CHAPTER-II

REVIEW OF LITERATURE

In this chapter an attempt is made to review a few studies related to

banking sectors on agricultural and non-agricultural credit which are

relevant to this study. The literature relating to sources of credit and

credit utilization, repayment and overdues, factors influencing overdues

and various aspects, issues of this study through the review of existing

literature have been discussed below.

VIPIN BEHARI (1975) found that the amount of borrowed capital

increased with the increase in farm sizes, which varied from Rs. 273.54 in

lower size group to Rs. 313.14 in the large group. The proportion of

borrowed credit to the total inputs per hectare was found to be higher in

big farmers. The per hectare credit was found to be positively co-related

to the size of holdings. The availability of credit indicated that 62.29

percent of total credit (short-term) was met by co-operatives followed by

relatives and moneylenders in case of small farmers. The medium and

long-term credit was met by Land Development Banks to the extent of

97.08 percent; only a few cultivators were benefited by Commercial

banks.1

________________________________
1
. Vipin Behari , “A study of requirements, availability, cost and sources of credit of small farmers
in the Block of Tanda, faizabad (UP)”, Indian Journal of Agricultural Economics,1975, p.246.

20
 The study made by BHATIA (1975) revealed that per farm

borrowing was higher on the large farms but per hectare borrowing was

higher in small farms. Borrowed fund accounted for 46.6% of the total

investment on the small farms and 20.9 percent in large farms. Overall,

the investment per hectare of operated land was higher on large farms.

Co-operative societies were active and provided 40 percent of the credit

to both types of farms. However, the commercial banks concentrated on

large farms only.2

GHAR and GANGWAR (1975) have made a study in two blocks

(Gurgaon and palad) of Gurgaon district of Haryana. They found that on

an average, in the two blocks under study, 54.31 percent of the short-term

credit was used for unproductive purposes whereas it worked out to 20.37

percent in respect of medium and long-term credit. Thus short-term credit

was more misutilised then medium and long-term credit by the small

farmers.3

SINGH (1975)4 studied the role of credit institutions in meeting the

needs of the rural poor and also the participation of different institutions

in providing rural institution in providing rural credit in muzzafarpur

________________________
2. Bhatia J.P., “Problems of small farming –A case study of Tribals (UP)”, Indian Journal of
Agricultural Economics, 1975,p.240.

3. Ghar R.K. and Gangwar A.C. “Small farmers and utilization of SFDA credit in District Gurgaon
(Haryana ) Financing Agriculture, 1975 (1),pp1-3

4. Singh R.P.”study of rural credit structure in Muzaffarpur district, Bihar “, Financing Agriculture,
1975, 10(1) pp30-35

21
district of North Bihar. The major share in total agricultural credit

advanced by organized credit institutions during the period 1972-75 was

accounted by LDB (50%), followed by co-operatives 22 percent,

commercial banks 20% and Government 8%. Among the different

sources of credit in unorganized sector the moneylenders finance

predominated, accounting for about 90% of the borrowing per household

on an average.

DEO (1976)5, in his study on problems of agricultural credit

allocation, emphasized that the problem of credit allocation in agriculture

was immense and required adequate attention. He has suggested that the

financial experts, social scientists and team of bank personnel have to

work together and have to make micro level planning for expansion of

credit.

SINGH (1976)6 conducted a case study on distribution and

utilization of co-operative credit in Lucknow district. Regarding the

amount of loan advanced to the farmers of different size groups, it was

observed that a major share of total advance went to large farmers. This

study further shows that the large size farmers utilized their borrowed

___________________________________
5. Deo, S. ‘Problems of agricultural credit allocation’ Rura India, 1976, 39(7), pp 142-144.

6. Singh G.N. “Distribution and Utilisation of Co-operative credit in the district Lucknow”, India
Co- operative Review 1976, 13(4) pp 397-411.

22
money to greater extent for productive purpose as compared to small

farmers.

PANDEY (1977) 7 in his study found that loans were issued mostly

without keeping in the mind repayment capacity of the borrowers and

were not properly supervised by the co-operative supervisors’ resulting in

the diversion of the loans for unproductive purpose and accumulation of

overdues.

BHATIA (1978)8 in his study titled, “Banking structure and

performance – A case study of in Indian Banking system” attempted to

analyze the economic performance of Indian banking system as reflected

by its output, price and profitability during the period 1950-68. He found

that profit of the Indian banking system during the said period had an

upward trend. The study suggested deregulation of interest rates to

enhance the profitability of financial institutions and to ensure a

competitive banking environment which would ultimately result in better

services.

Report of All India Debt and Investment Survey (1981)9 revealed

that non- institutional agencies accounted for 36.8 percent of the total

____________________
7. Pandey U.K, ‘Socio-economic factor affecting the overdues of PACS ‘Indian Co-operative review
1977, 14(1), PP 141-150.

8. Bhatia, R.C. (1978), Banking structure and performance – A Case study of the Indian Banking
System, An un published Ph.D., Thesis submitted to west Virginia University.

