Enquiry into the non-performing advances of primary co-operative agricultural and rural development banks in Southern Kerala

Abstract

The study entitled" An enquiry into the Non-Performing Advances of Primary Cooperative Agricultural and Rural Development Banks in Southern Kerala" was conducted with the following objectives: 1 . To examine the causes of Non-performing Advances of Primary Co-operative Agricultural and Rural Development Banks in Southern Kerala 2. To inquire into the present loan recovery system of these banks in Southern Kerala The study was confined to the three PCARDBs in southern Kerala viz., PCARDB Neyyattinkara (B1), PCARDB Cherthala (B2) and PCARDB Irinjalakkuda (B3). The sample frame comprises of 150 respondents ie., 50 borrowers from each bank at random of which 40 are defaulters and 10 are non-defaulters as a control group. The bank officials and employees were also interviewed to gather informations on the present loan recovery practices in these banks. Statistical tools like simple correlation, chi-square test, percentages, efficiency index, sample averages, weighted mean and bi-variate tables were used in the analysis. With regard to all sample banks, the sudden increase in NPAs was found after the year 1989, which can be attributed to the loan waiver policy of the then central Government which inhibited the loanees to make prompt

repayments in expectation of another round of write-off. The NPAs above three years or hardcore NPAs were lower in percentage for all the sample banks during the period under reference and except 83, the other banks , were running on absolute loss. . , The comparison of NPAs on different occupational classes revealed that with regard to 81 there exists significant relationship between NPAs and occupational classes like industry, services, business and agricultural labourers and in the case of 82 there is statistically significant relationship with agricultural and service class. The occupational classes such as agricultural and business classes have a significant relationship with NPAs in the case of 83. It has been found that the defaulters having an annual income above the subsistence level were showing more NPAs in the cases of 81 and 82. This establishes that even after having sufficient income they are wilfully committing more dues. With regard to the borrowers having land holding size above 50 cents, the nature of wilful default can be observed in the cases of 81 and 83. This highlights the need for categorising them under the group of wilful defaulters. But with regard to the educational level and NPAs of defaulters,.though most of them are having an educational status above secondary level in all the cases of 81, 82 and 83, they are not statistically related with NPAs. It was observed that lack of adequate securities to hypothicate, procedural delays and inadequate assistance from banks inhibited the defaulters and non-defaulters in getting timely loans. It has been found that inadequacy of income, illness of family members and consequent diversion

of income, hope for write-off policy, conspicuous consumption" defective loaning policies and lack of access to consumption loans are the major reasons for non-repayment of loans and advances by borrowers. While analysing the efficiency of its present loan recovery system, it was also found that in all the cases, the index value was lower when compared to other indices which denotes that even in the opinion of bank officials, there is something more to be perfected in the loan recovery system. From the interbank comparison, it was found that B3 is outstanding in the case of loan recovery management. According to the officials and employees of the banks, the reasons for poor recovery performance were the inefficiency of legal machinery for recovering dues from borrowers, lack of adequate staff for field supervision and loan appraisal and absence of skilled and professionalised managers for recovery management. As a remedial measure',' to minimise NPAs, certain steps have to be taken by financial institutions and the government. The improper relief measures such as loan right-off, should not be resorted to. Coercive action against wilful defaulters and incentives for proper repayment should be effected. Before advancing any loans proper processing and towards that end a proper loan appraisal cell with professionalised personnel is suggested. In addition to this, an effective loan monitoring cell and NPA management cell has to be established. The legal machinery should be strengthened and autonomy to the cooperatives would be given atleast to enable them with the right to take necessary -declslons for the better management of NPAs.