Credit Management

CHAPTER 1 INTRODUCTION Banks are the institutions which mobilize savings from the public and channelize them to the various sectors of the economy. Banks have been in existence in India since Vedic times. Section 5(b) of the Banking Regulation Act 1949 defines banking as, “Accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft or otherwise.” The bank cannot just accept deposit and still idle. For the deposit mobilised they are required to pay interest for taking care of interest payments the bank has to lend the deposit as loans and advances to the needy persons at a rate of interest which is normally more than what the banks pays for its deposits. According to C.R. Fay “a co-operative society is an association for the purpose of joint trading, originating among the weak, and conducted always in an unselfish spirit on such terms that all who are prepared to assume the duties of membership may share in its rewards, in proportion to the degree in which they make use of their association”. Sir Horace Plunkett’s definition of co-operation is “Self-help made effective by organization”. He summed up the theory and practice of co-operation in three famous maxims; “Better Farming, Better Business and Better Living”. This definition reflects the spirit of cooperative enterprises. It however, lays over-emphasis on the principle of self-help; which is no doubt an important principle of co-operation but the only one. Granding of advance to a prospective client involve various stages, together which is called credit cycle. The main principle of credit management is to see that the funds are deployed in most yielding assets and at the same time the chances of the accounts becoming non-performing assets are very low.

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The selection of clients has very importance in the credit management of a bank. The objective of credit management is to ensure that the funds lent are repaid without default on the due dates. The concept of lending has existed from the early days of civilization. Now a days credit implies monetary or non-monetary equivalent transactions. It also includes non-monetary and/or barter transactions. Roughly, we can define credit as, “A transaction between two parties in which one (the creditor or lender supplies) money equivalent, goods, services, etc. in return for a promise of future payment by the other. Such transactions normally include the payment of interest to the lenders.” Credit disbursement means making available the amount of facility that has been approved for a party. As soon as the branch get the approval from the higher authorities for its proposal, the Regional Manager has to verify the covenants’ and confirms that they are the same as were recommended. The mode of the disbursement depends on the types of advance. If it is a working capital loans normally a running account (cash credit or over draft) is granted. Here the payment is made by fixing drawing limit based on the stock statement submitted by the client. Whenever term loans are granted as far as possible, the disbursement should be made directly to the suppliers of assets by means of Demand Draft or Pay Order. In case of term loans for constructions of buildings, the disbursement should be made in stages and after making physical visit to the site to ascertain the progress of construction. Some debtors do not pay back the credit as promised, creating a credit loss, sometimes even making the creditors bankrupt. But majority of the debtors meet their commitments. There are situations where the creditors end up losing even the debtors settles the dues on time. One cause is inflation. If the rate of inflation exceeds the interest rates, the suppliers or credit are badly affected. Idle economic resources can be effectively put into use through credit. Borrowers who do not have enough resources, which can be returned to the lender after having achieved the objective.

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Banks and other financial intermediaries collect economic resources mainly in the form of deposits- from the public and engage in intelligent lending. In recovery management of loans it is very important to recover maximum loan amount in minimum period. For achieving this, personal contact and relations with the loan account holder gets high priority and importance. But, the recovery y staff or the bank does not take candid approach towards this relationship and recovery does not remain a regular feature. Ultimately legal action is the result STATEMENT OF THE PROBLEM Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately at a later date. The resources provide may be financial, or they may consist of goods or services. Credit is a contractual agreement, in which a borrower receives something of value, with the agreement to repay the lender at some data in future. One of the functions of a bank is to deposit extraction and credit extension and managing credit operations the important needs for any bank. This project is done to find out the extent of the credit disbursement and its repayment to the Service Cooperative Bank at Chirayinkil. Credit is the lifeblood of any bank, so it’s proper and timely recovery is essential for the existence, growth and development of a bank. From olden times, even a businessman who wanted to take a decision on whether to sell goods on credit to a new prospect used to follow 3Cs of lending, I e. Character, Capacity and Capital. These parameters hold well in case of bank too. Over a period of time, 3 more Cs have been added, ie, Collateral, Conditions, and Credit Records. Those 6Cs have to be analysed well before granting credit to a client. This project is done to find out the effectiveness of the credit disbursement and its repayment in Chirayinkeezhu Service Cooperative Bank.

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INTRODUCTION TO THE INDUSTRY KERALA STATE CO-OPERATIVE BANK LTD The beginning of the Kerala State Cooperative Bank Ltd (KSCB) dates back to early 20th century. In 1914, the then Maharaja of Travancore, his highness The Moolam Thirunal Ramavarma, by his proclamation introduced the “Travancore Cooperative Societies Regulation Act”. As per the Act, the first cooperative society - The Trivandrum Central Cooperative Bank was registered in the year 1915. The bank started functioning on 18th January 1916 with a share capital of Rs.1.00 Lakh consisting of 1000 shares of Rs.100 each. Later, in 1943, the bank was converted into the ‘Travancore Central Cooperative Bank’ with a federal character, for the entire Travancore State. Aftermath of the Indian independence, the bank was reorganized as a State Cooperative Bank for Travancore – Cochin State in 1954. On linguistic basis, the State ‘Kerala’ was formed in the year 1956. Then the bank was also elevated to the position of State Cooperative Bank, and further it became ‘The Kerala State Cooperative Bank Ltd.’ The Kerala State Cooperative Bank was approved and retained as an Apex Bank, in which, only Cooperative Banks approved by the Registrar of Cooperative Societies were allowed as members. At present all the 14 District Cooperative Banks in the State and the Government of Kerala are the members and Shareholders of the Bank. From 1st March 1966 onwards the Kerala State Cooperative Bank Ltd. was brought under the control of Reserve Bank of India (RBI). In July 1966, the RBI as per the provisions contained under second schedule of RBI Act, approved the Bank as a ‘Scheduled State Cooperative Bank’. The Kerala State Cooperative Bank is the first scheduled Apex Cooperative Bank in the Cooperative Banking Sector in the Country. In 1972, RBI issued license to The Kerala State Cooperative Bank for doing banking business. At present, The Kerala State Cooperative Bank is not only the leader of cooperative sector in the state but also a model for cooperative banking structure in the country.

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MISSION Our mission is to remain as the strong, sound and leading organization in the cooperative credit structure and to be the backbone for the rural financial sector of Kerala. Through the efficient management of the organization, it would aspire to function as a professional, profitable and socially responsible organization ensuring the best service to its stakeholders and customers by providing good value for their money and thereby ensure accelerated development of the rural population. VISION

KSCB is marching towards its centenary by 2016. In this context the vision statement of the Bank to be achieved by the centenary year is stated below :

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To emerge as the best rural financial institution in the state having a wide network through successful District Cooperative Banks and efficient Primary Agricultural Cooperative Societies, having 50% of the households as members transacting business, having a minimum business of Rs.24000 crore by 2016.

Envisages providing best banking services to DCB’s, to PACS/ Other Cooperative Institutions and to agriculture, industry, trade, service and manufacturing sectors, and to the general public. ACTIVITIES     

Accepts Deposits from DCBs, Other Institutions and Individuals Provides loans and advances to DCBs, Other Institutions and Individuals Performs miscellaneous banking functions Invests funds with other institutions Borrows from other institutions as per needs

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   

Liaison work with Government/RBI/NABARD\ Acts as an agent of Government Coordinates cooperative credit institutions Organizes campaigns on cooperation

CHIRAYINKEEZHU SERVICE CO-OPERATIVE BANK LTD NO: 1155 PROFILE The Chirayinkeezhu Service Co-operative bank started functioning from 10 th July 1926. Now the bank has passed through more than 87 years of its glorious services. At the end of 1960 the financial condition of the bank was very poor. In 1972 the bank started minor Saving Deposit Scheme. This Scheme has lead to the good interaction between the bank and the people. The bank started Gold Loan and Monthly Chitty in the year 1973. The bank developed so many programs to uplift the living standards of its members and customers and take care to fulfill their needs and requirements. It started with 45 British Rupees and now it has been achieved 286 Crore rupees. The bank is classified by the Govt. as the Class I. After 87 years of functioning the bank has 2500 A Class members’ and16500 C Class members. It has 2.43 Crore share capital and282 Crore investments. Chirayinkeezhu service Coperative Bank has 1 main branch and 5 branches. OBJECTIVES OF THE SOCIETY: 1. To promote the principles of thrift, self-help and self-efficiency among the members. 2. To provide short term and medium term loans to members. 3. To procure and distribute seeds, pesticides, fertilizers, agricultural implements etc. to agricultural sector and cottage industries. 4. To market agricultural and industrial production and palm for the sale to its members.

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5. To prepare and implement agricultural production and storing agricultural produce of the members. 6. To own or hire go down for collecting and storing agricultural production. 7. To give sufficient support for the extension of artificial irrigation facilities. 8. To provide facilities for providing bio-fertilizers and chemical-fertilizers either personally or on co-operative basis within the area of operation of the bank. 9. To purchase and keep modern agricultural implements for the benefit of members and farmers. 10. To provide good varieties of farming animals to the members 11. To act as an agent for selling of seeds, fertilizers and agricultural implements. 12. To acquire moveable and immoveable properties needed for the proper utilization of the loan. 13. To act as a temporary custodian of land of its members on behalf of its members under the special circumstances with the permission of the Registrar. 14. To rise deposits for members and non-members. 15. To perform such other activities conclusive incidental for above objects. MEMBERSHIP The bank gives three types of membership A, B & C. The bank gives “A” Class membership to an individual who should be a resident of the areas of operation or is an occupant of land in the area of operations of the society. They are the real owners of the bank. They can use the voting right in the general body to choose the managing committee. The bank issue photo identity cards to identify them. The bank gives “B” Class membership to the State Govt. and self-governing institutions E.g.: Gramapanchayath, State Govt., Self Help Group etc. to deal the transactions with the bank. The bank gives “C” Class membership to an individual who is a resident in the state of Kerala. They can only pledge the gold to bank to avail gold loan and to take part in chitty or MDS.

SOURCE OF FUNDS

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The sources of fund of the bank consist of internal fund and external fund. Internal fund consists of own fund, share capital, entrance fees etc. external funds include only deposits.

