INTRODUCTION Co-operative banks are an important constituent of the Indian financial system. The Co-operative movement originated in the west, but the importance that such banks have assumed in India is rarely paralleled in the world. Their role in rural financing continues to be important even today, and their business in the urban areas also has increased in recent years mainly due to the sharp increase in the number of co-operative banks. A Co-operative is voluntary association of members of self-help, catering to the financial on a mutual basis. In India, the co-operative credit movement started with the chief object of catering to the banking and credit requirements of the urban middle class e.g. the small trader or workers, the salaried people with limited fixed income in urban or semi-urban areas. The co-operative banking system in India is federal in structure. Structure of co-operative banking system is three-tier structure in India. 1. Primary Credit Structure (PCS's) 2. Central Co-operative Banks (CCB's) 3. State Co-opeative Banks (SCB's) 1
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INTRODUCTION
Co-operative banks are an important constituent of the Indian financial
system. The Co-operative movement originated in the west, but the importance
that such banks have assumed in India is rarely paralleled in the world. Their role
in rural financing continues to be important even today, and their business in the
urban areas also has increased in recent years mainly due to the sharp increase in
the number of co-operative banks.
A Co-operative is voluntary association of members of self-help, catering to
the financial on a mutual basis. In India, the co-operative credit movement started
with the chief object of catering to the banking and credit requirements of the urban
middle class e.g. the small trader or workers, the salaried people with limited fixed
income in urban or semi-urban areas.
The co-operative banking system in India is federal in structure. Structure of
co-operative banking system is three-tier structure in India.
1. Primary Credit Structure (PCS's)
2. Central Co-operative Banks (CCB's)
3. State Co-opeative Banks (SCB's)
Co-operative banking can divided mainly two types Agricultural sector and
Non-Agriculture sector.
The DCCB's (District Central Co-operative Banks) have come into existence
due to the failure of primary societies to attract required resources in the form of
deposits from well to do sections of the village community on one hand and to
inspire the habit of thrift and savings among their members to provide strong base
on the purpose to give support to farmers and small industries. The objectives of
DCCB's.
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Their democratic organization and management help in catering better to the
local needs, mobilization of resources and recovery of the loan advanced.
They are best suited to guide, supervise and control their societies.
They constitute the basic unit of planning and development of co-operative
active at the district level.
In the view of importance of central co-operative banks, the study in
undertaken to assess the performance of Warangal District Co-operative Central
Bank.
Need for Study :
To examine various techniques of Financial Analysis, help in making . For
this different methods are used in the study.
1. Comparative Balance Sheet.
2. Ratio Analysis
3. Trend Analysis
The main aim behind the study is to gains practical experience and practical
experience and knowledge.
Objectives of the Study :
1. To know the financial status of the WDCCB
2. To extract the liquidity position of the WDCCB
3. To find long-term Financial position of the WDCCB
4. To offer conclusions and suitable suggestions.
Period of the Study :
The period of the study is confined to five years that is from 2005-2006 to
2009-2010 as that period of study is considerably long and enough to comprise all
the changes in the WDCCB, They might be economic and cynical.
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Limitations of the Study :
1. It is based on only on monetary information and non-monetary factors
are ignored.
2. It is only study of interim reports of the concern.
3. it does not consider changes in price level.
4. Some changes in accounts procedure by concern may often make
financial analysis misleading.
5. The period of study is limited only for five years that is 2005-2006 to
2009-2010.
CHAPTER PLAN :
Chapter – 1 : Deals with the synopsis and rational study, objectives, data
and methodology of the study, period of the study and limitations of the study.
Chapter – 2 : Deals with introduction about the Co-operative Banks and their
origin and growth in India.
Chapter – 3 : Deals with the profile of the Warangal District Central Co-operative
Bank and its progress.
Chapter – 4 : Deals with the introduction of Financial Statement Technique and
over view, Definition and the scope, types of Financial analysis and procedure of
statement analysis, methods of financial analysis.
Chapter – 5 : Deals with the financial analysis of comparative balance sheet, Ratio
analysis and Trend analysis.
