirement, which is fixed up to 3% and 25% of NTDL respectively, as per the Banking Regulation Act. Thus, proper care should be taken to avoid such surplus maintenance of both CRR and SLR, so that the idle funds can be utilized for more productive purposes. The capital adequacy ratio were 10.84%, 11.95%, 17.24%, 21.32% and 24.08% respectively, during the last five years, which reflects the financial soundness of the bank. The trend values of deposits also show upward movement throughout the study period. In the period from 1999-2000 to 2003-04, the actual deposits were more than the trend values, whereas in rest of the years there was a decrease in deposits. The average increase in deposits stood at Rs. 2,067.51 lakh per year. The difference between the actual and trend values of loans and advances are significant and have not arisen due to sampling fluctuations. It is, thus, concluded that this parameter is not influenced by the time factor. The difference between the actual and trend values of net profit are also significant and have not arisen due to sampling fluctuations. It is also found that the negative deviation of the year 2006-07 was comparatively higher. The multiple correlation coefficients between the dependent variable ROCE and the independent variables CRAR, NPATL, BPE and CDR taken together is 0.98, which implies that profitability is highly influenced by CRAR, NPATL, BPE and CDR. From the coefficient of determination it clear that 96.1% of the variation in profitability of the bank is explained by the four independent variables, CRAR, NPATL, BPE and CDR.

Suggestions
On the basis of the analysis, the following suggestions for improving the efficiency and effectiveness of the operation of the bank are offered: It is apparent that the mounting overdues have become a major problem of this bank and its performance in managing NPAs is not satisfactory. Hence, there is an urgent need to remedy this situation, through improved monitoring and follow-up. Firm measures should be followed while making credit appraisal, documentation, disbursement, monitoring, etc. The management should keep NPAs under control and reduce the net NPAs to the permissible level, so that the bank does not fall in lower category. It should adopt the strategies in two stagespre-sanction in depth scrutiny and post-sanction in supervision and follow-up.
Performance Appraisal of Urban Cooperative Banks: A Case Study 41

 The bank needs to prepare a comprehensive perspective plan for product diversification to maintain a competitive edge in the market. It can enhance its fee-based income through, issue of demand drafts, telegraphic transfers, account maintenance fee, processing fee, commission, safe deposit locker rent, etc. The bank can also undertake insurance business on referral basis or work as a corporate agent without risk participation. In return, the bank would earn referral fees on the basis of premia collected. It can collect and pay utility bills like telephone bills, electricity bills, corporation tax, municipality tax, etc., on behalf of the customers, which could be a good source of extra income. The bank should take the initiative for opening No Frills Account to the vast sections of disadvantaged and low-income groups so as to ensure greater financial inclusion. The bank can also go for such schemes as opening of savings bank accounts and other accounts treated as low-cost deposit, so that the deposit base as well as the clientele base of the banks are expanded. Mobilization of resources from the members of the bank should be given higher importance, and adequate freedom to raise resources from the market through the issue of non-voting shares, bonds and debentures, should be made effective. The bank should emphasize on House Building Loan (HBL), because terms and conditions of HBL is much easier and EMI can be implemented like any other commercial banks. In this context, the bank should go for more publicity and advertizements, whereby they can make the public aware of their marketing packages of various attractive loan schemes. This bank, like any other UCB, with their newly-formed emphasis on prudential norms, need a high degree of professionalism in management. It should consider technology upgradation to cope up with the changing banking scenario. There should be a policy for technology upgradation and it must have a technological vision. This bank must be encouraged to take up microcredit in a big way. It must work as Special Purpose Vehicle (SPV) for microfinance for reducing poverty and helping the informal economy to flourish, which would ultimately help in reducing poverty. It would be prudent to adopt corporate governance norms. To exercise proper control on their operations, in order to safeguard the interest of depositors and other stakeholders, good corporate governance is the only alternative. The management of the bank should guard against its weaknesses, which generally creep in through the direct or indirect political interference, in the operations of the banks. It is suggested that the bank enters into tie-up agreements with commercial banks like ICICI, HDFC, UTI (Axis), etc., in order to expand its business. I
42 The Icfai University Journal of Accounting Research, Vol. VIII, No. 1, 2009

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The Icfai University Journal of Accounting Research, Vol. VIII, No. 1, 2009