MANAGEMENT The general body is the supreme authority of the society. The managing committee is elected by the general body which consists of eleven members. One representation from SC/ST and one from women category. DISPOSAL OF NET PROFIT Reserve fund

25%

Co-operative education fund

5%

Agriculture credit stabilization fund

25%

Dividend on shares

20%

Common good fund

10%

Building fund

15%

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ADMINISTRATIVE PATTERN Administrative pattern followed in the society comprises of both elected management and selected management. It is shown as follows: General Body Board of Directors President Secretary Assistant Secretary Chief Accountant Branch Manager…………Internal Auditor Accountant………………Senior Clerk Junior Clerk………Cashier…….…Typist Sales Manager………….Sales Man Bill Collector…………………Attender Store Keeper………..Night Watchman……………Sweeper Driver

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BANKING SECTION A. DEPOSIT Wide variety of deposits schemes are introduced to the members and customers. Savings deposits, Minor saving deposit, Fixed deposit etc.  Fixed Deposit:- This type of deposit bears high rate of interest so, it is most benefit to the NRI’s and pensionable persons. Big amount can be deposited and monthly interest for the use of their day life can be drawn.  Savings bank Deposit:- This type of deposit can be open to everyone settled in the state with Rs.100/- and can operate easily.  Recurring Deposit:- A fixed rate of amount should be deposited every month for a fixed period. A lump sum amount of money is paid back after maturity. This is very helpful to the parents to collect a fund for their daughter’s marriage.  Current Deposit:- It is useful to the merchants and other businessmen to deposit and withdraw amounts daily. The bank does not pay interest for this account, so it is the most cost less deposit in the bank.  Minor Savings Deposit Scheme:- This type of deposit scheme was first introduced in the state by The Chirayinkeezhu service Cooperative Bank in 1970 for children. Now it is popular all over the state. The aim of the deposit scheme is to promote the earning mentality and skill of the children. For this some incentives are also paid. When the deposit amount attains Rs.300 the bank gives 3 chickens as incentives and for Rs.1000- a lamb. This scheme attained international attention also. On a particular day of every month one of the bank staff visits the depositor’s home and collects the money even if it is a small amount. This helps the customers to know more about the bank and the customer is ensured.  MDS (Chitty):- The bank started many monthly deposit scheme up to Rs.100000/-. The prize money will be paid by auction. Now the bank started a

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new type of MDS, in this scheme all the depositor can receive the prize money within 5 months. B. CREDIT FACILITIES (VARIOUS LOANS) The credit facility of the bank is very helpful for the farmers, businessmen, small traders and other poor people. So many unemployed youths availed the loans and started self-employed projects. The bank introduced many loans schemes.  Agricultural loans (AGST):- Short term agriculture loans are issued to members up to one lakh with low interest rate according to the terms and conditions of NABARD.  Non-agriculture loans:- The bank issued non agricultural loans to its “A” class members up to five lakhs for any purpose under land mortgage system. The bank implemented the Gahan system for registering the loan deed so they can save the registration fee.  Gold loan:- One of the major transactions of loans is gold loan. Gold loans are availed by ‘A’ class and ‘C’ class members for the immediate needs under pledging gold ornaments. Two types of gold loans are provided for the convenience of the customers. They are one Special gold loan for three months of duration to get up to 90% of the value of day to day gold and the other is one is ordinary gold loan for 10 months duration to get up to 70% of the value of day to day gold.  Interest free loan:- The bank issued interest free loans to its members for joint farming and paddy cultivation up to Rs.25000/- for six months duration.  Building loan & Vehicle loan: The bank issued building loans and vehicle loans to members for purchase of land with building, constructing building etc. and for purchase of vehicles.  Hire purchase loan:- The bank issuers hire purchase loan for buying home appliances home appliances like fridge, television etc.

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OTHER BUSINESS SECTORS              

Copra processing unit Neethi medical store Neethi store Haritha vegetable store Ration shop Manure, fertilizers and pesticides depot Neethi gas Rubco-Rubwood Shopping complex Festival market Building material store Godown Auditorium and kalyana mandapom Locker facility

SOCIAL WELFARE ACTIVITIES  Ambulance service  Mobile mortuary  Self help group

RESEARCH METHODOLOGY OBJECTIVES OF THE STUDY

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

To identify the credit disbursement of the credit by The Chirayinkeezhu Service Co-

 

operative Bank. To study the repayment trend in The Chirayinkeezhu Service Co-operative Bank. To study the pattern of credit management in The Chirayinkeezhu Service Co-

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operative Bank. To study the overall performance of The Chirayinkeezhu service Co-operative Bank.

METHODOLOGY AND SAMPLE SELECTION The methodology used in the study is both descriptive and analytical methodology. The research is based on secondary data only. PERIOD OF THE STUDY The period of the study of the project is 5 years starting from the financial year 2008-09 to the financial year 2012-13. SOURCES OF DATA   

Annual reports of The Chirayinkeezhu Service Co-operative Bank. Official records of The Chirayinkeezhu Service Co-operative Bank. Audit reports of The Chirayinkeezhu Service Co-operative Bank.

STATISTICAL ANALYSIS    

Trend analysis Credit deposit ratio analysis Comparative balance sheet Percentage

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SCOPE OF THE STUDY This project is conducting at Chirayinkeezhu Service Co-operative Bank in order to analyse the trends in the loan disbursement and its repayment in the co=operative banking sector. This study helps the bank to analyse its credit management efficiency apart from the profit making. Service co-operative banks usually analyse only the current year financial performance of the bank. This study enables the bank to know about the overall performance of the bank for previous 5 years, especially in the area of the credit disbursement and its repayments. LIMITATIONS OF THE STUDY  

Delay in getting sufficient information. Absence of proper documentations in The Chirayinkeezhu Service Co-operative



Bank. Time constraints.

CHAPTERISATION Chapter 1

: Introduction to the study

In this chapter the introduction to the project is given. It includes background of the problem, introduction to the company, the methodology used, scope of the study, limitations of the study and chapterization.

Chapter 2

: Literature review

In this chapter the literature reviews and quotes of the researchers who studied about the subject before. Chapter 3 & 4: Data analysis and discussion

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This chapter should contain a logical presentation of the empirical results after completing the data analysis. This should contain neatly tabulated results of hypotheses tested, graphs and figures, if any, along with the necessary interpretation Chapter 5

: Summary and conclusion

This chapter should focus on broad observations made by the study against each objective specified in the 1st chapter.

CHAPTER 2 INTRODUCTION This chapter reviews the research work done in the related fields of the study. These are hardly comprehensive studies made available on the research studies done in the cooperative banks. Therefore, in this chapter review of various literatures to support the present study have been

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done. Knowledge of related research enables the researcher to define the frontier of his fields; it helps in comparing the efficiency of the various procedures and instruments used. Further literature reviews avoid unintentional replications of previous study and also place the researcher in a better position to interpret the significance of his own result. The literature review gives a broad outlook of various research studies made in the past and the details of such studies throw light on future studies to be made. In the present day economy finance is defined as the provision of money at the time when it is required. Every enterprise whether big or small it requires finance to carry on various business operations and to achieve their predetermined goals. A basic definition of finance is “a branch of economies that deals with resource management.” In sample layman’s terms finance is any area of study that help as get manage and invests money. Profitability is expressed in terms of several popular numbers that measure one of two generic types of performance: “how much they make with what they take in”. Following are the relevant literature reviews for the study: 1. Usha Sharma (April 2013), the study conducted on the role of credit disbursement policies of Regional Rural Banks in the sustainable development of Himachal Pradesh economy. The work of RRB in the disbursement policy is fair in rural areas and the 2.

people are satisfied with the working of RRB. Narayana Gawd Talla, Anand Bethapudi & Reddeppa Reddy (2010), the financial performance of the Dharmavaram Urban Cooperative Bank after 103 years of working achieved a growth of 9.49% in working capital and 8.87% in loan and advances in previous 5 years. The Dharmavaram Urban Cooperative Bank has been achieved less growth in profits and showed moderate performance in banking operations in the last

phase of previous 5 years. 3. Rajesh Bharadwaj, Priyanka & Rekha Raheja (November 2011), the ACGR of agriculture credit by cooperative banks always less as comparison to ACGR of all India Institutional Agriculture Credit during the period under consideration and the levels of NPAs in cooperative banking system is very high as compared to other financial institutions. Therefore, cooperative banks should control their NPAs level for surviving in credit market of India in future.

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4. Sachin R Agarwal $ Dr. S. S Solanke (October 2011), the higher authorities of the banking should help the lower authorities in the way of mother institution. They should provide authority, leadership, guidance, supervision and control. The modern practices should be co aided with some institution for remained alive in the modern era. The computerization and improper leadership should be eliminated. They should improve themselves through the principle of cooperation 5. Soyeliya Usha (September 2013), in order to overcome the problems faced by cooperative banks such as barriers in smooth flow of credit, interference of government, lack of policies for investments of their funds and barriers in opening a new branch, the cooperative banks should adopt modern methods of banking. The bank should introduce new schemes to attract new customers, they should plan for expansion of branches and they should improve customer services of the bank to a better extent. 6. J. Niveditha & G Brindha (2012), the recovery of NPAs is effective provided proper care is taken by shouldering the recovery drive more enthusiastically and confidentially. NPA is a double edged sword, which results in loss in interest income and provisioning which affects profitability. 7. Reji Kumar G, Prof. Dr. Sudharani Ravindran (2010), the service quality among cooperative banks in Kerala by taking a sample from Eranakulam district in Kerala revealed that perceived service quality low. The study highlights the need to look inwards by the cooperative banks to develop standards to satisfy its customers to avoid possible drain of its customer base. 8. Ranjan Kumar Nayak (December 2012), the cooperative banks are feasible option for inclusive growth through rural development by creating opportunity for employment and income generation. The shortfalls of cooperative banks should be mitigated and this will lead to inclusive growth in our country. 9. N. BabithaThimmaiah1, Jnaneshwar Pai Maroor and Shainy V.P (2013) Indian Banking industry (Public sector) is facing two problems. 1. Inefficiency 2.Competition from private players. These problems can be tackled effectively by giving energy boosters like training and development, motivation of employees and by creating super ordinate goals viz survival.

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10. Dr. Sandip K. Bhatt, Dharmendra P. Patel (July 2013), co-operative banks have very much importance in sustainable development. Without the help of co-operative banks, millions of people in India would be lacking the much needful financial support. Cooperative banks take active part in local communities and local development with a stronger commitment and social responsibilities. These banks are best vehicles for taking banking to doorsteps of common people, unbanked people in urban and rural areas. Their presence in the social, economic and democratic structure of the country is essential to bring about harmonious development and that perhaps is the best justification for nurturing them and strengthening their base. These banks are sure to win the race because they are from the people, by the people and of the people. Urban Co-operative Bank is very important role for the sustainable development of India. UCBs through various facilities provided to the society. This bank has also financially helped for various sectors. i.e. Education, Health, Social Work, Agriculture, Rural Development, Wedding Function, Cottage and Small Scale Industries, Retail Traders, Wholesale Trade etc. The banks also finance the weaker sections. 11. Erica Field& Rohini Pande (2006), The general opinion of micro-finance practitioners, a large scale randomized field experiment with a typical urban MFI provides no evidence that lower frequency repayment schedules encourage irresponsible repayment behavior among first-time borrowers receiving small loans. in practice, borrower composition may be sensitive to the flexibility of the repayment schedule, which could either reduce or increase an MFI's financial gains from switching from a weekly to a monthly schedule. 12. Yasir Mehmood, Mukhtar Ahmad, Muhammad Bahzad Anjum (2012), in the study regarding cooperates in India with special reference to lending practices find out the agricultural credit serves as a means to empower the farming community and provides a valuable tool to assist the economic development of a country. However, ineffective policies and unproductive use limit the role of agricultural credit which hinders in reducing poverty and fuel the “Vicious Circle of Poverty”. Through the above mentioned facts and figures it can be concluded that high interest rate on agricultural loans, price hikes, delay in disbursements, lack of sound monitoring by the bank employees, changes