9. RBI: All India Debt and Investment Survey, 1981-82, Bombay, 1986.

23
credit to agriculture. Moneylenders, traders, landlords and other sources

including relatives and friends provided 16.9 percent, 3.4 percent, 4.0

percent and 14.5 percent of the total agricultural Credit respectively. The

institutional agencies provided 61.2 percent of the total credit needs of

agriculture. Co-operatives are the leaders, providing 28.6 percent of total

credit to agriculture. The share of Government in providing loans was

only 4.6 percent.

SWIDHA and CHAND (1981)10, analyzing the pattern of credit

distribution and overdues, have found that there was inverse relationship

between the overdues and credit advanced to different farm categories.

They have further found that most of the small farmers were non-wilful

defaulters whereas most of the medium and large farmers were willful

defaulters. They have suggested that in order to reduce the overdue of

small farmers, their income should be increased through additional

investment by way of adoption of improved method of cultivation while

the overdue of large farm could be reduced by taking strict action against

them.

A study on ‘Management of District Central Co-operative Banks

‘by M.KUTUMBA RAO were published in (1985)11. The study was

___________________________

10. Swidha D.S and Chand.R. ‘Distribution of agricultural credit and concentration of overdues in
Punjab’ Financing of Agriculture, 1981,13(2) pp 18-20

11. Kuthumba Rao.M,(1985), Management of Central co-operative Banks Ashish Publishing House,
New Delhi.

24
undertaken to examine the performance and management of selected

central co-operative banks in Andhra Pradesh in relation to the objectives

and tasks set for them. Apart from analyzing the organizational structures,

the study endeavored to study the Bank’s capital structure, lending

policies, procedures, personnel practices, etc. This work considered and

important issue viz “whether democratic set up is compatible with

Co-operative efficiency”. The study covered one district in Andhra

Pradesh which has two central co-operative banks. The study concluded

that, “bureaucratic leadership is no substitute for ineffective leadership”.

The leadership has a positive role to play in responding to the local needs

of agriculture, branch expansion, deposit mobilization and recovery of

loans. The role of RBI in guiding and controlling Central Co-operative

Banks has a healthy effect on their operational efficiency.

LAL and LAVANIA (1986)12 have found that 78.18 percent of the

total co-operative credit was utilized for productive and the rest 21.82

percent for unproductive purposes. The credit utilization on unproductive

purpose decreased with the increase in farm size which indicated that

large cultivators utilized the highest percentage of credit for productive

purposes.

_____________________

12.Lal R.C. and Lavanya R.P. “ Impact of the Co-operative credit on Agricultural Production and
Income”, Indian Co-operative Review, 1986,23(3),pp..269-276

25
 MISHRA and PANDEY (1986)13 have assessed the repayment

performance of the beneficiaries under daily finance scheme in Basti

Tehsil of Basti district. They had observed that the daily finance scheme

was helpful in raising the income level of beneficiaries. But they found

that the repayment performance was quite unsatisfactory. Only 5.15

percent of the total beneficiaries were regular in repaying the loans and

87.12 percent loan was overdue during the period under study. Among

the different categories of farmers, small farmers and agricultural

labourers were unable to repay the loan amount due to lower net return

which was caused by poor quality breed of buffaloes provided to them.

VENKATESWARA et al (1987)14 had analyzed the overdues

pattern in a progressive block of west Godavari district of Andhra

Pradesh. Their study revealed that overdues per holding increased with

increase in farm size while per hectare overdues decreased with increase

in farm sizes.

RADHAKRISHNAN and MUKUNDAN (1988)15 in their study on

_______________________
13.Mishra and pandey, Repayment performance of the Beneficiaries under daily finance scheme in
Basti Tehsil of Basti district, 1986.

14.Venkateswara et al, Overdues pattern in a progressive block of west Godavari District of Andhra
Pradesh, 1987.

15.Radhakrishnan and Mukundan, “Supply and Utilisation of shor-term co-operative agricultural credit
in Palaghat district of kerala, “Indian Journal of Agricultural Economics”, 1988, 43(3), p.429.

26
the supply and utilization of short-term co-operative Agricultural finance

in palghat district in Kerala reported that 52 percent of the loan amount

was advanced in kind (mainly fertilizer) and the balance in cash. An

inverse relationship was found between the amount of loan per hectare,

on one hand and size of holding on the other; the smaller holdings

obtained relatively more amount of credit than larger holdings.

DEWAR (1989)16 analysed the magnitude of overdue of the

agricultural loans given by various institutional agencies to the farmers in

the state of Andhra Pradesh. Improper appraisal, ineffective supervision,

occurrence of natural Calamities, misutilisation of loans for unproductive

purpose, diversion of income to other trades, and the over financing were

the major causes of loan overdues. The study suggested, sanction of loans

to deserving applicant, co-ordination between different institutional

agencies, strict monitoring on utilization of loans, development of

suitable repayment schedule, provision of crop insurance to all crops and

delegation of adequate powers to take corrective action against the willful

defaulters.

