Yogi raps officials as NPAs of UP cooperative banks swell, recoveries drag

CM calls for immediate remedial steps as these banks' NPAs at 18.59% are more than twice the average of the state's banking sector at 8.75%

Uttar Pradesh chief minister Yogi Adityanath has raised concerns over rising non-performing assets (NPAs) and poor loan recovery of the state's cooperative banks.

The CM has directed the state cooperative department to analyse the root cause of burgeoning NPAs and take immediate measures, while fixing the accountability of concerned officials and taking stern action if needed.

At the end of September 2018, cooperative banks in UP had a branch network of 1,589 with deposits and advances of Rs 16,750 crore and Rs 13,513 crore, respectively. Thus, their credit deposit ratio (CDR) stood at more than 80% against the net banking (including commercial banks and regional rural banks) sector ratio of less than 52%.

The elevated CDR has resulted in higher NPA levels with cooperative banks. Till September 2018, their NPAs stood at Rs 2,512 crore or 18.59%, which is more than twice the state banking sector average of 8.75% in the state.

Reviewing the performance of the cooperative sector yesterday, Adityanath stressed on the vitality of the cooperatives for the growth of economy, especially the agricultural sector in UP, which is basically an agrarian economy.

In fact, his government has already proposed merging all government-controlled cooperative banks into single entity for better management, efficiency and credit growth.

The merger proposal covers UP Cooperative Bank (UPCB), UP Sahkari Gram Vikas Bank (UPSGVB) and 50 district cooperative banks (DCBs). UPCBL, which is primarily a refinance agency, sources soft loans from Nabard to pass on funds to DCBs and other financial institutions at low interest rates for low-ticket borrowers.

Each DCB operates multiple branches in its region and provides soft loans to Primary Agricultural Credit Societies (PACS), the smallest co-operative credit institutions in the hinterland, supporting short-term farm and crop loans to cultivators.

The government had set up a committee to prepare an action plan and conduct a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of the merger proposal. Besides, there are legal issues to the merger plan, since these banks are statutory entities and merging them would require legal course of action too, if it materialises.

The merger plan was mooted as these banks were losing business due to lack of technological innovation in customer service and product portfolio.

“The cooperative banks have failed to measure up to the challenges of modern-day banking. We are tasked with providing a roadmap for the proposed merger, apart from post-merger capital requirements, deposit mobilisation, computerisation, staff restructuring etc,” a committee member had earlier told Business Standard on condition of anonymity.

The state had also started the process of recapitalising and modernising cooperative banks. The government had declared it would infuse capital in 16 ailing DCBs operating in Faizabad, Shravasti, Allahabad, Sitapur, Hardoi, Azamgarh, Fatehpur, Gorakhpur, Basti, Ballia, Siddharthnagar, Deoria, Sultanpur, Jaunpur, Ghazipur and Bahraich districts.

Earlier, these 16 DCBs were served notices by the RBI for failing to adhere to financial and licensing norms. Later, these entities were issued fresh licenses.