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50 YEARS OF NAFSCOB

NAFSCOB JOURNAL - EDITORIALS

A COMPENDIUM

1990-91 TO 2013-14

NATIONAL FEDERATION OF STATE COOPERATIVE BANKS LTD.thJ. K. Chambers, 5 Floor, Plot No. 76

Sector - 17, Vashi, Navi Mumbai - 400 703 Phone: 022 - 2789 2741, 2789 2697, 2789 2738 FAX: 022 - 2789 2604

E-mail: [email protected] / [email protected] Website: http://www.nafscob.org

1964 - 2014GOLDEN JUBILEE

1964 - 2014GOLDEN JUBILEE

CO-OPERATIVE ENTERPRISES BUILD A BETTER WORLD

P R E F A C E

NAFSCOB Bulletin/Journal of Rural Cooperative Credit and Banking aims at disseminating

information/research Papers/Articles and various issues/policy of Government of India, RBI, NABARD etc.

Appropriate coverage has been given to various current and important issues in NAFSCOB Bulletin/Journal

of Rural Cooperative Credit and Banking. For instance, role of NAFSCOB and expectations was covered in

editorial of the NAFSCOB Bulletin in April-September, 1990 issue. Editorials in the Journal have always

focussed on most important current issues, themes, policies pertaining to agriculture, cooperatives,

agricultural credit, women etc. Editorials also defined the role and responsibilities of related organisations

such as NAFSCOB.

An attempt has been made in this publication to throw light on various issues by presenting in the

form of compendium of various editorials published in NAFSCOB Bulletin/Journal of Rural Cooperative

Credit and Banking from April-September, 1990 to October-December, 2013. Some of the issues/subjects

covered in various editorials are role of NAFSCOB, Review and Action Committee for Northern Region,

Emerging Rural Financing Market in Asia, Need to Review Policy Initiatives for STCCS, Tax Deduction at

Source, New Economic Policy and Cooperative Sector, Proposal to set up National Rural Bank of India,

Amendment of Companies Act to Facilitate Establishment of Multi-State Cooperative Companies, National

Agricultural Policy and Various Union Budgets. The editorials also commented on Development Action

Plan of SCBs, Interest Rate Structure, Recommendations of Conference on Indian Rural Credit Scenario,

Working Group on Agricultural Credit and Cooperation, Need to Exempt Income Tax on Income of

Cooperative Banks, Investment Management, Role of Cooperatives in Five Year Plans, Need for A Separate

Cooperative Cell in Ministry of Finance, Norms for Grant of Licenses, Task Force to Suggest Package for

Revival of Cooperative Credit Institutions, Need for Prime Lending Rate, Upward Interest Rate Revision on

Refinance by NABARD etc. An analytical observations have also been made on the major features of SAO

Policy, Shri Jagdish Capoor Task Force Committee, General Line of Credit Support, Need to Maintain

Minimum Statutory Requirement of CRR, 3 P's Action Plan for STCCS, Revised Revival Package of STCCS-

Slow Pace of Implementation, Agricultural Debt Waiver and Debt Relief Scheme – 2008,

Recommendations of Expert Committee to Examine Three-Tier STCCS and ICA Blueprint for A Cooperative

Decade. Union Budget Analysis was always part of editorials in NAFSCOB Journal.

We do hope to continue to disseminate important information to all the short term cooperative

credit institutions through our NAFSCOB Journal of Rural Cooperative Credit and Banking.

NAVI MUMBAI (B. SUBRAHMANYAM)

January 2014 Managing Director

Sr. Particulars Page

1 Role of NAFSCOB & Expectations 1 (April-September, 1990)

2 Asia-Pacific Rural and Agricultural Credit Association 2(October-December, 1990)

3 Review and Action Committee for Northern Region 3 (January-March, 1991)

4 Emerging Rural Financing Market in Asia 4(April-June, 1991)

5 Need to Review Policy Initiatives for STCCS 5 (July – September, 1991)

6 A Tribute to Late Shri Vaikunthbhai Mehta 6(October- December, 1991)

7 Provision of Tax Deduction at Source 7(January - March, 1992)

8 New Economic Policy & Cooperative Sector 8(April - June, 1992)

9 Proposal to Set up National Rural Bank of India 9(July – December, 1992)

10 Amendment of Companies Act to Facilitate 10Establishment of Multi-State Cooperative Companies(January – March, 1993)

11 Self Help Groups and Bank Linkage 12(April-June, 1993)

12 National Agricultural Policy 13(July - December, 1993)

13 Union Budget-1994-95 15(January - March 1994)

14 Lobbying Efforts at Highest Level 16 (January - March, 1995)

15 Minimum Involvenment for Compulsory Investment 18of Own Sources of SCBs(April –June,1995)

CONTENTS

No. No.

16 Development Action Plan of SCBs 19(July - September, 1995)

17 Interest Rate Structure 20(October - December, 1995)

18 Conference on Indian Rural Credit Scenario – 21Recommendations(January -March, 1996)

19 Working Group on Agricultural Credit and 23 Cooperation – Ninth Plan(April – June, 1996)

20 Union Budget – 1996-97 24(July - September, 1996)

21 Power to Appoint Chief Executives of SCBs & DCCBs 25(October - December, 1996)

22 Union Budget – 1997-98 27(January -March, 1997)

23 Need to Exempt Income Tax on Income of 30Cooperative Banks(April - June, 1997)

24 Investment Management 31(July-September, 1997)

25 Place of Cooperatives in Five Year Plan Document and Committees 32(October-December, 1997)

26 Exemption From Payment of Income Tax 33 (January -March, 1998)

27 Committee on Banking Sector Reforms & Cooperative Banks 35(April – June, 1998)

28 Union Budget – 1998-99 36(July – September, 1998)

29 Need for A Separate Cooperative Cell in Ministry of Finance 37(October - December, 1998)

30 Norms for Grant of Licences 38

(January -March, 1999)

31 Task Force to Suggest Package for Revival of 40Cooperative Credit Institutions(April – June, 1999)

32 Need for Prime Lending Rate 42 (July – September, 1999)

33 Upward Interest Rate Revision on Refinance 44by NABARD(October- December, 1999)

34 Rural Cooperative Credit & Banking Institutions: 46A Case of Utter Neglect(January – March, 2000)

35 A Suggested SAO Policy by NAFSCOB 48(April– June, 2000)

36 Jagdish Capoor Task Force 50(July - September, 2000)

37 General Line of Credit Support 52(October - December, 2000)

38 A Frustrating Union Budget for Cooperatives 54(January- March, 2001)

39 Implications of Diverting SLR Investments by UCBs 55(April – June, 2001)

40 Dishonouring of Demand Drafts Issued by Cooperatives 57(July – September, 2001)

41 Need to Maintain Minimum Statutory Requirement of CRR 58

(October -December, 2001)

42 Union Budget – 2002-2003 60

(January - March, 2002)

43 Inter – Departmental Group of RBI 61

(April – June, 2002)

44 3 P's -- Action Plan for STCCS 62

(July – September, 2002)

45 Kharif Loan Interest Debt Waiver 64

(October – December, 2002)

46 Union Budget – 2003-04 66

(January – March, 2003)

47 Corporate Governance 68


48 Impact of Lending @ 9 Per Cent Rate of Interest 70

(July-September, 2003)

49 Banking Regulation (Amendment) & Miscellaneous 71

Provisions Bill 2003

(October-December, 2003)

50 National Conference: Vision 2020 73

(January – June, 2004)

51 Foundation Day of NABARD 75

(July- September, 2004)

52 National Conference of State Cooperative Banks 76

(October- December, 2004)

53 Recommendations of Task Force 78


54 National Meet on Implications of Revival Package 80(April– June, 2005)

55 Interactive Session with Task Force 82(July- September, 2005)

56 Task Force on Revitalisation of Cooperative 84Credit Institutions(October-December, 2005)

57 Union Budget – 2005-06 86(January – March, 2006)

58 Interest Subvention 88(April – June, 2006)

59 Revival of STCCS 90(July – September, 2006)

60 Short Term Credit to Farmers at 7% P.A.-Need 92for Enhancement of Interest Subvention toCooperative Banks(October – December, 2006)

61 Union Budget for the Year 2007-08 93(January – March, 2007)

62 Revised Revival Package of Short Term Cooperative 95Credit Structure –Slow Pace of Implementation(April – June, 2007)

63 Need to Extend Membership of NAFSCOB to DCCBs 97(July – September, 2007)

64 Need to Revert to Maintenance of Minimum Statutory 99Requirement of CRR at 3% by Scheduled State Cooperative Banks(October - December, 2007)

65 Union Budget for the Year 2008-09 101(January – March, 2008)

66 Agricultural Debt Waiver and Debt Relief Scheme 2008 103(April – June, 2008)

67 Institutional Protection System 105(July – September, 2008)

68 Corporate Social Responsibility 107


69 Investment Portfolio Management 109


70 Committee on Financial Sector Reforms 111


71 Union Budget – 2009-10 113

(July - September, 2009)

72 Climate Change and Agriculture 114


73 Union Budget - 2010-11 115


79 Financial Sector Legislative Reforms Commission 128


74 National Consultation and Review Meet on 117Implementation of Revival Package of STCCS(April-June, 2010)

75 Role of PACS as BCs to Ensure Financial Inclusion 119


76 Human Resource Development Policy for Short Term 122

Cooperative Credit Structure (STCCS)


77 Multi-State Cooperative Societies (Amendment) Bill - 2010 124

(January-March, 2011)

78 Deregulation of Interest Rate on Savings Bank Deposit 127

(April-June, 2011)

80 UN International Year of Cooperatives (IYC) – 2012 130


81 Union Budget Weakens Rural Cooperative 131

Credit Delivery System


82 Licencing of SCBs And DCCBs 133

(April-June, 2012)

83 RBI Expert Committee on Streamlining of STCCS 135

(July -September, 2012)

84 Culmination of International Year of Cooperatives – 2012 137

(IYC – 2012)


85 Recommendations of Expert Committee to Examine 139

Three-Tier STCCS & Union Budget 2013-14


86 ST SAO Policy of NABARD - Need for A Revision 141

(April-June, 2013)

87 Assets & Liabilities and Deposits of PACS Stand 143

Transferred to DCCBs to Function as Business Correspondents


88 ICA Blueprint for A Co-Operative Decade 145


ROLE OF NAFSCOB & EXPECTATIONS

(April-September,1990)

The current issue aims at disseminating information on issues such as Agricultural and Rural Debt Relief Scheme and Recommendations of the ACRC. The issue also attempts to stress the need for encouraging women cooperatives by citing various examples of women organizations abroad under the caption 'Women Cooperators Abroad”. An extract of the case method in Cooperative Management Training, we are sure will certainly facilitate the personnel in cooperative banks to adopt the method as a training technique. The need for maintaining effective statistical information is reemphasised by incorporating the statistical tables dealing with very important data on State Cooperative Banks (SCBs). The issue also draws the kind attention of the banks and cooperators, particularly the member SCBs, towards NAFSCOB Events. The work accomplished during the period under consideration clearly indicates the effective and meaningful functioning of the NAFSCOB in the service of its member banks. In fact , this is the first issue being released after the undersigned assumed the charge of Editor.

NAFSCOB certainly owes its existence to the continuous and active support of member SCBs. There is no doubt that NAFSCOBwould be certainly in a position to contribute its mite in catering to the needs of the member SCBs in particular and strengthening the cooperative movement in general. We do hope to continue to disseminate important information to all the short term cooperative credit institutions through our NAFSCOB Bulletin. It is in this connection that we appeal to all the cooperative institutions to help us to improve the quality of our Bulletin. We take this opportunity to appeal each one of our readers to contribute articles/ papers etc. and make the Bulletin much more informative and useful.

HELP US TO SERVE YOU MEANINGFULLY AND EFFECTIVELY

B. Subrahmanyam Editor

1

ASIA-PACIFIC RURAL AND AGRICULTURAL CREDIT ASSOCIATION

(October-December,1990)

Rural finance has today become an important topic for discussion in banking circles in developing countries, more particularly in the Asian Pacific Region. A well organized rural finance system is considered to be the panacea for all ills faced by countries with an agro oriented economy having a large rural population. In these countries rural finance is synonymous with agricultural credit. The Asia and Pacific Rural Agricultural Credit Association (APRACA) was renamed as Asia-Pacific Rural and agricultural Credit Association (APRACA). Innovations of the Rural Finance System in 1990s were the theme for discussion in the Eighth APRACA General Assembly held on December 5-9, 1990. APRACA invited country papers on the above theme from the member country institutions. NAFSCOB decided to disseminate the information on the rural finance system in the Asian Pacific Region through our NAFSCOB Bulletin. To begin with the country paper on innovative Rural Finance System in India in 1990s is published in the current issue.

A high level APRACA Mission on Innovative Rural Finance visited Bombay from November 18 to 22, 1990 and held discussions with Bombay based member institutions of APRACA, including our Federation, in preparation for the Eighth General Assembly of APRACA. One of the important activities proposed by the Mission is the creation of APRACA funds. The member institutions with whom the APRACA Mission held discussions have agreed in principle to the creation of APRACA funds in India. The report of the Mission as submitted during the Eighth APRACA General Assembly held at Jakarta-Bali, Indonesia during December 5-9, 1990 is presented in this issue.

