A Comparative Assessment of Cost Income Ratio of Scheduled Urban Cooperative Banks in India : Benchmarking the Operational Efficiency

In a highly competitive environment, operational efficiency is an important factor for the survival of any organisation and banks are no exception. A comparative assessment of Cost Income Ratio (CIR) shows that the behaviour of CIR and its relationships with other vital financial parameters of scheduled Urban Co-operative Banks (UCBs) in India is different from that of the commercial banks. Unlike commercial banks, gross non-performing assets (GNPA) and the proportion of assets other than investments and advances to the total assets show a significant positive correlation with the CIR in case of scheduled UCBs, and hence, these impact their operating efficiency. In contrast to commercial banks, scheduled UCBs have higher wage CIR than non-wage CIR. While their wage CIR is negatively correlated with asset size, non-wage CIR is found positively correlated with asset size. Scheduled UCBs in the asset class of ₹ 5000 crores to ₹ 10000 crores (100 crores = 1 billion) show better cost-efficiency. Optimization of asset size emerges as an important aspect of economies of scale and cost-efficiency for these banks. We find that a suitable benchmark for CIR of scheduled UCBs lies in the range of 0.45 to 0.55, which requires an average improvement of about 25% from its present level