URBAN COOPERATIVE BANKS – VIS – A – VIS NORTH EAST INDIA

Dipak Kumar Barthakur

Chairman,Nagarik Samabay Bank Ltd.

Guwahati, Assam.

India i.e. Bharat can claim the unique distinction of organising the first ever co-operative effort in the history of humanity. The basic principles of “Yangyam” rest on the same. In those days social harmony, mutual co-operation were the distinguishing features of socio economic order of our Society and our ideals were co-operation not competition. The Dharma was the core of social order. There is no doubt that co-operatives have their roots in the society since centuries. Our ancient literatures are also based on full of co-operative philosophy. In Kautilya’s Arthashastra and the verses of Rigveda, this is amply evident. Even to-day those are the vehicles of planned progress. However, co-operatives have been playing balancing role for arresting monopolistic tendencies, exploitations and discouraging redtape due to Government control.

The modern co-operative movement in India started a century ago with the enactment of co-operative societies Act in 1904. Interestingly, legal status was conferred on credit societies keeping in view, in particular, the needs of the agricultural sector. Nevertheless, Sir Iblectson, who piloted the legislation observed :

“We recognize that artisans, employees on small pay and other persons in towns may very properly be admitted to the benefits of our legislation”. Though the modern banking services have come from the west it yet in good old days, even before the “Rishi Manu” the concept of saving was prevalent in our society. A knowledgeable persons kept a percentage of his earnings as deposit with a person of faithful clean, honest and of good character, so that depositor in case of his need can withdraw without any problem. This concept can be termed as the origin of banking system. Slowly the co-operative sector in India keeping the demand of the time has taken up economic activity.

In order to remove the systemic gap within the organizational structure of co-operative credit and banking sector there is the need to make it more responsive and effective to meet the requirements of credit for agriculture and rural development with efforts of the National Co-operative Union of India and with the approval of the Government of India and Reserve Bank of India, a National Level Apex Co-operative Bank namely co-operative Bank of India (COBI) has been set up in the country. The COBI has been incorporated under Multi State Cooperative Societies Act and it has been functioning. Now under the Banking Regulation Act subsequently the Reserve Bank of India changed the licencing procedure in the interest of monitoring and better control of the banking operation.

The co-operative Credit Institutions were also contributing their might to the Banking Sector. There were 1770 Urban Cooperative Banks (UCBs) functioning in the country at March end 2008, out of which 53 UCBs were Scheduled UCBs and 1717 were unscheduled UCBs. The number of Rural Cooperative Institutions at end March 2008 were 98,343 of which Short term Institutions were 97,626 and Long Term Institutions were 717. Of the Short Term Institutions there were 31 State Cooperative Banks or Apex Banks . 371 District Central Cooperative Banks and 97,224 Primary Agricultural Societies (PACS). Of the 717 Long Term Institutions there were 20 State Cooperative Agriculture and Rural Development Banks. In a nutshell, excluding the PACS, the Banking sector as at end March 2008 comprised of 79 Scheduled Commercial Banks,90 Regional Rural Banks 1770 Urban Cooperative Banks, 31 State Cooperative Banks, 371 District Central Cooperative Banks, 20 State Cooperative Agriculture & Rural Development Banks. In addition, there were 4(four) Local Area Banks (LABs) in the country at end March,2008.

COOPERATIVE BANKS

The Urban Cooperative Banks operating in the country numbered 1770 at end March 2008. Of these Banks 1717 were Unscheduled Banks while 53 were Scheduled Cooperative Banks. Of the 53 Scheduled Banks, 25 were Single State Banks while 28 were Multi State Banks. Of the Non Scheduled (1717), 13 were Multi State while 1704 were Single State. Of the 1704 Single State Banks, Tier I (deposits below Rs.100 crore) were 175. Of the Tier I Banks (1529) Unit Banks (single branch) were 874 while Non Unit Banks were 655.

The North East India consists of Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura & Sikkim. These are known as the ‘Seven Sisters’. With the inclusion of Sikkim in the North Eastern Council, the region is now known as the ‘Eight Sister’ States. The total land area of the NE region States is 2,63,179 sq.km. and has a population of 388.578 lakh. The NE region is bounded by China & Bhutan in the North West, Bangladesh in the South West and Myanmar in the East. The average population density is 148 sq.km with a lowest density of 13 persons per sq. km. in Arunachal Pradesh & a high of 340 persons in Assam. Details are as under –