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in business/residential places, death /accident of the borrowers etc. caused delay in repayments of agricultural credit which resulted in increase in NPLs ratio. 13. Jyoti Gupta, Suman Jain (October 2012), explains the integration of cooperative banks with the financial sector has increased following the inclusion of UCBs in Indian Financial Network (INFINET) and Real Time Gross Settlement System (RTGS) from November 2010. Further the annual policy statement of the Reserve Bank for 2010-11 envisages inclusion of financially sound UCBs in the Negotiated Dealing System (NDS) and opening up of internet banking channel for UCBs satisfying certain criteria. An analysis of deposits and advances base wise distribution of UCBs revealed that banking business was predominantly concentrated in favor of larger UCBs. UCBs with larger deposit base (more than or equal to `500 crore), though accounted for only 4 per cent of total number of UCBs, contributed almost 53 per cent of total deposits Balance sheet of UCBs expanded at a rate of 15 per cent at end-March 2011 over the previous year. 14. Anupam Mitra, Every authority concerned with Co-operative sector will have to play its part in ensuring that the aspirations of the Urban Co-operative Banking sector are nurtured in a manner that depositor interest and the public interest at large is protected. The role of RBI could, thus, be to frame a regulatory and supervisory regime that is multilayered to capture the heterogeneity of the sector and implement policies that would provide adequate elbowroom for the sector to grow in a non-disruptive manner. 15. Ramesh Chander and Jai Kishan Chandel (2011), had done an evaluation of financial performance and viability of cooperative banks - a study of four DCCBS in Haryana (India), they had find out that, being an important constituent of Indian Financial System, Cooperative Credit Institutions have been engaged in wide variety of activities namely, production, processing, marketing, distribution, servicing and banking with broad network of societies and banks in both urban and rural areas. Around 372 District Central Cooperative Banks (DCCBs) in India with large number of branches and extension counters cater to the needs of nearly one lakh societies in rural India. In Haryana 19

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DCCBs with more than 200 branches have been operating to fulfill the needs by facilitating self-sufficiency in food grain production, creation of better employment opportunities for rural people and organizational strength to the people having limited means for their sustenance.

16. Dr. Manasa Nagabhushanam had done a study on customer service quality of banks in India. She has been found out that, the expectations of the customers are on the increase, especially those customers who belong to young generation. The banks have to revisit their traditional practices and adapt themselves to satisfy the young generation. 17. Anil Kumar Soni and Dr. Harjinder Pal Singh Saluja (), have studied the role of cooperative banks in agricultural credit: a study conducted in Chhattisgarh. Agricultural credits play a number of significant functions of which the primary include the intensification and growth of the agricultural production. In a developing State like Chhattisgarh with huge deficits in terms of quality and quantity, the State has to shoulder the primary responsibility of providing cooperative credit. Considering the low living standards of common man, incomplete and imperfect markets, and other socio political considerations it is the primary duty of the government to ensure that its citizens have easy access to cooperative credit. 18. B. Muniraja Sekhar & Dr. B. Sudhir (2012), derived the technologically laggard Cooperative banks should realise that the economic class and age composition of their customers is already not favorable. It would obviously be difficult for laggard cooperative banks to attract new young customers if they do not increase their investments on IT in right direction with cautious approach. It is now high time for the decision makers in cooperative banks to realize the need to enlarge the base of computerization and see that the real benefits are delivered at all the levels, customers and stakeholders of the bank. The decision makers have to work out a definitive time frame for technological advancement in their respective banks with complete involvement in monitoring, controlling and evaluating the progress with set parameters.

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19. Vidyadhar Anaskar (2007), it is compulsory to follow the provisions of the Cooperative Societies Act, if the bad debts are to be written - off. It is necessary to have the certificate of the statutory auditors, the recommendation of the BOD, the approval of the AGM and lastly permission of the Commissioner of the Co-operative Department. 20. Jayashree R. Kotnal & Dr. L. C. Mulguand (2013), conclude total deposits have been increases in my study. On the contrary the rate of interest is falling every year. The Bank has adopted production oriented and need based leading policy and has been making specific efforts for providing credit facilities for person’s falls under the category of priority sector and weaker sections. The bank as to make such schemes and policies that increases in deposit ratio. That attracts the more number of people to be a member of bank. That increases the share capital of the bank. 21. Dr. R. G. Phadatare &Ms. Pisal Sucheta D (2012), Present study was an attempt to find psychological effect of workplace stress on employees and also to find out causes of workplace stress due to task demand, role demand, physical demand and relationship. It was observed that majority of the co-operative bank employees are under medium stress level. Present study shows positive relationship between stress and psychological effects like anger, unease, nervousness, low confidence, wrong decision making and inability to concentrate. Present study will help co-operative banks to reduce stress related problems of their employees. 22. V. Alagu Pandian and R.K. Sharma (2013), there is no significant difference between all sample selected variables of District Cooperative Banks and Urban Cooperative Banks in Dehradun. It is not much influence to the impact of significance difference between DCB and Urban Cooperative Bank in Dehradun. 23. Dr. Debdas Rakshit & Dr. Sougata Chakrabarti (2012), a strong apex cooperative bank is essential for the cooperative banking of the state. The poor NPA management of any cooperative banking in the state may have an adverse impact on other cooperative banks. Over the years, much has been talked about NPAs and the emphasis so far has

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been only on identification and quantification of NPAs rather than on ways to reduce and upgrade them. 24. Jajashree R Kotnal & Mr. Iftikhar Ahmed M Naikwadi (2010), management of NPA is need of the hour. NPA is key factor in increasing/decreasing net profit of the Bank. The hypotheses prove that the NPA is having direct impact on net profit. The course open to the banker is to ensure that an asset does not become NPA. If it does, he should take steps for early recovery failing which the profitability of the bank will be eroded. Time is of prime essence in NPA management. 25. Ms. S. P. Sreekala (2011), the importance of Asset and Liability Management in every business operation is inevitable and needs due care attention during the course of operation. The attention would help the firm get into liquidation and can survive in the long run successfully. It can also make the stake holders feel little happy if they could witness the business help them in maximizing their wealth. Work site 1. Usha Sharma (April 2013), “Role of Credit Disbursement Policies of Regional Rural Banks In The Sustainable Development of H.P Economy An Empirical Study”, International Journal of Marketing, Financial Services & Management Research, Vol.2, No. 4, April (2013). 2. Narayana Gawd Talla, Anand Bethapudi & Reddeppa Reddy (2010), “An Analytical Study On Financial Performance Of Dharmavaram Urban Cooperative Bank, A.P, India”, National Monthly Refereed Journal Of Research In Commerce & Management, 2010. 3. Rajesh Bharadwaj, Priyanka & Rekha Raheja (November 2011), “Role Of CoOperative Bank In Agriculture Credit Organization, Growth And Challenges”, Zenith International Journal Of Business Economics And Management Research, November 2011. 4. Sachin R Agarwal $ Dr. S. S Solanke (October 2011), “Problems faced by co-operative banks and perspectives in the Indian Economy”, International Journal of Commerce, Business and Management (IJCBM), Vol. 1, No.2, October 2012.

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5. Soyeliya Usha (September 2013), “A study on Co-operative Banks in India”, International Journal of Research in Humanities and Social Sciences, Vol. 1, Issue: 7, September 2013. 6. J. Niveditha & G Brindha (2012), “Virudhunagar District Central Co-Operative BankAn Overview”, Middle-East Journal of Scientific Research, 2012 7. Reji Kumar G, Prof. Dr. Sudharani Ravindran (2010), “Analysis of Service quality parameters among co-operative banks - a study with respect to Kerala”, Journal of Contemporary Research in Management, 2010. 8. Ranjan Kumar Nayak (December 2012), “Financial Inclusion through Cooperative Banks: A Feasible Option for Inclusive Growth”, Indian management journal, vol. 4 , issue 3, Dec. 2012. 9. N. BabithaThimmaiah1, Jnaneshwar Pai Maroor and Shainy V.P (2013), “Comparative Study of the Challenges Faced by PSU Banks and Urban Cooperative Banks and Strategies to Overcome with Special Reference to Mangalore City”, Global Journal of Management and Business Studies, Volume 3, Number 2013. 10. Dr. Sandip K. Bhatt, Dharmendra P. Patel (July 2013), “Role Of Urban Co Operative Banks In Sustainable Development Of India: A Study With Special Reference To Gujarat State”, Volume: 1/Issue: 4/ July 2013. 11. Erica Field& Rohini Pande (2006), “Repayment Frequency and Default in MicroFinance: Evidence from India”, 2006 12. Yasir Mehmood, Mukhtar Ahmad, Muhammad Bahzad Anjum(2012), World Applied Sciences Journal, IDOSI Publications, 2012 13. Jyoti Gupta, Suman Jain (October 2012), “ A study on Cooperative Banks in India with special reference to Lending Practices “,International Journal of Scientific and Research Publications, Volume 2, Issue 10, October 2012. 14. Anupam Mitra (2012), NPA Management of Urban Co-Operative Banks - A Study In Hooghly District of West Bengal, Voice of research, 2012. 15. Ramesh Chander and Jai Kishan Chandel (2011), “An Evaluation Of Financial Performance And Viability Of Cooperative Banks - A Study Of Four DCCBS In Haryana (India)”, KAIM Journal Of Management And ResearchVOL.3, No.2, November-April 2011

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16. Dr. Manasa Nagabhushanam, A Study on Customer Service Quality of Banks In India, Analyz Research Solution P Ltd 17. Anil Kumar Soni and Dr. Harjinder Pal Singh Saluja (), “Role of Cooperative Bank in Agricultural Credit: A Study Based On Chhattisgarh”, National Monthly Refereed Journal of Research in Commerce & Management. 18. B. Muniraja Sekhar & Dr. B. Sudhir, “ Core Banking Solutions in Urban Cooperative Banks- Issues and Challenges”, International Journal of Scientific & Engineering Research Volume 3, Issue 8, August-2012. 19. Vidyadhar Anaskar, “Writing-off of Bad Debts in Urban Co-operative Banks”, Vidya Sahakari Bank Ltd., Pune 2007. 20. Jayashree R. Kotnal & Dr. L. C. Mulguand, “Management of Deposits: A Case Study of Shree Siddeshwar Co-Operative Bank, Bijapur”, Asian Journal of Multidimensional Research Vol.2 Issue 3, March 2013. 21. Dr. R. G. Phadatare &Ms. Pisal Sucheta D , “A Study of Psychological Effects of Workplace Stress on Cooperative Bank Employees in Satara City”, Vol. 1, No. 1, March, 2013. 22. V. Alagu Pandian and R.K. Sharma, “Growth and Performance of Urban Cooperative Bank and District Cooperative Banks in Dehradun: A Case Study”, VSRD International Journal of Business and Management Research, Vol. III Issue IX September 2013. 23. Dr. Debdas Rakshit & Dr. Sougata Chakrabarti, “NPA Management of Rural Cooperative Banks of West Bengal: An Overview”, Business Spectrum, Volume-I, No.-3, January -- June 2012. 24. Jajashree R Kotnal & Mr. Iftikhar Ahmed M Naikwadi, “A Study on Management of Non Performing Assets in District Central Cooperative Bank”, 2010 25. Ms. S. P. Sreekala , “A Study On Asset And Liability Management In Salem CoOperative Bank”, Namex International Journal of Management Research, Vol. 1, Issue No.1, December 2011

