COOPERATIVE CREDIT IN INDIA - PROBLEMS AND SUGGESTIONS- Dr A. R. Srinath


Agriculture continues to be main stay of India's national economy . Its contribution to the India's Gross Domestic Product (GDP) is about  30% Almost 2/3rd of the population of India depends on this sector for the livelihood. The agricultural land is being taken away by all  sectors.

Moreover, in the era of economic liberalization the agriculture is being increasingly recognized as commercial activity, and, therefore, the specific needs of the farmers for modern agricultural technology will,  no doubt become complex.

Over a period of years with the state support, the cooperatives have craved out a formidable niche for themselves in various fields of economy like rural credit and banking, fertilizers, sugar, dairy etc. There are at present 4.9 lakh Cooperative Societies engaged in diverse business activities with a membership of over 200 million. They have 100% villages and 67% of rural house holds.

The Cooperative Credit Institutions from the beginning of the 20th Century till 1950s in India have depended heavily for their credit needs on individual sources of finances such as moneylenders, traders, commission agents, landlords, relatives and friends. There sources by their very nature, were not capable of meeting the growing credit needs of the farmers. Moreover, the farmers were subjected to many unfair conditions including higher interest rates. Realizing these defects, both the Central and the State Governments  in India took a number of policy decision and enacted necessary legislation to progressively institutionalize farm finance. Today, institutional credits accounts for a share of over 50% of total credit need compared to less than 10% in the fifties

The Flow of credit to the agriculture sector and the rural areas is met through institutional agencies like Commercial Banks, Regional Rural Banks and Cooperative Credit Institutions. The short term, medium term and long term needs of the farming and rural community are met by their credit institutions. The Cooperative Banks have played a dominant role in providing credit to the needy.


Short Term and Medium Term Finance:

Strengthening financial resources base of the various cooperative credit institutions and enterprises is definitely a priority area for working out a competitive edge for cooperatives in the field of short term and medium term credit system. The cooperative banks like PACS at the fields of short term an medium term credit system. The cooperative banks like PACS at the primary level have to show a turnaround through implementation of Business Development Plans (BDP).    

At the same time it is necessary to find out how far the implementation of BDPs have helped in shoring up the finances of the cooperative banking system through reduction of loan overdues? How far the PACs associated  with losses have reappealed into profits in the wake of the implementation of various components of BDPs?

Long -Term Finance:

In the field of long term finance the state ARDBs are providing long term investment finance to the farming community in the rural areas for financing minor irrigation, farm mechanization, land development projects, fisheries, poultry etc. The state ARDBs by and large are dependent on re-finance facilities extended by NABARD. The State ARDBs have to make serious efforts to increase their financial health through mobilization of deposits and in the process reduce their dependence on re-finance facilities of NABARD. In this context, they have to evolve attractive deposit schemes and at the same time, will have to evolve Deposit Insurance Schemes (DIS) to instill confidence among depositors.

Applications of Prudential Norms:

The RBI has directed the State Cooperative Banks to adopt prudential norms in terms of income recognition, assets classification, and provisioning for bad and doubtful debts. Prudential norms also includes capital adequacy norms and these norms have been fixed at 8% of the capital risk weighted assets. The Cooperative banking sector has been asked by RBI to adopt prudential norms by March 31st, 2000. Similarly, the Urban Cooperative Banks which constitute a self-reliant group of banks in urban area have been asked to adopt prudential norms.

Adoption of prudential norms by Cooperative Banking sector would imply considerable improvement in their financial health, reduction of loan overdues and greater mobilization of deposits in the coming years. The Non-performance Assets (NPAs) associated with cooperative banks have to be drastically reduced through appropriate measures. This process would help in the recycling of funds for lending to the farming community. Future lending should be based on careful analysis of loan application including risk assessment to be backed by ensuring utilization of funds for the specified objectives.

Governing Corporate in Cooperatives:

In the context of intensive competitive economic environment introduced in the wake of economic reforms, the Governing Corporate system in cooperatives is likely to undergo change in the coming decades of the 21st century. The national Cooperative policy which is under formulation in the Urban Ministry of Agriculture is likely to lay emphasis on gradual disengagement of Government from financing of various cooperative activities and cooperative enterprises. Keeping this scenario in view, the cooperative have to adopt stringent measures to improve their financial position through greater deposit mobilization and access to new ways of raising capital from capital market. In this context they also have to rely on cost reduction and cost effective technologies to control transaction costs as well as management costs. Cooperative Leaders have to work out  on action plan for removing various restrictions which have been have been placed by the Government for the smooth functioning of cooperative enterprises. In this Action Plan, greater emphasis would have to be laid on members participation in decision making process and in arranging restructured Education and Training Programs for the members and personnel engaged in cooperative development.

Governance by the cooperative leaders would imply greater emphasis on promotion of information technology in various segments of cooperative movement.

Cooperative Management:

Access to latest information and policy decision having a bearing on the future of Cooperative movement will have to be constantly tied up with the information matrix availability to the cooperative management system. To safeguard their interests, the cooperative leaders will have to establish lobby with the help of opinion on leaders and members of parliament to safeguard the interest of cooperatives in the coming years.

For improving the efficiency parameters of cooperative management there is the need to remove false members, false leaders and false cooperative enterprises from the domain of cooperative Movement. Such a step is necessary to lift the cooperative movement out of the morass into which it has fallen in certain region of India.