While the current issue aims at bringing the above information, it is proposed to disseminate more information on the rural finance system in other countries through our subsequent issues of NAFSCOB Bulletin.



2

REVIEW AND ACTION COMMITTE FOR NORTHERN REGION


It is heartening to note the encouraging feedback from member State Cooperative Banks (SCBs) and District Central Cooperative Banks (DCCBs)on our Bulletin and this motivates us to work towards better coverage in our NAFSCOB Bulletin. The present issue highlights on the systematic and scientific methodology adopted to judge the 'Performance Awards to State Cooperative Banks' in the form of a special feature. As the readers are aware, the scheme of Performance Awards has been instituted by our Federation for the member SCBs in order to promote a spirit of healthy competition among them and provide scope for further improvements in their functioning. A jury under the chairmanship of the Managing Director, NABARD has been constituted by NAFSCOB. The issue also covers the details of the performance awards presented to the winner SCBs for the years 1985-86, 86-87 and 87-88. The need for our SCBs to play their role by introducing human resources development policies at all levels has been excellently dealt with in the article entitled 'Human Resources Development and the Training of Cooperative Personnel'. As assured earlier, the information on the rural finance system in the Asian Pacific Region is continued in this Bulletin and focused through “Innovations in the Rural Financial System in Indonesia”. The concern of the Federation to work towards the development of North-Eastern Region, particularly the short term cooperative credit structure, is evident from the decision to reconstitute the “Review and action Committee for North- Eastern Region”(RACNER). The terms of references of the Committee are detailed in this issue and it is hoped that the deliberations of this Committee meeting on April 5, 1991 will result into action oriented programmes in the region. The efforts of the Federation towards settings up of a “National Cooperative Bank of India” can be seem from the memorandum which is presented in this issue. The Bulletin also highlights the need for “Linkages between Self-Help Groups and Financial Institutions “ and also the contributions made by AnnasahebHazare in working towards overall development of the village “RelegaonShidhi”.

The readers are requested to send articles and research papers on any of the issue pertaining to Agriculture, Rural Credit, Cooperation, Banking etc. for publication in our NAFSCOB Bulletin and strengthen our hands in disseminating valuable information.



3

EMERGING RURAL FINANCING MARKET IN ASIA

(April-June, 1991)

The Agricultural sector in developing countries received a great deal of attention since a majority of their population depends on agriculture for employment and livelihood. It has been observed that the poorer sections of the society in the developing countries belong to the agricultural sector. In order to cater to the needs of the people, Commercial Banks, Cooperative Banks, Regional Rural Development Banks have been involved. In addition to these formal institutions, informal institutions also are involved to cater to the needs of the identified target groups to help the poorer sections in rural areas. The current issue covers an important topic on the “Emerging Rural Financing Markets in Asia” which deals with the role of the different types of financial intermediaries that are involved in the development process. The paper also deals with the approaches adopted by the formal and informal institutions in providing financial services to the rural households. The current issue also deals with the management structure of DCCBs in which it emphasizes the need for initiating efforts to professionalise and modernize the DCCBs for achieving better results. As has been assured earlier the information on the cooperative situation in various countries continues to be published through our NAFSCOB Bulletin and the present issue covers the “Cooperative Situation in Austria”. Our readers are aware that the Federation, in collaboration with NABARD, has undertaken a study to assess the impact of a pilot project for strengthening the credit delivery system in PACS and DCCBs. The guidelines prepared on the basis of the outcome of the study report are disseminated through this issue for adoption at the primary level and the district level, with an aim to strengthen the existing credit delivery system. The need for effective deposit mobilization by the cooperative banks need not be much emphasized. It is essential to augment deposit mobilization efforts for achieving self reliance in the cooperative banks. However, deposit mobilisation depends more on the type of marketing strategies initiated, formulated and implemented at the bank level. The present issue also deals with the deposit mobilisation efforts made in one of the DCCB in Andhra Pradesh. It is hoped that these efforts, as mentioned in the report of the DCCB will serve as guidelines at least to a few banks which are yet to make efforts in the area of deposit mobilization.

The readers are requested to respond to any information given in the Bulletin. They are also requested to send articles and research papers on any one of the issues pertaining to agriculture, rural credit, cooperation, banking etc. for publication in our NAFSCOB Bulletin and strengthen our hands to disseminate valuable information.



4

NEED TO REVIEW POLICY INITIATIVES FOR STCCS


The Short Term Cooperative Credit Structure (STCCS) with an organic link down to the grass root level is regarded as the most suitable institutional agency for implementation of the programs drawn and launched by the State and Central Governments for the upliftment of the weaker sections during the plan period. The structure has been playing a significant role in implementing the developmental programmes with peoples' participation and involvement. In fact, the Institutions in STCCS are functioning as the effective channels for implementing the various developmental activities by extending timely credit to agriculture and other priority sector areas. The greater involvement of Cooperatives and the emergence of NABARD as their principle agency for agricultural credit added a new dimension in agriculture and cooperative credit. Even after the emergence of NABARD it became clear that several important problems continue to remain un-resolved leading to considerable difficulties to the Cooperative Credit Structure. This calls for review of various pertinent policies. Thus the review becomes more essential in the context of recent policy introductions such as ARDR Scheme, Revision of Interest Rate Structure, and Imposition of Interest Tax @ 3 percent, Tax Deduction at Source, Concept of Service Area Approach, Concept of Business Development Plan etc. While some of the policy decisions had already adversely affected the overall functioning of the cooperative credit institutions, some other policy decisions appeared to pose hurdles in smooth functioning In future. Therefore, it is necessary to initiate concerted efforts with a view to put an end TO various anomalies which come in the way of smooth functioning of credit institutions.

The readers are requested to respond to any information given in the Bulletin. They are also requested to send articles and research papers on any one of the issues pertaining to agriculture, rural credit, cooperation, banking etc. for publication in our NAFSCOB Bulletin and strengthen our hands to disseminate valuable information.



5

A TRIBUTE TO LATE SHRI VAIKUNTHBHAI MEHTA


The year 1991 marks the Birth Centenary of Late Shri Vaikunthbhai Mehta, Doyen of Indian Cooperative Movement. The year long birth centenary celebrations of Late Shri Vaikunthbhai Mehta began at Vaikunth Mehta National Institute of Cooperative Management, Pune on October 26, 1991 under the auspices of National Cooperative Union of India. The Late Shri Vaikunthbhai Mehta was born on October 26, 1891 in an illustrious family of Bhavnagar, a princely state of Gujarat. His father Sir Lallubhai Samaldas and Grand and Great Grand Fathers were the Dewans of Bhavnagar from 1828. Sir Lallubhai was the founder of the Bombay Provincial Cooperative Bank in 1911, now recognised as Maharashtra State Cooperative Bank. Late Shri Vaikunthbhai Mehta associated himself with the Bank right from its inception. He took up his position as Manager of the Bank at the age of 21 in the 1912 and served the Bank as a Chief Executive for an uninterrupted period of about 35 years from 1912 to 1946, except for a period when he was away with the Maclagan Committee. He worked as Managing Director till he was elected as MLA in 1946 and became the first Finance and Cooperation Minister of Bombay Province in the Ministry headed by Shri B.G. Kher. Shri Vaikunthbhai Mehta was also the Chairman of Khadi and Village Industries Commission (KVIC). As a Chairman of KVIC, he initiated various programmes for socio-economic upliftment of the poor. He nurtured and established many cultural, social, economic institutions and served in the capacity of either as a Chairman or a member or Managing Director with most of these institutions.

As a part of his emphasis on cooperative education and training, he established the first cooperative training collage, Pune in 1918 which was renamed as National Cooperative College and Research Institute in 1962. Subsequently, following the sad demise of Shri Vaikunthbhai Mehta, the institute was renamed as Vaikunth Mehta National Institute of Cooperative Management in 1967as a tribute to his excellent contribution in the field of Education and Training. He believed that cooperation and cooperative work cannot be done without trained officers and staff. He wanted that this education and training should be imparted in institutions specializing for cooperative workers. In fact, the recommendation of the committee under the chairmanship of Late Sir Janardan Madan, appointed by him in his capacity as Minister for Cooperation laid the foundation for training of cooperative workers.

Late Shri Vaikunthbhai Mehta continued to make valuable contribution to the development of cooperative thought and action till he expired on October 28, 1964. Shri Vaikunthbhai Mehta was awarded kaisar-e-Hind medal as a token of recognition of his services in the cooperative field which of course he returned in response to a call given by the Indian National Congress. He was also awarded Padma Bhushan in 1954 in recognition of his contribution in the field of cooperation.

Shri Vaikunthbhai Mehta was a man of plain living and high thinking. He had passion for excellence. On this occasion of his Birth Centenary, we pay our homage to late Shri Vaikunthbhai Mehta.



6

PROVISION OF TAX DEDUCTION AT SOURCE


Our esteemed readers are aware that the Federation has represented to the Hon'ble Union Finance Minister on various problems confronting the cooperative credit structure from time to time. Recently, the Federation also represented to the Hon'ble Union Finance Minister on the need for exempting the cooperative banks from the purview of Tax Deduction at Source and also the Interest Tax Act. We take this opportunity to inform all over esteemed readers that the Hon'ble Union Finance Minister has kindly considered our request and withdrawn the provision of Tax Deduction at Source in respect of interest on term deposits with banks. He was also kind enough to exempt all Cooperative Societies engaged in the business of banking from the purview of interest tax with a view to providing support to the cooperative credit structure. The Hon'ble Union Finance Minister deserves to be congratulated not only for considering our representation on the above two issues but also for presenting a pragmatic, constructive and growth – oriented budget proposals. It is hoped that the budget proposals will lead to correcting structural imbalances and stimulate growth of the country.

The Government of India had set up a High Level Committee under the Chairmanship of Shri. M. Narasimham to examine all aspects relating to the structure, organization, functions and procedures of the financial system. While setting up of this committee, it has been observed that the development of the financial sector is a major achievement and it has contributed significantly to the increase of the savings rates, especially of the household sector. However, it has been also observed that certain rigidities and weaknesses have been developed in the system and these have to be addressed to enable the financial system to play its role in ushering in more efficient and competitive economy. The report of the committee headed by ShriNarasimham was tabled by the Government in Parliament on December 1991. A quick look at the approach and contents of the report indicated that the Narasimham Committee had deliberately ignored the Cooperative Banks and Cooperative Credit and Banking Sector and concentrated only on the Nationalised Banks, Private Banks and Foreign Banks. In fact, the Committee has dealt to some extent with the non-banking financial companies too. The entire cooperative credit structure noted with disappointment this negligence on the part of the Narasimham Committee While deliberating on the banking and financial system in the country.

It may be heartening to note that the Federation organized a seminar on March 4-5, 1992 at Bhubaneshwar, wherein an emphasis has been laid down to spell out the role and responsibilities of non-official elected leaders of State Cooperative Banks in strengthening the cooperative credit structure. While it has deliberated on the need for the non-official elected leaders to perform planning functions, organizing functions, directing functions, co-ordinating functions and controlling functions, it has been felt necessary to build up a strong lobby with a view to make the cooperatives more democratic, self- reliant and economically viable.



7

NEW ECONOMIC POLICY & COOPERATIVE SECTOR

(April - June, 1992)

The main objectives of the new economic policy as announced by the Hon'ble Finance Minister are to impart an element of dynamism to growth process through liberalization of policies relating to trade and industry, encouraging foreign investment technology for making Indian product competitive in the World Market, improving the performance of public sector undertakings and reformation of the financial sector. Privatisation appears to have been identified as the key element in implementing the new policies by the Finance Minister.

There is a growing feeling among the cooperatives that the New Economic Policy does not speak of the cooperative sector. This became more evident from the deliberations of the National Cooperative Convention held on May 30-31, 1992 held at Y.B. ChavanPratisthan Trust, Bombay, in collaboration with the Maharashtra State Co-operative Bank. The convention regretted (a) the omission of a collaboration and consolidated chapter in the Eighth Five Year Plan document (b) the absence of a national policy on cooperatives and the specific role of cooperatives in the new economic policy (c) non-extension of advantages of de-regulation as indicated in the new economic policy to the Multi-State Cooperative Societies (d) the discrimination met to cooperative sector as compared to private sector etc.

It has also been observed that while most of the recommendations of the Senior Expert Group appointed by the Reserve Bank of India under the behest of the World Bank are yet to be given due consideration, the recommendations of the Shri M. NarasimhamCommittee which virtually ignored the role and place of cooperative banking system, were sought to be implemented with sought to be implemented with an unusual speed. While expressing concern about the cooperatives, the National Convention made recommendations on a number of issues. The important recommendations were the need for replacing the State Cooperative Acts with Model Cooperative Societies Act, as recommended by the Braham Perkash Committee, establishment of National Cooperative Bank of India as recommended by Agricultural Credit Review Committee, need for appointment of a commission on cooperatives for accelerated growth of cooperatives and need for exemption of cooperative from Income Tax.