SINGH (1989)17 by their analysis found out that marginal farmers

______________________
16. Dawar, Magnitude of overdues of the agricultural loans given by various institutional agencies to
the farmers in the state of Andra Pradesh, 1989.

17. Singh, M.S., Ahamad and Balister,”Term loan overdues in Banks-A Study of State Bank of India in
Agra District of Uttar Pradesh “, Indian Co-operative Review, 1989,27(3),pp.142-153

27
constitute 71 percent of the total defaulters and accounts for 73 percent of

the total overdues whereas small and medium farmers together account

for 29 percent of the total defaulters and about 27 percent of the total

overdues. Out of the total overdues about 32 percent were ‘old’ overdues

for over 3 years and 68 percent current overdues for less than 3 years.

The slackness in timely recovery by bank is the most important reason for

willful default. Diversion of income for purchasing land and other

property, political influence were the other factors for willful default. The

factors like low crop yield, high price of input and more domestic

expenditure is affecting the repaying capacity of even the farmers who is

willing to repay.

KITTUR (1990)18 was of the opinion that marginal and small

farmers tended to use diverted funds to meet the basic necessities of life,

whereas large and well to do farmers used the funds towards useful and

conspicuous consumption whenever the loans were made in cash, the

chances of misuse were higher as compared to loans made in kind.

REDDY and REDDY (1990)19 examined the association between

socio- economic characteristics such as caste, literacy, status, political

affiliation, land holding, occupation, irrigation, cropping pattern, earning

____________________________
18.Kittur ,A.,“Diversion of Agricultural loans of formal financial institutions”, Joural of Rural
Development 1990, 9(4),pp.760-780.

19.Reddy,ODD; and Malla Reddy, G., “socio economic Factors Infulencing default in repayment of
Co-operativecredit”,IndianCo-operativeReview,1990,28(2),pp.402-412.

28
members of the family, amount of loan borrowed and the default in

repayment. It is observed that the percentage of default is much higher in

case of SC and ST borrowers than in the case of GC and BC borrowers.

The borrowers associated with managing committees and political

affiliation tends to default more than other borrowers. The borrowers,

having irrigated land holding and growing cash crops, were defaulting

less compared to unirrigated situation. Contrary to normal expectation, it

was surprising to note that borrowers in whose family earning member

are more than one, were defaulting more as compared to those having

only one earning member in their family.

GOYAL and PANDEY(1991)20 had carried out an investigation on

the default of crop loan in primary Agricultural co-operative credit and

service societies in Haryana in 1984-85, they observed that about 78

percent of the defaulting borrowers belonged to the category of small

farmers followed by 15 percent medium farmers. The rest of the

defaulters i.e. 7 percent were large farmers. On the whole, about 83

percent of the defaulters were those who did not repay any loan. The

largest number of defaulters 41.34 percent had borrowed from PACBs in

the range of Rs. 2501 to Rs. 4500 and the large farmers had borrowed

______________________

20. Goyal, S.K and Pandey, R.N., “An analysis of default of crop loan in primary Agricultural
Co-operative Credit Service societies in Haryana”, Agricultural Banker, 1991, 14(1), pp.29-31

29
also witnessed in case of amount of verdures. It was also inferred from

the study above Rs. 7000. The study further revealed that the amount of

loan advanced per defaulter was highest in case of the small farmers (i.e.

Rs. 1935). Similar trend was that the repaying capacity was inadequate to

repay the amount of loan in all the three categories of defaulters.

RAMBABU et al (1991)21 in their study on marginal and small

farmers in Aligarh district stated that the extent of overdues was more or

less equal to the diversion of crop loan to other purposes in all the cases.

The overall recovery position of the short-term loans was about 75

percent. At the overall level, on per family basis, the amount of overdues

increased with the increase in the size of holdings. It was Rs. 440.80

(27.54 percent) and Rs. 663.53 (24.29 percent) in case of marginal and

small farmers respectively. The average amount repaid worked out to be

about Rs. 1511 against the total payable amount of Rs. 2038 showing that

farmers on the whole had repaid about 74 percent of loans. It was

important to note that out of 74 percent, nearly 63 percent was repaid by

selling the farm produce and remaining 11 percent was repaid from other

sources (borrowing and gift), off farm income (salaries and wages) and

from borrowings.

____________________________

21. Rambabu. P Daivadeenam, D and Eswara Prasd, Prasd, Y (1991), Repayment pattern of
Agricultural Credit- A study of Andhra Bank in Guntur District of Andhra Pradesh, India Co-
operative Review, 29(2) pp.159-165.

30
 A study namely ‘Management of co-operative Banks in India’ was

undertaken by S.K.SAHOO and S.C.SAHOO in 1991 on the role of one

DCCB in Orissa I mobilizing deposits and lending, problems of overdues

and recovery management and the evaluation of managerial and financial

efficiency. They found that the inefficient management of the sample

bank had become the crux of all the beneficiaries. For an all round

working of the bank, the management has to be improved first. Once the

bank, including its branches and societies, is equipped with adequate

trained man power they will be able to handle effectively the various

banking functions such as deposit mobilization, sound financing,

effective collections of overdue etc. An improvement of managerial

efficiency will definitely lead to a better utilization of working capital22.

