How strong are our cooperative banks? Assessing this on a real-time basis is a bit tough as the financial data of state and district cooperative banks come with a lag of a year or so. However, the latest available industry data of cooperative bank financials show a mixed trend in asset quality but an overall improvement in financials.
As per the Nabard annual report 2023-2024, as of March 31, 2023, state cooperative banks had gross non-performing assets (GNPAs) of 5.4 percent compared with 6 percent in the previous fiscal year. Similarly, for district cooperative banks, the GNPAs stood at 9.6 percent in March 2023 compared with 10.8 percent in the previous year. Despite the improvement, the gross NPAs of district cooperative banks continue to be at highly elevated levels.
When it comes to capital adequacy, another key financial parameter, the CRAR of state cooperative banks improved slightly to 13.3 percent in March 2023 from 13 percent in the previous year. For district cooperative banks, the CRAR however, deteriorated to 12.1 percent from 12.2 percent in the previous year.
The provision coverage ratio of both state and district cooperative banks has improved between FY22 and FY23 to 67.2% from 65. 1 percent in the case of state cooperative banks and 78.4 percent from 70.7 percent in the case of district cooperative banks.
What about profitability? The number of state cooperative banks in profit improved to 32 from 31 between FY22 and FY23 and 302 to 305 in the case of district cooperative banks. There is a subsequent decline in the number of banks with losses.
What do these numbers mean?
Largely, these numbers suggest that the cooperative banking sector has been improving overall health, albeit slowly. This is a good sign considering the deterioration in the health of the cooperative banking industry in recent years.
Co-operative banks are in the news for the wrong reasons. In the first seven months of 2024, the RBI has cancelled licenses of at least six cooperative banks citing various rule violations For perspective, last year, the central bank cancelled a record 15 cooperative bank permits. In the last four years, the total number of permit cancellations stood at 43.
What happened to the depositors in these banks? Well, in most cases, the deposit insurance guarantee came to the rescue of a majority number of depositors. But that cover is only up to Rs 5 lakhs per depositor.
The remaining 2 or 3 percent of depositors in these banks, with high-value deposits (deposits over Rs5 lakhs per borrower), may have an eternal wait ahead to -get their hard-earned money back. The short point is that depositor distress is quite evident at these levels.
Cooperative banks, as their name suggests, are conceptualised as member-driven cooperative institutions that cater to a relatively smaller geography, say a few villages or a city. These institutions have played a crucial role in extending the last mile of financial services connectivity to places where big banks don’t have reach.
The latest financial data suggests things are on the mend, albeit slowly. Still, that’s a good sign.
(Banking Central is a weekly column that keeps a close watch on and connects the dots regarding the sector's most important events for readers.)
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