A Study on CAMEL Concept of the Co Operative Bank Soceity
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Transcript of A Study on CAMEL Concept of the Co Operative Bank Soceity
A Study on CAMEL concept of the co operative bank soceity
CHAPTER - I
1.1 INTRODUCTION TO THE STUDY
1.1.1. Introduction
The acronym "CAMEL" refers to the five components of a bank's condition that are
assessed: The expansion of the first letter in CAMEL are given below. The banks
performance are rated by using the following.
Capital adequacy
Asset quality
Management
Earnings
Liquidity
A sixth component, a bank's Sensitivity to market risk , was added in 1997.
1.1.2. Capital Adequacy
Capital adequacy ultimately determines how well financial institutions can cope with
shocks to their balance sheets. Thus, it is useful to track capital-adequacy ratios that take into
account the most important financial risks—foreign exchange, credit, and interest rate risks—
by assigning risk weightings to the institution’s assets.
A Capital Adequacy Ratio is a measure of a bank's capital. It is expressed as a
percentage of a bank's risk weighted credit exposures.
Also known as Capital to Risk Weighted Assets Ratio (CRAR).
Capital adequacy is measured by the ratio of capital to risk-weighted assets (CRAR).
A sound capital base strengthens confidence of depositors.
This ratio is used to protect depositors and promote the stability and efficiency of
financial systems around the world.
1.1.3. Asset Quality
Asset quality determines the robustness of financial institutions against loss of value
in the assets. The deteriorating value of assets, being prime source of banking problems,
directly pour into other areas, as losses are eventually written-off against capital, which
ultimately jeopardizes the earning capacity of the institution. With this backdrop, the asset
quality is gauged in relation to the level and severity of non-performing assets, adequacy of
provisions, recoveries, distribution of assets etc. Popular indicators include non-performing
loans to advances, loan default to total advances, and recoveries to loan default ratios.
One of the indicators for asset quality is the ratio of non-performing loans to total
loans (GNPA). The gross non-performing loans to gross advances ratio is more indicative of
the quality of credit decisions made by bankers. Higher GNPA is indicative of poor credit
decision-making.
A. NPA: Non-Performing Assets
Advances are classified into performing and non-performing advances (NPAs) as per
RBI guidelines. NPAs are further classified into sub-standard, doubtful and loss assets based
on the criteria stipulated by RBI. An asset, including a leased asset, becomes non-performing
when it ceases to generate income for the Bank.
B.An NPA is a loan or an advance where:
Interest and/or installment of principal remains overdue for a period of more than 90
days in respect of a term loan;
1. The account remains "out-of-order'' in respect of an Overdraft or Cash Credit (OD/CC);
2. The bill remains overdue for a period of more than 90 days in case of bills purchased
and discounted.
3. A loan granted for short duration crops will be treated as an NPA if the installments of
principal or interest thereon remain overdue for two crop seasons; and
4. A loan granted for long duration crops will be treated as an NPA if the installments of
principal or interest thereon remain overdue for one crop season.
The Bank classifies an account as an NPA only if the interest imposed during any
quarter is not fully repaid within 90 days from the end of the relevant quarter.
This is a key to the stability of the banking sector. There should be no hesitation in
stating that Indian banks have done a remarkable job in containment of non-performing loans
(NPL) considering the overhang issues and overall difficult environment. For 2008, the net
NPL ratio for the Indian scheduled commercial banks at 2.9 per cent is ample testimony to
the impressive efforts being made by our banking system. In fact, recovery management is
also linked to the banks’ interest margins. The cost and recovery management supported by
enabling legal framework hold the key to future health and competitiveness of the Indian
banks. No doubt, improving recovery-management in India is an area requiring expeditious
and effective actions in legal, institutional and judicial processes.
1.1.4. Management Soundness
Management of financial institution is generally evaluated in terms of capital
adequacy, asset quality, earnings and profitability, liquidity and risk sensitivity ratings. In
addition, performance evaluation includes compliance with set norms, ability to plan and
react to changing circumstances, technical competence, leadership and administrative ability.
In effect, management rating is just an amalgam of performance in the above-mentioned
areas.
Sound management is one of the most important factors behind financial institutions’
performance. Indicators of quality of management, however, are primarily applicable to
individual institutions, and cannot be easily aggregated across the sector.
Furthermore, given the qualitative nature of management, it is difficult to judge its
soundness just by looking at financial accounts of the banks.
Nevertheless, total expenditure to total income and operating expense to total expense
helps in gauging the management quality of the banking institutions. Sound management is
key to bank performance but is difficult to measure. It is primarily a qualitative factor
applicable to individual institutions. Several indicators, however, can jointly serve—as, for
instance, efficiency measures do—as an indicator of management soundness.
The ratio of non-interest expenditures to total assets (MGNT) can be one of the
measures to assess the working of the management. . This variable, which includes a variety
of expenses, such as payroll, workers compensation and training investment, reflects the
management policy stance.
Efficiency Ratios demonstrate how efficiently the company uses its assets and how
efficiently the company manages its operations.
1.1.5. Earnings & Profitability
Earnings and profitability, the prime source of increase in capital base, is examined
with regards to interest rate policies and adequacy of provisioning. In addition, it also helps to
support present and future operations of the institutions. The single best indicator used to
gauge earning is the Return on Assets (ROA), which is net income after taxes to total asset
ratio.
