Good Cooperative Governance as a Tool to withstand Urban Coop Bank Crisis - A Case Study of Rajkot Nagarik Coop Bank, India

Abstract

Prologue: Indian economy is substantially supported by cooperative sector through 500,000 cooperatives, 230 million members, assets worth INR 1.5 billion and presence in every sector of economy. 20th century remained milestone for credit and banking cooperative in Gujarat state. At beginning of new millennium, 350 Urban Co-operative Banks (UCBs) held around 18 per cent (INR 170000 million) of the total bank deposits in Gujarat and advanced 6 per cent of the loans. Due to a major UCB scam, the year 2001 was turning point and misfortune for state cooperative banking that has eroded image of the sector. The deposit, depositors, loan and borrowers of UCBs in the state dropped substantially in subsequent years. 35 UCBs became virtually insolvent and vanished, 60 were declared weak by the Central Bank and 187 were threatened & vulnerable. Rajkot Nagarik Sahkari Bank (RNSB), a mid-sized cooperative bank with 220,000 members had deposit of INR 6000 million and loan base of INR 4000 million. It faced competition from private and foreign banks; reform process had snatched protection to the cooperative sector. In faint milieu and backdrop of lost faith on cooperative banking, during 2001-2007 RNSB maintained its growth on all major indicators. The research paper investigates reasons of growth under adverse conditions and test whether RNSB has maintained cooperative principles and value at the center? A cooperative bank is cooperative first and then bank. Cooperative Bank needs to remain profitable within cooperative framework. It has to carefully blend business expediency and cooperative values. Cooperative governance implies rules, tools and the concrete procedures through which cooperatives are managed. The governance must be consistent with the values, principles and the mission of credit cooperative, in order to allow for their correct implementation. RNSB management claims its aim to provide a WORLD-CLASS Banking facility to the local common people at economical rate & achieve healthy growth. Bank claims commitment to the highest level of ethical standards, professional integrity & regulatory compliances while philosophy of bank is based on three core values - Operational Excellence, Customer Focus and Upliftment through Co-Operation. This research paper critically analyzes success of a cooperative bank in institutional perspective. Objective: 1. To study and analyze critical financial & cooperative indicators of UCBs in Gujarat vis-?-vis RNSB 2. To investigate reasons of growth for RNSB 3. To scrutinize governance of RNSB in light of Cooperative Principles & Values 4. To study whether Good Cooperative Governance is Good Business Practice Research Methodology: The research paper will review secondary data in form policy documents, annual reports, compilation of financial data of UCBs and available research papers. It will also collect & analyze primary data to draw conclusion using appropriate research tools. Recommendation: The suggestions may be useful to cooperatives in general and cooperative banking in special - how inbuilt institutional character of a cooperative can be used efficiently and effectively in competitive business environment, which help in withstanding environmental crisis. How sound business practices can be designed and implemented without compromising cooperative principles and values?