The efficient management of cooperative would also imply the implementation of the policy relating to mergers and acquisitionary among cooperative enterprises. Attention should be given to information Technology at primary level to improve the Cooperative Management Information Systems.

In the future years great stress would have to be laid on encouraging qualified dedicated members to fight the election for the top leaders of the Board of Management and Governing Council of Cooperative. This would help in improving   the cooperative face the competitive economic environments with courage and determination.

Reasons for deterioration in the cooperative Banking System:

a)Short-term and medium Credit Finance

1. The base structure of agriculture credit -cooperative consisting of PACS at the ground level continues to be weak even after recognizing and revitalization schemes including BDP being implemented since 1991.

The impact of the implementation of BDP on the functioning of PACS needs consideration.

2. The level of overdues in the Cooperative Banks continues to be an area of concern.

3.The central government should extend adequate budgetary support to strength the capital base of the weak and non-viable cooperative banks in the near future.

4.Various disciplines pertaining to credit limits for seasonal agricultural credit limits are imposed by NADARD. There conditions act as constraints are full utilization of credit limits sanctioned by NADARD. Relaxation of there constraint  needs to be considered.

5. The Cooperative  Banks should take advantage of the deregulated interest rates on deposits and lendings. The State Government should not interfere in the fixation of the interest rates by the Cooperative Banks .

6.The PACS should diversify their operations into non-credit activities like jewel loans, consumption loan etc. Keeping in the view requirements of the rural masses in their area of operation.

b)Long -Term Credit/ Finance:

1. The resource base of ARDBs needs to increased through mobilization of deposits and rural savings. This would require strengthening of owned funds by ARDBs.  Also, further avenues for resource mobilization  by ARDBs may have to be identified and discussed.

2. Remedial measures for improving the recovery position may be considered and discussed.

3. NABARD imposes rigid discipline on ARDBs while extending re-finance support. Their mobilization needs to be mobilized.

4. Prudential norms have been made applicable to ARDBs with effect form accounting year 1997-98. The ARDBs should be try to classify their assets into specific categories like standard, sub-standard, doubtful and loss making assets. Thereafter adequate provisioning has to be made to take care of the risk elements involved in various types assets.

5. Training of staff in nonfarm finance and housing finance may be considered and discussed. The cooperative leaders and members need to be acquainted with the techniques such as project appraisal and project formulation. This would be in the interest of proper appraisal of loan applications by the ARDBs and would help in the reduction of loan overdues.

The State partnership, by way of government contribution to share capital, which was conceived as a measure for strengthening the cooperative credit institutions, has passed the way instead for an unnecessarily high level of state control, their increasing bureaucratization and politicization, culmination in virtually depriving the cooperatives of their inherent vitality and affecting their democratic and autonomous character.

In the milleu of liberalization and privatization, there is an urgent need to redefine the Government's role in developing and strengthening cooperative banks. The various reforms initiated in different sectors, are yet to be introduced to the cooperatives.

Measures taken to face the emerging challenges:

Cooperatives are based on the principles of autonomy and independence and strive for becoming member owned and member controlled organizations. In putting this principles in practice, NCUI has been making concerted efforts to persuade the Government of India and the State Governments to remove the restrictive provision from the existing Cooperative laws and to modify them in tune with Model Cooperative Act enunciated in the Ch. Brahm Prakash Committee Report. There are reports that the central Cabinet has approved amendments in the Multi-State Cooperative Societies act 1984. However,  these amendments are yet to be approved by the parliament. Similarly some State Governments like Andhra Pradesh have passed mutually Aided Cooperative Societies Act under which there is no interference from the government in the functioning of the cooperative societies. Other State governments like M.P. , Rajasthan, Punjab are reported to have initiated steps to modify State Cooperative acts in tune with the provision of Model Cooperative Law.

With the approval of the Government of India and RBI, the Cooperative bank of India has been established to bridge the systemic gaps existing within the cooperative credit structure . However due to lack of an amendment in the Banking Regulation Act, it has not been possible so far to operationalise the functioning of the Cooperative Bank of India. Efforts are being made to persuade the Government of India and the Ministry of finance to issue  a license to this bank so as to enable it to operationalise its functioning.

The government has extended a sizeable budgetary support to the public sector commercial banks for strengthening their capital base and for enabling them  to implement prudential norms. Similar financial assistance to the weak and non-viable cooperative banks has not been extended by the government of India.The cooperative leaders feel that in the background of a level playing field approach, the Cooperatives should also be extended a reasonable level of budgetary support so as to enable them to clear their balance sheets. Such a process would help the weak cooperative banks to strengthen their financial resource base and would enable them to stand on their own feet to face the competitive challenges in the liberal market environment.

Emphasis is already being laid on building up strong human resource base in the cooperative sector. Efforts are being to lay greater emphasis to promote professionalisation in the management and training of the cooperative personnel so as to enable them to man the various post in the cooperative organization. The training and the evaluation programs are being restructured on scientific lines after capturing the core elements of the information technology and management information system. It is being recognized that only highly professionalized management cadre and trained cooperative personnel would be able to  face the competitive challenges from the private sector. Keeping this aspect in view the various training programs are being extended by VAMNICOM and other ICMS with a focus on professionalisation in management and efficiency of cooperative personnel.          


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