Strong earnings and profitability profile of banks reflects the ability to support present
and future operations. More specifically, this determines the capacity to absorb losses,
finance its expansion, pay dividends to its shareholders, and build up an adequate level of
capital. Being front line of defense against erosion of capital base from losses, the need for
high earnings and profitability can hardly be overemphasized. Although different indicators
are used to serve the purpose, the best and most widely used indicator is Return on Assets
(ROA). However, for in-depth analysis, another indicator Net Interest Margins (NIM) is also
used. Chronically unprofitable financial institutions risk insolvency. Compared with most
other indicators, trends in profitability can be more difficult to interpret—for instance,
unusually high profitability can reflect excessive risk taking.
1.1.6. Liquidity
An adequate liquidity position refers to a situation, where institution can obtain
sufficient funds, either by increasing liabilities or by converting its assets quickly at a
reasonable cost. It is, therefore, generally assessed in terms of overall assets and liability
management, as mismatching gives rise to liquidity risk. Efficient fund management refers to
a situation where a spread between rate sensitive assets (RSA) and rate sensitive liabilities
(RSL) is maintained. The most commonly used tool to evaluate interest rate exposure is the
Gap between RSA and RSL, while liquidity is gauged by liquid to total asset ratio.
Initially solvent financial institutions may be driven toward closure by poor
management of short-term liquidity. Indicators should cover funding sources and capture
large maturity mismatches.
The term liquidity is used in various ways, all relating to availability of, access to, or
convertibility into cash.
An institution is said to have liquidity if it can easily meet its needs for cash either because it
has cash on hand or can otherwise raise or borrow cash.
A market is said to be liquid if the instruments it trades can easily be bought or sold in
quantity with little impact on market prices.
An asset is said to be liquid if the market for that asset is liquid.
The common theme in all three contexts is cash. A corporation is liquid if it has ready
access to cash. A market is liquid if participants can easily convert positions into cash—or
conversely. An asset is liquid if it can easily be converted to cash.
A.The liquidity of an institution depends on:
The institution's short-term need for cash;
Cash on hand;
Available lines of credit;
The liquidity of the institution's assets;
The institution's reputation in the marketplace—how willing will counterparty is to transact
trades with or lend to the institution?
The liquidity of a market is often measured as the size of its bid-ask spread, but this is
an imperfect metric at best. More generally, Kyle (1985) identifies three components of
market liquidity:
Tightness is the bid-ask spread;
Depth is the volume of transactions necessary to move prices;
Resiliency is the speed with which prices return to equilibrium following a large trade.
Examples of assets that tend to be liquid include foreign exchange; stocks traded in the Stock
Exchange or recently issued Treasury bonds. Assets that are often illiquid include limited
partnerships, thinly traded bonds or real estate.
Cash maintained by the banks and balances with central bank, to total asset ratio
(LQD) is an indicator of bank's liquidity. In general, banks with a larger volume of liquid
assets are perceived safe, since these assets would allow banks to meet unexpected
withdrawals.
Credit deposit ratio is a tool used to study the liquidity position of the bank. It is
calculated by dividing the cash held in different forms by total deposit. A high ratio shows
that there is more amounts of liquid cash with the bank to met its clients cash withdrawals.
CHAPTER-II
INDUSTRY PROFILE
1.2 INDUSTRY PROFILE
1.2.1 PROFILE OF CO-OPERATIVE MOVEMENT IN INDIA
Around the world modern cooperatives have developed for over 200 years.
Cooperative institutions exist all over the world providing essential services which would
otherwise be unattainable. In many Third World countries, cooperatives such as credit unions
and agricultural organizations have been very successful in helping people to provide for
themselves where private and other corporate capitals do not see high profitability. In 90
countries of the world, over 700 million individuals are members of cooperative institutions.
Globally, cooperatives have been able to elevate its position as a powerful economic model.
In some countries they are a sizeable force within the national economy.
1.2.2 GROWTH OF CO-OPERATIVE SECTOR IN INDIA
India has basically an agrarian economy with 72% of its total population residing in
rural areas. The rural people need lot of services in daily life which are met by village co-
operative societies. The seeds of cooperation in India were sown in 1904 when the first
Cooperative Societies Act was passed. Since then, the cooperative movement has made
significant progress. Cooperatives have extended across the entire country and there are
currently an estimated 230 million members nationwide.
The cooperative credit system of India has the largest network in the world and
cooperatives have advanced more credit in the Indian agricultural sector than commercial
banks. The village cooperative societies provide strategic inputs for the agricultural sector,
consumer societies meet their consumption requirements at concessional rates; marketing
societies help the farmer to get remunerative prices and co-operative processing units help in
value additions to the raw products etc. In addition, co-operative societies are helping in
building up of storage go-downs including cold storages, rural roads and in providing
facilities like irrigation, electricity, transport and health.3 Various development activities in
agriculture, small industry marketing and processing, distribution and supplies are now
carried on through co-operatives.
In fertilizer production and distribution the Indian Farmers Fertilizer Cooperative
(IFFCO) commands over 35 percent of the market. In the Production of sugar the cooperative
share of the market is over 58 percent and in the marketing and distribution of cotton they
have a share of around 60 percent. The cooperative sector accounts for 55 percent of the
looms in the hand-weaving sector. Cooperatives process, market and distribute 50 percent of
edible oils. Dairy cooperatives operating under the leadership of the National Dairy
Development Board and through 15 state cooperative milk marketing federations has now
become the largest producer of milk in the world. The groundwork for this was laid in the
early 1970's when the largest dairy development programme in the world - Operation Flood -
was launched. Operation Flood was a national marketing strategy linked to a dairy
infrastructure development programme that created a chain of dairy processing plants,
collection stations and a national milk transportation grid. With the passage of the Insurance
Act, cooperatives have been allowed to entry into the insurance business.