Chapter – 6 : Deals with the conclusions and suggestions.
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Co-operative Banks :
Co-operative banks are an important constituent of the Indian financial
system, judging by the role assigned to the. The co-operative movement originated
in the west, but importance which such banks have assumed in India is rarely
paralleled anywhere else in the world. Their role in rural financing continues to be
important even today, and their Business in the urban areas also has increased in
resent years mainly due to the sharp increase in the number of primary co-
operative banks.
A credit co-operative is voluntary association of members for self-help,
catering to the financial on a mutual basis. In India, the co-operative credit
movement started with the chief object of catering to the banking and credit
requirements of the urban middle class e.g. the small trader or businessman, the
artisans, or factory worker, the salaried people with limited fixed income in urban or
semi-urban areas.
Besides protecting the middle classes and men of modest means from the
clutches of the money lenders, the movement is also expected to indicate the habit
of thrift and savings amongst the people.
Origin and development :
The urban co-operative credit movement originated in Germany when
Herman Schultz started such societies for the benefit of artisans in the cities. In
Italy, the credit of starting such societies goes to Livgi Luzzatti. Encouraged by the
success of the urban credit institutions in these countries. Social workers in India
began to think in terms as the co-operative as a means of bringing success to
middle classes as early as to close of the 19 th Century. In India the first credit
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society was set up in 1889 at Baroda. But no proper attention was paid for its
development. The government of India showed the golden seed of the co-
operative banking in India in 1904 with introduction of co-operative societies act of
1904. In rural areas as far as agricultural and related activities ware concerned, the
supply of credit, particularly, institution credit was woefully in adequate and
unorganized money marked agencies, such as money lenders, were providing
credit often at exploitatively high rates of interest. The co-operative banks were
conceived in order to substitute such agencies, provide adequate short term and
long-term institutional credit at reasonable rates of interest and to bring about
integration of the unorganized and organized segments of the Indian money
market.
Urban co-operative credit societies and bank occupy a prominent place
among the agencies supplying credit needs of the people residing in the urban
areas. They advance loans mostly to the traders, artisans and salary earners on
personal security as well as against gold and silver. The urban banks cater
primarily to the needs of the lower and middle-income structure of our society.
Structure of Co-operative Banking System in India :
The Co-operative banking system in India is federal in structure. It has a
pyramid type of a three-ties structure constituted by :
1. Primary Credit Structure (PCS's)
2. Central Co-operative Banks (CCB's)
3. State Co-operative Banks (SCB's)
Co-operative banking can be divided into mainly two types agricultural sector
and non-agricultural sector. Agricultural sector concerned to mainly rural credit. But
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non-agricultural sector is totally banks, industrial co-operative banks and
employees co-operative different one; it includes urban co-operative society.
Structure of Co-operative Banks
Co-operative Bank
RBI
NABARD
SCBS SLDBs UCBs
CCBs CLDBs
PACs
PLDBs Branches of SLDBs
SCBs = State Co-operative Banks
SLDBs = State Land Development Banks
UCBs = Urban Co-operative Banks or Primary Co-operative Banks
CCBs = Central Co-operative Bank
CLDBs = Central Land Development Bank
PACs = Primary Agricultural Credit Societies
PLDBs = Primary Land Development Banks.
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2.2 Urban Co-operative Banks :
Co-operative credit societies established in urban areas and referred to as
urban co-operative banks. In most states, however, no clear-cut definition of an
urban co-operative bank is statutorily followed.
Urban co-operative banks usually meet the needs of specific types or groups
of members pertaining to a certain trade, profession, community or even locality.
Urban banks almost function like commercial banks in providing essential banking
and non-banking agency and utility services.
UCBs are also called as Primary Co-operative Banks (PCBs) by the Reserve
Bank. The RBI defines PCB's as small-sized co-operatively organized banking
units which operate in metropolitan, urban and semi-urban centers to cater mainly
to needs of small borrowers, viz., owners of small scale industrial units, retail
traders, professionals and salaried classes.
