A STUDY ON MANAGERIAL EFFECTIVENESS AND BANK PERFORMANCE IN SCHEDULED URBAN COOPERATIVE BANKS IN INDIA

Abstract

Urban Cooperative Banks (UCBs) in India have long been integral to the financial fabric of the country, particularly in serving the needs of urban and semi-urban communities. However, they are facing significant challenges, including issues with deposit mobilization, credit dispensation, capital adequacy, profitability, and asset quality. These challenges are exacerbated by governance deficiencies such as poor accountability, weak internal controls, and inadequate information disclosure, which undermine transparency and decision-making. The sector's vulnerabilities are further heightened by external pressures, making it difficult for UCBs to maintain stability. Addressing these governance and management shortcomings is crucial for enhancing the performance and sustainability of UCBs, highlighting the urgent need for comprehensive reforms. Existing literature on managerial effectiveness in the banking sector has consistently emphasized the importance of managerial skills, adherence to governance norms, and strategic management. These elements are recognized as fundamental to achieving organizational success in any banking institution. However, there is a noticeable gap in research specifically focused on Scheduled Urban Cooperative Banks (SUCBs), particularly in the context of empirically analyzing the impact of governance, professional management, and external control on bank performance from the perspective of stakeholders. This study seeks to fill this gap by providing a comprehensive examination of the critical factors influencing SUCB performance, with a particular focus on governance practices, managerial effectiveness, and external control mechanisms. The relevance of this study is reiterated by the ongoing crises and challenges faced by UCBs, which pose significant risks to the stability and resilience of the cooperative credit movement in India. The study‘s focus on identifying and addressing governance deficiencies, enhancing regulatory oversight, and promoting professional management is closely aligned with current legislative and regulatory efforts aimed at strengthening the sector. 6 The study aims to provide a comprehensive understanding and analysis of the structure, performance, and achievements of the Urban Cooperative Banks (UCBs) sector in India. It seeks to critically examine the various issues and challenges that Scheduled UCBs face in achieving their performance objectives. A key focus of the study is to identify the primary determinants of managerial effectiveness within Scheduled Urban Cooperative Banks, exploring how these factors influence their overall performance. Furthermore, the study investigates the relationship between managerial effectiveness and the performance outcomes of these banks. Finally, it proposes suitable policy measures designed to enhance the performance and sustainability of Scheduled Urban Cooperative Banks, ensuring they can effectively navigate the challenges of the banking sector. By conducting a detailed analysis of these issues and offering practical, evidence-based solutions, the study also wishes to support initiatives aimed at restoring depositor confidence, improving operational efficiency, and ensuring the long-term viability of UCBs. The methodology adopted for this study involves a blend of primary and secondary data sources, with a particular focus on Scheduled Urban Cooperative Banks (SUCBs) in India. The study‘s primary objective is to empirically examine and illustrate the relationships between key variables such as governance, professional management, external control, managerial effectiveness, and bank performance. The perspectives of bank office bearers and senior officials were sought to gain insights into the policy dimensions associated with these variables, leading to the refinement of the research universe to 50 SUCBs with the sample size of 300. Structured questionnaires were extensively employed to gather insights from the respondents of these selected banks. The primary data collected through structured questionnaires was meticulously edited, coded, and classified to ensure accuracy and consistency. A master-table was developed, from which numerous sub-tables were created and placed in the relevant chapters for coherent analysis. Descriptive statistics were employed to analyze the perceptions of respondents, providing a clear and detailed understanding of the key components of effective governance, professional management, external control, managerial effectiveness, and performance in banking. 