1.2.3 STRUCTURE COOPERATIVE CREDIT
The cooperative structure in India consists of different constituents. At the bottom of
this structure are the primary societies which render various types of services. Of this large
number about 80% is concerned with agriculture. Most of these societies, about 60% deal
with credit only. Thus a large majority of primary societies are related to agriculture and
credit. They perform various functions such things as credit, irrigation, marketing, transports
etc. These are generally divided into two groups
(i) credit societies and
(ii) non credit societies Each o f these two sub groups is further split up into sub
groups:
(a) Agricultural societies and
(b) Non –agricultural societies..
Cooperative credit structure is the single largest institutional credit delivery system in
the State. It provides credit to the people particularly in rural areas at reasonable interest rate
thereby reducing the dependency of the farmers on the informal credit source and usurious
rate of interest. Geographically and culturally it is the most convenient institutional
arrangement for availing the credit by farmers.
The cooperative credit structure in Tamil Nadu comprises of the following:
(A) Short term and medium term credit structure consisting of Tamil Nadu State Apex
Cooperative Bank at the state level, Central Cooperative Banks at the district level and
Primary Agricultural Cooperative Banks at the village level.
(B) Long term rural credit structure consisting of Tamil Nadu Cooperative State Agriculture
and Rural Development Bank at the state level and Primary Cooperative Agriculture and
Rural Development Banks at taluk/block level.
(C) Urban credit structure comprising of Cooperative Urban Banks located in the urban and
semi urban areas and catering to the credit needs of their members and the public.
(A) Short Term Credit Structure
The Short Term Cooperative credit structure in Tamil Nadu is a three tier structure
with Tamil Nadu State Apex Cooperative Bank at State level with 45 branches, 23 District
Central Cooperative Banks at the district level with 717 branches and 4474 Primary
Agricultural Cooperative Banks at the grass root level.
(i) Tamil Nadu State Apex Cooperative Bank (TNSACB) Chennai
The Tamil Nadu State Apex Cooperative Bank is the federation of the District Central
Cooperative Banks. Being the Apex Bank, it raises resources and channelises them through
District Central Cooperative Banks for both agricultural and non-agricultural purpose. It also
channelises the refinance provided by National Bank for Agriculture and Rural Development
(NABARD) towards short term and medium term agriculture and allied sector loans to
District Central Cooperative Banks.
As on 29.2.2008, the Tamil Nadu State Apex Cooperative Bank has a share capital of
Rs.61.07 crores including Government’s share of Rs.0.26 crore. It has the reserves of
Rs.700.48 crores and deposits of Rs.3944.98 crores. Compared to the previous year’s level of
reserves at Rs.517.95 crores and deposits at Rs.3263.50 crores, the growth in the reserves and
the deposits in the current year have gone up by 35% and 21% respectively. The bank has
earned a net profit of Rs.42.80 crores during 2007-2008 upto 29.2.2008.
The Tamil Nadu State Apex Cooperative Bank maintains a fund called the Primary
Cooperative Development Fund financed out of contribution of profit making Central
Cooperative Banks and the Tamil Nadu State Apex Cooperative Bank. The fund is utilized to
strengthen the infrastructure facilities of the Primary Agricultural Cooperative Banks in the
State. As on 29.2.2008, Rs.29.84 crores is available in this account. A special scheme was
launched by Hon’ble Chief Minister Dr. Kalaignar to rejuvenate about 1192 weak Primary
Agricultural Cooperative Banks with the help of this fund. Most of the societies in the above
category had fallen dormant because of lack of resources and had stopped lending and other
operations. To help them to restart lending, a special cash credit at the rate of Rs.20 lakhs per
society is being provided by District Central Cooperative Banks at a concessional rate of
interest and the difference between cost of funds and the concessional rate is being
reimbursed to District Central Cooperative Banks from out of this fund. It is expected that
these 1192 Primary Agricultural Cooperative Banks through this scheme will resume their
normal operation of lending and to become financially viable in a course of 3 years, by
securing breakeven level of business and through this, will offer adequate institutional credit
to the farmers in their area of operation. As on 29.2.2008, 631 Primary Agricultural
Cooperative Banks have been sanctioned with cash credit to the tune of Rs.126.20 crores and
the entire 1192 Primary Agricultural Cooperative Banks will be covered under this scheme
before April, 2008.
(ii) District Central Cooperative Banks (DCCB)
There are 23 District Central Cooperative Banks in the State with 717 branches
mostly in rural areas to serve the Primary Agricultural Cooperative Banks and the rural
public. The District Central Cooperative Banks raise resources through public deposits and
also from Tamil Nadu State Apex Cooperative Bank and channelise them through Primary
Agricultural Cooperative Banks for agriculture and rural credit. In addition, they meet the
credit needs of dairy, handlooms, sugar and such other affiliated cooperatives. They also lend
directly to the public for non-agricultural purposes within the area of operation of their
branches.
As on 26.3.2008, the District Central Cooperative Banks have extended credit to
Primary Agricultural Cooperative Banks to the tune of Rs.1323.20 crores for crop loan of
which Rs.985.59 crores is from their own funds and Rs.337.61 crores from National Bank for
Agriculture and Rural Development refinance.
The details of District Central Cooperative Banks’ activities are given below:-
(Rs. in crores)
Year Deposits Direct Loans
2004-05 6275.78 1778.12
2005-06 6979.34 2005.33
2006-07 7286.62 2973.02
2007-08* 7666.70 3292.53
* As on 29.2.2008
Compared to the last year, upto February 2008 the amounts of deposit have increased
by 5.22%. Due to concerted efforts, better financial discipline and also adequate credit flow
through waiver, as per final audit of the year 2006-2007, out of 12 District Central
Cooperative Banks which were classified under Section 11(1) of Banking Regulation Act
with negative net worth, 7 District Central Cooperative Banks have come out of this problem
and it is expected that remaining 5 District Central Cooperative Banks also will record
positive networth and come out of Section 11(1) by 31.3.2009. Efforts are being made to
computerize all the branches of the District Central Cooperative Banks.
