Sudha kornginnaya

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Achieving Business Success through Association Strategies in
Cooperative Banks in India

Sudha KORNGINNAYA1

Introduction
In the past, cooperation was conceived “essentially as corrective to the excesses and
deficiencies of capitalism” (Puri, 1979: 62), and it is now all the more relevant in the
present time. Though the financial crisis has devastated the market-driven corporate
economy, cooperatives have shown their economic resilience by fulfilling common goals
of the association. “A cooperative is a symbiosis: a union of an association of people and
a business, both of which have to keep healthy for the organism to thrive” (Fairbairn,
1995: 284). Hence social achievements are vital for business success, while economic
strength is imperative to yield social aims. However, the financial cooperatives that have
replicated corporate banking behaviour have now embraced a renewed socialist
imperative alongside their economic performance goals. There is a growing realisation
among financial cooperatives that their effectiveness is based on the reconciliation
between economic efficiency and adherence to social values.
Objectives of the Study
To analyse the successful performance of financial cooperatives achieved
through loyalty and patronage of service
To elucidate upon how the social orientation within the cooperative business
model helps make membership meaningful
To suggest measures for the implementation of effective cooperative strategies

Methodology Used
This study is descriptive and exploratory in nature and is based on an empirical survey
conducted during 2007-2011(April). Both primary and secondary sources of data are
used in the study. Methods of data analysis and interpretation include descriptive
statistics such as percentages, averages, and deterministic statistical tools (statistical
inferences) of correlation, regression analysis and non-parametric statistics. The study

The Amazing Power of Cooperatives ...195...


is confined to the financial cooperatives functioning in Dakshina Kannada District in the
Karnataka State and in the State of Maharashtra in India. Multi-stage stratified random
sampling was used for selection of areas, sectors and units.

Need for Striking a Healthy Balance between Business and
Association Objectives in Financial Cooperatives
The financial cooperatives are an integral component of the Indian financial system,
judging by: their number, membership, number of operating branches, the financial roles
they play, the extent of their geographical coverage and the number of people they serve.
However, they face several challenges in terms of acute corporate competition, problems
of mobilizing resources due to declining state assistance, legal constraints, lack of a level
playing field and a poor public image (Ghosh, 1999). The ripple effects of the financial
crisis also pose problems for the cooperative banks, particularly with respect to their
financial operations.
In these evolving circumstances, financial cooperatives have a distinctive role to play in
contrast to corporate culture. As both the enterprise and association components of
cooperatives are intertwined, it is imperative for cooperatives to revive their commitment
to nurturing members and the cooperative ideology, which is integral to strengthen their
existence. Both the management and the members should build economic resistance of
their cooperatives through their loyalty and patronage of services (Hodgkin, 1969). Having
social objectives oriented toward the community makes a cooperative relevant and
unique within an aggressive and competitive market. “If co-ops neglect their associational
needs, the consuming public can no longer distinguish a co-op from any other business”
(Craig, 1995). Hence social goals should be prioritised to retain their identity and public
confidence. This will not only empower the members, but also help them improve services
and business viability.
Shri Mahila SEWA Sahakari Bank in the state of Gujarat and the Bhagini Nivedita Sahakari
Bank in the state of Maharashtra in India are the best examples for the success of
cooperatives achieved through social objectives. The former has empowered self-
employed women through credit access, insurance, and asset creation and the latter has
uplifted thousands of households by inculcating financial discipline and by extending
financial assistance on easy terms. SEWA Bank – in addition to the usual banking
functions – extends technical and management assistance in production, storage,
procuring, designing and selling goods and services. It has gained the distinction of
providing health insurance and retirement benefits to thousands of women workers.
SEWA aims at providing an integrated set of banking services, which makes it a multi-
service organisation that has deviated from the general pattern of cooperative banks. It
serves the poor through both urban and rural activities as well as doorstep banking.

