5. Sustainable banking practices followed by UCBs
5.1 Origin and essence of cooperative movement in India :
The history of Cooperative movement in India dates back to nineteenth century3 . The idea of pooling resources to meet common objects gave birth to cooperative movement in the year 1889.The Maclagan Committee in 1915 reviewed performance of credit cooperatives and observed that such institutions were most suitable for catering to the needs of lower and middle income sectors of the society , and for inculcating banking habits in them. RBI in the year 199911 commented that cooperative credit attempt was the first attempt in India for giving micro finance. UCBs have occupied an important position in Indian financial sector. They have
traditionally been providing an important channel for financial inclusion for the middle and low income sections of the population in urban and semi urban areas.Majority of customers of UCBs are those who are generally not welcomed by commercial banks as they have no assets to offer as collateral , do not have any credit history and the costs associated with servicing of small loans do not make such proposals attractive for commercial banks. Commercial Banks, thereforetend to neglect small customers .If left with no choice , the small customers borrow from private moneylenders and fall in debt trap . UCBs play an important role here in bridging the gap between commercial banks and private money lenders . UCBs play their part of expanding the outreach and increasing access to institutional credit to hitherto unbanked and neglected section of population (Chakrabarty 2009)12 . Having knowledge and experience about the local conditions, and firm roots in the areas in which they operate, UCBs assist in eliminating financial exclusion to a great extent by taking banking to the door steps of small borrowers, businesses and households. UCBs are thus catalysts of financial inclusion and banking for sustainability .
5.2Presence of UCBs in India : Fig.2
The composition of banking sector in Indiaas on this date as per RBI13 is as per fig 2, which indicates that out of total 2122 banks currently operating in India , the number of UCBs is as high as 1562, which constitutes almost 74% of the total number of banks all over India.
Fig 2 :
5.2 Contribution of UCBs to social sustainability through Priority Sector lending :
5.2.1″Priority Sector Lending ” (PSL)forms important part of financial policy of RBI, which aims at maintaining sectoral balance by channelizing the flow of credit to weaker and neglected sections . RBI has made it mandatory for all banks to provide certain minimum portion of lending to specific underserved sectors as indicated Below. :
Fig 3 : Priority Sector Lending by UCBs
Data as of March 31, 2017
(Amt in Rupees Billion)
Particulars Priority Sector Advances
Amount Percentage to Total Advances
1. Agriculture [(i) + (ii)] 75.74 2.90
(i) Agriculture (Direct finance) 32.19 1.23
(ii) Agriculture (Indirect finance) 43.55 1.67
2. Micro and Small Enterprises
[(i) + (ii)] 731.85 28.02
(i) Micro and Small Enterprises (Direct Finance) 576.10 22.05
(ii) Micro and Small Enterprises (Indirect Finance) 155.75 5.96
3. Micro Credit 108.19 4.14
4. State sponsored organisations for SC / ST 1.58 0.06
5. Education loans 21.94 0.84
6. Housing loans 252.93 9.68
7. Total (1 to 6) 1192.23 45.64
8. Of which, advances to weeker section 271.02 10.37
Above chart indicates that 45.64% of the total loans granted by UCBs are to Priority Sector . Out of total lending to priority sector 10.37% are lent to the weaker section of thepopulation.
Comparison of PSL by UCBs and Commercial Banks : Fig 4
Lending to priority sector is a regulatory
Requirement of RBI which needs to be met
by the banks. Compliance is monitored by
As depicted inFig.4, the share of UCBs in
lending to Priority Sector has been more than
thepublic sector banks since F Y 2011-12 to
(Source : Report on Trend and Progress of Banking In India 2016-17 published by RBI in 2017)
6. Benefits and emerging opportunities in banking for sustainability for UCBs :
6.1 Benefits :
Research has shown that , sustainability , when integrated into business operations , can present real benefits for all the stakeholders viz. the society , the UCBs and the customers . Some of the benefits can be enumerated as under :
1. Environmental conservation
2. Just and equal opportunities for all
3. Financial inclusion
4. Empowerment of disadvantaged groups.
1. Improved brand image, increased visibility and reputation – Image of a UCBas an institution committed to sustainable development adds to its visibility in the community, its brand value and reputation.