(iii) Primary Agricultural Cooperative Banks (PACB)
In Tamil Nadu, there are 4474 Primary Agricultural Cooperative Banks which provide
credit to the farmers, distribute inputs like fertilizers and also run outlets under Public
Distribution System. These banks provide short term and medium term credit for agriculture
and allied activities. The short term loans are repayable within a period of 12 to 15 months
and the medium term loans are repayable within 3 to 5 years.
Crop loan is the prominent item of credit to the farmers by Primary Agricultural
Cooperative Banks, provided without collateral security upto 10 acres in respect of registered
sugarcane growers and upto Rs.1 lakh in respect of other crops. The loan amount exceeding
this limit is secured with mortgage of property or pledge of jewels. Primary Agricultural
Cooperative Banks also issue loans for other agricultural purposes like purchase of farm
machineries and for non-agricultural purposes including loans for the purchase of consumer
durables, housing loans, education loans and professional loans.
The details of the loans issued by these banks from 2004-05 are furnished below:
(Rs. In crores)
Year Crop Loans Other Loans
2004-05 1080.58 2609.07
2005-06 1132.18 2718.69
2006-07 1250.62 3082.20
2007-08 1323.20 3254.68
(As on
26.3.2008)
(As on
29.2.2008)
Considering the importance of increasing credit flow into the agriculture sector,
Government has reduced the interest rate for the crop loans from 9% to 7% per annum from
2006-07, the interest differential being compensated by the Government. For the year 2006-
07, Rs.18.28 crores was released and a sum of Rs.15.04 crores has been released for the year
2007-08 to the cooperatives as compensation to make up this interest subvention.
The Government is taking all efforts to inculcate the habit of financial discipline
among the farmers. As a special measure, Government have announced further reduction of
interest from 7% to 5% for all crop loans being repaid promptly by the farmers. This has been
further reduced to 4% in 2008-09.
The Government lays emphasis on the timely disbursement of crop loan in adequate
quantity. It is proposed to disburse Rs.1500 crores as crop loan during 2008-09. It is further
proposed that the lending through Farmers Group will be encouraged by forming Joint
Liability Groups which will benefit the farmers to get additional assistance by way of
revolving fund to the tune of Rs.10 crores. This is expected to benefit the farmers in a great
way to consolidate themselves and pool their resources in arranging their inputs supply,
organizing cultivation activities and making joint efforts in marketing to fetch a better price
for their produce. Ultimately this will pave way for consolidation of the farming activities by
the farmers facilitating appropriate technological intervention for improving the productivity
of the farm sector.
As a policy, this Government is not for liquidation of any Primary Agricultural
Cooperative Bank which has been set up for the specific purpose of serving the farmers in
their respective operational areas. Though liquidation notices were issued for 199 Primary
Agricultural Cooperative Banks upto 2005-06, as a follow-up of the announcement made in
the year 2006-07 to revive them, all out efforts have been made to revive them and bring
them back to normalcy. The Government is happy to inform that out of 199 banks, 197 banks
have already been revived and an amount of Rs.17.23 crores were issued as loans during
2006-07 to the members. During 2007-08, Rs.13.07 crores were disbursed as loans upto
29.2.2008. The efforts of the Government will continue for reviving the remaining two
Primary Agricultural Cooperative Banks.
Due to long years of neglect, several societies have been put into doldrums. The
pathetic status of some of the societies have forced them not to pay even the salaries to their
own employees for many months. Due to the efforts made by this Government, the condition
of many of the societies have appreciably changed. Due to initiatives such as waiver of
agricultural loan, revival of societies through the assistance from Primary Cooperative
Development Fund (PCDF), subsidy for running public distribution system and through
various other measures, the business of the societies have improved and the non payment of
salary has been brought down significantly. The Government will continue its efforts to
ensure that all the societies become financially viable and no employee in any of the societies
goes without salary.
The Primary Agricultural Cooperative Banks were permitted to mobilize deposits
from the public for issue of loans and were unable to refund the deposits on due dates of
maturity to the depositors by the Primary Agricultural Cooperative Banks. If this chronic
problem continues then the confidence of the people will be shaken. This Government have
made all out efforts to ensure that the depositors credibility is restored and their matured
deposit amount with the interest is paid back to them. In this regard, an amount of Rs.170.62
crores as public deposit was pending on 30.6.2006 due to be refunded to the depositors. A
promise was made in the Assembly that efforts will be taken to settle these deposits at the
earliest. Due to the initiatives taken by the Government, Primary Agricultural Cooperative
Banks were able to refund Rs.117.68 crores as on 29.2.2008 and further efforts are being
made to refund the entire amount fully with due interest to the depositors.
This Government considers that Primary Agricultural Cooperative Banks are the
fulcrum on which integrated package of services such as credit, insurance, inputs, marketing
and extension can be delivered to the farmers. Recognising the importance of increasing
productivity in agricultural sector as envisaged in the XI Five Year Plan, Primary
Agricultural Cooperative Banks will be actively engaged in provision of integrated service to
the farmers and serve as a point of dissemination of the technology and the improved
cultivation practices. It is expected to increase the prosperity of farmers by availing better
services particularly in the area of technological intervention. In this process, Primary
Agricultural Cooperative Banks will actively collaborate with Agriculture Department and
the Research & Development organisations and provide all inputs and services under one
roof.