...196... The Amazing Power of Cooperatives


The Bank provides employment to 10,500 women and paid wages worth nearly
Rs.19.7 million. It provides loans to self-employed women working in 111 trades. With
the help of the SEWA Bank, 60,000 poor women could create assets worth Rs.200 million
(6.6 million US $) (UNESCO, 2003). The Transformation Initiative undertaken by SEWA
has successfully improved the lives of over 30,000 slum dwellers over the last four years.
As of September 30, 2010, SEWA provided loans to 25,000 borrowers and mobilized
deposits from 348,000 members.

Analysis of Performance of Surveyed Financial Cooperatives Achieved
through Loyalty and Patronage of Service

Backdrop
Financial cooperatives in India started functioning almost 100 years ago. They are
registered under the Co-operative Societies Act. The cooperative banks are also regulated
by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws
(Co-operative Societies) Act, 1965. They may be broadly classified into urban credit
cooperatives – or Urban Cooperative Banks – and rural credit cooperatives. There are
about 2,090 urban credit cooperatives and these societies together constitute about 10
percent of aggregate banking business. The rural credit cooperatives may be further
divided into short-term credit cooperatives and long-term credit cooperatives. With
regard to short-term credit cooperatives at the grassroots level, there are around 92,000
Primary Agricultural Credit Societies (PACS) dealing directly with the individual
borrowers.
Analysis of the Surveyed Units
The sample consists of ten Financial Cooperatives that include Urban Cooperative Banks
(scheduled Banks), District Cooperative Banks and urban and rural credit cooperatives
functioning in the states of Karnataka and Maharashtra. This study focuses on the
performance of financial cooperatives that fulfill social objectives along with economic
goals, such as: the South Canara District Central Co-operative Bank Ltd., Mangalore
Catholic Cooperative Banks Ltd. functioning in the Dakshina Kannada District of
Karnataka State and Saraswat Cooperative Banks in the Maharashtra and Karnataka
State.
A) South Canara District Central Co-operative Bank Ltd. (SCDCC Bank)
The bank was registered in 1913 and started functioning formally in 1914. The bank has
54 branches including service branches spreading over the undivided District of South
Canara. The bank has given top priority to financing the agricultural sector since its
inception by taking into consideration various credit needs of farmers. It is striving to
provide timely and adequate finance through Agriculture Societies at the ground level.



The bank has been awarded as the best DCC Bank from the Karnataka State Cooperative
Apex Bank for the last 13 years. SCDCC Bank is the only cooperative bank, which has
been given permission by the Apex Bank of India (i.e. Reserve Bank of India) to operate
at the state level.
B) Saraswat Co-operative Bank Ltd
The bank was founded in 1918 in Maharashtra as a Co-operative Banking Society and
was converted into a full-fledged Urban Co-operative Bank in 1933. In 1988, the bank
was conferred with “scheduled” status by the Reserve Bank of India. It is the first
cooperative bank to provide merchant banking services. The bank got a permanent
license to deal in foreign exchange in 1978. Presently, the bank has correspondent
relationships in 45 countries covering 9 currencies with over 125 banks. As of November
1, 2010, the bank had surpassed 250 billion (approximately 5.5 billion US$). The bank
has a network of 207 fully computerised branches covering six states: Maharashtra,
Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi; and provides 24-hour services
through ATM units at 103 locations. In 2010, the bank opened four branches in
Mangalore in Dakshina Kannada District, within the Karnataka State.
C) Bhagini Nivedita Bank
The bank was established on March 24, 1974, by Shri Vivek Dadhe, an eminent Char-
tered Accountant, and his enterprising wife, Mrs. Meenakshi Dadhe. They realized the
inherent qualities of caution, perseverance and financial prudence for women and
decided to tap into this potential by establishing the bank with the phrase, “Managed
by Women for All.”
The bank is named after Bhagini Nivedita, a disciple of Swami Vivekananda – originally
an Irish woman, Margaret Noble – who came to India and devoted her life in the service
of humanity. The bank ignited the entrepreneurial spirit among women and has
transformed many into successful entrepreneurs. Since its inception, the bank has done
exemplary work of relieving poor people from the clutches of private moneylenders by
offering loans at affordable interest rates. Deposits have grown to over Rs.3.91 billion
with the net non-performing asset (NPA) level of zero percent, securing them A audit
class of RBI. The banking model developed by women leaders is based on continued trust
of shareholder members and customers. This model has served the cooperative well and
attracted bankers from across the country and abroad.
D) The Mangalore Catholic Co-operative Bank Ltd
The Mangalore Catholic Co-operative Bank was established in 1912. The visionary,
philanthropic founders were motivated by the needs of the Catholic community in their
times. Agriculture was the major occupation then. The bank continued to grow with the
growth of its customers. The Bank played a major role in the economic prosperity of the



