Lending has always been associated with credit risk, which arises out of the borrower's default in repaying the loan within the stipulated time. In recent years, some UCBs, which are mostly engaged in retail banking, have faced mergers and strict action by RBI for having failed to successfully manage their NPAs. The inflating bubble of NPAs may mar the balance sheets of the banks if they fail to adopt better credit monitoring practices to prevent further slippage of NPAs. In the case study, an attempt has been made to understand the problem of NPAs and the provisions made to tackle the problem of NPAs. It analyses the management of NPAs at the Four Awards Winning Sanmati Sahakari Bank Limited of Ichalkaranji.

It is essential for a bank to strictly monitor its Non-Performing Assets (NPAs) and keep them at the lowest level for protecting itself from the threat of sanctions by RBI. In recent years, several cooperative banks have failed due to increased level of NPAs and weak recovery mechanism; Some of them which fall under this category include: Madhavapura Mercantile Cooperative Bank, Wardha District Cooperative Bank, Osmanabad District Central Cooperative Bank, Sadguru Jangli Maharaj Cooperative Bank and Nagpur Bank. In the last three years, Mahavir Cooperative Bank, The Ganesh Bank of Kurundwad Ltd. and The United Western Bank Ltd., The Sangli Cooperative Bank Ltd., The Kolhapur Maratha Co-operative Bank Ltd., faced mergers and punitive action by RBI. Recently, the Kolhapur Maratha Co-operative Bank was taken over by Saraswat Bank. A low percentage of NPAs reflects the efficiency of the bank in recovering advances and velocity of funds.

Since 1912, cooperative credit institutions have been playing a pivotal role in the financial system. The cooperative banking system meets the banking needs of small and medium income groups not adequately met by the public and private sector banks and supplements the efforts of commercial banks in mobilizing savings and meeting the credit needs of the local population. Urban Cooperative Banks (UCBs) are mostly engaged in retail banking. The UCBs expanded by leaps and bounds in the 1970s and 1990s. Both these decades were marked by high economic growth that led to a great demand for funds which could not be inadequately met by public sector banks. In 1993, the Narasimham Committee recommended the liberalization of norms for Cooperative Banks, which led to a surge in the number of Cooperative Banks. Out of the 2,090 UCBs, approximately 600 are located in Maharashtra. In Kolhapur district, there are 64 UCBs, spread through 432 branches in and outside the district. The UCBs are comparatively small in terms of size and turnover and they are primarily engaged in retail banking.