The Primary Agricultural Cooperative Banks will also act as Paddy Procurement
Centres on behalf of Tamil Nadu Civil Supplies Corporation and will procure paddy at the
minimum support price announced by the Government in the non delta areas apart from
Direct Purchase Centres operated by Tamil Nadu Civil Supplies Corporation. Primary
Agricultural Cooperative Banks will also assist the Cooperative Marketing Societies, Tamil
Nadu Cooperative Marketing Federation and National Agricultural Cooperative Marketing
Federation of India (NAFED) to procure the agricultural produce directly from the farmers.
Primary Agricultural Cooperative Banks will expand their produce pledge loan operations
substantially to prevent distress sale by the farmers during peak harvest. A target of Rs. 100
crores will be set for disbursal under produce pledge loan by Primary Agricultural
Cooperative Banks in 2008- 09.
Most of the Primary Agricultural Cooperative Banks are operating under manual
system of record maintenance and face a serious threat from the new generation banks using
latest banking technology to penetrate the rural areas. To counter such threat, state-of-art
banking technology will be introduced and all the Primary Agricultural Cooperative Banks
will be computerized by the end of 2008.
(B) Long Term Credit Structure
Long Term Cooperative Credit Structure consists of Apex Bank viz., Tamil Nadu
Cooperative State Agriculture and Rural Development Bank, Chennai and 180 Primary
Cooperative Agriculture and Rural Development Banks at taluk/block levels. These credit
institutions are providing investment credit to the members for activities like minor irrigation,
horticulture, plantation crops and other agriculture and allied sectors.
(i) Tamil Nadu Cooperative State Agriculture & Rural Development Bank
(TNCSARDB)
The Tamil Nadu Cooperative State Agriculture and Rural Development Bank raises
the funds necessary for its lending by floating ordinary and special development debentures.
As the National Bank for Agriculture and Rural Development refinance could not be availed
from 2004, due to National Bank for Agriculture and Rural Development’s insistence on
automatic debit mechanism, Tamil Nadu Cooperative State Agriculture and Rural
Development Bank could not make available required resources to Primary Cooperative
Agriculture and Rural Development Banks for lending to agricultural sector. As on today the
Bank is extending small quantum of loans for Non-Farm Sector using its own resources. As
on 29.2.2008, the share capital of the Bank stood at Rs. 40.29 crores and reserves Rs.566.10
crores and deposits Rs.1.19 crores. Due to virtual suspension of lending operations, the bank
is in cumulative loss of Rs.143.84 crores as on 29.2.08.
(ii) Primary Cooperative Agriculture and Rural Development Banks (PCARDB)
There are 180 Primary Cooperative Agriculture and Rural Development Banks at
taluk/block levels. The Primary Cooperative Agriculture and Rural Development Banks
provide long term credit for purposes like minor irrigation, land development, purchase of
agricultural machineries, horticulture, animal husbandry and other allied activities. The
period of repayment of such loans ranges from 5 to 15 years.
Due to non-availability of refinance from National Bank for Agriculture and Rural
Development, the lending activity by these Banks is practically nil for the last four years.
During 2007-08, efforts were made to revive the activities of Tamil Nadu Cooperative State
Agriculture and Rural Development Bank and Primary Cooperative Agriculture and Rural
Development Banks by mobilizing resources through collection of overdues in Non-Farm
Sector. From 1.4.2007 till 29.2.2008, Rs.72.91 crores was collected as against the overdue of
Rs.278.43 crores under the Non-Farm Sector. Further through waiver, an amount of Rs.42.45
crores each for the year 2006-07 and 2007-08 were released to the long term credit structure
as waiver compensation. This has increased the liquidity of both Tamil Nadu Cooperative
State Agriculture and Rural Development Bank and Primary Cooperative Agriculture and
Rural Development Banks.
1.2.4 TYPES OF COOPERATIVES
(1)The Primary Agricultural Credit/Service Societies
The agricultural co-operative credit structure in the Punjab State is broadly divided into
two sectors, one dealing with the short-terms and medium-terms finance and the other with the
long-term credit. In the State, the short-term and medium-term credit structure is based on a
three-tier system, i.e., the Apex Co-operative Bank at the State level, the Central Co-Coperative
Bank at the district/tehsil level and the Primary Agricultural Credit Societies at the village level.
The major objectives of the primary agricultural credit service societies are to supply agricultural
credit to meet the requirements of funds for agricultural production, the distribution of essential
consumer commodities, the provision of storage and marketing facilities and for light agricultural
implements and machinery.
(2) Agricultural Non-Credit Societies
While credit is and must remain for some time the chief concern of the Co-operative
Movement relatively slow, since 1912, when the non-credit societies were brought officially
under the aegis of the Movement. the World War II (1939-45) came as a God send boon with
respect to the development of the Cooperative Movement. Prices of agricultural goods began to
rise and touched new peaks. The repayment of loans was accelerated and deposits began to pour
in. The number of societies also rose. Another interesting development in co-operative during the
War wast the extension of the Movement to non-credit activities, viz. consumer’s co-operative
marketing societies, consolidation societies, etc. The number of agricultural non-credit societies
in the district was 38 in 1978-79.
(3) Agricultural co-operative Marketing Societies
Marketing has occupied a far smaller place in the co-operative picture in India than in
many countries, notably Denmark and the USA, but not other non-credit line of co-operation,
with the possible exception of the consolidation of land holdings and joint farming enterprises,
seems to hold greater possibilities of help to the agricultural population of India. The
development of co-operative marketing in India is closely bound up with the problem of credit-
the claims of the money-lenders commonly inhibiting the cultivator’s freedom of action in
disposing of his crop. The full utilization of loans advanced depends upon the arrangements for
the marketing of surplus produce. For this purpose, there the Punjab State Marketing Federation
at the State Level, wholesale societies at the district level and marketing societies at the market
level. These societies also provide other agricultural facilities and make arrangements for the
supply of domestic items in the rural areas.