Canara Catholic Community. For nine decades, the bank withstood all its challenges
based on the strength it gained by serving its surrounding society. It currently has 18,000
shareholders and operates in 16 branches throughout the undivided South Canara. Like
SCDCC Bank, MCC Bank is also a scheduled cooperative bank and caters to the banking
needs and aspirations of all people, irrespective of their religion and caste. The statistical
highlights of their performance are outlined in the tables of Appendix 1.

Analysis of the Social Orientation of the Cooperative Business Model
All of the above cooperative Banks have established fields of activities corresponding to
the needs of their members and have created venues for such activities. These activities
are mainly established to accomplish on one hand, the vision and mission of the
cooperatives, and on the other hand, strengthen the relationship with the local
community and local societies. Provision of good services to members and customers is
seen as an ethical imperative of the organizations. This has allowed them to increase
their competitiveness, flexibility and ability to face the challenges of globalisation and
the financial crisis. All of them have strategically planned to render additional services
to their members, which they deemed as a “value addition” required to enhance their
cooperative identity.
The SCDCC Bank Ltd is actively participating in government-sponsored schemes such as
the S.G.S.Y Swarojgar Credit Card Scheme. The bank has issued 68,088 Mangala Kissan
Credit Cards to members of the Primary Agriculture Credit Societies, out of which 57,278
members have been covered under personal accident insurance schemes. A sum of
Rs.4.36 billion has been advanced under this scheme during financial year 2009-10. The
borrower under the bank’s crop loans service is also covered by a crop insurance scheme
sponsored by the government. With a view to diversify its activities, the bank has also
financed Rs.3.601 billion to the non-farm sector. The bank has provided financial support
to the sugar sector under a consortium arrangement, advancing Rs.270 million to seven
sugar factories in various districts of the state.
The bank is actively participating in promoting and financing Self Help Groups (SHG) and
has promoted 34,259 SHG groups under the supervision of the Navodaya Grama Vikasa
Charitable Trust (R), Mangalore. Through this trust, 26,000 SHGs were formed consisting
of 270,000 members spread across different districts in the Karnataka State. This
program is achieving success in an incredibly difficult field: providing financial and social
security assistance to below-poverty-line families. With the motto “from dependence
to self-dependence,” Navodaya Self Help Groups have taken a bold step and have
witnessed the improvement of poor people’s living standards. While developing self-
confidence within poor segments of society, the SHGs have also been fostering