24

Chapter 3 Analysis and Discussion INTRODUCTION Banking business has done wonders for the world economy. The simple looking method of accepting money deposits from savers and then lending the same money to borrowers, banking activity encourages the flow of money to productive use and investments. This in turn allows the economy to grow. In the absence of banking business, savings would sit idle in our homes, the entrepreneurs would not be in a position to raise the money, ordinary people dreaming for a new car or house would not be able to purchase cars or houses. The government of India started the cooperative movement of India in 1904. Then the government therefore decided to develop the cooperatives as the institutional agency to tackle the problem of usury and rural indebtedness, which has become a curse for population. In such a situation cooperative banks operate as a balancing centre. At present there are several cooperative banks which are performing multipurpose functions of financial, administrative, supervisory and development in nature of expansion and development of cooperative credit system. In brief, the cooperative banks have to act as a friend, philosopher and guide to entire cooperative structure. The study is based on some

25

successful co-op banks in Delhi (India). The study of the bank’s performance along with the lending practices provided to the customers is herewith undertaken. The customer has taken more than one type of loan from the banks. Moreover they suggested that the bank should adopt the latest technology of the banking like ATMs, internet / online banking, credit cards etc. so as to bring the bank at par with the private sector banks. Co-operative banks are small-sized units organized in the co-operative sector which operate both in urban and non-urban regions. These banks are traditionally centered on communities, localities and work place groups and they essentially lend to small borrowers and businesses. The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas. These banks, until 1996, could only lend for non-agricultural purposes. As at end-March 2011, there were 1,645 UCBs operating in the country, of which majority were non-scheduled UCBs. Moreover, while majority of the UCBs were operating within a single State, there were 42 UCBs having operations in more than one State. However, today this limitation is no longer prevalent. While the co-operative banks in rural areas mainly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance, etc. along with some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units and home finance. GRANDING OF LOANS AND ADVANCES The bank advances loans to the business community and other members of the public. The rate charged is higher than what it pays on deposit. The rate of interest charged on loans and advances varies depending upon the purpose, period and mode of repayment. The difference in the interest (interest on deposit and interest on loans) is its profit. CO-OPERATIVE MOVEMENT IN INDIA

26

Co-operative movement in India celebrated its 100-year jubilee in 2004. It was in 1904, the first Co-operative Societies Act was passed in India, which marked the beginning of co-operative movement in India. The co-operative movement was introduced in India with the chief object of making a break-through in the stagnation of the poorer classes, especially the vast majority of agriculturists who were groaning under the heavy weight of indebtedness. It was the bond of debt, which was largely responsible for the deteriorating stage of agriculture and the poverty of the masses. Many of the farmers were literally born in debt, lived in debt and died in debt, passing on their burdens to those who followed. The advent of British rule in India marked some further deterioration in the economic conditions of the farmers. CO-OPERATIVE MOVEMENT IN KERALA Co-operative Movement in Kerala started even before the formation of Kerala state. There were three administrative units in the erstwhile Kerala- viz, Travancore, Cochin and Malabar. In 1949, Travancore and Cochin merged in to a single state known as Travancore- Cochin State. Kerala state was formed in 1956 by merging all the three units.

DEFINITION According to C.R. Fay “a co-operative society is an association for the purpose of joint trading, originating among the weak, and conducted always in an unselfish spirit on such terms that all who are prepared to assume the duties of membership may share in its rewards, in proportion to the degree in which they make use of their association” TYPES OF COOPERATIVE BANKS The co-operative banks are small-sized units which operate both in urban and rural centers. They finance small borrowers in industrial and trade sectors besides professional and salary classes. Regulated by the Reserve bank of India, they are regulated by the Banking Regulations

27

Act 1949 and Banking laws (co-operative societies) act, 1965. The co-operative banking structure in India is divided into following 5 categories: 1. Primary co-operative credit society: The primary co-operative credit society is an association of borrowers and non-borrowers residing in a particular locality. The funds of the society are derived from the share capital and deposits of members and loans from central co-operative banks. The borrowing powers of the members as well as of the society are fixed. The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, etc. 2. Central co-operative banks: These are the federation of primary credit societies in a district and are of two types-those having a membership of societies as well as individuals. The funds of the bank consist of share capital, deposits, loans and overdrafts from state co-operative banks and joint stocks. These banks provide finance to member societies within the limits of the borrowing capacity of societies. They also conduct all the business of a joint stock bank. 3. State co-operative banks: The state co-operative bank is a federation of central cooperative bank and acts as a watchdog of the co-operative banking structure in the state. Its funds are obtained from share cap[ital, deposits, loans and overdrafts from the Reserve Bank of India. The state co-operative banks lend money to central co-operative banks and primary societies and not directly to the farmers. 4. Land development bank: the land development banks are organized in 3 tiers, namely; state, central and primary level and they meet the long term credit requirements of the farmers for developmental purposes. The state land development banks oversee, the primary land development bank situated in the district and urban areas in the state. They are governed both by the state government and RBI. Recently, the supervision of land development banks have been assumed by National Bank for Agriculture and Rural Development (NABARD). The sources of funds for these banks are the debentures subscribed by both central and state government. These banks do not accept deposits from the general public. 5. Urban co-operative bank: The urban co-operative banks, though not formally defined, refer to primary co-operative banks located in urban and semi-urban areas. These banks,

28

till 1996, were allowed to lend money only for non-agriculture purposes. This distinction does not hold today. These banks were traditionally centered on communities, localities, work place groups. They essentially lend to small borrowers and businesses. Today, their scopes of operations has widened considerably. FUNCTIONS OF CO-OPERATIVE BANKS Co-operative banks also perform the basic banking functions of banking but they differ from commercial banks in the following respects: 1. Commercial banks are joint stock companies under the companies’ act of 1956, or public sector under a separate act of a parliament whereas co-operative banks were established under the co-operative society’s acts of different states. 2. Commercial bank structure is branch banking structure whereas co-operative banks have a three tier setup, with state co-operative bank at apex level, central/district co-operative bank level, and primary co-operative societies at rural level. 3. Only some of the sections of banking regulation act of 1949(fully applicable to commercial bank), are applied to co-operative banks, resulting only in a partial control by RBI of co-operative banks 4. Co-operative banks function on the principle of cooperation and not entirely on commercial parameters. LOANS A loan is granted for a specific period of time. Generally commercial banks grant short term loans. The borrowers may withdraw the entire amount in lump sum or in installment. However, interest is charged on the full amount of loan. Loans are generally granted against the security of certain assets. A loan may repaid either I lump sum or in installment. ADVANCES An advance is a credit facility provided by the bank to its customers. It differs from loans in the sense that loans may be granted for long period of time. Further, the purpose of granting advances to meet the day to day requirements of the business. The rate of interest charged on

29

advances varies from bank to bank. Interest is charged only on the amount withdrawn and not on the sanctioned amount QUALITIES OF A GOOD BORROWER Banks are businesses and need to make a profit. So they carefully consider each loan application to make sure they are lending their money to people who are capable of paying them back. Banks can’t make money when people default on their loans. Bank officers look for what are called the “Six Cs of Credit” when determining whether or not to approve someone’s loan application. Below is a description of each of these six criteria. 1. Character: The client should possess a good ‘character’. One of the important traits of judging character of a person is his sincerity in meeting commitments and honesty in all his dealings. A person with high integrity will not resort to dubious means and will be committed to doing the business for which finance has been sanctioned. Even if he were to foresee any financial difficulties in the future which would affect the commitment to the bank, he would advance and keep the bank appraised of the same. 2. Capacity: The banks will look at your business’s balance sheet and cash flow statement to see how much you can afford to borrow. They will also ask for your personal financial statement to see what kind of debt you can handle. Most small business loans tend to be based on the individual’s ability to repay the loan, not on the cash flow of the business. They may ask about your spouse’s employment as well.

3. Capital: The commitment if any person to any endeavour he undertakes would become only when he has his share of money invested in the business. This is called ‘Capital investment’ or ‘Owner’s stake’. If the client did not invest any amount and the entire amount is financed by the bank, the chances of the firm not being run professionally are there. It is because of this reason, bankers always insists that the client has to bring some portion of the total investment, which is technically termed as ‘Margin’. Bankers always finance the gap between the total funds required for a project

30

and the funds already brought in by the borrower-subject of course to the minimum level that the borrower is expected to contribute. 4. Collateral: In banking terms, ‘collateral’ means taking some security in addition to the primary security, i. e, the assets created out of bank loan. Bank take collateral security in the form of mortgage of property, pledge of shares and securities, hypothecation of movables, etc. the bank do not insists on collaterals for small amounts and also where he risk perception is not high. 5. Conditions: Condition refers to the political c\stability of the country, the demand for the product, the industry prospects, availability of raw materials, infrastructure facilities, etc. 6. Credit record: What is the past record of the client regarding payments due for loans taken from the same bank or other banks, credit card defaults, etc. the availability of information from the new agency Credit Information Bureau of India Ltd. would help knowing the credit record of the proponent.

PRINCIPLES OF LENDING The major source of funds for lending comes from deposits. These deposits could be of ‘demand’ nature or ‘time deposits’. Customers may come and demand their deposits. Customers may come and demand their deposit, whenever they do it, without any prior notice. The banker is expected to honor the customer’s mandate by paying the cheque issued the customer. If, for any reason, the banker refused to honor the cheque of a consumer having sufficient balance in the account, he runs danger of losing the trust reposed by the customer and this may lead to the customer of the bank coming simultaneously and demanding repayment of their deposits. In such extreme situations, the central banks of the country (for example, RBI in India) come to the rescue of such a bank by providing funds and issuing statements in the public media about the health of the bank.

31

1. Safety: First cardinal principle of lending is ‘safety’. The banker should ensure that the funds lent are safe and would be repaid by the borrowers as per the terms of sanction. Since the major source of funds advance is ‘deposits’ that belongs to the customers, the banker should be doubly sure that the amounts lent would be received back with interest. the word ‘safety’ is subjective one but the credit policy and the guidelines of the bank help the Relationship Managers to take proper decision ensuring safety of the loans. 2. Liquidity: The second important quality of good lending is ‘liquidity’. By liquidity we mean the ability of the bank to convert the assets into cash. The entire amount that a bank mobilizes as deposits cannot be lent. A portion of the deposit should be kept with Reserve Bank of India in the form of cash (Cash Reserve Ratio-CRR) and another stable portion should be invested in approved securities (Statutory Liquidity Ratio). The RBI changes the CRR and SLR as part of the Credit Policy announcement every year, depending on RBI’s assessment about the money supply in the economy. If RBI is of the opinion that money supply is more, then it would increase the CRR/SLR so that the lendable funds to the economy. To honor the demands made by its depositors in the form of cheque, bank holds a certain percentage of demand deposits in the form of cash. 3. Security: Bankers should be confident of recovering the loans from the business income of the borrower. The assets acquired out of bank finance constitute primary security for the loan. In some cases, where the bankers perceive higher risks in the finance, he may seek additional security in the form of immovable property or shares/securities. These securities are termed as ‘collateral security’. Before nationalization of bank in the year1969, bankers were giving lot of importance to security and any person who could offer collateral security was getting loans easily. Collateral securities would be sold by the bank, as a last resort, if a borrower defaults in repayment, despite replacement of the loan and various steps taken for rehabilitation of the unit. 4. Spread: the banker cannot afford to grant his entire advances to one particular individual or one type of industry. If it does so, the future performance of the bank would depend entirely upon the success/failure of that particular individual or the industry. A prudent banker follows this principle in two ways: (a) Financing of various industries: Banks in their credit policy detail the cap on the exposure to various industries based on the past experiences and the present exposure.

