Governance and Performance of Scheduled Urban Cooperative Banks in India

Abstract

This paper examined the relationship of governance and financial parameters for scheduled urban cooperative banks in India. Governance related parameters such as participation in annual general meetings, low or nil presence of family members in boards, training of staff, etc. were found to have significant, though not strong, positive correlations with Net Interest Margins, Return on Assets, and Return on Equity (ROE). The democratic structure of cooperative banks, beyond a threshold, and the quality of their professional management contributed to the quality of the overall governance at an increasing rate. Aspects such as educational qualifications of CEOs, qualifications and training of directors, training of staff, etc., were assessed as significant differentiators of the quality of governance. Improved quality of professional management contributed to about 32 basis points rise in the Net Interest Income, and the banks with very high governance scores enjoyed a higher ROE by 366 basis points.

Keywords: Cooperative Banks, Governance, Democratic Structure, Professional Management, Control Systems, Financial Performance

JEL Classification: G21, G30