Indian cooperative banks have been struggling to survive for the past few years. This fact came to light after Punjab and Maharashtra cooperative banks made a frantic attempt when depositors visited the branches to draw their hard-earned money from the bank.
According to the progress or trends of the banking sector, as per the reports of the Reserve Bank of India, Commercial banks in urban areas have seen a sharp decline in the deposit rates from 6 percent in 2018-2019 to 3.4 percent in 2019-2020.
These banks have faced trouble not only in deposits. The value of loans and advances there have also seen a sharp decline from 8 percent in 2018-2019 to 0.9 percent in 2019-2020.
At the end of the financial year 2020, there were 1538 urban cooperative banks and 97000 rural cooperative banks with 8.6 crore depositors.
Cooperative banks play an important role in providing financial support to rural areas of the country. Their main aim is to create investment and saving habits in the rural areas of the country.
To add to these troubles according to the RBI, cooperative bank lending in the agricultural sector has seen an astonishing decline from 64.1 percent in 1992 to 11.2 percent in 2020.
Sinking balance sheet:
We can also see the same when it comes to the balance sheets of the urban cooperative banks where there is a sharp decline in terms of both deposits and loans. In the early days of urban cooperative banks, they had a robust financial performance.
But as the competition increased where NBFC and Small Finance Banks came into the picture they started to lose market share. As a result, deposits and advances given by the banks declined along with a decline in the number of depositors.
The decline in asset quality:
Urban cooperative banks have always had the highest levels of NPAs (Non-performing assets) when compared to other banks. However, during Covid both the banks have suffered from worsening NPAs further affecting their balance sheet and asset quality.
This increase in NPAs further impacted negatively the loans and advances of banks.
Strict rules by RBI:
Banking regulations are in place to keep eye on the activities of all types of banks. Beyond that, the RBI has also directed cooperative banks not to outsource any core management functions like internal audit, credit sanction, or investment banking.
Along with all the rules the RBI also prescribed educational qualifications to Managing directors and Whole Time Directors. Further affecting the struggling cooperative banks in the short term.