It is heartening to note that the Hon'ble Finance Minister, during his inaugural address at the Convention, said that the vision with regard to the role of cooperation as an instrument of regeneration of India's rural economy as a means of tackling the problems of cooperative development and management in a decentralized set up is not given up in the new economic policy. In fact, the new economic policy creates far more opportunities for realization of that vision. He has further appealed to the cooperatives not to consider the new economic policy as antagonistic to the ideals of the cooperative movement and offered all the possible assistance. While his assurances may lead to strengthening of cooperatives, what is needed at the present juncture, in view of the recent developments in the banking industry, is the need for Interbank Cooperation. The banks should consider close cooperation and coordination in the areas of Technology, Training, Manpower development, strategies for resource mobilisation, computerisation for management information system and maintaining effective data bank and exchange of innovative banking practices. This is also necessary in order to maintain the significant role and place of the cooperative institutions in the economic development of the country.



8

PROPOSAL TO SET UP NATIOANL RURAL BANK OF INDIA

(July – December, 1992)

A proposal to set up National Rural Bank of India (NRBI) is understood to have mooted as a subsidiary of National Bank for Agriculture and Rural Development (NABARD) under the Companies Act. It is understood that a meeting held in this connection by Reserve Bank of India, Ministries of Finance, Agriculture and Rural Development and NABARD decided to set up two small working groups to consider the modalities of proposed merger of Regional Rural Banks (RRBs) and setting up of NRBI. It is said that the proposal to set up NRBI, an exclusive institution of the nature of NRBI by merging 196 RRBs, out of which 152 incurred losses, will contribute in strengthening the multi agency system and cater to the needs of rural population.

It may be pertinent to recall that when a proposal to set up RRBs was mooted, our Federation gave a representation to Government of India not to invest resources to the new venture as it does not lead to the desired results. Moreover, our Federation opined that there was no need to set up RRBs as there is enough number of institutions to carry out the spelt out objectives. Instead, our Federation requested to divert that much amount of assistance to credit cooperatives and encourage them to continue to ensure the smooth flow of credit for agriculture and rural development. However, RRBs have been set up without giving the weightage to our representation. As a result setting up of RRBs has proved to be a very costly, disappointed and wasteful experiment. The present experiment, a proposal to set up NRBI, the Federation feels will be yet another wasteful exercise and experiment, because of number of reasons.

Cooperative Credit Institutions have been in the field for a much longer period and may Central Cooperative Banks (CCBs) and Primary Agricultural Credit Societies (PACS) also have deficit/losses. Government of India cannot treat these institutions as step children and favour only RRBs which are subsidiaries of commercial banks. If the Government wants to help, it should help the weak CCBs and PACS first to achieve the desired goals. Moreover, there is a danger of NABARD treating the proposed NRBI as a special footing at the cost of cooperative banks in respect of refinancing since NRBI will be NABARD's subsidiary.

Against this background, it is recommended that the cooperative credit institutions which have been doing a laudable business may be encouraged and given additional refinance to expand the business instead of creating another apex institution. This will ensure smooth flow of credit for agriculture and rural development.

The readers are requested to respond to any information given in the Bulletin. They are also requested to send articles and research papers on any of the issues pertaining to Agriculture, Rural Credit, Cooperation, Banking etc. for publication in our NAFSCOB Bulletin and strengthen our hands to disseminate valuable information.



9

AMENDMENT OF COMPANIES ACT TO FACILITATE ESTABLISHMENT OF MULTI-STATE COOPERATIVE COMPANIES


The National Cooperative Union of India (NCUI) convened a meeting of all the National Level Cooperative Federations to consider the proposal for amendment of Companies Act to facilitate establishment of Multi-State Cooperative Companies on February 3, 1993 at New Delhi. It has also been informed that the Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India would be eliciting the views of National Cooperative Federations soon. The proposal is intended to enable larger, producer-owned cooperatives whose objects extend beyond the boundaries of a single state, to operate and compete on the same basis as comparable investor-owned corporations, partnership and private limited companies. The proposal has been developed to provide for registration of Multi-State Cooperative Companies under the Companies Act of 1956. The amendment would not include other forms of cooperatives such as the agricultural credit cooperative structure, housing cooperatives, urban cooperative banks and employee thrift cooperatives. The proposed amendment would provide for registration of Multi-State Cooperative Companies on the condition that their bye-laws and practices are wholly in conformity with established cooperative principles and provided that they conduct the major portion of their business for the benefit of their members. The Multi-state Cooperative Company would be treated in a manner similar to Private Limited Companies with the additional exception that membership would not be limited to 50 or fewer persons. The amendment would further provide for Multi-State Cooperative Companies to operate as cooperatives, fully respecting the principles of cooperation and specifically providing for democratic governance on the basis of one-member and one vote, or patronage-based voting; open and voluntary membership; limited privilege to capital; equitable distribution of surplus; cooperative education and cooperation amongst cooperatives. The proposal also further stated that the amendment is philosophically consistent with the Model Cooperative Act drafted by the Planning Commission Committee headed by ShriChoudhuryBrahmPerkash. It is stated that the amendment is enabling rather than prescriptive legislation.

While the majority of the participants have opposed the proposal during the National Meet, others indicated that there is a need to adopt a cautious approach before finalizing the above proposal. Against this background, our Federation utilized the opportunity of discussing this proposal during the Conference of Senior Executives of State Cooperative Banks (SCBs). The Senior Executives of the SCBs did not favour the inclusion of Multi-State Cooperative Companies in the Companies Act as (a) it could totally be detrimental to the basic philosophy and principle of cooperation, (b) the Companies Act has not ensures the successful working of Joint Stock Companies. The failures of the corporate sectors both private and public are known. (c) Companies even though in theory are following the democratic principles but are oligarchic in character and therefore the democratic functioning of the cooperatives will be polluted by including Companies into the Cooperatives' fold. It has been also felt that the Model Cooperative Societies Act drafted by the Planning Commission makes an attempt to redefine the role and responsibilities of all key performers in cooperative sector and therefore there is a need to ensure that this Act is

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implemented so as to enable to entrust the responsibilities of promoting development and growth of cooperatives to cooperative movement itself.

Further some of the senior Executives felt that if at all the Cooperative Societies Act is to be implemented, enactment of Central legislation for the country as a whole may be thought off though it may necessitate transfer of cooperation from the State list to the concurrent list. With the recent change in the political and economic scenario in the country and the liberalisation being the guiding force, there should not be any difficulty provided there is political will and administrative acumen of which there should be no dearth in the changed scenario. It has been further opined that Multi-State Cooperative Societies Act must be scrapped and the Central Cooperative Societies Act may be enacted, as it will greatly improve the cooperative movement of the country, reduce the regional imbalances and ensure smooth administration.

The comments from the readers are welcome on this issue.



11

SELF HELP GROUPS AND BANK LINKAGE

(April-June, 1993)

The National Bank for Agriculture and Rural Development (NABARD) has launched a pilot project in 1992 for linking the Self Help Groups (SHGs) with the Commercial Banks and it was aimed to (i) evolve supplementary credit strategies for meeting the credit needs of the poor by combining the flexibility, sensitivity, responsiveness of the informal credit system with the strength of technical and administrative capabilities and financial resources of the formal credit Institutions, (ii) encourage banking activity both on the thrift as well as credit sides in a segment of the population that the formal financial institutions find difficult to reach, (iii) build mutual trust and confidence between the bankers and the rural poor. NABARD in principle also decided to extend the linkage programme to the cooperative banks. In this connection, it may be recalled that the Working Group Report on Promotion of SHGs as a Sub-System in Primary Agricultural Cooperatives set up by the Ministry of Agriculture opined that cooperatives in the interest of their own integrated development through business development plan of undertaking diversified activities can and should play an active role in promoting SHGS as their sub system. The Working Group further felt that the SHGs approach can be effective in revitalisation of cooperatives as it will help in advising dormant members, accelerating member participation, formulating business development plans, diversifying economic activities and augmenting resources and deposit mobilisation. The SHG approach, it is felt, will also generate the sense of self ownership and self management in recycling the credit resources leading to the overall development of Primary Agricultural Credit Societies (PACS). While dealing with the linkage programme, NABARD suggested that the concerned bank may decide on the suitability of including a particular branch under the Pilot Project by identifying suitable SHGs where as the Working Group went to the extent of suggesting that cooperatives should promote SHGs as their sub system in their own integrated business development.

It may be recalled that the concept of self help or mutual help is not new in India and it is times in memorial. The thrust for improving their economic position and an urge for change in their life style and finally to lead a satisfactory life, led the people come together and form SHGs both formally and informally. Most of these SHGs are involved in promotion of savings and credit delivery activities besides other economic and production oriented activities. Establishment of linkages as suggested by NABARD with formal credit institutions may fulfil the desire of the members of the SHGs and help them to achieve their objectives and goals and strengthen the hands of the formal credit institutions including cooperatives.

Therefore, it is worth considering the pros and cons of establishing linkages with the already existing SHGs by the formal credit institutions and avail the refinance support assured by NABARD. It may also be worthwhile to consider promoting SHGs as their sub system for their own integrated business development as indicated by the working group by finding ways and means for pooling resources, identifying gainful employment opportunities, developing accountable and enlightened leadership and management, helping groups in managing funds and providing credit and non-credit services.



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NATIONAL AGRICULTURAL POLICY

(July -December, 1993)

The draft agricultural policy resolution seeks to dovetail the agricultural development and research programmes to the challenges in the Indian Agriculture and adding itself to the problems of under employment, unemployment and malnutrition by generating activities through diversification of agriculture and promotion of agro based industry. Augmenting facilities for processing, marketing and storage development of rain fed and irrigated horticulture, agriculture of bio-mass production and increased utilisation of irrigation potential and promotion of water conservation are some of the major objectives of the draft Agricultural Policy Resolution. It also aims at reviving and strengthening the cooperatives and all their commitments and increasing the involvement of non-governmental organisations in agricultural development. However it appears that national policy on agriculture has not really and entirely accorded importance to cooperatives and also not appreciated the contribution of the cooperatives in agriculture and rural development. According toDr. V. Kurian, Chairman, National Dairy Development Board, the Agricultural Policy Resolution also does not acknowledge the damage done to the rural savings and credit structure consequent to the loan waiver programmes. While presenting his views and observation on the National Agricultural Policy resolutions during the parliamentary Standing Committee on Agriculture meeting on September 9, 1993, he suggested that the National Agricultural Policy specifically commit Government of India to:

(i) Restoration of control of the agricultural credit structure to its owners at the primary, district and State levels;

(ii) Restriction of NABARD's intervention to establishing its own lending rate to the State Cooperative Banks and lending based on the credit-worthiness of those institutions;

(iii) Withdrawal of all deputed Indian Administrative Service and State deputationists from the management and staff of the cooperative financial structure; and

(iv) Enactment of legislation prohibiting both the Central and State Governments from waiver of loans.

It may also be highly appropriate to recall the presentation of Dr.Kurian particularly while dealing with the need for creating a better environment to cooperatives.

“A number of recent Government reviews have acknowledged that where cooperatives have managed to secure a degree of autonomy and to operate in a democratic manner, they have achievements to their credit that are the equal of the best investor-oriented firms. Where they have been treated as vehicles for Government Programmes and subjected to the direction of Government, they have almost invariably failed. While the draft policy takes a small step toward creating a positive environment for cooperatives, it qualifies any such concessions to owner control by speaking of “societies which are engaged in economically viable ventures, are professionally managed and democratically run” when, in fact, the majority of societies do not meet these conditions because of direct and indirect state interference. The National Agricultural Policy should not offer half-steps for, in the end, these will be no steps at all. Rather, it should

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commit Government to amendment of a Multi- State Cooperative Act, amendment of the Companies Act to enable operation of Cooperative Companies, and to a package of significant incentives for states that adopt progressive cooperative Companies, and to a package of significant incentives for states that adopt progressive cooperative legislation. Such legislation should:

1) Enable rather than prescribe;2) Restrict the Registrar to registration;3) Bar Government contribution to cooperative equity;4) End Government participation on the boards of cooperatives,

unions and federations;5) Bar holding of elected or official positions by employees of the Central or State

governments;6) Replace requirements of Government/departmental audit of cooperatives with

requirement that, audit be performed by a qualified chartered accountant or approved firm,

7) Dissolve common cader systems; and8) Finance phased restructuring Cooperative Departments to permit their reduction

to a manageable size, appropriate to their curtailed functions.”

These views and observations from a very highly reputed, respected and authenticated cooperator who has contributed excellently through his innovative ideas proves a point of view that no encouraging environment has been created to cooperatives to enable them to play their role effectively for agriculture and rural development. In fact a critical examination of the new economic policy reforms and the recommendations of the high level committee on financial system already revealed that no importance has been accorded to cooperatives and they do not appear to have appreciated the role and contributions of cooperative credit organizations.

Therefore, it is high time either to correct the above mentioned policies or to initiate new and appropriate measures to ensure a better environment to cooperatives so as to create a better environment through cooperatives for agriculture and rural development.