The RBI is the licensing authority for new banks a Act, Co-operative banks
are subject to CRR and liquidity requirements at the level of 3% and 25%
respectively at present, they have been advised to lend 60% of their total advances
to the priority sectors.
Role of Urban Co-operative Banks :
Urban Co-operative Banks have an important role to play in several respects
and some of them are listed below :
First and foremost, they can organize and bring together middle and working
classes kin urban and semi-urban areas and inculcate in them the habits of thrift
and self-help and acquaint them with the elements of ordinary banking principles.
The mobilization of savings by urban co-operative banks and the
consequent drawing of urban resources into the apex and central co-operative
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banks which are in need of funds to finance the rural, industrial and other functional
co-operatives can contribute to general economic development.
By providing credit on reasonable terms to the middle classes they can
rescue them from the exploitation of money lenders and others unscrupulous
agencies, which is particularly important in the context of rising price and by
financing individual industrialist and artisans working in urban area, they can cost.
This has a consequently effect also on non-operative lending; ;make a significant
contribution to industrial development.
They can make certain essential banking facilities such as remittance of
funds etc; available in areas which ;may not be considered suitable for commercial
banking and to persons who may not be able to get such civilities from commercial
banks; and they can provide intelligent, experienced and active leadership to the
cooperative movement including the central and apex cooperative banks, which in
view of their federal character draw their directors from member's institutions.
In the view of the importance of central cooperative banks, the study is
undertaken to assess the performance of Warangal district cooperative central
bank.
2.3 Origin and Growth of District Co-operative Central Banks in India:
The DCCBs have come into existence due to the failure of Primary Societies
to attract required resources in the form of deposits from well to do sections of the
village community on one hand and to inspire the habit of thrift and savings among
their members to provide strong capital base on the other. The Co-operatives
Societies act.
1904 was amended kin 1912 incorporating a clause for the registration of
Central Co-operative Societies consequently the number of Central Co-operative
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Societies have been registered under provisions of amended Act and have
occupied a position of cardinal importance in the operative credit structure.
Objectives of establishing District Central Co-operative Banks as follows:-
a) Their democratic organization and management help in catering better
to the local needs, Mobilization of resources and recovery of the loans
advanced.
b) They serve as a cushion in absorbing a part of the over dues of
societies.
c) They are best suited to guide, supervise and control the societies.
d) They constitute the basic unit of planning and development of
cooperative active at the District Level.
2.4 Progress of DCCBs In Andhra Pradesh :
Andhra Pradesh State was formed in the year 1956. The jurisdiction of the
state is \spread over an area of 2.76 lakhs square kilometers and divided into 23
districts comprising three regions of Coastal Andhra, Rayalaseema and Telangana.
Like the other states in Andhra Pradesh the cooperative movement made it's
beginning as early as in k1920. Till the formation of the state there was separate
Provincial cooperative act for Andhra region and Telangana region.
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ORGANISATION PROFILE
INTRODUCTION :
The Warangal Co-operative Central Bank Ltd. Warangal No. 20976 is
deemed to have been registered as a co-operative society under the area of
Andhra Pradesh Co-operative Societies Act of 1964. The area of operation of the
bank is confined to entire Warangal District comprising 51 Revenue Mandals out of
which 21 Mandal Head quarters is covered with the Bank's branches. The Bank is
having 23 Branches including Central office branch covering financed by the
Warangal District Central Co-operative Bank.
OBJECTIVES
Its objectives shall be :
Primarily to finance the Primary Agricultural Credit Societies k(PACs)
registered or deemed to have been registered under the AP Co-operative
Societies Act 7 of 1964 and secondarily to finance all other Co-operative
Societies in the District To service members of erstwhile PADBs
including disbursement of second and subsequent installments of loans
directly to such members, and recovery of such loan of members till they
are cleared and arrange for issue of fresh long term loans through PACs.
To finance individuals, firms companies corporations etc; by admitting
them as 'B' class members for purposes approved by higher financing
agencies from time to time either individually or jointly with other
financing institutions.