State	Area (sq.km.)	Population (2001)	No. of Villages (Nos.)	Household (lakhs)	Density (sq.km.)	Decadal Growth (1991-2001)	Literacy (%)
Arunachal Pradesh	83743	1097968	4501	2156	13	27.00	54.7
Assam	78438	26655528	26312	49148	340	18.92	64.3
Manipur	22327	2166788	2391	3752	97	24.86	68.9
Meghalaya	22429	2318822	5782	4189	103	30.65	63.3
Mizoram	22081	888573	707	1761	42	28.82	88.5
Nagaland	16579	1990036	1278	3280	120	64.53	67.1
Sikkim	7096	540851	452	1142	76	33.06	69.68
Tripura	10486	3199203	1039	6643	305	16.03	73.4
Total NE	263179	38857769	42462	72071	148	21.61	68.7
All India	3287263	1028610328	638588	1935800	313	21.54	65.4

DISPARITIES IN THE BANKING SECTOR

The total number of branches of SCBs (including RRBs & LABs) increased from 72,752 at end June 2007 to 76518 at end June 2008 registering a growth of 5.2 %. These comprised of 31,127 Rural Branches, 17858 Semi Urban Branches & 27533 Urban & Metropolitan Branches. Nearly half (49.6%) of the total branches of all Bank groups are of nationalized (Public Sector Banks including IDBI Bank Ltd.) followed by SBI Group (19%) and Gramin Banks (RRBs) – 19.3%. New Private Sector Banks had 4.9% share while old private Sector Banks had 5.9% share. The top 100 centres arranged according to the size of deposits accounted for 69.7% of total Bank deposits and 77.8% of Bank Credit (end March 2008).

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The Southern region continued to account for largest percentages of Bank branches followed by Central, Northern, Eastern & Western regions. The share of the North East region remained low at 2.7% at end June 2008.

In the North East region there were 18 urban Cooperative Banks operating at end March 2008. Break up was as follows -

State	No. of UCBs	Total Deposits	Total Advances	Total Districts where UCBs are operating
Assam	9	230	130	6
Manipur	3	140	62	3
Meghalaya	3	60	20	3
Mizoram	1	11	3	1
Tripura	1	10	5	1
Sikkim	1	4	3	1
Total	18	455	233	15
All India	1770	138496	88981	343
% Share (to All India)	1.02	0.33	0.25	4.37

Of the 18 Banks, 14 were Unit Banks while 4 Banks viz. Industrial Cooperative Bank, Cooperative City Bank, Gauhati Cooperative Urban Bank and Imphal Cooperative Urban Bank had more than 1 Branch operating. The Total number of branches of UCBs operating in the North East were 29.

In Assam, there were 9 UCBs operating at end March 2008 viz. Industrial Cooperative Bank, Gauhati Cooperative Urban Bank, Cooperative City Bank & Nagarik Samabay Bank (all in Guwahati), Nalbari Urban Cooperative Bank, Mangaldai Nagar Samabay Bank, Mohabhoirab Cooperative Urban Bank (Tezpur), Golaghat Cooperative Urban Bank and Kanaklata Mahila Cooperative Urabn Bank (Jorhat).

Of the 18 Urban Cooperative Banks operating in the North East there were 2 women Banks (Mahila Bank) – one at Assam and other at Manipur.

The total deposits of the 31 State Cooperative Banks as at end March 2007 was Rs.48,560 crore while the Advance Portfolio was Rs.47,354 crore. Since the total deposits of Scheduled Commercial Banks were Rs.26,96,936 crore, the deposits of State Cooperative Banks at end March 2007 comprised of just 1.80% of deposits of SCBs. Likewise, the advances of Scheduled commercial Banks being Rs.19,81,236 crore at end March 2007, the advances of State Cooperative Banks comprised of 2.39% of advances of scheduled Commercial Banks.

The deposits of The Assam Cooperative Apex Bank Ltd. as at end March 2007 was Rs.587.21 lakh which comprised of 1.21% of the total deposits of State Cooperative Banks of the country. Likewise, the Advance portfolio of the State Cooperative Bank being Rs.26692.64 lakh, it constituted 0.56% of the advance portfolio of State Cooperative Banks in India.

The Primary Agriculture Credit Societies (PACS) form the base of the short Term Cooperative Credit Structure. In Assam, the PACS are known as G.P.S.S. (Gaon Panchayat Samabay Samitis) in the plains areas while in the hills districts they are known as LAMPS (Large Sized Adivasi Multi Purpose Societies). Select indicators of PACS in the North East as at end March 2007 were as under -

(Rs. In lakh)