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UNION BUDGET-1994-95

(January - March 1994)

The Union Budget for 1994-95 has been presented on February 28, 1994 by Dr.Manmohan Singh, Hon'ble Union Finance Minister. The Budget for 1994-95 has done well in laying emphasis on the Cooperative Rural Credit System. It is heartening to note that the Hon'ble Union Finance Minister has recognised the role played by the cooperative credit structure in rural development through credit support, which in fact was absent while formulating the New Economic Policies. The reference to the strengthening of cooperative credit structure and an increased lending at Rs. 9600 crores by cooperative credit institutions is note-worthy. The proposal to enhance the capital base of NABARD to meet the needs of the cooperative credit structure is also welcomed. While the budget proposal was very critical and specific about the restructuring of the 50 of the 196 Regional Rural Banks, it is however silent on the concrete steps to be undertaken for strengthening cooperative credit structure. A sum of Rs. 5700 crores to commercial banks and Rs. 200 crores to RRBs have been provided in 1993-94 to strengthen their capital base and the present budget proposal provided Rs. 5600 crores as additional contribution for these banks. However, it is silent on the request made by the short term cooperative credit structure for a provision of Rs. 6000 crores to strengthen the capital base of State Cooperative Banks and District Central Cooperative Banks to meet the new capital adequacy norms. However, it is a matter of satisfaction that the Hon'ble Union Finance Minister provided a provision of Rs. 341 crores being the balance amount payable by the Government of India under the Scheme of Debt Relief to the farmers. Further, the representation of the short term cooperative credit institutions through our Federation with regard to the need for rationalising the interest rate structure do not appear to have received the attention of Hon'ble Union Finance Minister while making the budget proposal. This is evident from the way the interest rates on lending have been brought down from 15 to 14 per cent thereby adversely affecting the viability and profitability of the SCBs and DCCBs. Hon'ble Union Finance Minister stated that the Government proposes to initiate series of measures for strengthening the cooperative credit structure and NABARD will be entering into Memoranda of Understanding with SCBs and DCCBs and concerned State Governments for implementing State specific development action plans to revamp cooperative system and improve its viability and this statement is certainly a welcome step.

Against this background, NABARD had already advised SCBs and DCCBs to gear up their machinery to ensure expeditious preparation of the action plans based on which Memoranda of Understanding would be finalised. According to Chairman, NABARD, these action plans would envisage concerted planned efforts for accelerating the recovery of overdues, reducing the transaction costs/costs of management, undertaking human resource development, increasing and diversifying the loan business of the banks and societies at the ground level and improving the quality of loan. These action plans would also reveal a quantum of the external assistance that banks would require to make them viable.

Therefore, it would be necessary for the SCBs and DCCBs to prepare development action plans not only in respect of loss making DCCBs but also all the SCBs and DCCBs at the earliest to facilitate finalisation of appropriate Memoranda of Understanding with NABARD and State Governments and to finally ensure financially strong and organisationally vibrant, viable cooperative credit institutions.



15

LOBBYING EFFORTS AT HIGHEST LEVEL


Three important events have taken place during this quarter in addition to the quarterly meeting of the Board of Directors of our Federation. They are – (1) Representation to Union Finance Minister on the issues pertaining to Cooperative Credit Institutions and the need for evolving measures to revamp the Cooperative Credit System and improve the viability of the Cooperative Credit Institutions, (2) High Level Standing Committee to review the flow of institutional credit for rural sector and other related matters convened by Reserve Bank of India and (3) Seminar on Role of Non-Official Cooperators in Strengthening Cooperative Credit Structure. While the First two events have taken place on the eve of the Pre-Budget presentation by Union Finance Minister, the third event has taken place after the Budget has been presented. This gives an opportunity to the Reader to review whether the issues that have been brought to the notice of the Union Finance Minister on the eve of the Pre-Budget discussions have been actually addressed by him in his Budget proposals to revamp the cooperative credit delivery system. Let us look into the issues that have been sought, addressed and attended by Government of India, RBI and NABARD. They are – Need for making provisions for financial assistance to short term cooperative credit structure to cleanse their balance sheets, Adverse implications of the proposal for a separate Apex Bank for Urban Cooperative Banks, Need to review the existing norms for licensing and also according scheduled status to State Cooperative Banks and Central Cooperative Banks, Need for exemption of Cooperative Banks from the Income Tax on interest earned on investment in Government Securities for the purpose of Reserve Fund, Need for total exemption of interest income on Government Securities, Other Trustee Securities and Debentures, Need to issue revise guidelines on remittance facilities, Need for free Technical Service to Cooperatives by National Informatics Centre, etc. The High Level Standing Committee to review the flow of institutional credit have also impressed upon the need for initiating steps for smooth flow of agricultural credit, steps to improve the recovery performance, need for the non-official directors on the credit institutions to be more active to prevent Government interference and also to maintain conducive recovery environment in the country. The meeting also suggested the need to promote at least one Self-Help Group by each Rural Bank Branch will a view to developing the linkages between the banking system on one hand and the weaker sections on the other hand.

The third event i.e. Seminar on Role of Non- official Cooperators reviewed the suggestions made both by Federation in the form of Memorandum to the Union Finance Minister and the suggestions emerged out of the High Level Standing Committee before the Budget presentation and the proposals made in the Budget 1995-96 and observed as follows.

The seminar noted with appreciation that the flow of agricultural credit through cooperatives is projected at Rs. 14000 crores in 1995-96 as compared to an estimate of about Rs. 12000 crores in 1994-95. It has also noted the assistances proposed in the Budget to 220 cooperative societies for women and 330 cooperative societies for weaker sections. It has also further noted with appreciation earmarking of exclusive line of credit to the extent of Rs. 400 crores to cooperatives and RRBs for catering to the needs of the scheduled tribes during 1995-96

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and also further a sum of Rs. 100 crores for financing scheduled castes and scheduled tribes beneficiaries identified by Tribal Corporations which is available to cooperative banks also to meet their investment needs in both farm and non-farm activities. The Seminar also noted the proposals to accelerate the flow of credit to the handloom sector. The seminar also welcomed the proposal for establishment of North-Eastern Development Bank within the Region. The Seminar also noted the Budget proposal to establish the New Rural Infrastructural Development Fund from April 1995 within NABARD with an expected Corpus Fund of Rs. 2000 crores. However, the Seminar expressed its desire to know the modalities and operational aspects of the Fund. Pending such information, it recommends that State Cooperative Bank may be identified as the Nodal Agencies for implementing the Fund. The Seminar noted with a sense of dissatisfaction that the Budget was silent on the specific measures to be initiated during 1995-96 to revamp the cooperative credit delivery system in the country. While the State Cooperative Banks have completed the task of preparing Development Action Plans and also entered into Memoranda of Understanding with their respective State Governments and NABARD with an expectation that adequate financial assistance will be earmarked in the Budget to cleanse their Balance Sheet, the Seminar has noted with a sense of disappointment that the Budget has not taken care of the financial assistance required by the short term cooperative credit structure to cleanse their balance sheet.

The Union Budget for 1995-96 proposed TDS at the rate of 20 percent in case of domestic firms and 10 percent in case of individuals on interest income of more than Rs. 10,000/- on branch-wise term deposits. However, interest on term deposits with Primary Cooperative Credit Societies, Cooperative Land Mortgage Banks and Cooperative Land Development Banks will be outside this scope. This proposal will have a lot of adverse implications towards mobilization of deposits by SCBs and DCCBs. Therefore, the Seminar recommended that the interest income on term deposits in SCBs and DCCBs should also be exempted from TDS. The Seminar was also of the opinion that democratic character of cooperatives has to be maintained at any cost and therefore appropriate measures are to be initiated so as to help the non-official Cooperators to continue to maintain the democratic character of cooperatives. The Seminar addresses itself for maintaining a better recovery environment in the country.

Cooperatives are still considered the best and appropriate tool for ensuring Agriculture and Rural Development through smooth flow of Credit. They need to be strengthened while there cannot be any objections to motivate and encourage SHGs. Their functions should not be overlapping with the functions of cooperatives. There are number of agencies to ensure proper and adequate rural credit delivery system. Therefore, SHGs need not be assigned the role of credit purveyors in the rural areas. The Seminar reminds the higher financing agencies the implications of not adhering to the advise of our Federation against establishment of RRBs. The experiences with the RRBs are well known to all by now. Therefore, the final intension of encouraging, establishing SHGs should not be to weaken the cooperatives.



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MINIMUM INVOLVENMENT FOR COMPULSORY INVESTMENT OF OWN SOURCES OF SCBs

(April –June,1995)

National Bank for Agriculture and Rural Development (NABARD) had introduced the scheme of minimum involvement for compulsory investment of own resources of State Co-operative Banks (SCBs) and District Central Co-operative Banks (DCCBs) in Short Term Agricultural Advances in 1984. As per the norms laid down, NABARD has been insisting on the SCBs and DCCBs to involve 25 percent and 40 percent of their Internal Lendable Resources (ILR) in crop loan as a pre-condition for availment of concessional refinance. In fact, these norms have been serving as the basis for determining the flow of concessional credit from Reserve Bank of India/NABARD to the short term co-operative credit structure. Our Federation, SCBs and DCCBs discontent with the laid down norms represented NABARD on a number of occasions to do away with the concept of minimum involvement. Implementation of the Minimum Involvement discipline had created difficulties to SCBs/DCCBs more particularly to those banks who have mobilised deposits to a significant extent and it served as a disincentive to the banks to avail concessional refinance. A number of other problems faced by the SCBs/DCCBs in the implementation of the minimum involvement scheme have been discussed with NABARD from time to time and NABARD also has been convinced that the implementation of the scheme really created difficulties to SCBs/DCCBs. Against this background and realising the need to review the entire gamut of issues relating to Minimum Involvement, NABARD constituted a study group headed by Managing Director, NABARD in October 1992. The study group met four times so far, i.e. once in 1993, once in 1994 and twice in 1995. The study groups came out with four sets of recommendations for consideration by RBI/NABARD. However, a decision is still awaited on the recommendation of the study group. Meanwhile, the problems of SCBs/DCCBs on account of the scheme of minimum involvement with old norms continued.

As has been admitted by NABARD, contrary to the very objective of the discipline, it has no doubt proved beneficial to banks which have not performed well in deposit mobilization but certainly penalised banks which performed better in this area by reducing the flow of concessional finance to them. Therefore, it is high time for NABARD to examine the recommendations of the study group and act soon in order to help strengthen the short term co-operative credit institutions. (However, it may be noted that Board of Management of NAFSCOB is still of the view that the norms laid down for minimum involvement particularly its linking with ILR should be done away with).



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DEVELOPMENT ACTION PLAN OF SCBs


State Cooperative Banks (SCBs), at the instance of NABARD have prepared the Development Action Plans (DAPs) covering important aspects such as Management & Organisation of the Banks, Business Operations of the Banks, existing Systems & Procedures, the Viability Analysis, efforts towards Human Resource Development, etc. In fact, these DAPs envisaged concerted efforts for accelerating the recovery of overdues, reducing the transaction costs/costs of management, undertaking human resource development, increasing and diversifying the loan business of the banks and societies at the ground level and improving the quality of loan. The implementation of the DAPs is expected to strengthen the Cooperative Credit Structure by making it sensitive to the concepts of cost effectiveness, commercial orientation, professionalisation, accountability, etc.

Against this background and with a view to implement the DAPs in general and to improve the viability of the cooperative credit institutions within the structure in particular in their respective States, SCBs and State Governments have already executed the Memorandum of Understanding (MOU) with NABARD. Similarly, SCBs and District Central Cooperative Banks (DCCBs) must have also entered into MOUs.

As already impressed upon by NABARD, the success of the implementation of the DAPs as reflected in the MOUs will largely depend upon the concerted efforts on the part of the identified agencies in implementing the 'Performance Obligations' into action. NABARD in the process of assisting the banks developed and issued detailed guidelines to facilitate monitoring and review the mechanism for MOU. We at the Federation level fully endorse the views of NABARD that “it is imperative that a Monitoring and Review Mechanism be instituted to ensure effective implementation of all essential features of DAPs”. The guidelines envisaged:

a) Constitution of monitoring and Review Committees both at State and District levels.b) Setting up of 'DAP Cell' both in SCBs and DCCBs.c) Undertaking studies in identified areas of concern.d) Ensure appropriate training to the personnel of SCBs/DCCBs at various levels.

In view of the above, our Federation advises all the SCBs and DCCBs to critically examine the action points in DAP, the provisions in the MOU and the action initiated so far by each of the agencies identified to carry out the assigned tasks and also ensure effective implementation of Monitoring and Review Mechanism on a priority basis.



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INTEREST RATE STRUCTURE

(October - December, 1995)

The State Cooperative Banks (SCBs) and District Central Cooperative Banks (DCCBs) have in the past pleaded that the administered interest rates on Agricultural advances should be suitably revised upward so as to take care of the cost of raising resources by the Short Term Cooperative Credit Structure(STCCS). The interest rate structure should be rationalised in such a manner so that it provides adequate support to cover the cost of servicing the loans and borrowed funds and in case of deployment of own resources ensures adequate return. Further, it should leave some surplus to the institutions so that they should be able to credit reserves to strengthen their own funds. It should also make adequate funds available for payment of dividend on share capital contributed by the members. The lending rates should be determined on the basis of cost of resources. There could be flexibility in the interest rates for various institutions keeping in view of their Economic Viability. It has been also suggested as an alternative to consider to allow the banks to fix the lending rate taking into account the cost of resources by presenting minimum and maximum interest rates, thus allowing the banks to have freedom to fix the interest rates within this given prescribed formula.

The Reserve Bank of India reviewed the monetary and credit developments during the first half of 1994-95 on October 17, 1994 and based such review, announced a policy of total deregulation of the deposit rates of SCBs and DCCBs i.e. SCBs and DCCBs have been given freedom to determine their deposit rates with effect from October 18, 1994. Further, SCBs and DCCBs have been given freedom to determine the lending rates subject to the prescription of a minimum lending rate of 12 per cent per annum.