7 The study also utilized Structural Equation Modeling (SEM), a sophisticated statistical technique that combines factor analysis with multiple regression analysis. SEM was employed to analyze the complex relationships between the variables under investigation, including the direct, indirect, and total effects of governance, professional management, external control, managerial effectiveness, and performance. This approach allowed the study to explore and validate the inter linkages between these variables, providing a comprehensive understanding of the factors that influence SUCB performance. The findings of the study reveal several critical insights. Firstly, the study found that governance and professional management do not significantly influence managerial effectiveness within SUCBs. Inadequate governance practices can create inefficiencies that adversely affect managerial effectiveness, underscoring the need for proactive governance frameworks that prioritize professionalism and integrity. Secondly, while the relationship between professional management and managerial effectiveness is positive, it is not statistically significant. This finding highlights the lack of professional management standards within UCBs, pointing to the need for improved professional practices and skill development within these institutions. On the other hand, the study found that external control mechanisms significantly enhance managerial effectiveness. Regulatory oversight plays a crucial role in ensuring efficient and effective management practices, which in turn contribute to improved financial performance within SUCBs. Compliance with regulatory standards is essential for the survival and success of these banks, reinforcing the importance of external control in enhancing managerial effectiveness. The study provides a comprehensive analysis of the factors influencing the performance of SUCBs in India. It reveals that while governance and professional management are important, they do not significantly influence managerial effectiveness. Furthermore, the study found that managerial effectiveness significantly impacts bank performance, particularly when supported by effective external control mechanisms. This finding highlights the critical role that strong management practices and adherence to regulatory standards play in achieving high performance levels within SUCBs. 8 Suggestions and managerial implications of the study highlights critical areas such as strengthening governance frameworks, promoting professional management, and ensuring stringent regulatory oversight are essential for improving operational efficiency and financial stability. The study emphasizes the importance of compliance, recommending the appointment of a Chief Compliance Officer (CCO) and the implementation of robust compliance programs. It also underscores the need for a comprehensive risk management framework, including the appointment of a Chief Risk Officer (CRO) and strong internal controls, backed by a vigorous internal audit function. Enhancing transparency through improved disclosure practices and increasing board participation in governance processes are also critical recommendations. The study advocates for continuous improvement in governance practices, emphasizing regular training for board members and the adoption of innovative banking technologies to stay competitive. It also calls for a focus on cyber security and data protection, optimizing HR practices, and strengthening regulatory frameworks through collaboration and consultation with industry stakeholders. Overall, these recommendations aim to fortify the SUCBs against challenges, ensuring their long term viability and trustworthiness in the financial ecosystem. The study's recommendations focus on improving governance, enhancing professional management, and strengthening external control mechanisms to ensure the continued success and stability of SUCBs. The policy implications of this study are far-reaching, not only for strengthening SUCBs but also for their broader social impact. Effective governance and professional management practices will contribute to the financial stability of these institutions, protecting the interests of depositors, especially in economically vulnerable communities that rely heavily on UCBs. By promoting transparency, accountability, and innovation, SUCBs can better serve their communities, particularly in underserved urban and semi-urban areas. Enhanced financial reporting and the adoption of advanced technologies will lead to more efficient and accessible banking services, fostering financial inclusion and economic empowerment. 9 The social impact of these measures is significant; stronger SUCBs will not only contribute to the resilience of the financial sector but also to the economic development of the communities they serve. As these banks improve their operational integrity and expand their service offerings, they can play a pivotal role in supporting small businesses, providing affordable credit, and promoting financial literacy. This, in turn, will help bridge the gap between formal financial institutions and marginalized populations, leading to more equitable economic growth. The study concludes by emphasizing the need for comprehensive reforms within the SUCBs, particularly in the areas of governance, professional management, and external control. The recent introduction of the Prompt Corrective Action (PCA) framework for UCBs by the Reserve Bank of India in July 2024 is highlighted as a particularly commendable step in this direction. This regulatory measure reflects a significant and timely advancement in oversight mechanisms, signaling a proactive approach to safeguarding financial stability within the sector. By implementing the recommendations of the study, SUCBs can achieve not only financial sustainability but also contribute positively to the society, ensuring that the cooperative banking model continues to be a pillar of support for inclusive economic development in India.