Consolidation hits UCB deposits

Mumbai: On account of the consolidation process going on in the Urban Cooperative Banks (UCB) sector, percentage of banks in grades III and IV witnessed a declining trend during recent years.

Further, the absolute amount of deposits as well as advances with UCBs in grades III and IV also witnessed a decline in end-March 2010 as compared with the previous year. Accordingly, the percentage of banks in grades I and II as also their share in total deposits and advances of the sector exhibited a rising trend during the recent years. This implies a shift in the concentration of banking business in favour of financially sound UCBs

Out of a total of 103 no-objection certificate (NOCs) for merger issued by the Reserve Bank, 91 were in respect of weak banks. Of these 91, 71 mergers have so far been notified by the RCS of the respective States.

All major items of the profit and loss account of the UCB sector witnessed deceleration as at end-March 2010 over the previous year. However, the deceleration was more on the income side than on the expenditure side leading to lower overall operating profits as compared with the previous year. Though there was a decline in provisions and contingencies, it could not compensate for the decline in operating profits. Net profits, therefore, witnessed a decline at end-March 2010 as compared with the previous year. Accordingly, there was a decline in the return on assets (RoA) as well as net interest margin (NIM) of the sector as at end-March 2010 over end-March 2009. The non-interest margin continued to be negative at end-March 2010 as in the previous year. The non-interest income registered an absolute decline at end-March 2010 over the previous year.

The overall financial position of rural cooperative credit institutions improved as at end-March 2009 over the previous year. As at end-March 2009, half of the total rural cooperative credit institutions reported profits. Profits reported by the sector mainly emanated from DCCBs. While StCBs, DCCBs and State Cooperative Agriculture and Rural Development Banks (SCARDBs) reported overall net profits at end-March 2009, ground level institutions, viz., Primary Agricultural Credit Societies (PACS), and Primary Cooperative Agriculture and Rural Development Banks (PCARDBs) reported overall net losses.

courtesy : The Financial Express