32

Even RBI has prescribed maximum exposure levels for financing of individuals and groups. As per the current guidelines, maximum exposure, per individual, is restricted to 15% of the capital funds of the banks and 40% for a group. As a measure to encourage financing ‘infrastructure; projects, the exposure limits a\have been kept a little higher, i. e, 20% for individual and 50% for the group, for such projects. These guidelines ensure that the banks do not concentrate their lending to a few individuals or one or two groups. (b) Geographical spread: Banks also follow the practice of not concentrating their lending to one particular geographical location, even though they might have financed to various industries in that locality. Geographical spread helps at times of some calamities occurring in a particular area not very badly affecting the performance of the bank. 5. Purpose: The loan granted should be for an approved purpose and should be for a productive activity. Banks do not grant loans for activities which promote anti-national interest or for speculative /gambling purpose. The purpose of the loan should be for a business which is legally permissible and economically feasible, i. e, capable of generating surplus from its activity 6. Profitability: Its general common sense that nobody would do any business to incur losses. This holds good even for a banker, who, by the very nomenclature of commercial bank, is there to do business for profits. Banker should evaluate any proposal on this important aspect since there is no point in doing business without earning any profit. 7. Policy validation: The lending should be in tune with:  RBI’s credit policy  Bank’s credit policy and various product -specific parameters.  Not opposed to national policy.  National priorities loans to priority sectors, exports at concessional rates of interest. CREDIT CYCLE Granting of advances to a prospective client involves various stages. Together, it is called credit cycle. According to L. C Mather an ideal advance is one which is granted to a reliable customer for an approved purpose in which the customer has adequate experience safe in the knowledge

33

that the money will be used to advantage, and repayment will be made within a reasonable period from trading receipt or other known maturities. Credit cycle includes 6 stages: prospecting, credit investigation, credit proposal, credit approval, credit disbursement and credit monitoring. 1. Prospecting: The first stage in credit cycle is prospecting. Prospecting is looking for new clients who would be requiring bank finance. The source for acquisition of new client could be lead from existing borrowers, operated current account survey or a market survey. 2. Credit investigation: This is the most important stage in the credit cycle. If the selection of client is good, half the battle is won in the entire credit process. Here, a thorough study is conducted about the prospects- his business, his dealings with suppliers and customers, existing bankers. 3. Credit proposal: Once the banker is satisfied about the genuineness of the client and the client risk rating is accepted to the bank, the proposal is put up for approval of the facilities. Irrespective of whether the limits to be approved are within the branch powers or higher authorities, the proposal should be completed in all respects with same commitments. 4. Credit approval: The delay in disbursement of any facilities takes place more because of the delay sat the stage of the cycle. The approval authority should be well conversant with the delegation of powers of the bank, credit policy of the bank and to certain extent the profiles of various industries. While approving any facility, the authorities concerned with the sanctioning of the proposal should have a very practical and pragmatic approach and stipulate conditions which are possible to comply and not stipulate a covenant just as a matter of abundant precaution. confirm 5. Credit disbursement: Disbursement means making available the amount of facility that has been approved for a party. As soon as the branch gets approval from the higher authorities for its proposal, the RM has to verify the covenants and confirm that they are the same as were recommended. 6. Credit monitoring: Actual work of the RM begins here since he must have a close watch on the conduct of the account to find out if everything OK. An account which was excellent at the time of entry may become bad if there is no adequate follow-up. Follow-

34

up ensures that the fund sanctioned by the bank is properly used by the borrower and there is no diversion. CREDIT DISBURSEMENT OF THE CHIRAYINKEEZHU SERVICE CO-OPERATIVE BANK The Chirayinkeezhu Service Co-operative Bank has been completed 88 years of functioning and able to achieve one of the top positions of the primary co-operative banks in Kerala. The bank is an ‘A’ class special grade co-operative bank with 6 branches which include one head office branch and 5 other branches. The bank provides a complete suite of products across deposit, loans, trading and other services to help the members to satisfy their needs. Credit is a contractual agreement, in which a borrower receives something of value now, with the agreement to repay the lender at some date in the future. One of the basic functions of the bank is to deposit extraction and credit disbursement. The study was conducted on the basis of the credit disbursement and repayment of The Chirayinkeezhu Service Co-operative Bank. Five year details of the loan disbursement and loan repayment have taken for analyzing their financial performance and also for finding out the details of the amount disbursed and collected during the last 5 years. PRODUCT PROFILE Following are the product profile of The Chirayinkeezhu Service Co-operative Bank LOANS The credit facility of the bank is very helpful for the farmers, businessmen, small traders and other poor people. So many unemployed youths availed the loans and started self-employed projects. The bank introduced many loans schemes. Various loan option of The Chirayinkeezhu service Co-operative Bank includes:  

Agriculture short term loans Ordinary short term loans

35

      

Gold loans Agriculture gold loan Interest free loan Housing loan Vehicle loan Hire purchase loan Consumer credit

AGRICULTURAL LOANS

36

The bank provides agriculture loans to its members: 

Short term agriculture loan: The bank provide agriculture loan with a maturity



period of twelve months or less. The Chirayinkeezhu Service Co-operative bank offers short term agriculture loan



for the farmers of Chirayinkeezhu. The bank gives interest free agriculture loan up to Rs. 25000/- for paddy



cultivation as a helping hand for struggling paddy farmers Low interest rate: Agriculture loan other than interest free loan bears a low rate of interest ranging from 4% to 7%.

Table no: 3.1 show the details of agriculture loan (*in lakhs) Year

Total loan amount

Non-agricultural loan

Agriculture loan

2008-09

17,243

17,149

94

2009-10

23,194.5

23,122.5

72

2010-11

28,089

27,968

121

2011-12

35,041.4

34,929.4

112

2012-13

43,244

43,145

89

TOTAL

1,46,811.9

1,46,323.9

488

Table 1 shows the details of agriculture loan from the period of 2008 to 2013, it is clear that: The loan amount is fluctuating year after year and we could analyse that the agriculture loan disbursed is decreasing in the last 3 years. The higher amount of agriculture loan passed was in the financial year 2010-2011 with Rs.121 lakh. The lower amount of agriculture loan passed was Rs. 72 lakh in the financial year 2009-2010.

37

As we analyse the table we could understand that the agriculture loan passed in a financial year is only a small part of the total loan disbursed by the bank. The total agriculture loans passed in previous 5 years are Rs. 488 lakh where the total loan disbursed is Rs. 146,811.9 lakh. The rest of the loans sanctioned in the previous 5 years are for non-agricultural purposes

Fig no: 3.1 show details of agriculture loan

AGRICULTURE LOAN 140 120 100 80

AGRICULTURE LOAN

60 40 20 0 2008-09

2009-10

2010-11

2011-12

2012-13

Repayment of agriculture loan

38

Table no: 3.2 show the details of repayment of agriculture loan (*in lakh) Year

Disbursement

Repayment

Percentage

2008-09

94

56

59.6

2009-10

72

55

76.4

2010-11

121

114

94.2

2011-12

112

112

100

2012-13

89

99

111.24

488

436

89.34

Total

Table no: explains the details regarding the repayment of the agriculture loan disbursed during the previous 5 years. In the financial year 2008-2009 only 59.6% of the total agriculture loan disbursed has been recovered, but it has been increased constantly during the forthcoming years and it have been reached to 111.24% in the financial year 2012-2013. As a whole, 89.34% of the total agriculture loans disbursed have been repaid during the previous 5 years.

Fig no: 3.2 show the detail regarding the repayment of agricultural loan

39

500 450 400 350 300 250 Disbursement

200

Repayment

150

Percentage

100 50

To ta l

13 20 12 -

20 11 -

12

11 20 10 -

10 20 09 -

20 08 -

09

0

SHORT TERM LOAN A short term loan refers to a loan that is scheduled to be repaid within a short time of period, usually less than a year. In some instances its maturity could normally go up to five years depending on the different bank rates. Features of the short term loans in Chirayinkeezhu service Co-operative Bank: 

The short term loan other than agriculture loan is given to the ‘A’ class members



of the co-operative bank. These are secured loans: Bank sanctions the loan to its members by accepting the

 

security of immovable land property. The bank sanctions the loan up to Rs. 5 lakh If the covenant produces security of an employed person, the bank will provide Rs. 1 lakh for one employed person and Rs. 2 lakh for 2 employed persons.

40



The bank provides the time limit of 3 to 5 years for the repayment of the loan.

Table no: 3.3 Shows the details of short term loan (*in lakh) Year

Total loan

2008-09

Short-term Percentage Long-term loan Percentage loan (%) (%) 17,243 15,564 90.26 1,679 9.74

2009-10

23,194.5

20,145

86.85

3,049.5

13.15

2010-11

28,089

23,386

83.26

4,703

16.74

2011-12

35,041.4

29,788.4

85

5,253

15

2012-13

43,244

37,387

86.46

5,857

15.54

TOTAL

1,46,811.9

126270.4

86.01

20,541.5

13.99

Source: Secondary Data Table 3.2 shows the details regarding the short term loan sanctioned by The Chirayinkeezhu Service co-operative Bank for the previous 5 years. The main function of a co-operative bank is to provide short term loans to its members with a maturity period ranging from 0 to 5 years. The short term loans disbursed by the bank for the previous 5 years are increasing along with the increase in the total loan disbursement. But if we analyse the percentage change in the loan disbursement we could understand that the rate of short term loan sanctions per year is decreasing gradually. The bank disbursed 90.2% of its total loan as short term loan in the financial year 2008-2009, but it has been decreased to 86.46% in the financial year 2012-2013. In total, 86.01% of the total loan disbursed by The Chirayinkeezhu Service co-operative Bank’s short term loan.

41

Fig no: 3.3 show details of short term loan

40,000 35,000 30,000 25,000 20,000 Short-term loan

15,000

Long-term loan

10,000 5,000

13

20 12 -

12

11

20 11 -

20 10 -

10

20 09 -

20 08 -

09

0

Repayment of short term loans The short term loans have to be paid within 5 years of its disbursement. The following table shows the details regarding the repayment of the short term loans of The Chirayinkeezhu Service Co-operative Bank.