(4) Co-operative Farming Societies.
The Royal Commission on Agriculture in 1928 observed that it co-operation failed, there
would fail the hope of the Indian agriculturist. Co-operative farming is a compromise between
collective farming and the peasant proprietorship and gives all merits of large-scale farming
without abolishing private property. It implies an organization of the farmers on the basis of
common efforts for common interests. They are allowed to withdraw from the cooperative farm
whenever they desire. In India, the exceedingly small size of holdings is perhaps the most serious
defect in our agriculture. If agriculture has to be improved, the size of the holdings must be
enlarged. The co-operative farming societies, thus, enable the cultivators to enjoy the economies
of large-scale farming through the pooling of land management resources.
1.3 COMPANY PROFILE
1.3.1 INTRODUCTION:
Bank is an institution that deals in money and its substitutes and provides crucial
financial services. The principal type of baking in the modern industrial world is commercial
banking & central banking.
Banking Means "Accepting Deposits for the purpose of lending or Investment of
deposits of money from the public, repayable on demand or otherwise and withdraw by
cheque, draft or otherwise."
-Banking Companies (Regulation) Act, 1949
The concise oxford dictionary has defined a bank as "Establishment for custody of
money which it pays out on customers order." Infact this is the function which the bank
performed when banking originated.
"Banking in the most general sense, is meant the business of receiving, conserving &
utilizing the funds of community or of any special section of it."
-By H.Wills & J. Bogan
"A banker of bank is a person, a firm, or a company having a place of business where
credits are opened by deposits or collection of money or currency or where money is
advanced and waned.
-By Findlay Sheras
Thus a Bank:
Accept deposits of money from public,
Pays interest on money deposited with it.
Lends or invests money
Repays the amount on demand,
1.3.2 CLASSIFICATION ON BASIS OF OWNERSHIP:
On the basis of ownership banks are of the following types:
1. PUBLIC SECTOR BANK
Public sector banks are those banks which are owned by the Government. The Govt.
runs these Banks. In India 14 banks were nationalized in 1969 & in 1980 another 6 banks
were also nationalized. Therefore in 1980 the number of nationalized bank 20. But at present
there are 9 banks are nationalized. All these banks are belonging to public sector category.
Welfare is their principle objective.
2. PRIVATE SECTOR BANKS
These banks are owned and run by the private sector. Various banks in the country
such as ICICI Bank, HDFC Bank etc. An individual has control over their banks in
preparation to the share of the banks held by him.
3. CO-OPERATIVE BANKS
Co-operative banks are those financial institutions. They provide short term &
medium term loans to their members. Co-operative banks are in every state in India. Its
branches at district level are known as the central co-operative bank. The central co-operative
bank in turn has its branches both in the urban & rural areas.
Every state co-operative bank is an apex bank which provides credit facilities to the
central co-operative bank. It mobilized financial resources from richer section ourban
population by accepting deposit and creating the credit like commercial bank and borrowing
from the money mkt. It also gets funds from RBI.
1.3.3 ACCORDING TO RESERVE BANK OF INDIA ACT 1935
Banks are classified into following two categories son the basis of reserve bank Act.
1934.
1. SCHEDULED BANK
These banks have paid up capital of at least Rs. 5 lacks. These are like a joint stock
company. It is a co-operative organization. These banks find their mention in the second
schedule of the reserve bank.
2. NON SCHEDULED BANK
These banks are not mentioned in the second schedule of reserve bank paid up capital
of these banks is less then Rs.5 lacks. The no. such bank is gradually tolling in India.
1.3.4 FUNCTIONS OF BANKS
o PRIMARY FUNCTIONS
i. Acceptance of Deposits
ii. Making loans & advances
iii. Loans
iv. Overdraft
v. Cash Credit
vi. Discounting of bills of exchange
o SECONDARY FUNCTIONS
Agency functions
Collection of cheques & Bills etc.
Collection of interest and dividends.
Making payment on behalf of customers
Purchase & sale of securities
Facility of transfer of fund
o UTILITY FUNCTIONS:
Safe custody of customer’s valuable articles & securities.
Underwriting facility
Issuing of traveler’s cheques letter of credit
Facility of foreign exchanges
Providing trade information
Provide information regarding credit worthiness of their customer.
1.4 CLASSIFICATION ACCORDING TO FUNCTION
On the basis of functions banks are classified as under:-
1. COMMERCIAL BANKS
The commercial banks generally extend short-term loans to businessmen & traders.
Since their deposits are for a short-period only. They cannot lend money for a long period.
These banks reform various types or agency job for their customers. These banks are not in a
position to grant long-term loans to industries because their deposits are only for a short
period. The majority of joint stock banks in India are commercial banks which finance trade
& commerce only.
2. SAVING BANKS
The principle function of these banks is to collect small saving across the country and put
them into productive use. These banks have shown marked development in Germany &
Japan. These banks are established in HAMBURG City of Germany in 1765. In India a
department of post offices functions as saving banks.
3. FOREIGN EXCHANGE BANKS
These are special types of banks which specialize in financing foreign trade. Their
main function is to make international payments through purchase & sale of exchange bills.
As it well known, the exporters of a country prefer to receive the payments for exports in
their own currency. Thus these banks convert home currency into foreign currency and vice
versa. It is on this account that these banks have to keep with themselves stock of the
currency of various countries. Along with that, they have to open branches in foreign
countries to carry on their business.
