Evaluating Financial Health of Credit Cooperatives in Maharashtra of India

This paper reviews the rural credit scenario in Maharashtra, India. The paper examines:

• The banking business and disparity in the distribution of credit, in both forward and backward regions/districts of Maharashtra;
• The viability of agricultural financial institutions operating in these regions, especially in the context of financial sector reforms.

The paper states that:

• Among the various states of India, the rural financial institutions (RFIs) of Maharashtra have shown the highest amount of overdues and outstanding loans over the past one decade;
• This necessitates a re-look at the performance of agricultural financial institutions operating in Maharashtra, with a view to recommending, designing, and framing appropriate policies to rejuvenate the existing rural credit delivery in this state.

The paper finds that:

• The financial health of the ‘Sangli District Central Cooperative Bank (SCDC) and the ‘Buldana District Central Cooperative Bank (BDCCB) has deteriorated due to mounting non performing assets (NPAs) and overdues;
• The decline is worse in the case of the BDCCB and had affected the functioning and the profit profile of this bank;
• High transaction costs and poor repayment performance are the main reasons for the poor performance of the rural credit delivery system.

The paper recommends the adoption of innovative approaches like the linking of self-help-groups (SHGs) and non-government-organizations (NGOs) with mainstream financial institutions in order to revive the rural credit delivery system.