Table no: 3.4 show the details of the repayment of the short term loans (*in lakh) Year 2008-09

Disbursement

Repayment 15,564

Percentage 14,251

91.56

42

2009-10

20,145

18,565

92.16

2010-11

23,386

21,106

85.97

2011-12

29,788.4

23,199

77.88

2012-13

37,387

32,945

88.14

1,26,270.4

1,10,066

87.17

Total Source: Secondary data

Table 3.4 shows the details regarding the repayment of the short term loans in the previous 5 years. It shows that the repayment of the short term loan is constantly increasing. But if analyse the percentage of repayment out of disbursement is fluctuating. The repayment amount in rupees is showing an increase but the percentage it is fluctuating. In the financial year 2008-2009 the repayment rate was 91.56%. It has been increased to 92.16 in the next financial year. But in the coming years 2010-2011 and 2011-2012 it has been decreased to 85.97% and 77.88%. In the year 2012-2013 the repayment rate again increased to 88.14%. but if we look into the total repayment of the short term loan in the Chirayinkeezhu Service cooperative Bank is good with87.17%. The following figure shows the diagram of the disbursement as well as repayment of the short term loan in The Chirayinkeezhu Service Co-operative Bank during the previous five years.

Fig no: 3.4 show the details of the repayment of the short term loans (*in lakh)

43

40,000 35,000 30,000 25,000 20,000

Disbursement Repayment

15,000 10,000 5,000 0 2008-09

2009-10

2010-11

2011-12

2012-13

44

Table no: 3.5 shows the details of repayment of long term loans (*in lakh) Year

Long-term loan

Repayment

Percentage (%)

2008-09

1,679

1,563

93.1

2009-10

3,049.5

2,638

86.5

2010-11

4,703

487

10.36

2011-12

5,253

5,144

97.92

2012-13

5,857

5,614

95.85

20,541.5

15,446

75.2

Total

Table no: 3.5 reveals the repayment tendency among the members who has taken long term loans from The Chirayinkeezhu Service Co-operative Bank. The repayment tendencies among the members were good in the financial year 2008-2009 but decreased in the coming years. The repayment has been suddenly fall from 86.5% to 10.36% in the financial year this fall has to be avoided further years. The bank has been regained its repayment to 97.92% in the financial year 2011-2012. But it still reduced to 95.75% in the financial year 2012-2013. Over all the repayment of long term loans are showing a fluctuating repayment tendency is 75.2%, which is not satisfactory. The graphical representation as follows

45

Fig no: 3.5 shows the details of repayment of long term loan 25,000

20,000

15,000

Long-term loan 10,000

Repayment

5,000

0 2008-09

2009-10

2010-11

2011-12

2012-13

Total

GOLD LOAN The bank provides loan to its members against the security of gold ornaments. The Chirayinkeezhu Service Co-operative Bank provides the following gold loans:   

Agriculture short term gold loan. Agriculture gold loan Special gold loan

46

The features of the gold loan are as follows:  

A member could get up to Rs. 3 lakh a day against the security of gold. The bank provides up to 70% value of the gold as per the current day gold rate for a period of 10 months and 80% value of gold as per the current gold rate for 3



months. An ‘A’ class member could get up to Rs 50000/- as agriculture loan against a security of land tax receipt along with gold security for an interest rate of 7%.

Table no: 3.6 show the details of gold loan (*in lakh) Year

Total loan

Gold loan

Percentage (%)

Other loan

Percentage (%)

2008-09

17,243

12,606

73.11

4,637

27.89

2009-10

23,194.5

17,065

73.57

6,129.5

27.43

2010-11

28,089

20,200

71.91

7,889

28.09

2011-12

35,041.4

25,386

72.45

9,655.4

27.55

2012-13

43,244

33,046

76.42

10,198

23.58

1,46,811.9

1,08,303

73.77

35,508.9

26.23

Total

Source: Secondary data The table no: 3.6 shows the details regarding the gold loan disbursed during the last five financial years. As we could see, the amount disbursed as gold loan is 73.77 % of total credit disbursement of the bank for previous five financial years. The gold loan in rupees as well as in percentage shows a constant growth during these years. The table shows that the major portion of the loan disbursed from the bank is gold loan and the rest of the loan is sanctioned based on the securities other than gold.

47

Fig no: 3.6 shows the detail of the gold loan (*in lakh) 35,000 30,000 25,000 20,000 Gold loan

15,000

Other loan

10,000 5,000 0 2008-09

2009-10

2010-11

2011-12

2012-13

Table no: 3.7 show the details of disbursement and repayment of gold loan (*in lakh)

48

Year

Disbursement

Repayment

Percentage (%)

2008-09

12,606

11,492

91.12

2009-10

17,065

16,120

94.46

2010-11

20,200

12,672

62.73

2011-12

25,386

20,317

80.03

2012-13

33,046

29,598

89.57

1,08,303

91,199

83.28

total Source: Secondary data

Table no.3.7 shows the details regarding the disbursement and repayment of the loan granted, based on gold as securities. The figures show an increase in the repayment during the previous five financial years. But as we analyse the table we could understand that the repayment of the gold loan is not so smooth total Rs.1,08,303 lakh has been disbursed under various gold loan schemes but only Rs. 91,099 lakh were repayed. In the financial 2008-2009 the repayment percentage was 91.12% of the disbursed gold loan. It has been increased to 94.46% in the year 2009-2010. But a sudden fall can be observed in the year 2010-2011 to 62.73%. Fall in the repayment of the gold loan has been recovered during the years 2011-12 and 2012-13 to 80.03% and 89.57%. Figure no: 3.7 shows the details regarding the disbursement and repayment of gold loan from Chirayinkeezhu Service C-operative Bank

49

35,000 30,000 25,000 20,000 15,000

Disbursement Repayment

10,000 5,000

13 20 12 -

12 20 11 -

11 20 10 -

10 20 09 -

20 08 -

09

0

LOAN FROM FIXED DEPOSITS: Fixed deposit is one of the most popular financial instruments known to us. The ease of investment in this product, its guaranteed returns, flexibility and so many other features make it a favorite among the people. Loan against fixed deposit is given in the form of an overdraft against the customer’s deposited amount. This is an alternative given to the customers instead of breaking the deposit prematurely. Most of the banks allow a loan in the range of 70-90% of the deposit amount. Some banks even offer more than this range. There is no standard on the amount of loan that can be sanctioned. It varies from bank to bank and also upon the amount deposited. Interest rate charged on the loan given on a fixed deposit is usually 2-2.5% above the interest paid by the bank on the deposit. Once again, it varies from bank to bank. Most of the banks do

50

not levy any kind of processing fees unlike home and personal loans. Some of the banks may charge low fees for the loan. Loan against fixed deposit is a great option for those looking to avail a loan at a better rate when compared to person loans where interest rates range from 14-30% p.a. Moreover, you will continue to earn interest on the deposit though you have availed a loan against it. Remember that you cannot close or break the fixed deposit after availing the loan on account of ‘right to lien’ clause of the banks. Also, there will not be any kind of tax benefits or deductions for interest paid on this loan. Table no: 3.8 shows the details of fixed deposit loans Year

Total Loan

Fixed Deposit Loan

Percentage (%)

2008-09

17,243

1,471

8.53

2009-10

23,194.5

3,023

13.03

2010-11

28,089

4,659

16.59

2011-12

35,041.4

5,142

14.67

2012-13

43,244

5,707

13.2

1,46,811.9

20,002

13.62

Total Source: Secondary data

The table describes that the amount of fixed deposit loans and its percentage over the total loan disbursed during each year. The fixed deposit loan was 8.53% of the total loan disbursed during the financial year 2008-2009. The percentage kept increasing in the following financial years 2009-2010 and 2010-11.Later on in the financial year 2010-2012 and 2012-2013 the percentage of fixed deposit loan decreased first to 14.67% and then to 13.2%. The total amount of fixed deposit loan for the previous five years are Rs. 20002 lakh the fixed deposit loan kept increasing every year but in a decreasing rate or having no consistency in the

51

progression. The fixed deposit loan in figures was kept on increasing year after year, but it failed to keep the consistency in its growth. The following diagram shows the details of the fixed deposit loan of The Chirayinkeezhu Service Co-operative Bank for the previous five years. Fig no: 3.8 shows the details of fixed deposit loans (*in lakh)

Fixed Deposit Loan 25,000

20,000

15,000 Fixed Deposit Loan 10,000

5,000

0 2008-09

2009-10

2010-11

2011-12

2012-13

Total

52

REPAYMENT OF FIXED DEPOSIT LOAN Table no: 3.9 shows the details regarding the repayment of fixed deposit loan (*in lakh) Year

Disbursement

Repayment

Percentage (%)

2008-09

1,471

1536

104.42

2009-10

3,023

2621

86.7

2010-11

4,659

270

5.8

2011-12

5,142

4929

95.85

2012-13

5,707

5549

97.23

20,002

14,905

74.52

Total Source: secondary data

Table no: 3.9 shows the details regarding the repayment of the fixed deposit loan of The Chirayinkeezhu Service Co-operative Bank. In the financial year 2008-09 the repayment of the fixed deposit loan is more than that of the loan disbursed that year. In the primary observation it is good for the Bank, but in fact it shows that there is more idle fund in the bank during the financial year 2008-2009. The following year has a good repayment from the members, but in the financial year 2010-11 the repayment has been fallen to Rs. 270 lakh from Rs.2621 lakh in the year 2009-10. It was the worst repayment that the bank ever gets from the members for the previous five years. The bank regained the repayment in the following years. Over the entire bank has been recovered Rs. 14905 lakh from the previous five years with a percentage of 74.52

53

Fig no: 3.9 shows the details regarding the repayment of fixed deposit loan (*in lakh) 25,000

20,000

15,000

Disbursement

10,000

Repayment 5,000

To ta l

13 20 12 -

20 11 -

12

11 20 10 -

10 20 09 -

20 08 -

09

0

TOTAL LOAN The Chirayinkeezhu Service Cooperative Bank has wide verities of loan schemes which suit the needs of the members. The details regarding the total loans disbursed during the previous five financial years are shown in the table below

54

Table no: 3.10 shows the details regarding the total loans disbursed during the previous five years. Year

Amount( In Lakhs)

Percentage (%)

2008-09

17,243

-

2009-10

23,194.5

+34.5

2010-11

28,089

+21.1

2011-12

35,041.4

+26

2012-13

43,244

+23.4

Grand Total

1,46,811.9

The bank has a growing tendency in the disbursement of loans during the previous five financial years. In the financial year 2008-2009 the bank has been disbursed Rs. 17,243 lakh as loan in various heads. The disbursement shows a steady growth in the later years.

The next year the

bank disbursed 34.5% more amounts in the form of loan. In the financial year 2010-2011the loan disbursement reached Rs. 28,809 lakh, with a hike of 21.1% more than that of the financial year 2009-2010. In the financial year 2011 the loan disbursement has been reached up to Rs. 35,041.4 lakh and it had finished the financial year 2012-2013 with a loan disbursement of Rs. 43,244 lakh. The diagram showing the details are follows:

55

Fig no: 3.10 shows the details of total loan

TOTAL LOAN 45,000 40,000 35,000 30,000 25,000

TOTAL LOAN

20,000 15,000 10,000 5,000 0 2008-09

2009-10

2010-11

2011-12

2012-13

REPAYMENT OF TOTAL LOAN The Chirayinkeezhu Service Cooperative Bank has been disbursed Rs.146811.9 lakh in the form of loan during the previous five financial years. The important aspect of a loan is its repayment. The following table explains the details regarding the repayment of loans disbursed during previous years.