4. INDUSTRIAL BANKS
The industrial banks extend long term loans to industries. In fact, they also help
industrials firms to sell their debentures and shares. Sometimes, they even underwrite the
debentures & shares of big industrial concerns.
5. INDIGENOUS BANKS
These banks found their origin in India. These banks made a significant contribution
to the development of agricultural and industries before independence. Mahajans, rural
moneylenders have been the forerunner of these banks in India.
6. CENTRAL BANK
The central bank occupies a pivotal position in the monetary and banking structure of
the country. The central bank is the undisputed leader of the money market.
As such it supervises controls and regulates the activities of commercial banks
affiliated with it. The central bank is also the higher monetary institution in the country
charged with the duty & responsibility of carrying out the monetary policy formulated by
the government. India's central bank known as the reserve bank of India was set up in 1935.
7. AGRICULTURAL BANK
The commercial and the industrial banks are not in a position to meet the credit
requirements of agriculture. Hence, there arises the need for setting up special type of banks
of finance agriculture. The credit requirements of the farmers are two types. Firstly the
farmers require short term loans to buy seeds, fertilizers, ploughs and other inputs. Secondly,
the farmers require long-term loans to purchase land, to effect permanent improvements on
the land to buy equipment and to provide for irrigation works.
There are two types of agriculture banks.
1. Agriculture co-operative banks, and
2. Land mortgage banks. The farmer provides short-term credit, while the letter extends
long-term loans to the farmers.
1.4.1 ORIGIN OF BANKING:
Its origin in the simplest form can be traced to the origin of authentic history. After
recognizing the benefit of money as a medium of exchange, the importance of banking was
developed as it provides the safer place to store the money. This safe place ultimately evolved
in to financial institutions that accepts deposits and make loans i.e., modern commercial
banks.
1.4. 2 BANKING SYSTEM IN INDIA
Historical perspective:
Early phase from 1786-1969. Nationalization of banks and up to 1991 prior to
banking sector reforms. New phase of Indian banking with the advent of financial banking.
Banking in India has its origin as early or Vedic period. It is believed that the transitions from
many lending to banking must have occurred even before Manu, the great Hindu furriest,
who has devoted a section of his work to deposit and advances and laid down rules relating to
the rate of interest. During the mogul period, the indigenous banker played a very important
role in lending money and financing foreign trade and commerce. During the days of the East
India Company it was the turn of agency house to carry on the banking business. The General
Bank of India was the first joint stock bank to be established in the year 1786. The other
which followed was the Bank of Hindustan and Bengal Bank. The Bank of Hindustan is
reported to have continued till 1906. While other two failed in the meantime.
In the first half of the 19th century the East India Company established there banks,
the bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Bombay in1843.
These three banks also known as the Presidency banks were the independent units and
functioned well. These three banks were amalgamated in 1920 and new bank, the Imperial
Bank of India was established on 27th January, 1921.
With the passing of the State Bank of India Act in 1955 the undertaking of the
Imperial Bank of India was taken over by the newly constituted SBI. The Reserve Bank of
India (RBI) which is the Central bank was established in April, 1935 by passing Reserve
bank of India act 1935. The Central office of RBI is in Mumbai and it controls all the other
banks in the country. In the wake of Swadeshi Movement, number of banks with the Indian
management were established in the country namely, Punjab National Bank Ltd., Bank of
India Ltd., Bank of Baroda Ltd., Canara Bank. Ltd. on 19th July 1969, 14 major banks of the
country were nationalized and on 15th April 1980, 6 more commercial private sector banks
were taken over by the government.
1.4.3.COOPERATION:
There are 4,595 Primary Agricultural Cooperative Banks at the village level,
providing short term and medium term credit facilities to the agriculturists.
These banks have covered as on 31.3.02 85.96% of the agricultural operational
holdings in the State of which 79.57% belong to weaker sections.
A co-operative bank is a financial entity which belongs to its members, who are at the
same time the owners and the customers of their bank. Co-operative banks are often created
by persons belonging to the same local or professional community or sharing a common
interest. Co-operative banks generally provide their members with a wide range of banking
and financial services (loans, deposits, banking accounts…). In India co-operative banks are
regulated with the RBI and governed by Banking Regulations Act 1949 and Cooperative
Societies Act, 1965
The Bank was formed in 1872 in the city Manchester in UK. The Co-operative banks
in INDIA have a history of almost 100 years. The Cooperative banks are an important
constituent of the Indian Financial System. Co operative Banks in India are registered under
the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are
governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies)
Act, 1965. These banks were conceived as substitutes for money lenders.
Co-operative bank performs all the main banking functions of deposit mobilization,
supply of credit and provision of remittance facilities. Co-operative Banks belong to the
money market as well as to the capital market. Co-operative Banks provide limited banking
products and are functionally specialists in agriculture related products. However, co-
operative banks now provide housing loans also. UCBs provide working capital loans and
term loan as well.
1. Customer-owned entities: In a co-operative bank, the needs of the customers meet the needs
of the owners, as co-operative bank members are both.
2. Democratic member control: Co-operative banks follow the principle of “one person,
one vote”.
3. Profit allocation: Profit is usually allocated to members who are related to the
number of shares subscribed by each member.
Co-operative bank do banking business mainly in the agriculture and rural sector.
However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan areas
also
The State Co-operative Banks (SCBs), Central Cooperative Banks (CCBs) and Urban
Co-operative Banks (UCBs) can normally extend housing loans up to Rs 1 lakh to an
individual. The scheduled UCBs, however, can lend up to Rs 3 lakh for housing purposes.
