Economies of Scale and Scope of District Central Co-operative Banks

The main object of this study is to explore the cost relationship of District Central Cooperative Banks (DCCBs). This is examined in terms of economies of scale and cost complementarities of joint production or economies of scope. Deasi and Namboodiri (1996) have very comprehensively examined the viability of cooperative rural financial institutions at the grass root level. But there is hardly any attempt to study the issue of product specific scale and scope economies of DCCBs. Moreover, unlike commercial banks, the behaviour of their cost structure is different because of the nature of their banking operations. The loan portfolios of these banks are in the hands of the members of these institutions, i.e. primary co-operative societies, individuals and other institutions. Similarly they are their major depositors as well as the users of the credit advanced to them. They mainly cater to the local financial deficits and surpluses as agriculture is characterised by such a phenomenon. Yet the viability of these institutions are important not only from the point of view of their own growth but also for the development of cooperative institutions down the stream served by them and agricultural growth in general. An empirical analysis based on a multi-product cost function approach as is done here could reveal the cost structure of these banking institutions and economies of scope for future expansion in their banking operations. The paper is divided into 6 sections. Section 2 briefly reviews the application of various methodologies in examining the cost attributes of multi product banking firms. Section e describes the methodology employed and the data utilized. Section 4 presents a brief description of DCCBs and the composition of their various portfolios. Section 5 presents the results of the estimated equation on scale and scope economies. Section 6 summarises the major findings and their implications.