A study on DCCB covering the state of Tamil Nadu named,

‘Personnel Management in district central Co-operative Bank in India’

1993, was done by SIVAPRAKASAM. This study deals with the

personnel management functions in DCCBs and the author has made

good contribution for further improvement in the area. Analyze have

been made with facts gathered from 17 DCCBs in Tamil Nadu. The

socio-economic backgrounds and job-satisfaction, taking into account job

factors like promotion, Transfer, salary and employer-employee

_________________________________
22. Sahoo S.K and Sahoo S.C.(1991),Management of Co-operative Banks in India, Anmol Publication, New
Delhi. pp 111-115.

31
relationship, have been measured. Suggestions have been made to

improve the personnel management functions in DCCBs23.

A study on ‘Overdues in Co-operative: A case study in Andhra

Pradesh’ by Dr. B.R.REDDY and Dr. LAXMINARAYANA was

published in 1996. Viability and self reliance in co-operatives can be

brought about only through a more professional approach adopted by

co-operatives in the sanction and recovery of various loans. The authors

state that co-operatives should function as efficient business units,

motivated by a sense of social purpose based on the fundamental

principle of co-operation24.

A study namely, ‘A study of verdures, recovery performance

and erosion of funds in Central Co-operative Banks’ was undertaken by

Dr. PUYALVANNAN in 199725. The author has analyzed the overdues,

recovery performance and erosion of funds in Central Co-operative

Banks and stresses on the fact that, While lending is a fine art requiring

sharp commercial acumen, efficient and effective recovery of advances if

perhaps a still finer art, requiring a high degree of specialization.

_____________________
23. Sivaprakasam. P (1995), Personnel Management in central Co-operative Banks, Kavitha Publication, New
Delhi. pp 58-67

24. Reddy B.R and Dr. Laxminarayana(1996), Overdues in Co-operatives: A case study in Andhra
Pradesh Co-operative perspective, October-December. Pp 18-21.

25. Puyalvannan p. (1997), A study of overdues, Recovery performance and Erosion of funds in
Central Co-operative Banks, Co-operative Perspective, July-September p.6.

32
It concluded that the percentage of erosion of owned funds of some of the

CCBs is high. Overdues contribute as the single reason. Further,

interferences of Government in the working of the co-operatives are the

other cause fir heavy overdues.

PATHANIA AND SINGH (1998)26, in their study titled, “ A Study

of Performance of Himachal Pradesh State Co-operative Bank” observed

that the performance of HP State Co-operative Bank Ltd., in terms of

membership drive, share capital, deposit mobilization, working capital

and advances has improved over the period of five years, i.e., 1991-1992

to 1995-96. However, recovery performance was unsatisfactory and

overdues had increased sharply. This was due to the after effects of loan

waiver scheme. The per member and per branch performance of the bank

revealed that there if a significant growth in share capital, deposits,

borrowings, advances and profits. They suggested that in the context of

globalization and liberalization of economy, co-operative banks should

ensure their business on healthy lines by having professional manpower,

training and a sense of competition.

KAPOOR JAGDISH (1999)27, in recognition of the

relevance and catalytic role of co- operative banks in the development of

____________________
26. Pathania and Singh (1998), “A Study of performance of HP State Co-operative Bank”, Indian Co-
operative Review Vol.XXXIV, No.2 (April), New Delhi.

27. kapoor Jagdish “ Revival of Co-operative Banks”, Report of Task Force

Constituted by Government of India.

33
agriculture and non-agriculture sector of Indian rural economy,

Government of India on 9th April 1999, appointed a task force under the

chairmanship of Jagdish Kapoor for revival of co-operative banks. The

main objectives of the committee was to review the functioning of

co-operative credit structure and suggest measures to make them member

driven professional business enterprises. The committee suggested as

under:

i) The licensing of DCCBs is brought under the provision of

Banking Regulation Act, 1949.

ii) Bifurcation of DCCBs should be on the sole criterion of

viability (not on political considerations)

iii) DCCBs should be included in 2nd schedule of RBI Act.

iv) Asset and liability management should be implemented in the

SCBs and DCCBs.

v) NABARD should establish a co-operative development fund.

vi) RBI/NABARD should issue guidelines for a common

accounting system in SCBs and DCCBs.

DEBABRATA DAS made a study on ‘Co-operative banking in

Arunachal Pradesh’ in 200028. In this study an attempt has been taken to

analyze the workings of the Arunachal Pradesh State Co-operative Apex

___________________________

28. Debabrata Das (2000), Co-operative Banking in Arunachal Pradesh: A case study,
Indian Co-operative Review, July, pp 48-53

34
Bank Ltd. He focused to analyze the pattern of advances of the bank and

to examine the trends of branch expansion and deposit mobilization of the

bank. The study covered a period of nineteen years from 1978-79 to

1996-97. He observed that the bank’s performance in deposit

mobilization was good. To improve the business, it could undertake

Government payments like salary, pension etc. Further, proper

supervision for the utilization of loans should be done at different stages

frequently. Proper utilization of loan also would improve the recovery

position of the bank.

