The Reserve Bank of India (RBI) has highlighted the remarkable performance of State Cooperative Banks (StCBs) in its latest report on the Trend and Progress of Banking in India 2023-24 while cautioning against the dwindling share of current account and savings account (CASA) deposits.
Despite a challenging economic environment, these rural credit cooperatives continued to outshine their peers, showcasing improved asset quality and higher profits during the fiscal year, the Report says.
According to the report, there were 34 State Cooperative Banks operating through 2,140 branches across the country as of March 31, 2024. For the fourth consecutive year, the balance sheets of StCBs recorded growth exceeding 8%, driven by robust credit expansion on the asset side and increased borrowings and deposits on the liabilities side.
The credit-deposit (C-D) ratio of StCBs rose significantly to 114.7% at the end of March 2024, compared to 109.6% a year earlier.
However, the report also pointed to certain challenges. The share of current account and savings account (CASA) deposits declined to 18.6% from 19.5% in the preceding year, leading to a rise in interest expenditure. While deposit growth rebounded from the previous year’s contraction, it lagged behind the growth in borrowings.
Interestingly, even as credit growth decelerated, StCBs managed to increase their net profits by 9.5%, aided by higher non-interest income and reduced operating expenses. Nevertheless, net interest income (NII) contracted by 5.7% as the growth in interest expenditure outpaced interest income, which surged by 24.9% during the year.
The western and southern regions dominated the profit landscape, with 94% of the StCBs reporting profits in 2023-24 compared to 91% in 2021-22. However, not all banks shared this success.
The StCBs in Arunachal Pradesh and Jammu and Kashmir reported losses for the sixth and fourth consecutive years, respectively, with their combined losses nearing Rs 35 crore at the end of March 2024.
The RBI noted a consistent improvement in the asset quality of StCBs for the third year in a row, with the gross non-performing asset (GNPA) ratio declining to 4.9% from 6.7% in March 2021. This decline was attributed to robust credit growth and increased provisioning against NPAs, which also resulted in an improved net NPA ratio.
However, the eastern region saw a marginal increase in GNPA ratios, while other regions reported significant declines.
Despite these positive trends, the consolidated capital adequacy ratio (CRAR) of StCBs dipped as growth in capital funds failed to keep pace with the increase in risk-weighted assets. Two banks fell short of the regulatory minimum CRAR requirement of 9%.
The RBI emphasized that going forward, the cooperative sector must remain vigilant against cyber threats and economic uncertainties. It also urged these institutions to embrace technological advancements to stay relevant in an increasingly digitized banking environment.