A review of the existing status of interest rates on both deposits and Advances revealed that most of the SCBs and DCCBs are yet to take firm decision on the revision of interest rates on advances. This otherwise indicates that the freedom extended to them has not been fully exploited due to various reasons.

Against this background, it is necessary to recapitulate that the deregulation of interest rates on advances and deposits is predicated on the philosophy that the present administered regime of interest rates by RBI did not really permit the Cooperative Banks sufficient margins in their lending operations and therefore, the Cooperative banks went on appealing to have the freedom to determine the interest rates on Advances. Hence, while allowing the freedom to determine their own rates of interest both for advances and deposits, RBI prescribed the floor rate of 12 per cent so as to ensure the cooperative banks which are, understandably prone to pressures of all sorts may not push down the interest rates on advances below that level. Therefore, it becomes necessary for the Cooperative Banks to use this freedom given to them more judiciously and presumably to raise the ultimate rate above the floor rate of 12 percent in order to improve their margins and also to ensure their viability. While doing so, i.e. while fixing the interest rates the SCBs/DCCBs may have to keep in mind all the governing principles such as interests of not only institutions and farmers but other competitive forces in the market.

HELP US TO SERVE YOU MEANINGFULLY AND EFFECTIVELY.


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CONFERENCE ON INDIAN RURAL CREDIT SCENARIO – RECOMMENDATIONS


National Federation of State Cooperative Banks ltd. has organized a Conference on Indian

Rural Credit Scenario exclusively for the Chairmen and Board of Directors of State Cooperative

Banks at Hyderabad on March 8-9, 1996. The objectives of the Conference were - (1) To review the

existing rural credit system in India, (2) To identify the general strengths and weaknesses of the

cooperative credit institutions, (3) To identify the issues responsible for development of rural

credit, (4) To review the status of Development Action Plans and Memoranda of Understanding

and (5) To chalk out specific programmes of action to achieve the desired goals and objectives. The

deliberations in the Conference have been also shared by few Senior Executives of the State

Cooperative Banks. The Conference has been organised at an appropriate time to understood

each others perspective and issues in rural credit and also fulfil the objectives which have been

already spelt out. It is heartening to note that the deliberations of the Conference concentrated

more on the issues which are necessary to be tackled at the level of both Non-official Management

and Official Management of the cooperative credit institutions, in addition to the role expected to

be played by the agencies involved in strengthening the cooperative credit institutions.

The recommendations of the Conference may be divided into two broader categories (a)

the role to be played by the Non-official Cooperators in their capacity as the decision makers of the

Apex level institutions and (b) the role to be played by the external agencies. The details of the

recommendations pertaining to the Conference are given elsewhere in this Issue for necessary

perusal by the readers. However, it is observed during the Conference that no effective steps

appears to have been initiated by the Apex level institutions in addressing the weaknesses of the

credit system such as low financial viability, high level of overdues, imbalances in existence,

absence of encouragement to medium farmers, imbalances in credit inputs, crop production and

marketing, poor training, weak work ethics and lack of discipline among the staff, political and

bureaucratic interference and lack of autonomy. It is high time for the Non- official Cooperators to

address to these issues on a priority basis after rightly realising the need for specifically spelling out

the area wise roles to be played by them in effectively managing the affairs of the cooperative

credit institutions.

Further, it is suggested that the Non-official cooperators who are at the helm of the affairs at the

apex bank level will have to note and consider the following tasks ahead of them in order to ensure

the growth and development of their cooperative credit institutions in the State:

a) The cooperative credit institutions will have to face stiff competition in the newly

emerged economic scenario.

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b) They have to sincerely think the implications of dependence on the concessionary

refinance as it is being advocated by the higher financing agencies that dependence

on the concessionary refinance will have to be abandoned.c) The cooperative credit institutions will have to broader their resource base

irrespective of the adverse implications, if any, of the existing policy stipulations

either by RBI or NABARD.d) The cooperative credit institutions will have to diversify their activities/clientele.

Finally, it is suggested that the Non-official Cooperators shall have to put concerted

efforts and concretise their ideas for development of the short term cooperative

credit institutions and make available their specific action plans to the appropriate

agencies to help them formulate well-meaningful Ninth Five Year Plan Document.



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WORKING GROUP ON AGRICULTURAL CREDIT AND COOPERATION – NINTH PLAN


The Planning Commission – Government of India constituted a Working Group on 'Agricultural Credit and Cooperation (including Crop Insurance) for the formulation of Ninth Plan, under the Chairmanship of Chairman, NABARD. The terms of reference among other issues included review of the flow of credit to agricultural sector during the Eighth Plan; suggest strategies for accelerating the flow of credit to meet the investment requirements of the farming community; to review the credit needs of the weaker sections of the farming community, identify the constraints in the flow of credit, suggest measures for easy availability of credit to them for agricultural production and other allied activities, to assess the short term and long term requirement for agricultural production and work out target for Ninth Plan and also the short term and long term impact of economic reforms on cooperative credit structure. The terms of reference also include to make a study of revamping/strengthening of cooperative credit structures and to suggest measures for enhancing the strength of cooperative movement to meet the desired goal.

The Chairman of the Working Group appointed the following Five Task Forces to make an in-depth analysis of the issues involved in the areas of agricultural credit and cooperation and suggest suitable measures in respect of the important tasks assigned to each one of them.

i. Agricultural Credit and Co-operations (including Crop Insurance)ii. Institutional Development of Credit Co-operatives and RRBs/CBs.iii. Revitalisation of non-credit societies (including Marketing, Storage, Processing,

Weavers and Consumers Cooperatives )iv. Training and Human Resources Development of Cooperatives and RRBs.v. Impact of Economic Reforms on co-operatives/RRBs and the effect of GATT on

Agricultural Development/Export.

The Working Group, it is understood, has submitted its recommendations to be kept in view while formulating the Ninth Five Year Plan. It is, therefore, hoped that an appropriate consideration will be given to the recommendations of the Working Group and ensures strengthening of co-operative credit structure and thereby accelerate the flow of credit to the weaker sections of the farming community particularly small and marginal farmers, scheduled tribes and scheduled castes farmers.



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UNION BUDGET – 1996-97


The Union Budget for 1996-97 do not appear to have provided any concrete measures to revitalize/strengthen cooperative credit structure to ensure smooth flow of credit to weaker sections of the farming community. However, it is heartening to note that the share capital of NABARD has been increased from the present level of Rs. 500 crores to Rs. 2,000 crores in the next five years. NABARD's share capital is being increased in the current year from Rs. 500 crores to Rs. 1,000 crores. It should help NABARD to accelerate credit through cooperatives. It may be appropriate to mention here that NABARD revised the interest rates chargeable on its refinance by continuing the existing policy of charging varying rates of interest depending upon the extent of investment of own resources by the cooperative banks in short term agricultural loans. The cooperatives banks shall not have any alternative but to enhance the rates of interest on landings to ultimate borrower who may not afford the higher rates of interest. Therefore, it is suggested that NABARD should do away with the present system of charging variable rates of interest on the basis of the percentage borrowing to outstanding as it tilts the balance heavily and erodes the profits of the banks. Further, NABARD is suggested not to implement the revised rates of interest on its refinance and continue the pre-revised rates till a proper analysis of the issue is done. The Union budget also allocated an additional sum of Rs. 2,500 crores to RIDF for financing rural infrastructure through NABARD. It is suggested that the short fall of lending by commercial banks may be routed to cooperatives instead of RIDF of NABARD.

The budget proposed with regard to setting up of the state level Agricultural Development Finance institutions to promote investment in commercial or high technology agriculture and allied activities such as horticulture, floriculture and agro-processing needs to be further examined and its impact on the cooperative banking institutions needs to be assessed. This is possible only after the details of these institutions are available. Further, new private local area banks with jurisdiction over 2/3 contiguous districts are proposed to be promoted by RBI to mobilise rural savings and make them available for investments in local areas. The details of the proposed banks are also not available to assess their impact on the existing branches of cooperative banks, PACS and RRBs. It is, therefore, desirable that discussions with the cooperative banks are held by RBI before actually commencing the operations of the proposed banks for better appreciation of the roles to be played by different agencies working in the rural areas.

To sum up, it is suggested that any efforts of the Government of India/RBI/NABARD should be aimed at strengthening the existing rural credit delivery system to ensure smooth and enhanced flow of credit to the needy farming community but not to create anomalous situation or alternative credit delivery mechanism.



24

POWER TO APPOINT CHIEF EXECUTIVES OF SCBs & DCCBs


Efforts are being made all over the country by a number of agencies to ensure freedom of

functional or operational autonomy to the co-operative credit institutions. Similarly, a strong view

has been expressed to work towards eliminating restrictive clauses in the existing co-operative

laws as it helps in revitalising and restructuring the cooperative credit institutions. A number of

Committees/Task Forces/Working Groups have been set up to examine the areas of operational

autonomy to cooperatives even after the formulation of Model Act for co-operatives by the

committee headed by late Choudary Brahma Prakash. Efforts have also been initiated to amend

certain restrictive provisions in the Multi State Co-operative Societies Act, 1984. Few states,

against this background, amended certain restrictive clauses in their co-operative laws.

An environment is being created to enable the co-operatives to become competitive in the

changed liberalised economic scenario in the country and short term co-operative credit

institutions particularly State Co-operative Banks(SCBs) are well poised to face any challenges.

However, certain initiatives of NABARD, understandably at the instance of RBI in the appointment

of Chief Executives of SCBs operative and District Central Co-operative Banks(DCCBs), created an

impression in the minds of co-operatives that NABARD desires to join the Government in

controlling the SCBs and DCCBs. It appears from their communications to SCBs/DCCBs and or State

Governments that NABARD is very much desperate in demonstrating their authority in the

appointment of Chief Executives by virtue of the powers vested with them as far as sanctioning of

refinance facility. The intention of NABARD appears to be to take away the excessive controls of

Government and take over the Governments' present role or alternatively control the co-

operatives in close coordination with the Government instead of evolving measures aimed at

emancipation of co-operatives. Both Government and NABARD appear to have conveniently

ignored the role of SCBs/DCCBs in appointing their Chief Executives. The initial stand of NABARD

that SCBs/DCCBs/Government may have the prior consultation with regard to appointment of

Chief Executives shifted to 'Prior Approval' approach. Prior consultation with NABARD with a view

to ensure the professionalised and prudent and sound functioning of the banks is always

appreciated. However, linking appointment of Chief Executives with prior approval with that of

sanctioning of refinance is unfair. Instead, NABARD should advise State Governments not to

intervene in the appointment of Chief Executives in SCBs/DCCBs and persuade Board of

Management of SCBs/DCCBs to seek NABARD's advise while appointing the Chief Executive in the

interest of their institution. This approach shall certainly be viewed as an approach towards

according autonomy to cooperatives. Therefore, it becomes necessary for NABARD to relook into

their approach and ensure a greater role to SCBs/DCCBs in appointment of their own Chief

Executives.

25

The requirement under Section 6 (1) (c) of NABARD Act, 1981 reads as “Three Directors out

of whom two shall be persons with experience in the working of the co-operative banks and one

shall be a person with experience in the working of commercial banks”. Under this section,

representation on the Board of Directions should be ensured on continuous basis to co-operative

banks. The discussion on the flow of credit for agriculture and rural development and related

policy formulation cannot be really meaningful and effective unless the views of the co-operative

banks are also given the importance. In order to ensure this aspect, it is essential to meet the

statutory requirement of representation for the co-operative banks on the Board of Directors of

NABARD at the earliest.



26



The Union Budget 1997-98 has been presented by Shri. P. Chidambaram, Hon'ble Union

Finance Minister to the Parliament on 28-2-1997. While referring to the proposals to Rural Credit,

It has been stated that the estimated credit flow to agriculture will increase from about Rs. 22,000

crores to nearly Rs. 28,600 crores, an increase of an unprecedented Rs. 6,600 crores.

The highlights of the Budget are as follows:i. Under Rural Infrastructure Development Fund – I (RIDF-I), Rs. 2,000 crores was

sanctioned for 4,530 project. By March, 1997, disbursements are expected to amount

to Rs. 1,400 crores. Under RIDF – II, 8,387 projects worth over Rs. 2,500 crores have

been sanctioned. RIDF-III will be launched in 1997-98 and Rs. 2,500 crores will be

provided.ii. The policy of recapitalising the Regional Rural Banks (RRBs) will continue during 1997-

98. Under this Policy, a sum of Rs. 270 crores has been provided. While providing such an

amount, the Hon'ble Union Finance Minister intends to allow a greater role to sponsor

banks in the ownership and management of RRBs.iii. The Budget 1997-98 also aims at strengthening NABARD. During 1996-97, NABARD has

been given Rs. 500 crores as advance additional share capital – Rs. 100 crores by

Government and Rs. 400 crores by RBI. While expressing his satisfaction about NABARD

in promoting and incorporating state level Agricultural Development Finance

Institutions in three States as joint ventures, the Hon'ble Union Finance Minister has

announced a further allocation of Rs. 500 crores as additional share capital to NABARD

of which Rs. 100 crores shall be provided by Government and Rs. 400 crores by RBI

during 1997-98.iv. Loans up to Rs. 2 lakhs will be given for building houses on freehold land in rural areas at

normal rates of interest, subject to the borrower putting in one-third of the value of the

house. National Housing Bank has been requested to prepare a scheme in which other

organizations will also participate. The Prime Minister of India is expected to launch this

scheme on August 15, 1997 and the goal will be to sanction Rs. 50,000 loans in the first

year.v. For 1997-98 the outlay for the Ministry of Rural Areas and Employment is being

increased to Rs. 9,096 crores, an increase of Rs. 1,271 crores over the RE for 1996-97.vi. In 1997-98, the JawaharRozagarYozana is estimated to generate about 520

millionsmandays of employment. About 90,000 habitations will be provided safe

drinking water during 1997-98 under the Accelerated Rural Water Supply Scheme.vii. The outlay for the social service's sector is being substantially enhanced from Rs. 11,785

crores in RE 1996-97 to Rs. 15,707 crores in BE 1997-98.