A study on ‘Productivity challenge before co-operative banks’ by

Dr.G.S.KAMAT was published in 2001. The author identifies various

potential areas for improving productivity in co-operative banks through

cost reduction. If these are adequately supported by necessary

productivity of human resources in the bank, they can yield immense

benefits. It must be remembered that ultimately Positive cost reduction is

achieved only by action. It is high time that the co-operative banks have

to adopt an appreciable cost reduction approach to improve productivity

in their management 29.

K.RAMESHA made a study entitled ‘Credit risk management in

agricultural co-operative banks’ in 2001. Given the high rates of NPAs

_____________________________

29. Kamat G.S. (2001), productivity challenge Before Co-operative Banks, Co-operative Productivity,
July, pp.17-19

35
and chronic overdues, Credit risk management assumes greater

significance in co-operative banks. The inheritance risk in agricultural

lending makes credit risk management all the more important and urgent

in agricultural credit co-operatives. Needless to say, credit discipline

should form the centre-piece of the strategies for the survival and growth

of ACBs30.

A study on ‘Funds management in co-operative banks- A need for

new approach’ was undertaken by Y.VENUGOPAL in 2001. In the

context of open economy and application of prudential norms and

deregulation of interest rates, the funds management in co-operative

banks requires new orientation for achieving higher productivity and

profitability. The new approach should be increasing the spread of

interest, which requires reduction in interest cost and increase of interest

income in order to withstand the competition from other players. In this

circumstance, bank should focus attention on allocation of funds in

profitable manner. The mobilization of resources (owned funds, deposits

from public, members, loans from RBI, refinance from NABARD, etc.,

at the lowest cost and deployment of funds ensuring higher yield (which

also depends in good recovery performance of advances and reduction

_________________________________

30.Ramesha. K (2001), Credit Risk Management in Agricultural Co-operative Banks, Vinimaya, Vol.
XXI, No., pp5-15.

36
of NPA to the level of less than 10 percent of gross advances) are the

essential factors that ensure the profitability. The funds management

should also focus on the reduction of emerging risks in bank business and

also on maintaining desired levels of matching maturities of assets and

liabilities. Cost reduction in mobilizing resources and yield increase in

deployment of funds are to be ensured to register profits.31

A.R.VISWANATH has made an attempt to analyse the

performance of agricultural credit co-operatives and their overdues

problems in India in 2001.Initially, an attempt is made to assess the

overall performance of agricultural credit co-operatives, by using the

development index. It is followed by an analysis relating to the nature and

extent of overdues problem, by using correlation co-efficient technique.

Finally, it highlights the main factors causing mounting overdues and

suggests remedies to mitigate the same in the coming years. They are: (a)

the seasonality in disbursement and recovery of loans should be strictly

adhered to by credit co-operatives (b) in order to minimize the problem of

overdues, urgent steps must be taken to create recovery cell in each

district headed by a district judge.32

_________________________________________

31. Venugopal.Y(2001), Fund management in Co-operative Banks-A Need for New Approach, Tamil
Nadu Journal of Co-operation, July,pp.25-31

32. Viswanath A.R.(2001), An Analysis of the Performance of Agricultural Credit Co-operatives

and their overdues problems in India, Indian co-operative Review, July, pp54-59.

37
 A study on ‘NPA management by rural banks: A critical appraisal’

was undertaken by MONICA SONI in 2002. In the study, an attempt has

been made to analyze the NPA position of two major players in rural

banking viz., Co-operative banks and Regional Rural Banks. NPAs have

serious implications on the profitability of banks. While banks cannot

recognize or book income on NPA account, there is a strain on the

profitability of banks as profits earned have to be diverted towards

making provision for impaired assets. As the level of NPAs to total credit

increases, the liquidity risk of bank also increases. However, since

lending is generally prone to risk, it is not possible always to prevent the

emergence of NPAs especially due to poor banking judgment, changes in

economy, etc. This necessitates a detailed analysis of the different aspects

of NPAs. Rural banks like RRBs and co-operative banks have also been

directed to Comply with prudential norms. Taking into consideration the

critical nature of the NPAs, one forms the view that the efficiency of rural

bank can be substantially improved if their performance with respect to

NPA management is improved33.

CHIDAMBARAM.K and S.GANESAN made a study on

‘Overdues in primary agricultural co-operative banks in Madurai District’

in 2002. This study was undertaken to analyze the causes of overdues

___________________
33. Monica Soni (2002), NPA Management by Rural Banks: A Critical Appraisal,
Indian Journal of Accounting, December, pp.67-71.