Agricultural co-operative society:
An agricultural cooperative, also known as a farmers' co-op, is a cooperative where
farmers pool their resources in certain areas of activity. A broad typology of agricultural
cooperatives distinguishes between agricultural service cooperatives, which provide various
services to their individually farming members, and agricultural production cooperatives,
where production resources (land, machinery) are pooled and members farm jointly
1.4.4 PROFILE OF THE CO OPERATIVE CREDIT SOCIETY
An agricultural cooperative, also known as a farmer’s co-op, is a cooperative where
farmers pool their resources in certain areas of activity. A broad typology of agricultural
cooperatives distinguishes between agricultural service cooperatives, which provide various
services to their individually farming members, and agricultural production cooperatives,
where production resources (land, machinery) are pooled and members farm jointly.
Examples of agricultural production cooperatives include collective farms in former socialist
countries, the kibbutzim in Israel, collectively governed community shared agriculture,
Longo Mai co-operatives and Nicaraguan production co-operatives. Worker cooperatives
provide an example of production cooperatives outside agriculture
PERCENTTAGE ANALYSIS
Current ratio
Cash Position Ratio
Debtors to Total Current Assets Ratio
Net Profit Ratio
Gross Profit Ratio
Stock Turnover Ratio
Debtor Turnover Ratio
Current Assets Turnover Ratio
Total Assets Turnover Ratio
Operating Profit Ratio
Return on Equity Share Capital of Ratio
2.1.4.3 Current Ratio
This ratio shows the relationship between current assets and current liability of the company. It
is an important measure of analyzing the firm’s ability to pay off its current obligations out of its
short-term resources
2.1.4.4 Cash Position Ratio
This ratio is also known as super quick ratio/Absolute liquidity ratio. This is still a more vigorous
test of liquidity position of a concern
Cash
Cash Position Ratio= -------------------------
Current Liabilities
2.1.4.5 Debtors to Total Current Assets Ratio
A metric used to measure a company's financial risk by determining how much of the
company's assets have been financed by debt. Calculated by adding short-term and long-term
debt and then dividing by the company's total assets.
Debtor
Debtors to Total Current Assets Ratio= ------------------------
Total Current Assets
2.1.4.6 Net Profit Ratio
The two basic components of the net profit ratio are the net profit and sales. The net
profits are obtained after deducting income-tax and, generally, non-operating expenses and
incomes are excluded from the net profits for calculating this ratio.
Net profit
Net profit ratio =---------------
Sales
2.1.4.7 Gross Profit Ratio
A financial metric used to assess a firm's financial health by revealing the proportion
of money left over from revenues after accounting for the cost of goods sold. Gross profit
margin serves as the source for paying additional expenses and future savings.
Gross profit
Gross profit ratio=-----------------
Sales
2.1.4.8 Stock Turnover Ratio
Stock turn over ratio and inventory turn over ratio are the same.. Stock turn over ratio /
Inventory over ratio indicate the number of time the stock has been turned over during the
period and evaluates the efficiency with which a firm is able to manage its inventory. This
ratio indicates whether investment in stock is within proper limit or not.
Cost Of Goods Sold
Stock Turnover Ratio=------------------------------
Average Stock At Cost
2.1.4.9 Debtor Turnover Ratio
This ratio throws light on the credit and collection policy pursued by concern. DTR is an
important tool of analyzing the efficiency of liquidity management of a company
Net sales
Debtor Turnover Ratio=-----------------
Debtor
2.1.4.10 Current Assets Turnover Ratio
Current Assets Turnover Ratio indicates that the current assets are turned over in the form
of sales more number of times. A high current assets turnover ratio indicates the capability of
the organization to achieve maximum sales with the minimum investment in current assets.
Higher the current ratio better will be the situation.
Current Assets
Current Assets Turnover Ratio=--------------------
Total Assets
2.1.4.11 Total Assets Turnover Ratio
Total Assets Turnover Ratio (TATR) is used to measure the firm's ability to utilize its
assets to generate sales. It is an indication to the firm's operation efficiency. A lower ratio
means inefficient utilization of assets.
Sales
Total Assets Turnover Ratio=----------------
Total Assets
2.1.4.12 Operating Profit Ratio
The profit earned from a firm's normal core business operations. This value does not
include any profit earned from the firm's investments (such as earnings from firms in
which the company has partial interest) and the effects of interest and taxes.
Operating Profit
Operating Profit Ratio=----------------------------------
Sales
2.1.4.13 Return on Equity Share Capital of Ratio
The amount of net income returned as a percentage of shareholders equity. Return on
equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested
Net Profit after Tex
Return on Equity Share Capital of Ratio=------------------------------
Equity share capital
STATISTICAL ANALYSIS
Correlation
Trend Analysis
Spearman’s rank
Compound Annual Growth Rate
Current Assets Position
OBJECTIVE OF THE STUDY
To do an in-depth analysis of the model.
To analyze and get the desired results by using CAMELS as a tool of measuring
performance.
To analyze the performance of the PACCS Ltd for a specific period. (ie. Year from
2005 -2012)
To analysis liquidity position of the PACCS Ltd.
To study on Working capital of the PACCS Ltd.
SCOPE OF THE STUDY
“To study the strength of using CAMELS framework as a tool of performance
evaluation of PACCS Ltd..”
In order to find the performance of the PACCS Ltd., various tools have been used.
But to find the performance in sharply the CAMEL is taken as one of the analysis. In this
study the methods Capital adequacy, Asset quality, Management, Earnings and Liquidity are
used.
The study has been under taken for a period from 2005 – 2012 ( 7 Years) . The future
plans covers should be laid in view of firm’s financial strengths and weakness by properly
establishing the relationship between the items of balance sheet and profit and loss account.