To raise funds by way of posit, loans cash credits, overdraft and
advances from Apex Bank, Government and other financing agencies.
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To open regional offices, branches or sub-offices with the prior
permission of the Registrar both for banking purposes and issue and
recovery of ST, MT and LT loans To guarantee the loans and advances
to be made to the member societies by and other agencies.
To advice develop assist and co-ordinate and supervise and inspect the
functioning of the.
PACs and also to assist and supervise the functioning of other affiliated
and indebted societies.
To buy, sell or deal with securities, debentures or bonds or scrip or other
forms or securities on its behalf or on behalf of members or other
cooperative institutions.
To maintain a library of Co-operative and banking literature.
To act on agent of Government or Apex Bank or any institution if
financing loans for
Agricultural and Rural Development and allied activities and to accept
and administer
Any fund for such purposes.
To carry on the general business of banking not repugnant to the
provisions of the AP cooperative societies act 7 of 1964 and the rules
framed there under or the Banking regulations act 1949 as applicable to
cooperative societies and the rules made there under.
All such other things and acts as are necessary, conductive and incidental to
the attainment of the foregoing and generally to promote the cause of cooperation
in the district.
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MANAGEMENT OF THE BANK :
The management of the Bank shall vest in a Board consisting of such
number of members and with such composition of members as prescribed in the
A.P.C.S. Act and Rules at present the Board consists of 19 members.
ACCOUNTS AND RECORDS :
Accounts to By-law 55-A of APCs, Act :
"The chief executive officer of every bank by whatever name designation he
is called, or the President of the bank, shall be bound to keep, maintain or cause to
Maintain such accounts and books relating to that bank in such manner as may be
prescribed. He shall be responsible for corrects and up-to-date maintenance of
such accounts and books, for producing or causing production of the same when
called for in connection to audit, inquiry or inspection".
The Warangal District Co-operative Central Bank Ltd., maintains books of
accounts and records in form prescribed by the registrar and RBI addition as Board
of Directors find it necessary.
The Registrar may prescribe such other statements as from time to time.
The statements shall be made as on 30th June of every year and copy of each shall
be sent to the Registrar within 30 days after close of the Co-operative year ending
30th June.
DEPOSITS :
Deposits may be received at any time within the limits determined under the
PACs. Act and rules on such rate of interest on deposits are subject to rules and
regulations fixed by Board of Directors and also to directive issued by Reserve
Bank of India on behalf from time to time.
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THE VARIOUS DEPOSITS RECEIVED BY THE BANK :
Dhana Laxmi deposits
Fixed deposits
Current deposits
Saving deposits
Swayam Upadi deposits (day deposits)
Thrift deposits
Recurring deposits
Security deposits
LOANS AND ADVANCES :
The loans and advances may be granted to members on security subject to
the direction issued by Reserve Bank of India from time and securities approved by
Board of Directors, the securities such as:
i) Personal security and/sureties of other members/members;
ii) Collateral security of movable land immovable property
iii) Gold or silver ornaments or consumer durable;
iv) Industrial mercantile, Agricultural and other marketable commodities or
machinery
v) Under pledge, hypothecation or charge of the society;
vi) Any other tangible security To take legal action against members of
societies in case of failure of the Managing Committee of Societies to
take legal action.
vii) To institute, conduct defend compound, compromise or abandon legal
proceedings by or against the Bank.
viii) To sanction loans to employees as per loaning policy to be determined
and with prior approval of Registrar
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ix) To purchase vehicles for the see of the bank as per special by –laws
governing their purchase and maintenance of such vehicles as approved
by Registrar.
x) To transact all other business incident to the administration of the Bank.
THE DIFFERENT TYPES OF LOANS ADVANCED TO MEMBERS :
i) Agricultural Loans
ii) Loans on Deposits
iii) Festival Loans
iv) Vehicle Loans
v) Gold and Jewel Loans
vi) Loans to owners of Bank
3.4. ORGANISATION DESIGN (CHART) OF THE WDCCB :
The major functions and their inter-relationships of important structural
aspects of the WDCCB are given in chart. The chart can be considered as vertical
chart as the line of command flows form top to bottom in a vertical line. The chart
is as follows.