27

viii. Fertiliser subsidy on indigenous fertilisers is being enhanced to Rs. 5,240 crores in 1997-

98 from Rs. 4,743 crores in RE 1996-77. In addition, subsidy on imported fertilisers is

being increased to Rs. 1,950 crores in 1997-98 as against Rs. 1,350 crores in RE 1996-97.

The subsidy on sale of decontrolled fertilisers is being enhanced to Rs. 2,000crores in

1997-98 from Rs. 1,674 crores in RE 1996-97.ix. An amount of Rs. 7500 crores is being earmarked for food grains and sugar subsidies in

1997-98 representing an increase of Rs. 1,434 crores over RE 1996-97. When the dual

card system under the Targeted PDS takes effect throughout the country, if required,

more funds will be provided.x. In order to encourage investments in Government Securities, called gilts, it is proposed

to abolish Tax Deducted at Sources (TDS) on such securities. It is also proposed to

include gilts for the higher deduction limit of Rs. 15,000 under Section 80 L of the

Income Tax Act as is available in respect of income received from the units of UTI or

approved mutual funds.

The above Budget proposals clearly reflected on two main features – (a) discriminative

attitude and approach towards cooperative credit institutions and (b) absence of appropriate

appreciation towards the functioning of short term cooperative credit institutions, the role being

played by these institutions in the economy of the country and the present status of these

institutions.

The Government is certainly aware of the measures to be initiated to revamp the

cooperative credit system in the country and also to improve its viability. The Planning

Commission, the Working Group set up by the Government of India to look into the various aspects

of the cooperative credit system, various committees set up by the Government of India have

amply brought out the need for undertaking certain measures to revamp the cooperative credit

system by injecting adequate amount of external assistance. The entire cooperative credit system

has been looking forward certain measures through allocation of the external assistance to

cleanse the balance sheets, more particularly as it has been assured to them by various

organisations. The Budget has been revealed that their representations have not been considered.

The representation with regard to exemption of cooperative banks in the payment of Income-tax

on the interest earned also did not figure in the Budget proposals. If one looks at the total Budget

proposals critically, one may conclude in saying that the Budget proposals for 1997-98 are silent on

the measures to revamp the cooperative credit system and to improve its viability. It has certainly

given a feeling of alienation. The Government has not recognized the role of the cooperative credit

institutions and did not attempt to address the issues pertaining to the cooperative credit

institutions. This step, in fact, endorses our view that the Government is, in fact, looking for an

alternative credit delivery system in the country by deliberately weakening the well-established

and potential cooperative credit system. An examination of the recent Budget proposals revealed

that expect the Budget for 1994-95 which has laid some emphasis on cooperative rural credit

28

system, other Budgets have been silent on strengthening the cooperative rural credit system.

There should not be any hesitation to state that a critical examination of the new economic policy

announcement revealed that no importance has been accorded to the cooperatives in the New

Economic Policy. The new initiatives, if at all are minutely existent, did not appear to have

appreciated the role and contributions of the Cooperatives. Further, the reforms and/or steps

initiated during 1991-92 to 1996-97 also do not appear to have a positive impact on the

cooperative rural credit system and they have not revealed the sincerity of the Government to

strengthen the same. A tendency is growing in the country to look for alternative delivery

mechanism by introducing, motivating and encouraging certain types of organizations ignoring

the role of the cooperatives, their principles and philosophy and their potential to contribute for

the agriculture and rural development in the country. These tendencies need to be curbed.In nutshell it may be summed up that Budget, which is being appreciated by most of the sectors, is

very much disappointing to the cooperative credit institutions. It does not aim, at restructuring or

revitalising or revamping the cooperatives, a talk which has been going on since a long time. The

efforts made by the different agencies such as NABARD, Planning Commission, Ministry of

Agriculture, Government of India, did not result in encouraging proposals.



29

NEED TO EXEMPT INCOME TAX ON INCOME OF COOPERATIVE BANKS


As per Section 24 of the Banking Regulation Act, 1949 (as applicable to Cooperative Societies) the State Cooperative Banks (SCBs) and District Central Cooperative Banks (DCCCBs) are required to maintain cash reserves and liquid assets as per the norms laid down by RBI. Presently, these banks are required to maintain 3 per cent cash reserve and 25 per cent liquid assets. The Statutory Liquidity Ratio (SLR) is invested by the banks in Government and Trustee Securities to comply with the provisions of the Banking Regulation Act. As per the respective Cooperative Societies Act, every society is required to transfer 25 per cent of its net profit to reserve fund and further such a reserve fund may be used in the business of the society. The funds so created can be invested by the banks in both Government securities and trustee securities. Accordingly, the statutory reserve fund is fully utilised in the banking business by the Cooperative Banks. It may be noted that all the investments made by banks in various easily realisable securities forms part of the banking business (Sec. 6) which is purely to meet any contingency. Hence, the interest earned on such securities is, in fact, a part of the total banking business income.

The income Tax Act provides for concessions apart from allowing moderation in the rate of tax. The Cooperative Banks are taxed on a concessional basis primarily on the consideration that the principle of 'mutuality' operates in their case. It is well established in law that no tax can be levied in respect of profits of truly mutual societies on the reasoning that no one can make a profit out of one self. This concession is given in the form of deduction of whole of the profits from a business of banking.

The amount invested in Government and Trustee Securities is exempted from Income Tax as this is the income from the banking business. But the interest earned on Government securities invested for the purpose of Reserve Fund is taxed under the pretext that it is income from other than banking activity, which is evident from the cases being reopened by the Income Tax authorities in Gujarat, Madhya Pradesh, Karnataka, Rajasthan and Maharashtra and demanding crores of rupees from the Cooperative Banks as Income Tax. This is really unfair.

It needs to be appreciated that the Cooperatives are mainly leading to priority sectors and that too at concessional rate of interest. Income margin of Cooperatives is meagre to take care of their management cost. If their income is subjected to Income Tax on an issue such as above, the financial viability would become weak and unable to render banking services to farmers and priority sectors, which form the major clientele for Cooperative Banks. Therefore, necessary steps are called for to ensure that the Cooperative Banks are exempted from the payment of Income Tax on the income earned out of the interest on Government Securities and it should be treated as income from banking business since the amount is invested from out of the profit earned from the banking business.



30

INVESTMENT MANAGEMENT


The Cooperative Agriculture Credit delivery system in India is primarily a three tier credit structure with Primary Agricultural Credit Societies (PACS) at the village level, District Central Cooperative Banks (DCCBs) at the District level and State Cooperative Banks (SCBs) at the State Level. Agriculture Credit is the prime responsibility of these Cooperative Credit Institutions. They deploy their resources such as Share Capital, Reserves, Deposits and Borrowings in the following manner. 1) Advances, 2) Investments as per the statutory requirements and other avenues. The funds of the short term Cooperative Credit Institutions are deployed in advancing loan for Seasonal Agricultural Operations (SAO), Medium Term Agricultural Investment as their prime responsibility. Most of the lendable resources are deployed for the purpose of Agricultural Financing which in fact is low yielding proposition. Although, the rate of interest on advances is deregulated, its positive impact on the margins of the Cooperative Credit Institutions is yet to be seen. Further, the Cooperatives are also expected to invest their funds as per the statutory requirements where the returns are low, but investments are certainly safe. Therefore, the Cooperative Banks do not have virtually remunerative avenues for deployment of the resources. Of late, SCBs/DCCBs have been permitted to finance individuals and its scope has been enlarged so as to open up more avenues for remunerative deployment of their resources. This has been done as inadequate avenues for diversification of business has been found to be one of the reasons for the low dwindling profitability of Cooperative Banks. The SCBs/DCCBs are now free to finance individuals for the specified purposes within the prescribed ceiling by NABARD. Similarly, they have been permitted on a case by case to invest their genuine surplus funds to the extent of 10 per cent of the deposits in PSU Bonds. The avenues such as participation in consortium, call money markets, Government Securities, etc. proved to be inadequate avenues for deployment of their resources. Therefore, it is suggested as follows:-

Some of the major recommendations emerging out of the Seminar on Investment Management conducted by our Federation may have to be considered by Reserve Bank of India and National Bank for Agriculture and Rural Development. They are: -

1. NABARD/RBI may consider allocation of larger share to the SCBs in food credit consortium.

2. The feasibility of reckoning investment of banks in certain advances such as weaver's finance, PDS, Medium Term Agricultural loans. etc., towards minimum involvement may be considered by NABARD.

3. RBI may consider exempting SCBs/DCCBs from their liabilities to the banking system while calculating their ILR for fixation of their minimum involvement level for getting refinance from NABARD for ST SAO loans in the interest of nation.

4. RBI may consider doing away their stipulations while permitting SCBs/DCCBs to invest from genuine surplus funds to the extent of 10 per cent of deposits in PSU Bonds.

5. RBI should expedite the proposals of SCBs for currency chest branches so as to avoid the problems of remittance of currency surplus of funds.

6. RBI may consider exploring the possibilities of making available the auction facility of Treasury Bills for both 14 days and 91 days and also for the dated securities in the metros and/or State capitals in addition to Bombay so as to enable the SCBs to participate in the action.



31

PLACE OF COOPERATIVES IN FIVE YEAR PLAN DOCUMENT AND COMMITTEES


The Cooperative Credit sector has been assigned an important role in the economic development of the country in the successive Five Year Plans even though no separate chapters have been incorporated in the Eighth and Ninth Five Year Plan Documents on Cooperation and it is expected to shoulder greater responsibilities in the years to come. The cooperative credit institutions, the strong arm of rural financing institutions, in the country continue to play a dominant role in providing credit for agriculture and rural development. During the last 9 and ½ decades of their existence, the cooperative credit institutions have catered to the rural credit needs in a significant way and at the same time certain weaknesses have developed in the system which is both endogenous as well as exogenous in nature.

With the initiation of the new economic policy reforms, the institutional rural credit delivery system in the country is also undergoing structural transformation and this has created a competitive environment for the financial institutions including cooperatives. Government of India as a first step in the direction of bringing financial sector reforms set up a High Level Committee under the Chairmanship of M. Narasimham to examine all aspects relating to the structure, organization, functions and procedures of the financial system and Committee's suggestions for restructuring the commercial banking system in the country have been accepted and implemented. However, no efforts have been made by that Committee to examine the issues pertaining to the cooperative banking system though it is part and parcel of the Indian Financial sector. While the Prudential System of Income Recognition, Assets Classification and provisioning has been introduced in the commercial banks after initiating recapitalization measures, RBI and NABARD directed the cooperative banking system to implement such a prudential system without initiating the restructuring/revamping/recapitalization measures in the cooperative credit sector. As a result, the cooperative credit institutions which have excellent potential to contribute for the agriculture and rural development are unable to ensure their viability and function effectively in the competitive environment.

A number of high level committees/groups have examined the aspects pertaining to cooperative credit and banking system in the country and recommended for revamping measures which includes injecting of one time external assistance to the extent of Rs. 6000 crores to cleanse their balance sheets. However, a firm decision is yet to be taken with regard to the assistance to cooperative credit and banking institutions. Meanwhile, the Union Government has set up a high level committee under the Chairmanship of M. Narasimham to review the record of implementation of the financial system reforms recommended by the Narasimham Committee on financial system appointed by Government of India in 1991. It is also understood that the newly appointed committee report will encompass a blueprint of action for financial institutions in addition to commercial banks.

Therefore, it is hoped that the newly set up Narasimham Committee with a number of stalwarts in the banking sector including Chairman NABARD will recognise the cooperative banks in rural credit as part of financial sector and examine the relevant issues and suggest concrete measures for ensuring their viability.



32

EXEMPTION FROM PAYMENT OF INCOME TAX


The institutional rural credit delivery system has been envisaged as an effective channel for creating socio-economic development in the society. The institutional rural credit system for agriculture mainly consists of Short Term cooperative credit institutions (STCCIs) viz., State Cooperative Banks (SCBs) at the apex level, District Central Cooperative Banks (DCCBs) at the intermediary level and Primary Agricultural Credit Societies (PACS) at the village level. These STCCIs have been considered as the most suited and effective channels both as purveyors of credit and development agencies. These institutions contributed significantly for the rural and agricultural development for ensuring smooth flow of agricultural credit. The STCCIs have greater role to play in the newly emerging Socio-economic scenario and they are well poised to meet the challenges. However, it is necessary to create an impression that the New Economic Policy creates an environment for more opportunities for realisation of the vision with regard to the role of cooperatives as an instrument of regeneration of India's rural economy.