leadership qualities among the poor. The program has been providing required training
to unemployed people to help them with employment, business development and other
activities.
The bank has received the State Level Award for best performance of SHGs from
NABARD for the past 10 years. These groups have mobilized Rs.540.09 million in savings
and 23,111 groups are credit linked with Rs.914.90 million in advances.
The bank has not lagged behind in customer service. It has computerized all its branches
and introduced several innovative service activities, including the Single Window System,
Any Branch Banking, ATM facilities and 12 hour banking from 8 a.m. to 8 p.m. at its head
office in Kodialbail.
Banking on wheels was also introduced by the SCDCC Bank to facilitate financial
inclusion and market coverage. It is a unique introduction of a mobile bank to facilitate
banking services to rural communities where there is no banking facility. A customer can
engage in all banking transactions including deposits, withdrawals and obtaining loans.
This bank is interconnected with all branches of the bank through its Any Branch Banking
facility.
The Mangalore Catholic Cooperative Bank Ltd., though it initially incurred losses, is
currently on a growth trajectory that could win widespread allegiance of members and
unremitting support of its employees. The bank plans to introduce its “Swanth” scheme,
which is aimed at encouraging youth to take up self-employment. This is mainly planned
to prevent youth from the region migrating to Gulf countries in search of jobs. Besides
developing professionalism and technology within the banking sector, the MCC Bank has
also placed emphasis upon helping women take on entrepreneurial roles. In the financial
year 2009-2010, deposits went up to Rs.1.33 billion and advances reached up to Rs.900
million.
Starting with the mission of “emerging as one of the premier and most preferred banks
in the country by adopting highest standards of professionalism and excellence in all the
areas of working,” Saraswat Cooperative Bank Ltd. has grown in stature, progressed in
its social and economic objectives and produced an image of what an ideal bank should
be. Through sustained and assiduous efforts over 75 years, the bank has gained a strong
foundation in terms of its membership, resources, assets and profits.
Provision of service to members and customers is a central mantra for the bank. To
accomplish this objective, customer service surveys are undertaken with the help of in-
house staff members and walk-in customer feedback. Customer satisfaction and loyalty
surveys are also planned through an international agency, M/s Synovate India Pvt. Ltd.
The survey provides excellent insights into the improvements required in their customer



focus. The bank also provides easy payment method facilities to customers in terms of
gas, electricity and telephone bills, with no service charges in particular branches. A
Member Welfare Fund was also established and there are currently Rs.59.8 million
available in the fund. During the year 2009-2010, 1,150 members utilized the medical
reimbursement and medical check-up facilities, and 56 awards were granted to the
meritorious children of the members. Rs.5 million was also made available for charitable
and cooperative purposes. The bank has supported numerous social, educational,
medical and creative causes by way of sponsorship during the year. The bank has also
introduced the Flood Disaster Relief programme and Phyan Cyclone Relief Programme
in order to provide respite to the victims of rains, floods and cyclones. It provided loan
assistance to the tune of Rs.3.8 million to 144 beneficiaries in the Sindhudurg District.
Saraswat Cooperative Bank has also ventured into microfinance in Western Maharashtra
and also in Sindhudurgh District. It extends credit to self-help groups that are involved
in activities like selling fruits, vegetables, milk and fish, making brooms, basket weaving
and other bamboo products and any other activities like plumbing, hairdressing, electrical
work, flower and vegetable growing and spice making. Under this microfinance scheme,
the bank has extended financial assistance of around Rs.20 million to 1,600 beneficiaries.
The bank has realised that banking for the poor is a sound practice, as default loans
recovery were very rare. The Saraswat Cooperative Bank has thus proved that when both
the enterprise and association side of the cooperative organisation are given equal focus,
they can reach a pinnacle of success.
Bhagini Nivedita Sahakari Bank Ltd. in the State of Maharashtra is run solely by women
and has been the pioneer in conducting entrepreneurship development activities for
female members, which makes this a very unique cooperative bank. The bank organizes
exhibitions to showcase the products of their entrepreneur-members. The bank also has
innumerable schemes for women empowerment. Some members provide homemade
meals, some run catering institutes; others run computer institutes or handle milk supply
contracts, and some run small and medium scale enterprises. Financial prudence is the
hallmark of the bank; sustained all-round growth has brought many awards and honours
to the bank.
Comparative Analysis of the Relationship Between Business Performance
and Association Strategies
The financial performance of cooperative banks was analyzed vis-à-vis their social
achievements. Three parameters were selected to assess the performance of the
organizations: percentage growth in membership, total capital, and profit. These criteria
were applied to societies with good social initiatives and to those with poor social
initiatives (Group 1 is comprised of three financial cooperatives and Group 2 is comprised



of seven financial cooperatives). An analysis was conducted examining the median,
standard deviation and the Mann-Whitney U-Test (non-parametric). The results of this
analysis are presented in Table 5.
The data in the Table 5 depict that the financial cooperatives with good social initiatives
for the members and the community have shown growth in terms of membership,
capital, and profit, which is reflected in their overall strength relative to cooperatives
with less social activities.