38
from the point of view of authorities. Data were collected from the

authorities of 50 PACSs with the help of a structured questionnaire.

Before analyzing the causes of overdues, an attempt has been made to

study the demand, recovery and overdues position. This study covered

Madurai district taking six selected samples of PACSs out of 256 and

adopted simple random sampling technique. The study concluded that

based on the causes of overdues, the borrowers were grouped into two

categories namely the genuine defaulters and willful defaulters. The

genuine defaulters are those borrowers who failed to repay their dues due

to the impact of uncontrollable factors like floods, earthquakes, droughts,

crop failure, and heavy expenditure on social ceremonies, inadequate

income generation and the like. The willful defaulters are those borrowers

who are financially sound, but they don’t have the attitude to repay the

loan amount34.

A study namely ‘Madurai District Central Co-operative Bank for

agricultural sector financing’ was undertaken by Dr.V.RENGASWAMI

and R.L.RAMANATH in 2002. The district credit plan prepared by the

Lead bank is an important phase of the service area approach. The major

aim of the district credit plan is to regulate the flow of priority sector

_____________________

34. Chidambaram, K and Ganesan. S (2002), Overdues in primary Agricultural Co-operative

Banks in Madurai District –A study Co-operative perspective, October-December,pp.57-60.

39
credit in each district in accordance with plan priorities. The analysis

reveals that the performance of MDCC bank is as good as the

performances of other financial agencies in the agricultural lending in the

Madurai district. Hence it is concluded that the MDCC bank has evinced

greater in lending to agricultural sector in the district35.

A study on ‘Fund Management in Central Co-operative Banks- A

case study of the Jalandhar Central Co-operative Bank Ltd.’ was made by

AWARDEEP WALIA in 2003. Due to stiff competition in the market,

banks are under pressure to tediously manage their funds. The main

source of funds for the bank had been deposits with 91 percent of the

funds coming from this source only. The loan portfolio of the bank was

found unsound, and so major chunk (60 percent) was deployed in

investments instead of loan to agricultural sector. The loan portfolio

contained agricultural share of 34 percent of the total funds and CD ratio

was less than 39 percent. The solvency position and recovery position of

the bank were found to be sound with CAR at 12 percent and recovery at

97 percent. However, the liquidity position of the bank was found to be

unsatisfactory as the bank had always maintained surplus CRR36.

________________________________

35. Rengaswami V and Ramnath R.L.(2002), Madurai Central Co-operative Banks and Agricultural
Sector financing, Tamil Nadu Journal of Co-operation, February pp.47-50

36. Amardeep Walia (2003), “Funds Management in central Co-operative Banks-A case study of the
Jalandhar Central Co-operative Banks Ltd ., Co-operative Perspective January-March,p.44.

40
 The study entitled “An appraisal of Indian Banking from NPA

perspective”, by G. RAMAKRISHNA REDDY and T.SREE

BHARAGAVI was reported in 2004 37. Banks have to cross many hurdles

to earn profit in the face of low credit off-take by the industrial segment

and the inability of the state/Central Government to take up new projects.

Apart from the internal and external complexities, increase in NPAs

directly affects banks ‘profitability, sometimes even their existence. The

Researchers have given some guidelines for the effective management of

NPAs viz. (a) early warning signals for incipient sickness have to be

identified and proactive remedial action to be initiated (b) attention has to

be paid to high values NPAs (c) banks have to take up the rehabilitation

of deserving units only (d) securities are to be assessed at regular

intervals for the proper provisioning of doubtful and loss assets.

JADHAV. K.L AND KASAR. D.V (2005)38 examined the

performance of District Central Co-operative Banks in Maharashtra. They

have found that there is need to pay attention to the borrower members,

which will lead to increase in the share capital and loan disbursement of

agricultural purposes. They have suggested that efforts should be made to

__________________________

37. Ramakrishna Reddy. G and Sree Bhargavi. T (2004). An Appraisal of Indian Banking from NPA
perspective. Journal of Accounting and Finance, October-March, pp. 53-57.

38. Jadhav,K.L and Kasar,D.V.”Performance of District Central Co-operative Banks in Maharashtr: A

Model of Quantitative Analysis”, Indian Journal of Agricultural Economics, Vol.60, No.3,July-
Sep,2005,p.411.

41
enhance deposit mobilization and investment of funds in government

securities and fixed deposits for transparency in financial management.

OLIVER BRIGHT. A (2005)39 has analyzed the role of

Kanyakumari District Central Co-operative Bank (KDCCB) in Tsunami

Credit. He has observed that DCCBs grant loans and advances to the

rural dwellers both for agricultural and non-agricultural purposes. But the

infrastructure aids are totally neglected by them. He has suggested that

the DCCBs must identify the investment portfolios for credit plans.

FULBAG SINGH and BALWINDER SINGH (2006)40 examined

the profitability of the central co-operative banks in Punjab. They have

observed that the implementation of prudential norms from 1996-97

onwards, have helped to generate an awareness for adverse effects of

overdues / non-performing assets in these banks. They have concluded

that the co-operative banks in Punjab have responded to the ongoing

financial reforms in a positive manner.