The Banking Regulation Act, 1949 (As applicable to Cooperative Societies) is applicable to SCBs and DCCBs. As per the Section 24 of the Banking Regulation Act, the SCBs and DCCBs are required to maintain cash reserves and liquid assets as per the norms laid down by RBI. Presently, these banks are required to maintain 3 per cent cash reserve and 25 per cent liquid assets. The Statutory Liquidity Ratio (SLR) is invested by the Banks in Government and trustee securities to comply with the provision of the Banking Regulation Act. As per the respective Cooperative Societies Acts, every Society is required to transfer 25 per cent of its net profit to reserve fund and further such a reserve fund may be used in the business of the Society. The funds so created need not necessarily be invested in Government securities. They can be invested by the banks in both Government securities and trustee securities. Accordingly, the statutory reserve fund is fully utilised in the banking business by the cooperative banks.

The Income Tax Act provides for concessions apart from allowing moderation in the rate of tax. The Cooperative Banks are taxed on a concessional basis primarily on the consideration that the principle of 'mutuality' operates in their case. It is well established in law that no tax can be levied in respect of profits of truly mutual societies on the reasoning that no one can make a profit out of one self. This concession is given in the form of deduction of whole of the profits from a business of banking.

The amount invested in Government of Trustee securities is exempted from Income Tax as this is the income from the banking business. But the interest earned on Government securities invested for the purpose of Reserve Fund is taxed under the pretext that it is income from other than banking activity. As per Section 80p (i) wherein the case of assesse being a cooperative society the gross total income includes any income referred to in sub section (ii), they shall be deducted in accordance with and subject to the provision of this section the sums specified in the Section 11 in computing the total income of the assesse.

As indicated earlier, the income earned as interest on Government securities is also income from banking business since the amount is invested from out of profit earned from the banking

33

business. However, the Income Tax authorities are not treating the income of interest earned on Government securities, invested for the purpose of Reserve Fund, as income from banking business and they are computing such income as taxable income. For example, the Income Tax officials computed the income of few SCBs on notional basis treating the same as non-banking income on interest earned on investment in Government securities for the purpose of Reserve Fund and made them liable to pay tax to the tune of crores of rupees. This has been done by the Income Tax officers by referring to the judgement of Madhya Pradesh High court.. It may be pertinent to refer here again that while assessing the return filed by the SCBs, the Income Tax Officers have disallowed exemption under Section 80 (p) various incomes arising out of banking transactions, such as dividend, locker rent, commission, etc. on the ground that this income was generated out of non-banking activities. Further, based on the judgement of Madhya Pradesh High Court, the Income Tax Officers have reopened the tax return files of few SCBs for re-assessment. This is really unfair.

At this stage, it is pertinent to note that the cooperatives have been playing very significant role in disbursement of credit for agriculture and rural development activities, in addition to implementing various developmental oriented policies of the Government meant for socio-economic upliftment of the poorer/weaker sections of the society. Further, it should be noted that the income earned by the cooperative banks is deployed for the development of rural economy only and therefore the imposition of any tax liability on the income of the cooperative banks will have serious repercussions on the financial viability of the cooperative banks. If the cooperative banks ate forced to bear such a tax burden their capacity to meet the credit needs of the weaker sections through various types of cooperative institutions shall be seriously handicapped.

Therefore, it would be necessary to treat the interest income earned by the cooperative banks on investment in Government securities for the purpose of reserve fund as banking income and it should be exempted from payment of income tax. Further, it would also be necessary to treat the income arising out of banking transactions such as dividend, locker rent, commission, etc. as the banking income and it should be exempted from the payment of income tax.



34

COMMITTEE ON BANKING SECTOR REFORMS & COOPERATIVE BANKS


The committee on Banking Sector Reforms headed by Shri M. Narasimham made certain references about Cooperative Banks in Chapter VI of the report under the caption “Rural and Small Industrial Credit”. While the High Level Committee on the Financial System under the Chairmanship of Shri M. Narasimham in 1991 did not examine the aspects pertaining to the cooperative credit and banking institutions, the Committee on Banking Sector Reforms (1998) at least made certain references even though they are not based on the in-depth study. These references have been made presumably because of the presence of the then Chairman of NABARD on the Committee. The Recommendation that Cooperative Banks should reach a minimum of 8 per cent capital to risk weighted assets over a period of 5 years could have been welcomed by the cooperative credit sector provided the Government of India should have first finalised the recapitalization measures to cleanse the balance sheets of the cooperative credit and banking institutions. The sector is not averse to the implementation of capital adequacy norms. The recommendation that the Cooperative Credit Institutions also need to enhance their capital through subscription by their members and not by Government, do not appear to be based on in-depth examination of the issues pertaining to cooperative credit institutions, their objectives, their complexities and the environment in which they perform for ensuring smooth flow of agricultural credit in the country.

The suggestion that all regulatory and supervisory functions over rural credit institutions should vest with the Board for Financial Regulation and Supervision may be considered if the cooperative credit and banking institutions are well recognized as part of the main stream of banking sector. However, it requires redefining future role of NABARD. The Recommendation that the present duality control over the cooperative credit institutions should be eliminated, should be welcomed.

While all efforts are being made at the Federation's level to ensure freedom of autonomy to the cooperative credit institutions and also to ensure their viability, there appears to be strong a lobby at the level of Ministry of Finance, who also appear to be holding a strong view that cooperation is the State subject, cooperatives belong to the members and therefore they are the owners, who should ultimately take care of themselves. They also, it appears, are holding the view that as the profits of the cooperatives are being shared among the members, similarly the losses are also to be made up by their own members. We feel that those who are holding such a view needs to be made aware of entire gamut of objectives and activities of cooperatives.

We are of the view that concerted efforts should be made by each one of the agencies involved in the development of cooperative credit structure to ensure appropriate recapitalization measures without going into the intricacies of ownership of cooperatives. They are, after all, part of the main financial sector in the country and therefore no step motherly treatment should be meted.



35



The Union Budget 1998-99 has been presented by Hon'ble Union Finance Minister on June 1, 1998. The highlights of the Budget proposals pertaining to Agriculture and Rural Credit are presented below:

?Rural Credit and rural infrastructure strengthened by enhanced allocation of Rs. 3000 crores for Rural Infrastructure Development Fund (RIDF).

?Increase of Rs. 500 crores in NABARD's share capital to meet the credit needs of Agriculture.

?NABARD to extend micro-credit to 10,000 Self Help Groups covering 2 lakh families to solve the problem of rural unemployment and under employment.

?National Housing Bank to finance one lakh rural dwelling units under the SwarnaJayanti Housing Finance Scheme.

?Provision of Rs. 265 crores for rehabilitation and recapitalization of the Regional Rural Banks.

?NABARD to introduce Kisan Credit Card for farmers to help them to readily purchase agricultural inputs such as seeds, fertilizers, pesticides, etc. and draw cash for their production needs.

?New model law for agricultural cooperatives to replace the Multi-State Cooperative Societies Act.

However, the entire Short Term Cooperative Credit Structure comprising of more particularly the State Cooperative Banks are disappointed due to the fact that the most important issues viz., “the need for exemption of cooperative banks from payment of Income Tax on interest earned on investment of Government Securities for the purpose of Reserve Fund” and also “the need for making budgetary provisions to provide adequate financial assistance for cleansing the balance sheets of cooperative credit institutions as a part of measures for revamping” are yet to draw the kind attention of the Hon'ble Union Finance Minister.

Therefore, it becomes necessary to reconsider and address the above priority issues on urgent basis for strengthening the cooperative credit and banking institutions. Further, urgent measures are required to formulate National Cooperative Policy and also adopt model cooperative law to replace the Multi-State Cooperative Societies Act, 1984.



36

NEED FOR A SEPARATE COOPERATIVE CELL IN MINISTRY OF FINANCE

(October - December,1998)

The highlights of the recommendations of the following committees are obviously going to have far reaching consequences on the entire credit system of the country.1) Narasimham Committee on Banking Reforms 2) Committee on Agricultural Credit headed by R. V Gupta 3) Working Group on harmonising the role of development financial institutions under the Chairmanship of S. H. Khan.

The Narasimham committee was appointed by Government of India and the other two were constituted by Reserve Bank of India. However, it was observed that their Terms of the Reference (TOR) conspicuously ignored even the existence of cooperative credit structure. It hardly need to be mentioned that the cooperative credit structure continue to account for about 60 per cent of the agricultural credit. The Narasimham Committee on financial system reform even in 1991 did not examine the aspects pertaining to cooperative credit and banking structure of the country though it forms part of the main stream of the financial sector.

We are of the view that omission of the cooperative credit structure in the TOR of the Committee could have been prevented had there been a separate wing or even a cell for the cooperative credit and Banking Institutions in the Banking division of the Ministry of Finance, Government of India. Of course, cooperation is a state subject but a separate wing for cooperatives in the Banking Division, Ministry of Finance would have facilitated better appreciation of the complexities of cooperative credit & banking institutions, their strengths, weaknesses, opportunities and threats and lent a proper perspective of their roles in smooth implementation or various developmental programmes. Further, it may be pertinent to note here that cooperative credit and banking institutions such as state cooperative banks (28) and district central cooperative banks (367) are governed by the provisions of Banking legislations like Banking Regulation Act, 1949, Reserve Bank of India Act, 1934, NABARD Act, 1982.

There is separate department of credit & cooperation in the Ministry of Agriculture, Government of India. There is also a separate division viz. “Rural Planning and Credit Department (RPCD)' in Reserve Bank of India besides NABARD.

However, a separate wing or Cell in the Ministry of Finance would have provided proper perspective to the role of the cooperative credit structure in the financial sector of the country. Against this background, it is our earnest plea that a separate division/section/wing/cell for cooperative credit and banking structure in the Banking Division of Ministry of Finance could be set up with a view to establish closer contacts and liaison on an on-going basis to provide first-hand information about them. This will also enable better appreciation of their policies and programmes. This step it is hoped shall ultimately lead to strengthening of cooperative credit structure to ensure smooth flow of credit to agriculture and rural development.



37

NORMS FOR GRANT OF LICENCES


The Short Term Cooperative Credit Institutions (STCCIs) comprising of 28 State Cooperative

Banks (SCBs), 367 District Central Cooperative Banks (DCCBs) and about 90,000 Primary

Agricultural Credit Societies (PACS) have been playing a very important role not only as the

purveyors of the credit but also as development bankers, catalysts etc. and all of them have

contributed for the development of agriculture and rural development in the country. The policy

formulations and operational issues arising out of the policy decisions pertaining to credit and

related refinance aspects are discussed at the level of NABARD from time to time by the

Federation with a view to evolve certain strategies to strengthen the cooperative credit delivery

system. However, there are certain issues which necessarily have to be discussed with Reserve

Bank of India as these issues are directly or indirectly within the purview of RBI. However, limited

opportunities are available for the cooperative credit institutions to deal directly with RBI. While

the RBI holds periodical meetings with the Chairmen and Chief Executives of Commercial Banks

with a view to review the performance of commercial banking sector, no such periodical meetings

have been envisaged for discussion with cooperative credit instructions in the country. Such

periodical meetings have not been held even while announcing the monetary and credit policy. But

such policy decisions have been made applicable to the cooperative credit institutions at a much

later stage on a specific request for either consideration or reconsideration of certain policy issues.

The only interaction which used to be through the “high level standing committee to review the

flow of credit to rural sectors and other related matters”, wherein NAFSCOB was one of the

members of the Committee ceases to exist. The entire cooperative credit structure expressed their

concern about such an environment.

Against this background, it becomes necessary for the RBI to hold periodical meetings with

the Chairmen and Chief Executives of our Federation and SCBs in the country to discuss a number

of policy issues directly pertaining to them. Further, it may be recalled the provisions of the

Banking Regulation Act 1949 as applicable to Cooperative Societies have been extended to all

cooperative banks and also urban cooperative banks from March 1, 1966. Since then norms for

issue of licenses to SCBs and DCCBs have remained the same and no review has been taken so far.

However, the norms for grant of licenses in the case of urban cooperative banks have been issued

licences. Therefore, it is suggested that RBI may relook into the licence norms etc. and issue

licences to all these banks which were existing prior to March 1966 and expedite the process of

issuing licences to the banks that have come up since then. Further, the SCBs and a large number of

DCCBs are eligible for inclusion in the second schedule of RBI Act for the purpose of according

schedule status. However, they have not been accorded the schedule status in spite of fulfilling the

provisions and norms, due to the reasons not known to anyone in the structure. It is surprising to

note that according to schedule status has been of linked to the aspect of licence which is not the

38

fact. These two are entirely different issues. Therefore, the RBI shall have to with immediate

consider to accord schedule status to all the SCBs and to all eligible DCCBs. Further, it is suggested

to revise the remittance scheme which is in vogue since 1975 so as to enable the cooperative banks

to avail free remittance facilities without any inconvenience.

RBI will have to consider cooperative credit institutions as part of the main steam of the

financial sector in the country and allow for freedom of functional autonomy by addressing to the

basic issues, if they have to really compete in the liberalized economic scenario. It is also suggested

that if necessary a committee may be set up look into certain aspects such as norms for licencing,

schedule status, remittance scheme, investment of resources etc. so as to facilitate the

cooperative credit institutions in the country work the purview of RBI Act and Banking Regulations

Act.