56

Table no: 3.11 shows the details regarding the repayment of total loan during the previous five years (*in lakh) Year 2008-09

17,243

15814

Percentage (%) 91.7

2009-10

23,194.5

20203

87.1

2010-11

28,089

21593

76.9

2011-12

35,041.4

28343

80.9

2012-13

43,244

38559

89.2

1,46,811.9

1,23,882

84.4

Total

Loan Disbursement

Loan Repayment

Table no: 3.13 gives the details regarding the repayment of the total loan disbursed during the previous five financial years. in the beginning years the repayment rates were at the heights. But in the later years the repayment rates decreased. In the financial year 2008-2009 the repayment rate was 91.7% it has been decreased to 87.1% in the financial year 2009-2010, it further decreased to 76.9% in the year 2010-2011. The bank has bees regained the repayment rate in the financial year 2011-2012 and 2012-2013. Overall the bank has successfully regained the 84.4% of the total loan disbursed during the five years.

57

Fig no: 3.11 shows the details regarding the repayment of total loans 45,000 40,000 35,000 30,000 25,000 Loan Disbursement

20,000

Loan Repayment

15,000 10,000 5,000

13 20 12 -

12 20 11 -

11 20 10 -

10 20 09 -

20 08 -

09

0

DISBURSEMENT-REPAYMENT RATIO D-R ratio gives the details regarding relationship between the total loan disbursement and its repayment. D-R ratio indicates the rate at which the repayment of the loan is happening in the bank. There is no stipulated rate for this in the bank. D-R ratio helps the bank in assessing the repayment tendency among the members of the bank and the bank can find out whether the bank is able to regain the loan disbursed among the members. Higher the ratio lowers the repayment of the loan. So a bank with sound repayment tendency will always have a low D-R ratio. Te formula for D-R ratio is Disbursement-Repayment Ratio= Amount Disbursed ÷ Amount Repayed

58

Table no: 3.12 shows the Disbursement-Repayment ratio Year

Disbursement

Repayment

D-R Ratio

20098-09

17243

15814

1.09

Change In Ratio (%) 0

2009-10

23194.5

20203

1.14

+4.59

2010-11

28089

21593

1.3

+14.04

2011-12

35041.4

28343

1.24

-4.62

2012-13

43244

38559

1.12

-9.68

As we seen in the table the disbursement- repayment ratio is not having a steadiness. It is fluctuating year after ear. In the year 2008-2009 the D-R ratio was 1.09 it has been increased to 1.14 in the next year and continues to increase in the year 2010-2011 which denotes that the repayment tendency among the members of the bank is lowering. We could see a sudden fall in the ratio in the year 2011-2012 and 2012-2013, it has been fallen from 1.30 to 1.24 and again fallen to1.12 which denotes that the bank has been started to regain the loans disbursed among the members. It shows a positive result in favor of the bank.

59

Fig no: 3.12 show the Disbursement-Repayment ratio

D-R RATIO 1.35 1.3 1.25 1.2

D-R RATIO

1.15 1.1 1.05 1 0.95 2008-09

2009-10

2010-11

2011-12

2012-13

Fig no: 3.13 show the change in D-R ratio

CHANGE IN RATIO (%) 20 15 10 5

CHANGE IN RATIO (%)

0 2008-092009-102010-112011-122012-13 -5 -10 -15

The above figure explains how the D-R ratio of The Chirayinkeezhu Service Cooperative Bank changes. It does not keep a smooth growth in its repayment.

60

CREDIT – DEPOSIT RATIO Credit-Deposit ratio, popularly CD ratio, is the ratio of how much a bank lends out of the deposits it has mobilised. RBI does not stipulate a minimum or maximum level for the ratio, but a very low ratio indicates banks are not making full use of their resources. Alternatively, a high ratio indicates more reliance on deposits for lending a likely pressure on resources. CD ratio helps in assessing a bank’s liquidity and indicates its health – if the ratio is too low, banks may not be earning as much as they could be. If the ratio is too high, it means that the bank must not have enough liquidity to over any unforeseen fund requirements, may affect capital adequacy and asset-liquidity miss-matches. A very high ratio could have implications at the systematic level. Expresses as a percentage, CD ratio is computer as under: Credit-Deposit Ratio= Total advanced÷ Total Deposit Table no: 3.13 shows the details of credit- deposit ratio (*in lakh) Year

Credit

Deposit

Ratio

Change In Ratio (%)

2008-09

13,181

17243

0.764

-

2009-10

18,000

23194.5

0.776

+1.57

2010-11

23,736

28089

0.845

+8.89

2011-12

24,482

35041

0.698

-17.79

2012-13

24,629

43244

0.569

-18.48

The table no: 3.13 give the details regarding the C-D ratio analysis. In the beginning years the CD ratio shows comparatively good position. In the year 2009-10 and 2010-11 the bank gained hike in the C-D ratio which indicates that the loan disbursement was higher than that of the

61

previous years and there is less idle fund in the bank. In the financial year 2011-12 and 2012-13 bank shows a lower C-D ratio which means that the bank has more deposits and more idle cash. Figure no: 3.14 shows the details of CD ratio

Ratio 0.9 0.8 0.7 0.6

Ratio

0.5 0.4 0.3 0.2 0.1 0 1

2

3

4

5

The below figure show the change in the C-D ratio during the previous five years. As we seen the C-D ratio is not showing a steady growth

62

Fig no: 3.15 shows the change in C=D Ratio

Change In Ratio (%) 15 10 5 0 2008-09 2009-10 2010-11 2011-12 2012-13 -5

Change In Ratio (%)

-10 -15 -20

63

CHAPTET 4 COMPARATIVE BALANCE SHEET AND PROFITABILITY ANALYSIS INTRODUCTION The financial statements provide rich information about the operational results of a business unit and much can be learned from a careful examination of these statements. Financial statements are prepared primarily for decision making. The statements are not an end in themselves, but are useful in decision making. Financial analysis is the process of determining the significant operating characteristics of a firm from accounting data. The profit and loss account and balance sheet are indicators of two significant factors- profitability and financial soundness. Analysis of financial statement means such a treatment of the information contained in the two statements as to afford a full diagnosis of the profitability and financial position of the firm concerned. Broadly, the term financial analysis is applied to almost any kind of detailed enquiry into financial data. A financial executive has to evaluate the past performance, present financial position, liquidity situation, enquire into profitability of the firm and to plan for future operations. For all this, they have to study the relationship among various financial variables in a business as disclosed in various financial statements. The analysis of financial statements is an attempt to determine the significance and meaning of the financial statement data so that the forecast may be made of the future prospects for earnings, ability to pay interest and debt maturities and profitability. METHODS OF FINANCIAL STATEMENT ANALYSIS The analysis of financial statements consists of a study of relationship and trends to determine whether or not the financial position of the concern and its operating efficiency have been satisfactory. In the process of this analysis various tools or methods are used by the financial analyst. The analytical tools generally available to an analyst for his purpose are as follows:

64

      

Comparative financial and operating statements. Common-size statements. Trend ratios. Average analysis. Statement of changes in working capital. Fund flow and cash flow analysis. Ratio analysis.

COMPARATIVE FIANCIAL AND OPERATING STATEMENTS The preparation of comparative financial and operating statement is an important device of horizontal financial analysis. Financial data becomes more meaningful when compared with similar data for a previous period or a number of prior periods. Statements prepared in a form that reflects financial data of two or more periods are known as comparative statements. Annual data can be compared with similar data for prior years. such statements are very helpful in measuring the effects of the conduct of a business during the period under consideration. Comparative statements may show: a) b) c) d)

Absolute figures (amount in Rs.) Change in absolute figures (increase or decrease in figures) Absolute data in terms of percentage Increase or decrease in terms of percentage

The analyst is able to draw useful conclusions when figures are given in a comparative position. The figure sales for a quarter, half year or one year may tell the present position of sales efforts. When sales figures of previous periods are given along with the figures of the current periods then the analyst will be able to study the trends of sales over different periods of time. Similarly, comparative figures will indicate the trend and direction of financial position and operating results. Comparative statements can be of two types: i)

Comparative balance sheet: The comparative balance sheet analysis is the study of the trends of the same items, group of items and computed in two or more balance sheets of the same business enterprise on different dates. The change in periodic

65

balance sheet items reflects the conduct of the business. The changes can be observed by comparison of the balance sheet at the beginning and at the end of the period and ii)

these changes can help in forming an opinion about the progress of an enterprise. Comparative income statement: the comparative income statement is a statement is a statement prepared to get an idea of the progress of a business over a period of time. The changes in the absolute data in money values and percentages can be determined to analyse the profitability of a business. A comparative income statement has four columns. First two columns give figures of various items for two years. third and fourth columns

Table no: 3.14 Comparative balance sheet on 31st March 2009 and 31st March 2010 Particulars

31/3/2009

31/3/2010

Increase/ Decrease (in figures)

Increase/ Decrease (in percentage)

Liabilities Share capital

164.0

176.0

13.0

+7.32

16705.0

20111.0

3406.0

+20.4

.2

.2

0

0

64.0

64.0

0

0

Other reserves

325.0

347.0

22.0

+6.8

Reserve for outstanding interest

273.0

812.0

539.0

+197.4

Outstanding interest

3319.0

2714.0

-605.0

-18.23

268.0

301.0

33.0

+12.1

2.0

2.0

0

0

Deposit Loan from government Statutory reserves

Other liabilities Grants and subsidies

66

MDS dues

150

168.0

18.0

+12

228.0

326.0

98

+42.98

Undistributed profit

27.8

35.0

7.2

+25.9

Net profit

44.0

46.0

2.0

+4.5

21570.0

25102.2

3532.2

+16.38

Cash in hand

46.0

71.0

25.0

+54.35

Cash at bank

4508.0

5230.0

722.0

+16

Investments in other organizations

20.0

20.0

0

0

Other investments

48.0

50.0

2.0

+4.17

13670.0

15749.0

2079

+15.2

2697.0

3399.0

702

+26

43.0

43.0

0

0

240.0

207.2

-32.8

-13.67

Inventories

26.0

32.0

6.0

+23.1

Land and building

36.0

36.0

0

0

Stock

45.0

41.0

-4

-8.89

191.0

224.0

33.0

117.28

21570.0

25102.2

3532.2

+16.38

Advances

Total Liabilities Assets

Loans Interest due Current assets MDS

Advance receivables Total Assets

67

The comparative balance sheet as on 31st March 2010 shows the details regarding the fluctuations in the liability and assets of the bank for these two years. The liabilities does not show any decrease but shows an overall increase of 16.38% in the year 2010 compared to the years 2009.In the asset side of the comparative balance sheet there is a decrease of 13.67% in MDS and 8.89% in the stock. It shows that the bank has failed to manage the assets and liabilities of the bank compared to that of the financial year 2008-09. Table no: 3.15 Comparative balance sheet on 31st March 2010and 31st March 2011 Particulars

31/3/2010

31/3/2011

Increase/ Decrease (in figures)

Increase/ Decrease (in percentage)

