Coop banks shows weak performance: Fitch

Global credit rating agency Fitch has found that India's cooperative banks' performance was lacklustre mainly due to deficient risk management, credit appraisals and dual control by reserve bank and the respective state governments.

In a special report titled 'Cooperative banks in India -an overview', Fitch, however, said a few urban cooperative banks (UCBs) performed "superior" to their peers despite constraints of directed credit, limitations on raising capital and small size.

Finding that there were frequent failures in some of the UCBs, it said these "have not had a contagion effect on the banking system as a whole".

On an aggregate basis, Fitch said the cooperative bank deposits account for about 13% of the total deposits in the Indian banking system.

Among the cooperative banks, UCBs have greater linkages to the payment system as compared to their rural peers and account for 47% of the sectors' deposits, it added.

"Further reforms such as improved support mechanisms and better equity infusion structures should benefit and help increase confidence in the sector," Amit Tandon managing director of Fitch India said.

He said support in the form of a greater proportion of low-cost funding from policy institutions and incorporation of cross guarantee clauses -- as seen among European cooperative banks to ensure greater peer supervision -- should also be considered.