SUBIPTA GHOSH (2006)41 observed that DCCBs were not successful in

restricting the level of Non Performing Assets (NPAs) and the alarming

_____________________
39. Oliver Bright,A, “Role of Kanyakumari District Central Co-operative Bank (KDCCB) in Tsunami
Credit”. Kisan World, vol.32,No.9, Sep,2005,pp.33-34.

40. Fulbag Singh and Balwinder Singh, “ Profitability of the central co-operative Banks in Punjab – A
Decomposition Analysis “,Indian Co-operative Review, vol.44 No, July, 2006,pp. 41-55

41. Subipta Ghosh, “NPA Management in District Central Co-operative Banks-A Comparative Study
of MCCBL and TGCCBL”, The Management Account , vol.41, No, 2, Feb, 2006,pp.154-158.

42
factor was that the quantum of doubtful assets of the banks increased

continuously during the study period. She has suggested that banks have

to manage their NPAs more efficiently and effectively so that they can

change their character from non performing assets to performing assets.

JADHAV, K.L, YADAV, D.B and SHENDAGE, P.N (2007)42

examined Credit disbursement of District Central Co-operative Banks

(DCCBS) in Maharashtra. The gross cropped area, average rainfall and

deposits with the DCCBs were observed to be the most important factors

influencing the regional inequality in the disbursement of per hectare

short term credit in all the regions as well as the state as a whole. They

have suggested that due to importance given to borrower members, which

will lead to increase in loan disbursement.

LAKSHMANAN, C and DHARMENDHRAN, A (2007)43 studied

the impact of Non-performing Assets (NPAs) on performance variable in

Chennai Central Co-operative Bank. They examined performance

variables namely, net profit, investment, legal expenses and spread. They

observed that the results of NPAs on all the above performance variables

were negative and insignificant at 5 percent level in all the equation. They

___________________________

42. Jadhav,K.L, Yadav,D.B and Shendage,P.N “Rural Finance and Inequality in credit Flow through
DCCBs in Maharastra”, Indian Journal of Agricultural Economics, vol.62,No.3, July-sep,
2007,p.357.

43. Lakshmanan, C and Dharmendhran,A “Impact of NPAs on the performance variable in Chennai
Central Co-operative Bank”, Indian Co-operative Review.vol.44, No.4, April,2007,pp.291-297.

43
concluded that the effective management of NPAs is essential to

strengthen the financial position of the bank.

DARLING SELVI, V (2008)44 Examines the lending performance

of Kanyakumari District Central Co-operative Bank (KDCCB). He

observed that the overall growth rate of loan disbursement on short term

credit shows a positive growth of 25%. The credit facilities extended by

KDCCB are high for services, medium for industries and low for

agriculture. He concludes that the overall performance of the KDCCB is

good. If the benefits are properly toiled and utilized there will be a bright

future for both to the community and to the nation.

MOHAN, S (2008)45 has examined the factors determining the

profitability of central cp-operative bank. He observes that profitability

ratios invite the serious attention of the management to put an integrated

effort to correct the financial Performance. He suggests that the bank

should expand its banking operations in Such a way that the non-interest

income increase substantially in the near future.

The European Association of co-operative Banks (2009)46, in its

______________________________

44. Darling Selvi,V “Lending performance of Kanyakumari District Central Co-operatives” Indian Co-
operative Review, Vol. 45, No.3, Jan,2008,pp.176-187.

45. Mohan, S, “Factors Determing the profitability of Central Co-operative bank”, Tamilnadu Journal
of Co-operation, Vol.8, No.4, Feb, 2008, pp.63-69.

46. European Association of Co-operative Banks (April 2009), European Co-operative Banks in
Financial and Economic Turmoil”, Co-operatives in a world in Crisis (Contribution of EACB to
the Experts Group meeting) United Nations- New York.

44
article titled “EUROPEAN CO-OPERATIVE BANKS IN FINANCIAL

AND ECONOMIC TURMOIL” was of the view that despite extensive

interest rate cuts, liquidity injections and support measures the financial

markets were not stable. Figures showed that global economy will

experience a deep recession in 2009 and perhaps also 2010. But as has

been demonstrated, most co-operative bank groups had fortunately been

able to weather the financial crisis relatively well so far without any state

support. This was due to the fact that they generally had limited exposure

to toxic assets, a predominant focus on domestic retail banking with

stable results, strong capital buffers and principally conservative risk

management. The co-operative banks that did report losses due to the

subprime crisis were affected primarily at the level of subsidiaries and at

the level of APEX institutions. The local banks were not hitted directly

by the financial crisis. Co-operative banks were consequently solid and

robust at the local level and accordingly demonstrated stability of the

retail banking industry in Europe.