Liabilities Share capital

176.0

192.0

16.0

+9.1

20111.0

22516.0

2405.0

+11.96

.2

.2

0

0

64.0

110.0

46.0

+71.9

Other reserves

347.0

1981.0

-1634.0

+470.9

Reserve for outstanding interest

812.0

985.0

173.0

+21.3

2714.0

2618.0

-96.0

-3.53

301.0

172.0

-129.0

-42.85

Deposit Loan from government Statutory reserves

Outstanding interest Other liabilities

68

Grants and subsidies MDS dues

2.0

1.3

-0.7

-35

168.0

204.0

36.0

+21.42

Advances

326.0

139.0

-187.0

-57.4

Undistributed profit

35.0

26.0

-9

-25.7

Net profit

46.0

33.0

-13

-28.3

25102.2

28977.5

3875.3

+15.4

Cash in hand

71.0

77.0

6.0

+8.45

Cash at bank

5230.0

6537.0

1307

+24.9

Investments in other organizations

20.0

31.0

11.0

+55

Other investments

50.0

49.2

-0.8

-1.6

15749.0

18250.0

2501.0

+15.9

3399.0

2865.0

-534.0

-15.7

43.0

11.0

-32.0

-74.4

207.2

389.3

182.1

+87.9

Inventories

32.0

93.0

61.0

+200

Land and building

36.0

15.0

-21.0

-58.33

Stock

41.0

44.0

3.0

+7.3

Total Liabilities Assets

Loans Interest due Current assets MDS

69

Advance receivables Total Assets

224.0

616.0

392.0

+175

25102.2

28977.5

3875.3

+15.44

The above given table shows the comparative balance sheet of The Chirayinkeezhu Service Cooperative Bank for the years 2010 and 2011. As we analyse the liability part of the comparative balance sheet we could understand that there is a huge decrease in advances (57%), other liabilities (42.85%), grants and subsidies(35%/), undistributed profit (25.7%) and other investments (3.53%). The net profit also decreased by 28.3% in the years ending at 31 st march 2011 which shows that the bank’s net profit has been decreased. As we go through the assets side we could notice that the current asset has been decreased by 74.4% in the year ending at 31 st March 2011, which means there is decreased in the assets which can be converted into cash within one year. But at the same time we could notice that the inventories has been doubled and advances receivables has been increased by 175 %., the interest due also decreased its good sign of growth. Table no: 3.16 Comparative balance sheet as on 31st March 2011 and 31st march 2012 Particulars

31/3/2011

31/3/2012

Increase/ Decrease (in figures)

Increase/ Decrease (in percentage)

Liabilities Share capital Deposit Loan from government Statutory reserves

192.0

223.0

31.0

+16.15

22516.0

25807.0

3291.0

+14.62

.2

.2

0.0

0

110.0

118.5

8.5

+7.73

70

Other reserves

1981.0

2520.0

539.0

+27.21

Reserve for outstanding interest

985.0

766.0

-219.0

-22.23

Outstanding interest

2618.0

3510.0

892.0

+34.1

1.3

1.3

0

0

Grants and subsidies

172.0

183.0

11.0

+6.4

MDS dues

204.0

251.0

47.0

+23.04

Advances

139.0

230.0

91.0

+65.5

Undistributed profit

26.0

46.0

20.0

+76.92

Net profit

33.0

37.0

4.0

+12.12

28977.5

33693

4715.5

+16.27

Cash in hand

77.0

80.0

3.0

+3.9

Cash at bank

6537.0

6429.0

-108

-1.65

31.0

31.0

0

0

49.2

56.0

6.8

+13.82

18250.0

21952.0

3342.0

+20.28

2865.0

3198.0

333.0

+11.62

11.0

16.0

5.0

+45.45

389.3

447.0

57.7

+14.82

93.0

94.0

1

+1.07

Other liabilities

Total Liabilities Assets

Investments in other organizations Other investments Loans Interest due Current assets MDS Inventories

71

Land and building

15.0

15.0

0

0

Stock

44.0

60.0

16

+36.36

616.0

1315.0

699

+113.47

28977.5

33693.0

4715.5

+16.27

Advance receivables Total Assets

The table showing comparative balance sheet express the following facts. There is an increase in all the liabilities except loan from government and other liabilities. In the asset side the cash in hand has been fallen by 1.65%, which means the bank is running short of liquid cash in hand. But other assets have been increased during the year. The bank has been showing a growth of 16.77% in the comparative balance sheet. Table no: 3.17 comparative balance sheet on 31st March 2012 and 31st March 2013 Particulars

31/3/2012

31/3/2013

Increase/ Decrease(in figure)

Increase/Decreas e(in percentage)

Liabilities Share capital Deposit Loan from government Statutory reserves Other reserves Reserve for outstanding interest Outstanding interest

223.0

244.0

21.0

+9.42

25807.0

28227.0

2420.0

+9.4

.2

.2

0

0

118.5

128.0

9.5

+8

2520.0

2351.0

-169.0

-6.71

766.0

946.0

180.0

+23.5

3510.0

4621.0

1111.0

+31.65

72

Other liabilities

183.0

230

47.0

+25.7

Grants and subsidies MDS dues

1.3

1.3

0

0

251.0

289.0

38.0

+15.14

Advances

230.0

291.0

61.0

+26.52

46.0

23.0

23.0

+100

37.0

40.0

3.0

+8.11

33693

37391.5

3698.5

+10.98

Cash in hand

80.0

61.0

-19.0

-23.75

Cash at bank

6429.0

5112.5

-1316.5

-20.48

Investments in other organizations

31.0

31.0

0

0

Other investments

56.0

66.0

10.0

+17.86

21952.0

26615.0

4663.0

+21.24

3198.0

3639.0

441.0

+13.8

16.0

65.0

49.0

+306.25

447.0

514.0

67.0

+14.98

Inventories

94.0

95.5

105

+1.6

Land and building

15.0

15.0

0

0

Stock

60.0

65.5

5.5

+9.17

Undistributed profit Net profit Total Liabilities Assets

Loans Interest due Current assets MDS

73

Advance receivables

1315.0

1112.0

-203.0

-15.44

Total Assets

33693.0

37391.5

3698.5

+10.98

The above table describes the comparative balance sheet on 31st March 2012 an 2013. The bank has shown an increase in the liabilities except loans from government and other liabilities. Likewise, the asset side of the comparative balance sheet shows a big decrease in the cash at bank and cash in hand which means a decrease in the liquid cash availability. There is decrease in the advances receivables too. The overall performance of the bank is satisfiable with an increase of 10.98% compared to that of the previous year.

PROFITABILITY ANALYSIS A business firm is basically a profit earning organization. The income statement of the firm shows the profit earned by the firm during the accounting period. Profitability is an indication of the efficiency with which the operations of the business are carried on. Poor operational performance may indicate poor sales and hence poor profits. The profit figure has, however, different meanings to different parties interested in financial analysis.

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GROSS PROFIT RATIO The gross profit ratio plays an important role in two management area. In the area of financial management, the ratio serves as a valuable indicator of the firm ability to utilize effectively outside source of funds. Secondly, this ratio also serves as important tool in shaping the pricing policy of the firm. The ratio is calculated by dividing gross profit by net sales: Gross Profit Ratio=Gross Profit ÷ Net Sales ×100 This ratio helps in ascertaining whether the average percentage of mark up on the goods is maintained or not. It also indicates the degree to which selling price per unit may decline without resulting in losses from operations to the firm. An increase in the gross profit ratio may be due to an increase in the selling price without a corresponding increase in the cost of goods sold r due to decrease in the selling price of goods. Similarly, a decrease in the gross profit ratio may be due to a decrease in the selling price without a corresponding decrease in cost of goods sold due to an increase in the cost of goods without a corresponding increase in the selling price of the goods sold. Table no: 4.1 show the details of the gross profit ratio (*in lakh) Year

Gross Profit

Net sales

Gross Profit Ratio

2008-09

3.5

268

1.3

2009-10

6

293

2.05

2010-11

8

311

2.6

2011-12

15

351

4.27

2012-13

7

381

1.84

The table gives the details regarding the gross profit of the bank. The gross profit of the bank is comparatively very low. As we go through the gross profit ratio we could find that the bank’s GPR had fetched only 4.27% of its total sales at its maximum. As we analyse there was a steady growth of the GPR till the financial year 2011-12. In the year 2012-13 the GPR fallen into 1.84%. Overall performance of the bank is not satisfactory

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Figure no: 4.1 gives the details regarding the gross profit ratio of the bank (*in percentage)

Gross Profit Ratio 4.5 4 3.5 3

Gross Profit Ratio

2.5 2 1.5 1 0.5 0 2008-09 2009-10 2010-11 2011-12 2012-13

NET-PROFIT RATIO This ratio is also called as the net profit to sales or net profit margin ratio. It is determined by dividing the net income after tax to the net sales for the period and measure the profit per rupee of sales. Net Profit Ratio=

Net Profit ×100 Sales

This ratio is used to measure the overall profitability and hence it is very useful to proprietors. It is an index of efficiency and profitability of the business. Higher the ratio better is the operational efficiency of the concern.

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Table no: 4.2 show the details regarding the net profit ratio (*in lakh and percentage) Year

Net profit

Sales

NPR

2008-09

44

268

16.42

2009-10

46

292

15.75

2010-11

45

311

14.47

2011-12

37

351

10.54

2012-13

40

381

10.5

Table no: 4.2 show the details about the net profit ratio of the bank. As we analysed the net profit ratio is somewhat high compared to that of the gross profit of the bank. The trend of the net profit ratio, as in the table, is decreasing year after year. Thus we could conclude that the financial performance of the bank on the basis of the net profit ratio is not satisfactory. Fig no: 4.2 show the details of the net profit ratio (*in percentage)

NPR 18 16 14 12

NPR

10 8 6 4 2 0 2008-09

2009-10

2010-11

2011-12

2012-13

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RETURN ON TOTAL ASSETS Profitability can be measured in terms of relationship between net profit and total assets. This ratio is also known as return on capital employed. It measures the profitability of investments. The overall profitability can be known by applying this ratio. Return on Total Assets=

Net Profit Total Assets

Table no: 4.3 shows the details regarding the return on total assets (*in lakh and percentage) Year

Net Profit

Total Assets

Return on Total Assets

2008-09 2009-10 2010-11 2011-12 2012-13

44 46 45 37 40

21570 25102.2 28977.5 33693 37391

0.203 0.183 0.155 0.109 0.106

The table no: 4.3 show the details regarding the return on total assets of the bank. The return on total assets does not show a satisfactory result. The return on total assets in percentage has been showing a very low rate of return. As we analyse the table we could come to the conclusion that the return on total assets of the bank is continuously decreasing year after year. The return on total investment in the year 2008-09 was 0.203% it has been decreased to 0.183% in the year 2009-10. It further decreased to 0.155 in the financial year 20010-11. The decrease in the return on investment continued in the financial years 2011-12 and 2012-13 too.

Fig no: 4.3 shows the details regarding the return on total assets (*in percentage)

78

Return on Total Assets 0.25 0.2 0.15 Return on Total Assets 0.1 0.05 0

79