KAIM JOURNAL OF MANAGEMENT AND RESEARCH VOL.3, No.2, November-April 2011 Pages : 1 - 12 AN EVALUATION OF FINANCIAL PERFORMANCE AND VIABILITY OF COOPERATIVE BANKS - A STUDY OF FOUR DCCBs IN HARYANA (INDIA) Ramesh Chander* and Jai Kishan Chandel** * Associate Professor, University School of Management, Kurukshetra University, Kurukshetra. * Assistant Professor, Institute of Management Studies, Kurukshetra University, Kurukshetra. Being an important constituent of Indian Financial System, Cooperative Credit Institutions have been engaged in wide variety of activities namely, production, processing, marketing, distribution, servicing and banking with broad network of societies and banks in both urban and rural areas. Around 372 District Central Cooperative Banks (DCCBs) in India with large number of branches and extension counters cater to the needs of nearly one lakh societies in rural India. In Haryana 19 DCCBs with more than 200 branches have been operating to fulfill the needs by facilitating self-sufficiency in food grain production, creation of better employment opportunities for rural people and organizational strength to the people having limited means for their sustenance. In recent past the scams in cooperative sector, failure and closure of unviable branches, imposition of penalty by the regulators and payment of heavy money claims due to bankruptcy of cooperative banks are few significant reasons which persuade to enquire into the financial affairs of these institutions. Many banks became insolvent and others are on the brink of mergers or acquisition. In the present study, an attempt is made to analyze the financial performance and viability of four District Central Cooperative Banks (DCCBs) operating in Hisar division in Haryana for a period of twelve years (1997-98 to 2008-09) by financial analysis with different parameters and z-score analysis. The financial parameters here taken are profitability, liquidity, efficiency, solvency, risk and bankruptcy. The results reveal that four DCCBs with approximately fifty branches have not been performing well on all financial parameters taken for study. The banks performed well on one parameter but deteriorated on another and in different years as well. All the banks have been a part of bankruptcy zone (weak performance zone) throughout the study period. The banks need to visualize their operations, policies and strategies for effective utilization of available financial and human resources. INTRODUCTION The success of any financial system lies in the effective operations of all its components, viz. markets, services, instruments and institutions. Cooperative banks play imperative role in Indian financial system as cooperation has been inherent in Indian cultural ethos to work as a socio-economic organization for the well-being of the people. The principles and practices of cooperative system have been guiding the people for community based management of means of production and economic resources. The expectations from cooperatives have been to facilitate self-sufficiency in food grain production, creation of better employment opportunities for rural people, workers and artisans and to provide organizational strength to the persons of the limited means for their sustenance. In three tier structure of working, District Central Cooperative Banks (DCCBs) operate in the middle/district level by providing finance to the primary credit societies, accepting of deposits, granting of loans/advances, fixed deposit receipts, gold/bullion, goods and documents of title of goods, collection of bills, cheques, safe custody of valuables, agency services and work as balancing center for PACS. The financial situation of cooperative banks in India cannot be claimed sound at present. Many banks became insolvent and others are on the verge of mergers or acquisition. Various scams have been surfaced in 2001-02 in cooperative sector which had given a big jolt to the banking sector. In 2005-06, the RBI cancelled licenses of 14 Urban Cooperative Banks and DICGC made a payment of Rs. 565 crore towards the settlement of depositor’s claims. During 2006-07, as many as 25 cooperative banks closed operations resulting into a payout of Rs. 438 crore by the insurer towards settlement of depositors’ claims. In the year 2007-08, failing cooperative banks have cost Reserve Bank’s credit insurance arm dearly as it had to shell out over Rs. 123.37 crore towards payment to depositors of