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FUNDS AND RETURNS :
FUNDS : The Bank will ordinarily obtain funds from the following sources.
i) Share Capital
ii) Deposits
iii) Other borrowing from various sources
iv) Entrance fee and miscellaneous receipts
v) Grants from Government and other agencies
RETURN : The Bank shall prepare annual returns in such form as may be
prescribed by the
i) Registrar and Apex Bank
ii) Statement showing receipts and disbursements
iii) A profit and Loss account & balance sheet
iv) Which were under the Madras Province and the Nizam government
respectively.
All the societies, which were established prior to the formation of the state,
have come under the fold the Andhra Pradesh Co-operative Societies Act of 1964.
In order to implement the provisions of the Act a separate department is constituted
and Registrar is made in charge for it.
Present Structure of Co-operative in A.P.
Bank in Andhra Pradesh as per 1997
No. of PACs No. of DCCBs No. of SCOB
6695 22 1
State and District Co-operative Banks are providing rural credit through
Primary Agricultural Credit Societies to the 50 lakhs of people. Among them
75% are small and marginal farmers. In A.P. 50% of rural credit is provided by
Co-operative Banks.
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FINANCIAL STATEMENT TECHNIQUE
AN OVERVIEW
Financial Analysis is the basic method of appraising firm's overall study. As
part of a scientific investigation of the firm, it attempts to secure through a
systematic study of some significant clues about its financial condition and
prospects. Its major thrust is future and current facts with a view to projecting and
viability of a concern.
4.1. SCOPE OF THE STUDY:
"Financial Analysis may be defined as the examination and comparison of
financial data of the business with a view to assessing its overall health." It is the
process of inductive reasoning for the purpose of formulating probability beliefs
about a particular firm and information processing system designed to supply firm-
related data for decision-making.
Kennedy and Mc.Muller make the statement, they hold that "the analysis and
the interpretation of financial statement are an attempt to determine the significance
of financial statement data so that forecast may be made of the prospects for future
earning, ability to pay interest and debt maturates (Current and Long-term), and
profitability of a sound dividend policy".
In a slight different connotation, the broad purpose of Financial Analysis
could be said to measurement of solvency and performance in the sense of
profitability, stability and similar items. At its best, financial Analysis seeks to
information from other sources.
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4.2 Types of Financial Analysis :
Financial Analysis can be divided in to two following heads. They are as follows:
I) On the basis of material used
Under this head there are 2 types:
i) Internal Analysis
ii) External Analysis
Internal Analysis :
Persons who have access to the internal accounting records of the business
firm do this analysis.
External Analysis :
Outsiders who do not have access to the detailed information of accounting and
records of the business form do this. The outsider includes investors, creditors,
Government agencies etc.
2) On the basis of modus operandi :
Under this head there are 2 types :
i) Horizontal Analysis
ii) Vertical Analysis
Horizontal Analysis :
It refers to the comparison of financial data of company for several years.
Vertical Analysis :
It refers to the study relationship of the various items in financial statement of one
accounting period.
4.3 PROCEDURE OF FINANCIAL STATAEMTN ANALYSIS
Broadly speaking there are 3 steps in financial analysis.
1) Selection
2) Classification
3) Interpretation
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The first step involves selection of information (data relevant to the purpose
of analysis of financial statement. The second step involved is the methodical
classification of data and the third step includes drawing of inferences and
conclusions.
4.3 METHODS/DEVICES OF FINANCIAL ANALYSIS
The analysis of interpretation of financial statement is used to determine the
financial position and results of operation as well.
