The pandemic has hit cooperative banks harder than other lenders


Indian cooperative lenders, spread across semi-urban and rural areas of the country, face greater pressure on asset quality compared to traditional commercial banks.

While large banks saw their asset quality stabilize, albeit aided by regulatory forbearance, cooperative banks continued to see a slight increase in stress lending, data from two reports released by the Reserve Bank of India this week.

“Urban cooperative banks appear to have been particularly impacted by the second wave of Covid-19,” the RBI said in its financial stability report.

The gross ratio of non-performing assets of all urban cooperative banks rose to 15.4 percent in September 2021, according to the report. The gross NPA ratio stood at 11.7% in March 2021 and 10.6% in March 2020, according to data published separately in the Trends & Progress of Banking in India report.

The scheduled UCBs saw their bad debts increase to 12.4% in September, against 10.3% six months earlier. Non-regular UCBs saw a much larger increase in bad debts, from 18% to 18% during this period.

Provisions declined for both categories of UCBs, leading to a decrease in the provision coverage ratio for the sector to 45.8% at the end of the second quarter of FY22 and a sharp increase in the net NPA ratio to 8, 7%, according to the RBI report.

Stress tests conducted by the RBI on this set of lenders further showed that few of them would fail key criteria such as the ability to manage credit risk, market risk and liquidity risk, even in a baseline scenario.

The results showed that in the five parameters tested, a few banks failed even in the baseline scenario, according to the report. “The greatest number of UCBs are impacted in scenarios involving liquidity shocks; and, in general, the number of unscheduled UCBs that fail / are negatively affected in adverse scenarios is greater than that of scheduled UCBs. “

The baseline scenario forecasts GDP growth of 6.3% in the second half of FY22 and 12.5% ​​in the first half of FY23. The RBI clarified that these were not forecasts but scenarios.

India’s network of cooperative banks is large and varied.

In total, India has 98,042 cooperative banks, including 1,534 urban cooperative banks and 96,508 rural cooperative lenders. Data on rural cooperative banks show a lag, and information available for March 2020 suggests that the stress in these institutions was high even before the impact of the pandemic was fully felt.

Rural cooperative banks are classified into four different segments. Long-term lenders, which include State Cooperative Banks for Agriculture and Rural Development (SCARDB), Primary Cooperative Banks for Agriculture and Rural Development (PCARDB). Short-term lenders include Central District Cooperative Banks (DCCB), Primary Agricultural Credit Societies (PACS), and State Cooperative Banks (StCB).

The overall balance sheet size of the cooperative banking sector was Rs 18.8 lakh crore at the end of March 2020, or nearly 10% of the consolidated balance sheet of planned commercial banks, up from 19.4% in 2004-05.

Urban cooperative banks account for 33% of the assets of the cooperative banking sector, while rural cooperatives represent 67%. “Rural cooperatives, especially in the short term, eclipse their urban counterparts, both in terms of number and total size of assets,” the report said.

According to the Trends & Progress Of Banking report, a number of these categories continue to face high stress levels.

Since March 2020:

  • State cooperative banks had a bad debt rate of 6.7%.

  • Primary cooperative agriculture and rural development banks had a gross NPA ratio of 12.6%.

  • The district central cooperative banks had a bad debt ratio of 31%.

  • Primary farm credit companies saw 33% of loans go bad.

  • State cooperative banks for agriculture and rural development saw 43.1% of outstanding loans deteriorate.

“State cooperative banks and central district cooperative banks have weathered the first wave of the pandemic well, but early indicators suggest the impact of the second wave has been more pronounced and stress is expected to increase in 2021 -2022 due to further slippages, ”the RBI report said.


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