State	No. of PACS	No. of Villages covered	No. of Villages per PACS	Working Capital (Rs. In Lakh)	Societies in Profit		Societies in Loss		Average Deposits
					No.	Amount	No.	Amount
Arunachal Pradesh	31	3649	118	1636	20	25	6	8
Assam	809	23422	29	7533	309	7639	419	9909	0.63
Manipur	186	-	-	45904	-	-	108	201	34.95
Meghalaya	184	3761	20	1797	51	47	128	512	0.45
Mizoram	175	660	4	175	59	70	4	10	0.09
Nagaland	1719	969	1	11246	-	-	-	-	3.73
Sikkim	166	166	1	146	56	6	37	4	-
Tripura	270	1900	3	8970	120	84	148	59	0.12
Total	3540	33527	9	77407	615	7871	850	10703	3.83
All India	97224	637102	7	7995869	33983	74895	48078	240174	120.82

Thus the total deposits of PACS being Rs.23484 crore, their deposits constituted 0.87% of the total deposits of Scheduled Commercial Banks at end March 2007.

The various indicators for the NER which are commonly used for Banking development, show that despite improvement in various parameters the level of financial outreach for the NER is low. As per report of the Usha Tharat Committee on Financial Sector Plan for the North East Credit to Net State Domestic Product ranges from 9 in Nagaland to 40.9 in Meghalaya against an all India average of 62. There are 59 Bank Accounts (Current A/c & Savings A/c per 100 adults in the country but the corresponding figure for the NE is only 37.3 as against 39.1 in Assam. Credit accounts per 100 adult population is 5.9 in Assam (NE 6.7) against an all India average of 13.3 per capita Credit in Assam is Rs.2261 (NE Rs.2407) against an all India figure of Rs.10474.

Because of the uncertainty in the financial sector pertaining to the Urban Co-operative Bank, there was total stalemate of growth and development of Urban Co-operative Banks in North East Region.

Taking a view on the crisis faced by the Urban Co-operative Banking Sector time and again the Reserve Bank, in the annual policy for the year 2004-05, announced its decision to stop granting fresh licenses for formation of new UCBs. This was followed up with a decision not to grant any fresh branch license as well. It was made clear that this was necessitated pending a comprehensive review of the legislative and regulatory framework governing the sector. It was in this background that a decision was taken to draft a vision document for the sector to outline a framework that would facilitate the strengthening of the sector and enable it play the assigned role of providing credit to the economically weaker sections.

Vision Document for UCBs

The Reserve Bank eventually formulated a draft vision document placed it in the public domain in March,2005 and finalized it thereafter, with the following objectives.

(i) To rationalize the existing regulatory and supervisory approach keeping in view the heterogeneous character of entities in the sector.

(ii) To facilitate a focused and continuous system of supervision through enhanced use of technology.

(iii) To enhance professionalism and improve t he quality of governance in UCBs by providing training for skill up-gradation as also by including large depositors in the decision making process/management of banks.

(iv) To put in place a mechanism that addresses the problems of dual control, given the present legal framework, and the time consuming process in bringing requisite legislative changes.

(v) To put in place a consultative arrangement for identifying weak but potentially viable entities in the sector and provide a framework for their being nurtured back to health including, if necessary, through a process of consolidation.

(vi) To identify the unviable entities in the sector and provide an exit path for such entities.

MOU with State Governments and Constitution of TAFCUBs

In pursuance of the proposals in the draft vision document State Governments having a large number of UCBs were approached for signing memorandum of understanding (MOU). Some of these State Governments have since signed MOUs. The memorandum, in fact, provides the basis for the constitution of Task Force for Urban Co-operative Banks (TAFCUB) in each State, which is the forum of the consultative decision making process. The TAFCUB has, apart from the representatives of the RBI and the State Government, those of the UCBs sector as well. The MOU also provides for professionalizing the audit and the Reserve Bank’s role in improving IT and HR levels in the UCBs.

Recent Developments

As envisaged in the Vision Document, Reserve Bank approached States having large network of UCBs for signing Memorandum of Understanding (MOU) to ensure greater coordination between RBI and State Government to supervision and regulation of the UCBs.

Government of Assam has signed a MOU in the year 2007 and thereafter things started moving. Most of the existing Banks approached Reserve Bank of India for allowing to open branches in their particular territory. This is a positive sign and we see a ray of hope for the growth of the Urban Co-operative Banks.

Here we must also mention the great role played by Sahakar Bharati for the development of Urban Co-operative Banks in our country.

The main factors that impede banking and financial development in the NE are topography of the region, sparse settlements of population, infrastructural bottlenecks such as transport, communication & power, low level of commercialization, lack of entrepreneurship, law and order situation, land tenure system (specially in the hill area), low network of branches, lack of simple customized and flexible financial products to suit the local populace, poor loan recovery, lack of awareness of banking services and communication bottlenecks with mainland India.

* In preparing this article datas are taken from available Banking bulletins of NSBL.