Suggestions
The financial cooperatives should synergize its association culture with its resources,
technologies and organizational behaviour so as to increase the return to members.
Management should never consider social initiatives as extraneous activities and
wasteful expenditures. Investments in these initiatives will surely pay dividends when
the long-term value of a member is considered.
Association strategies should be treated as an integral part of the business practice. The
structure, systems and processes of the cooperatives should be reengineered to
implement these strategies effectively. They should adopt a need-based product mix (i.e.,
constantly trying to find more products, services and activities for the member customers
whose needs they know). The four Ps of a marketing mix – product, place, price and
promotion – should be devised with the needs of people and members.
I In some states, restrictive provisions in the State Cooperative Laws hinder the
implementation of social initiatives, impairing the autonomy of cooperatives. In this
respect, the government should intervene and take necessary steps to amend existing
anomalies. Intervention should be more supportive and advisory rather than dictating
and suppressive.
I Investment in social initiatives should be ratified as an essential investment and
integrated support from the government and the Cooperative Department. It is the
responsibility of the state to provide a level playing field to the cooperatives at par
with other sectors of the economy.



Conclusion
Integrating strategies that respond to the association needs of the members with market-
driven business plans is a vital Customer Relationship Management (CRM) practice that
successful cooperatives have found for winning the allegiance of its member-clients.
Members – as customers – are becoming increasingly scarcer than capital; they are hard
to get and it is difficult to establish loyalty. As Fairbairn has stated, “businesses usually
succeed by having ongoing relationships of trust” (1994: 3). Hence, cooperatives should
be responsive and responsible to fulfill their associational needs so that they get as much
value as they can from every single customer-member. Association strategies thus
enhance a member’s sense of identification with the firm; make them more loyal and
increase the likelihood that they will refer others to the cooperative, leading to the
maximisation of return. The concept of “association” is not new to the cooperatives,
but it has been relegated to the background. Its restoration is imperative in the current
market context, as it will help the community to distinguish a cooperative from other
economic players. This will indeed help the financial cooperatives to make membership
meaningful and achieve sustainability, effectively proving cooperatives economically
and socially relevant organisations in the social economy. If practiced in letter and spirit,
cooperatives can win the unflinching patronage of the sizeable market of nearly
200 million members and the world’s largest cooperative network can become the
world’s strongest movement.

Appendix 1: Statistical highlights performances tables
Table 1: Mangalore Catholic Co-operative Bank LTD (MCC Bank)
in Lakhs 1 Lakh = 100 Thousands 10 Lakhs = 1 Million

Source: Survey Data


Table 2: SCDCC Bank Ltd
(Amt.in Lakhs 1 Lakh = 100 Thousands 10 Lakhs = 1 Million

Source: Survey Data

Table 3: Saraswat Co-operative Bank Ltd
(Amt.in Lakhs 1 Lakh = 100 Thousands 10 Lakhs = 1 Million

Source: Annual Report

The Amazing Power of Cooperatives
...205...


Table 4: Bhagini Nivedita Bank Ltd
(Amt. in Crores 100 crores = 1 Million

Source: Survey Data

Table 5: Strength of the Cooperatives – A Comparative Analysis

Note: Group 1 represents financial cooperatives with good social activities.
Group 2 represents financial cooperatives with poor social activities.