2. Reduced risks of NPAs –By creating awareness about cleaner production, customers of the UCBs can avoid legal liabilities , enjoy uninterrupted business activities thereby better servicing of loans.
3.Reduced risks of project failures.
1. Incentives from regulators and bankers for implementing sustainability measures.
2. Reduced costs due to incentives, reduction in penalties etc.
3. No disruption in operations due to regulatory issues.
4. Enhanced health and safety of workers and surrounding areas.
5. Better servicing of borrowings .
6.2 EmergingOpportunities for UCBs in Banking for sustainability
Banking for sustainability is presenting new opportunities for UCBs, which can be availed subject to usual prudent loan sanctioning practices followed by them. Few such opportunities are as under . (IFC 2007 4)
Financing to Sustainable energy –UCBs can provide finance on concessional terms for manufacturing or servicing of energy efficient products “,building construction and renovation with energy saving features, efficient lighting “,switching to less polluting fuel. Development of renewable energy source such as wind power, solar systems , micro hydro power plants etc.
Cleaner Production –UCBs can incentivize their customers in adopting cleaner production practices or provide loans to firms to help them upgrade existing equipment and production facilities , improve and attain certification of production process etc.
Biodiversity conservation – UCBs can find opportunities in financing industries such as organic agriculture, sustainable fishing , non timber forest products ( such as mushrooms, berries, honey and medicinal plants) , financing sustainable supply chains , sustainable tourism that protects environment and conserves bio diversity and other such innovative areas .
7. Findings and observations :
This study has revealed that the awareness about linkage of economic development with environmental issues is growing in India . It is now being realized that economic development causes erosion of environmental resources and degradation of environmental resources hampers economic development , which is depicted as under :
Fig. 7The Environmental Kuznets Curve17
Depletion of Environmental resources ultimately results in poverty . There is “,therefore need to deal with environmental problems, poverty and equality . UCBs can play a major role in dealing with all the three problems , as catering to weaker sections of the population is embedded in their systems.Banks hitherto, slow in responding to the sustainability aspect , now have to get actively involved. The two hypothesis formulated in this study are established, that UCBs are catalysts of banking for sustainability and that by consciously adopting sustainability policies , UCBs can increase their business share in Indian Banking and also improve their brand image and reputation.
8. Recommendations for implementation of sustainability practices :
In order to march toward sustainability , following measures are recommended for the regulators and UCBs :
8.1.1Regulatorsneed to create awareness and consciousness about sustainability challenges among all stake holders.
8.1.2 Formal definitions such as “high pollution” or “green ” investments need to be included in the Priority sector lending norms.
8.1.3 A reporting system of the sustainability compliances needs to be developed with provisions for incentives “,warnings and penalties.
8.1.4 Regulators should recognize the sustainability achievers with prestigious awards such as “Padm” awards.
8.1.5 In view of the contributions already made and the available potential, the regulators shouldencourage UCBs to spread their operations all over India.
8.2 For UCBs
8.2.1UCBs must develop sustainability strategies, which will add value to their brand.
8.2.2 UCBs should showcase positive efforts made by them through Annual reports and other publications.
8.2.3While sanctioning business loans weightage must be given to environmental risks and reduction of human hazards .
8.2.4Conduct training programs for creating awareness among customers as well as bank staff.
8.2.5UCBs own branches and offices must be energy efficient and conserve water , electricity and other diminishing resources.
8.2.6UCBs must try to shift to paperless environment by shifting to digital means of doing business.
9. Conclusion :
It is time for banks in India to respond proactively to banking for sustainability .UCBs , now have to leverage their experience in social banking and respond to environmental concerns and emerging opportunities in banking for sustainability . By thus responding UCBscan create long term value for the society while achieving their own business goals. UCBs with social banking embedded in their objectives need to be encouraged to spread their presence across all states.If we wish to give our future generations a better life, the present generation must march towards sustainable development , now .