Two co-operative banks in Goa are facing liquidation, Mapusa Urban Co-operative Bank and Madgaum Urban Co-operative Bank, with confidence in the co-operative banks in Goa reaching a nadir. Is it possible that co-operative banks can churn up a profit if they continue to offer higher interest rates on fixed deposits? Consider the present scenario. A public sector bank and a private bank offer 5.35% interest on fixed deposit in the general category and in turn charge 6.8% interest on a home loan for Rs 50 lakh and below. Thus PSBs and private banks are in a position to work up a decent profit. What if the co-operative banks are offering 6.5% interest on fixed deposits and in turn charge 8% interest on loans, say for housing. Who is going to pay 8% on loans offered by the co-operative banks when loans are available for 6.8% in PSBs and private banks? Is the time ripe to issue warning to people that co-operative banks can no longer be sustainable as their business model does not make them competitive enough to survive in the now tough market conditions? In these low interest rate regimes of both fixed deposit as well as loan interest rates, it is unwise to take a risk and invest in co-operative banks. It is better to be safe than sorry.