MAYIL MURUGAN, A (2009)47 made an Empirical analysis on

capital adequacy ratio in Central Co-operative Banks. He observed that

capital adequacy has reduced the likelihood of failure and increases

liquidity of the bank. He has concluded that fulfilling the capital

___________________
47..Mayil Murugan, A “An Empirial Analysis of Capital Adequacy Ratio in Central Co-operative
Banks” Tamilnadu Journal of Co-operation, Vol.9 No, Aug, 2009,pp.57-62.

45
adequacy norm is not at all the problem for the bank for ever.

SINGH and SINGH (2010)48, in their study titled, “Technical and

Scale Efficiency in District Central Co-operative Banks of Punjab – A

Non parametric” Had attempted to investigate the extent of technical

efficiency across 20 DCCBs of Punjab with the help of data envelopment

analysis. They brought out that size of DCCBs and profits had been

affecting themeasures of technical efficiency significantly. The study

further revealed that DCCBs of Punjob were suffering from the problems

of managerial irregularities and improper production scale. Appropriate

policy interventions by state government, RBI and NABARD have

suggested by the authors.

THOMAS VICTOR RAJA and CHANDRAMOHAN (2011)49, in

their study titled “Financing of Women Entrepreneurs by District central

co-operative Banks in Tamil Nadu”, They examined study finding

revealed that the women entrepreneurs considered for the study are

deserving enough capacity to avail the loans, the borrowing and the

repayment of loan did not make any hindrance. The borrowings of the

select DCCBs were mainly focusing more on urban women

empowerment. This trend must be acknowledgment and recognized effort

__________________________
48. Singh and Singh (2010), “Technical and Scale Efficiency in District Central Co-operative Banks of
Punjab – A Non parametric Analysis”, Indian Co-operative Recivew, Vol. XXXXVII,
No.1,(Jan),New Delhi.

49. Thomas Victor Raja, D and Chandramohan, R “Fiancing of women Entrepreneurs by District
central Co-operative Banks in Tamil Nadu”, Sourthen Economist, Vol.49, Oct-15, 2011,pp.19-22.

46
need to be made to giving more In the case of financial inclusionary

attitude, the select DCCBs have been rendering good services to the

women community by providing loans in promoting new enterprises of

the study area.

RAZAULLAHKHAN, M and HASYIKHAIRUL MAKEEN,

(2012)50 in their study titled “Non-Performing Assets: Co-operative

Banks in Jalna”,They examined the financial record of 6 co-operative

banks of Jalna and parbhani districts has been used in the form of Annual

Reports from the year 2003-04 to 2009-2010, for the purpose of research.

Almost all the banks have shown a fluctuating trend of Net NPA. Some

of the banks have succeeded in reducing the quantum of Net NPA in last

two years of study. All the banks have earned certain profit in the entire

period of the study period except one bank in one year. The C.A.R. of all

the banks is above the prescribed limit of 9% laid down by the RBI.

SUNITHA,R and RAJU, J.K,(2013)51 in their study titled “ A

Comparative study of NPA’s of Banking Sector”, The study observed

that the Indian banking sectors especially the private sector have been

_____________________

50. Razaullahkhan,m and Hasyikhairul Makeen, “Non-Performing Assets: Co-operative Banks in

Jalna”,sourthen Economist, Vol. 50 Aug-15,2012, pp.25-18

51. Sunitha,r and Raju, J.K,”A comparative study of NPAs of Banking sector”, southern
Economist,vol.51, April-15,2013,pp.9-12

47
facing the big challenge of NPAs. NPAs are an important parameter in

the analysis of financial performance of banks. Reduction of NPAs is

necessary to improve profitability of the banks and comply with capital

adequacy norms. It has been observed that the banking sector in India has

responded very positively in the field of enhancing the role of market

forces regarding measured of prudential regulations of accounting,

income recognition, provisioning and exposure, introduction of CAMELS

supervisory rating system and reduction of NPA and up gradation of

technology.

Problems of finance for agricultural and non-agricultural lending

operation, especially institutional finance has often given rise to

controversies and paucity of finance has been a major irritant to the

farming and non-forming community. It is learnt from the review of

literature, that the problem has received considerable attention from

academicians and researchers, while the number of studies on the need

for increasing credit, evaluation of the performance of co-operative loans

have not been given due importance.

In recent years non-repayment is posing an alarming problem to

the co-operative due to which number of co-operative banks are unable to

disburse fresh loans. If these terms persist in future, the very existence of

co-operative banks will be in jeopardy. Hence it is a need of the day to

48
examine this problem, arrive at definite conclusion and suggest remedies.

Even such studies were not undertaken in Composite Thanjavur District

which is proclaimed as the Granary of Tamil Nadu declared as drought

prone area for more than a half decade and subsequently worst hit by

flood and Tsunami. Kumbakonam Central Co-operative Bank is located

in the granary of Tamil Nadu. Hence loan assets management of

Kumbakonam Central Co-operative Bank Limited, Kumbakonam has

been undertaken. The present study will fill the gap of knowledge about

loan assets management in agricultural and non-agricultural credit in

KCCB of Tamil Nadu state as no such study has been made so far in this

respect.

49