Note
1
Ph.D. Associate Professor, Department of Commerce, Besant Women’s College, Mangalore
University, M.G. Road, Mangalore 575 003, Karnataka, India, sudhak20@gmail.com, Ph.0091-824-
2492206 (College)

Bibliography
CRAIG, J. G. (1995). International Joint Project on Cooperative Democracy, Making Membership Meaningful,
Participatory democracy in cooperatives, Saskatchewan, Centre for the study of cooperatives,
University of Saskatchewan.
FAIRBAIRN, B. (1995). “Constructing Alternative Languages for Co-operative Growth: An Ecological Metaphor”,
in International Joint Project on Cooperative Democracy, Making Membership Meaningful: Participatory
democracy in cooperatives, Center for Study of Cooperatives, University of Saskatchewan, p. 284-285.
GHOSH, G. N. (1999). “Sustaining India’s cooperatives”, Cooperative Perspective, No. 34 (1), p. 8-14.
HODGKIN, C. (1969). Education in cooperatives, Illinois, Cooperative League of U.S.A.
PURI, S. S. (1979). Ends and Means of Cooperative Development, New Delhi, NCUI.
UNESCO (2003). Best Practices - A Women Self-Help Organization for Poverty Alleviation in India, SEWA India
www.unesco.org/most/bphome.htm



Summary
This paper elucidates how the social orientation in business model helps the financial cooperatives
to achieve business success through the perpetual loyalty and patronage of service, thereby making
membership meaningful. The sample consists of ten Financial Cooperatives functioning in the State
of Karnataka and Maharashtra in India. They include Bhagini Nivedita Bank, Saraswat Cooperative
Bank, South Canara District Central Co-operative Bank Ltd.,and Mangalore Catholic Cooperative Bank
Ltd. The analysis depicts that financial cooperatives/ Banks having good social initiatives for the
members and the community, have shown growth in terms of membership, share capital and profit
due to increased response rate of member customers, reflecting in their overall strength and socio-
economic relevance than those financial cooperatives having less social activities. Besides, it has
improved their competitiveness and ability to brace the challenges of financial crisis.

Resumen
Este trabajo dilucida de qué manera la orientación social del modelo empresarial contribuye a que
las cooperativas financieras logren su éxito a través de la lealtad continua y el patrocinio del servicio,
lo que le da sentido a la afiliación. La muestra incluye diez cooperativas financieras que funcionan en
los estados de Karnataka y Maharashtra en la India. Entre estas se encuentran: el banco Bhagini
Nivedita, el banco cooperativo Saraswat, el banco cooperativo limitado South Canara District Central
y el banco cooperativo limitado Mangalore Catholic. El análisis indica que las cooperativas financieras
y los bancos que ofrecen interesantes iniciativas sociales a sus asociados y a la comunidad han logrado
un crecimiento en términos de cantidad de asociados, capital social y ganancias gracias al aumento
de respuesta por parte de los clientes afiliados, lo cual se refleja en su fortaleza y relevancia
socioeconómica global en comparación con aquellas cooperativas financieras que ofrecen menos
actividades sociales. Además, también ha mejorado su competitividad y su capacidad para enfrentar
los desafíos de la crisis financiera.

Résumé
Cet article explique comment le volet social d'un modèle d'affaires peut aider les coopératives
financières à réussir, en suscitant une loyauté indéfectible de la part de leurs membres. Il étudie le
cas de dix coopératives financières actives dans les États du Karnakata et du Maharashtra, en Inde,
dont la Bhaghini Nivedita Bank, la Saraswat Cooperative Bank, la South Canara District Central
Co-operative Bank Ltd. et la Mangalore Catholic Cooperative Bank Ltd. L'analyse montre que les
coopératives financières et les banques qui ont mis en place des initiatives sociales intéressantes à
l'intention de leurs membres et de la communauté ont observé une croissance quant au nombre de
membres, au capital social et aux excédents en suscitant un taux de réponse plus élevé de la part de
leurs clients membres. Elles en retirent une force et une pertinence socio-économique qui les favorise
par rapport aux coopératives financières qui proposent moins d'activités sociales. Leur compétitivité
s'en trouve accrue, de même que leur capacité de relever les défis liés à la crise financière.


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