The numbers of methods or device used to study are as follows :
1) Comparative Statement
2) Common-Size Statement
3) Ratio Analysis
4) Cash-flow Analysis
5) Fund-flow Analysis
6) Trend Analysis
7) Cost-Volume-Profit Analysis
As the project work deals with the study of the following methods, these
methods devices of financial analysis are discussed as under:
1) Comparative Balance Sheet Statement :
The Comparative Balance Sheet analysis is the study of the trends of same
items, groups of items and computed items in to two or more balance sheet of the
same business on different data. The changes in the periodic Balance sheet items
reflects the conduct of business.
2) Interpretations of Comparative Balance Sheet:
While interpreting Comparative Balance Sheet the interpreter is expected to study.
The following aspects:
1. Current Financial and Liquidity Position
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2. Long-term Financial Position and
3. Profitability of the concern.
3) Ratio Analysis :
(a) Classification of Ratios
In order the ratios serve as tool for financial analysis, they are classified on the
basis of their function or purpose as follows :
(a) Liquidity Ratio
(b) Long-term solvency Ratio and Leverage Ratio
(c) Turnover Ratio
(d) Profitability Ratio
The Ratio Analysis is the one of the next powerful tools financial analysis which
is used to analyze and interpret the financial health of the enterprise. It is with the
help of ratios that the financial statement can be analyzed more clearly and
decision made for such analysis.
Sl. No.
Liquidity Ratio Long-term Solvency & Leverage Ratio
Turn over Ratio Profitability Ratio
1. Current Ratio Debit Equity Ratio Fixed Interest Turnover Ratio
Gross Profit
2. Liquid Ratio Debt to total Capital Ratio
Total Assets Turn over Ratio
Net Profit
3. Absolute Liquid Interest Coverage Ratio
Working Capital Turnover Ratio
Operating Profit
4. Cash flow / Debit Capital Employed
Operating Ratio
5. Capital gearing Payables Turnover Ratio
Expenses Ratio
6. Debtors Turnover Ratio
Return on Equity
7. Creditors Turnover Ratio
Return on Capital
8. Inventory Turnover Ratio
Return on Total Resources
9. Earning per Share
10. Price-earning Ratio
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Importance of Ration Analysis :
1. Simplifies changes in financial condition of the Business.
2. It facilities to inter-firm comparison which reveals strong and weak firms.
3. Makes inter-firm comparison of performance of different division of the firms.
Uses of Ratio Analysis :
1) It helps in decision-making
2) Help in financial forecasting and planning
3) Financial strength and weakness can be easily communicated.
4) Helps in effective control of business form deviations.
5) It is essential part of budgeting control and standard costing.
6) It is helpful in assessing the financial position of the concern.
Where the shareholder or investor is going to invest.
7 Helps in knowing the financial position of the company to extend credit to the
concern for creditors.
8) It helps in knowing the profitability of the concern because fringe benefits are
related to the volume of profits earned.
9) It helps Government, as it is interested to know the overall strength of the
industry to ascertain the economic condition.
Limitations of Ratio Analysis :
(a) Ratios are based only on information that has been recorded in the financial
statement. They suffer from inherent weakness of accounting records such
as historical approach.
(b) Ratios are not only the indicators: they cannot be taken as final decision
regarding good or bad financial position of the business.
(c) Ratios will give misleading results with the effects in price level are not taken
into account.
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(d) No fixed standards can be laid down for ideal ratio; it may differ from industry
to industry.
(e) They can be easily window dressed to present better picture of financial and
profitability of outsider.
(f) Different people intercept ratios in different ways, which leads to bias. As it
is only the means, not and end in it.
COMPARATIVE BALANCE SHEET
Sl.No. LIABILITIES CONTGAINS1. Deposits Current deposits + fixed deposits + other deposits
2. Interest Payable On Borrowing + On Deposits
3. Borrowings From outside Banks
4. Miscellaneous Cost of Management + Adjusting heads
5. Capital Paid-up share capital
6. Reserves and funds Total of Reserves
Sl.No. ASSETS CONTAINS1. Cash & Bank
balances
Cash balance + Bank balance
2. Investments Deposits with approved banks + short term wings
+ long terms wings + share invested with Co-
operative societies & Institutions
3. Loans & Advances Loans cash credits and over drafts of Co-operative