Scheduled StCBs’ deposit & credit growth accelerate in 2018-19

State cooperative banks are set up to mobilize deposits, provide liquidity support and offer technical assistance to district central cooperative banks and PACS. In terms of size, state cooperative banks account for 23% of assets of shortterm rural cooperatives and rely on the NABARD refinance facility as the major source of borrowings. The cooperative banking structure is a 3-tier structure in most of the states – state cooperative banks, district central cooperative banks and PACS. Deposits are the dominant component of the liability structure of the state cooperative banks and district central cooperative banks whose extensive branch network enables higher deposit mobilization. In the case of PACS, however, borrowings from state cooperative banks and district cooperative banks are the key sources of funds.

According to RBI’s latest report on ‘Trend and Progress of Banking in India’, the consolidated balance sheet of state cooperative banks contracted in 2017-18 on account of a decline in investments and cash and bank balances on the asset side. On the liability side, borrowings declined due to a fall in the short-term refinance support provided by NABARD. Deposits, which account for more than half of the liability side, decelerated during 2017-18, from a high base in the previous year when these banks were allowed to garner deposits in the form of specified bank notes in the post-demonetization period.

The latest data shows acceleration in both deposit and credit growth of scheduled state cooperative banks in 2018-19. Net profits of these banks decelerated during 2017-18 after a significant increase in the previous year. The slowdown mainly reflected a sharp increase in provisions and contingencies in consonance with deteriorating asset quality during the year. On the positive side, however, net interest income rose; although interest income decelerated, it was outweighed by the contraction in the interest expenses. Another positive factor was the slowdown in operating expenses, notwithstanding the acceleration in the wage bill. Consequently, operating profits of the state cooperative banks reversed the contraction of the previous 2 years and grew in double digits.

The asset quality of state cooperative banks - as reflected in the NPA ratio - had been improving continuously since 201213, but it deteriorated during 2017-18. Alongside significant accretions to NPAs, both the doubtful and loss component of NPAs also increased, notwithstanding an increase in the recovery-to-demand ratio. This deterioration is stark against the backdrop of improvement in asset quality of urban cooperative banks and scheduled commercial banks.

From a regional perspective, there has been an increase in the NPA ratio in 201718 across all regions except in the northeastern region. The all-India recoveryto-demand ratio improved for state cooperative banks, driven by the northern, eastern and southern regions.