Bad loans still plague co-op banks

The financial health of urban cooperative banks (UCBs) turned worse in 2004-05 on the back of increased gross non-performing assets (NPAs). The bad assets of UCBs - both scheduled and non-scheduled - rose in absolute as well as percentage terms.

However, net NPAs of UCBs declined 0.8 per cent to Rs 8,174 crore at the end of March 2005. The failure of a few co-operative banks had an adverse impact on the entire segment, the RBI said in its 'Report on Trend and Progress of Banking in India 2004-05'.

The Deposit Insurance and Credit Guarantee Corporation (DICGC) had to settle claims of large magnitude over the last few years owing to the failure of banks in this sector.

The performance of the segment has been a cause for concern with high levels of delinquent loans, the RBI said.
 

WEAK NUMBERS
March end	No of UCBs	Gross NPAs  (Rs cr)	Gross NPAs as % of total advances	Net NPAs (Rs cr)	Net NPAs as % of total advances
2001	1,942	9,245	16.1	-	-
2002	1,937	13,706	21.9	-	-
2003	1,926	12,509	19.0	6,428	13.0
2004	1,926	15,406	22.7	8,242	12.1
2005	1,872	5,409	23.0	8,174	12.2

The RBI has classified urban banks into various grades depending on their individual financial strength. The number of UCBs clubbed under Grade III and IV, indicating weak financial status, were 725 on March 31, 2005. More than half of the UCBs in the states of Kerala, Assam, Karnataka, Madhya Pradesh and Orissa were in Grade III and Grade IV categories.

Growth in deposits and operations of UCBs slowed down in 2004-05. The deposits and advances grew just 1.4 per cent and 0.7 per cent respectively in 2003-04 and 2004-05. This was in contrast with the robust CAGR (compounded annual growth rate) of 19.2 per cent and 17.5 per cent, respectively, up to March 2003.

The deposits and advances of UCBs increased sharply from Rs 153 crore and Rs 167 crore, respectively, in 1966 to Rs 1,02,089 crore and Rs 65,951 crore, respectively.

The scheduled UCBs, cooperative banks closely supervised by the RBI, showed a different growth pattern. Unlike slowdown witnessed by the sector as a whole scheduled banks showed a robust growth in their business in 2004-05.Their resource mobilisation by way of deposits, borrowings and internal generation which went up sharply during 2004-05.

Scheduled UCBs accounted for 39.0 per cent of total deposits of all UCBs. On the asset side, loans and advances increased at a healthy rate in contrast to the decline in the last year.