39

TASK FORCE TO SUGGEST PACKAGE FOR REVIVAL OF COOPERATIVE CREDIT INSTITUTIONS


The institutional rural credit delivery system is being envisaged as a very effective channel

for creating an environment for socio-economic development of the country. While the

Commercial Banks and Regional Rural Banks (RRBs) with a network of about 35000 branches put

together account for only 38 percent of the Rural Credit. Rural Cooperative Credit Structure, in

existence for about a century and consisting of over 1,04,000 outlets purveys more than 62

percent of the total Agricultural, Rural Credit. Indeed the above facts cover only the Short STCCIs

comprising of 29 State Cooperative Banks (SCBs) with 811 branches and 368 District Central

Cooperative Banks (DCCBs) with 12546 branches and over 90,000 Primary Agricultural Credit

Societies (PACS). It indicates that the structure has a formidable rural presence in terms of

geographical coverage. Appreciating the above facts as well as its potential and spatial spreads,

the Cooperative Banking system is being continuously assigned a very critical role in the economic

development of the rural areas in so far as the dispensation of the credit is concerned right from

the commencement of planning in India. Despite shouldering such an onerous responsibility

during each successful five year plans, there has not been much recognition of the role and

responsibility shouldered by the cooperative credit structure.

Hon'ble Prime Minister of India while delivering the key note address on May 7, 1999 on the

occasion of presentation of NABARD awards for Cooperative Banks stated as follows:

“Some of the most significant success stories in contemporary India are indeed being

scripted in the cooperative sector. Unfortunately, they go largely unrecognized and unhonoured at

the national level. Many of these accomplishments are in the cooperative banking sector. Their

success is particularly laudable, since it is not very easy for Cooperative Banks to perform well in

the face of the debilitating policy frame work that restricted their growth for several decades”.

The delegation comprising of the representatives of both short term and long term

cooperative credit institutions met ShriYashwantSinha, Hon'ble Union Finance Minister on 24-3-

1999 and impressed upon the need for providing financial assistance for cleansing the balance

sheets of cooperative credit institutions as a part of the measures for revamping and restructuring

(In fact these measures have been already implemented in the commercial banking sector by

infusing a sum of around Rs. 20,000 crores). In pursuance of the same, Government of India has

constituted task force “to study the functioning of cooperative banks and to suggest package for

their revival/restructuring” under the Chairmanship of ShriJagdishCapoor, Deputy Governor,

Reserve Bank of India. The other members of the Task Force include Joint Secretary, Banking,

40

Ministry of Finance, Government of India; Joint Secretary, (C & C,) Department of Agriculture and

Cooperation, Government of India and NABARD. The Task Force appears to be in the process of

eliciting information and also making attempts to appreciate the entire gamut of activities of

cooperative credit & banking structure. The task force has been set up in the month of June 1999.

It is hoped that the Task Force will meticulously examine all aspects of the functioning of the

cooperative credit structure keeping into view their activities, working environment, the roles

assigned to them and performed by them the reasons for their present state of financial position,

the extent of damage created by the external factors in smooth functioning of the cooperatives.

Finally it is hoped that task Force recommends in such a way that appropriate

rehabilitation/restructuring package of measures are formulated and implemented so as to

enable them to continue to contribute for smooth flow of credit for agricultural and rural

development. The recommendations of the Task Force, it is further hoped, will lead to a situation

where the contributions of cooperatives are recognized and honoured at the national level.



41

NEED FOR PRIME LENDING RATE


All the Cooperative Bank Employees as well as Managements are aware that the RBI and NABARD have brought in many systemic changes as a consequence of the first and second phase of Financial Sector Reforms.

All the banks in India are now finding themselves operating in “Buyers' Market”. The banks have to design products to suite changing customer needs and market them at the door steps of the customers. Anyone could easily see how biggest banks like State Bank of India or Bank of India or the Foreign Banks like Citibank, Standard Chartered Bank, ANZ Grindlays Bank or even the new crop of private sector banks like Induslnd Bank, Times Bank, or the banks set up by leading term lending institutions like ICICI and IDBI are vying with each other offering multifarious retail products to customers and they are also offering “Anytime, Anywhere” banking facilities to the customers, thanks to amazing technological developments.

These rapid changes in banking industry are mainly due to introduction of new concepts like Prudential Norms, as well as deregulation and entry of private sector banks.

Under this changed banking scenario, the 'PRODUCTIVITY AND PROFITABILITY' are the only key factors to reflect the strength and stability of any bank. It has therefore, become necessary that the above said key drivers of profitability and productivity are sharpened and put to test with constant observation of results. The most important of the key factors which influence or fluctuate the profits are “Cost of Funds” and “Return on Loans and Investments.”

The main source of income of a Bank is interest earnings on its loans and advances and its

investments. Therefore, both these areas/portfolios require a more vigilant and constant

attention to ensure that timely changes are brought in by the Bank to improve the profitability.

Under the present situation of frequent change in Bank Rate, cut in Cash Reserve Ratio

(CRR) for commercial banks, entry of multinationals due to New Economic Policy of Govt. of India,

the “Advances Portfolio” in any Bank throws a challenge to the Officers who are managing this

portfolio.

Safety, Liquidity and Profitability are three cardinal principles of advances. Today, the added

main factor being “Prudential Norms and Provisioning”, the Banks are now very careful in not

deploying a major chunk in a single corporate unit and are now entering in a big way in the areas of

Retail Lending. They are now deploying their resources in different segments of borrowers to have

a mix of 'REASONABLE AND HIGHER RETURN.’

The margin in advances will have to necessarily ensure that it covers the cost of funds (i.e.

deposits and borrowings) plus cost of operations (like establishment, contingents, depreciation,

etc.) and also provides a percentage to leave net profit at the close of each financial year.

42

The “SPREAD” is the difference between interest paid on deposits and borrowings (i.e.,

sources of funds) and interest charged on loans and advances. In a simple term, it is the difference

between 'interest received' and 'interest paid' by the Bank. This interest spread will constantly

diminish or even dip to NIL or negative as and when Bank Rate of CRR is cut by the RBI if no suitable

balancing exercise is done by the Bank officials/management.

It is in this context, it has become absolutely essential for every Bank to assess and decide

the PRIME LENDING RATE (PLR) which is inclusive of the spread.

This PLR will have to be assessed and fixed periodically whenever the interest rates on

deposits, borrowings and advances are changed.



43

UPWARD INTEREST RATE REVISION ON REFINANCE BY NABARD


Financing to farmers for seasonal agricultural operation remained as a priority business of cooperative banks since beginning. The resources for the purpose are in general a mix of borrowings from RBI/NABARD and the resources available with the structure itself. Agriculture financing involve very high cost of operation and supervision of credit. The Risk cost in agriculture financing is also very high. Therefore as such sufficient margin is required for operation, supervision, recovery expenses, and risk of non-recovery of interest and principle amount by various tier of the system. Poor margin to various tier of the structure had already done sufficient harm to the structure reflecting in terms of huge accumulated losses and imbalance. Since beginning, not only to support the resource needs but also for the purpose to keep the cost of resource mix lower and to provide credit to farmers for ST (SAO) need at reasonable rate of interest, RBI provided refinance and concessional interest rates were charged. The interest rates

thon refinance were linked with bank rate till 29 February 1988 and were kept 3% below the Bank Rate in addition to some concession on financing to Small Farmers. From 1-8-1988 to 14-4-1997, the interest rate on refinance was decided independently. The bank rate was revised once again on 15-4-1997 and the interest rate on GLC to NABARD was fixed at 5% below (6%p.a) the Bank Rate

st(11%p.a). The interest rate on GLC was once again delinked from Bank Rate on 21 October 1997 and the benefits of reduction in Bank Rate were not passed on GLC. Otherwise at present the rate of interest on GLC would have been 3% p.a. (5% below the Bank Rate). RBI and NABARD revised the interest rate on ST (SAO) refinance by 2% points (on GLC from 4% to 6%) effective from 1-7-1996 when the market was showing a downward trend. Upward revision was done by RBI/ NABARDbefore the cooperative banks can derive any benefit of deregulation. The interest rate on GLC and inturn refinance from NABARD was reduced by one per cent point from 26-6-1997 and now RBI and NABARD once again increased the interest rate on refinance by 1.5% point p.a. This revision is done by RBI/NABARD when the interest rates in market are at its lowest. The following points need serious considerations in this context. The interest rate on GLC which was linked with Bank Rate on 15-4-1997 at below 5% of bank rate remained now at only 2.5% below the Bank Rate. This is the poorest linking so far. In the field, Commercial Banks are charging 12% interest rate on ST (SAO) loans upto Rs. 25000/ and 13.5% on loans above 25000/and upto 2 lakhs. The rate of interest charged from farmers by co-operative banks are already higher than the rates charged by the Commercial Banks. In addition, Co-operative Banks also collect share capital linked with the amount of borrowing. Hence there is no scope for further increase in interest rates charged from farmers. Few Co-operative Banks even after deriving the benefits of deregulation are not in better financial health due to the higher cost of supervision risk etc. The additional burden of increased cost cannot be passed on to farmers. The Cooperative Banks also cannot absorb this extra burden of interest cost.

Earlier NABARD was passing on the resources of GLC to SCBs without retaining any margin but since a single flat rate on GLC and NABARD refinance rate based on dependence, NABARD is retaining its own margin on ST (SAO) refinance. This is the additional burden on co-operative credit structure as apprehended by AIRCRC. NABARD as the Apex Institution, at National level for Agriculture and Rural Development is expected to play much greater role in this matter.

44

Agriculture being the top priority sector needs special care. The policies must be framed based on ground realities with special consideration for base level structure and the target group. NABARD is well aware of all such realities and responsible to provide a proper feedback to RBI/GOI for such decision making. Addition of one more tier as NABARD at national level between RBI and Cooperative Banks is not only adding the cost but NABARD is not sharing the benefits of its cost free resources; with cooperative banks. GOI/RBI provided huge cost free resources in the form of NRC (LTO) and NRC (stabilization) fund and also provided Rs.2000 crores as share capital to NABARD but the funds are being used by NABARD to strengthen itself. On one Hand GOI is very much concerned about the financial health of cooperative credit structure and constituted a TASK FORCE for its revival and to consider one time financial assistance for cleansing of balance sheet but on the other hand policy decisions are being taken which are detrimental to the already weak financial health of cooperative credit structure. Again NABARD's role is very important. With the increase on interest rate on SAO refinance w.e.f.1-10-1999 on the outstanding loans, the NABARD has resorted to bring the refinance rate more or less at par with the Bank Rate, as banks having dependence over 55 per cent shall be charged 8%.

As such it is a fact that neither the cooperative credit structure is in a position to absorb the additional approximate burden of Rs. 75 crores due to increase in interest rates on refinance nor it is possible to pass on the burden to farmers. Therefore, NABARD should withdraw the upward revision on its refinance to SCBs/CDDBs.



45

RURAL COOPERATIVE CREDIT & BANKING INSTITUTIONS: A CASE OF UTTER NEGLECT


Rural Cooperative Credit and Banking Institutions with a formidable rural presence in the country have played a significant role in the economic development of the rural areas through dispensation of agricultural credit. Despite shouldering such an onerous responsibility during each successive Five year plans, there has not been much recognition of their role and responsibilities. They were not allowed to strengthen themselves under the regime of regulations and restrictions by Governments. Certain policies and policy environment obviously have created weaknesses in the system. To face the challenges posed due to new economic reforms, it becomes essential to address the issues such as strengthening about 100 years old rural credit cooperatives by extending suitable financial assistance. A number of committees have recommended one time assistance to cleanse their balance sheets and start afresh to effectively contribute to the agricultural development of the country. In spite of such recommendations no sincere efforts have been made to ensure financial assistance to Rural Cooperative Credit and Banking Institutions.

In pursuance of the emphasis laid down by the Executive Committee of NAFSCOB about the need for the concerted efforts the following steps have been taken up .

1. NAFSCOB and State Cooperative Banks have made available a copy of the working group report on “Cooperative Credit and Banking Institutions : A case of Utter Neglect” to all Members of Parliament, Chief Ministers, Ministers of Cooperation, Government of India, RBI, NABARD, Secretaries of Cooperation, Registrars of Cooperative Societies of all states on or before 10-02-2000.

2. NAFSCOB and NCARDB Federation convened a Press Conference on 10-02-2000 at New Delhi with a view to allow more stress on the need for one Time Budgetary support of Financial Assistance to the Cooperatives Credit and Banking Institutions.

3. A select groups of Cooperators / Chairman of State Cooperative Banks have forcefully presented their views with regard to the need for One Time Budgetary Support for Financial Assistance, in the first ever meeting of Cooperators convened by Hon'ble Union Finance Minister on 10-02-2000 at New Delhi.

4. Most of the SCBs/DCCBs issued Press Releases on 10-02-2000 to discriminate the approach towards cooperatives and impressed the need for Budgetary support and financial assistance.

5. All the SCBs/DCCBs in the country and PACS either on their own or on their behalf, their DCCBs and NAFSCOB have sent FAX Messages to Hon'ble Prime Minister of India on the urgency to provide Budgetary support of financial assistance to Rural Cooperative Credit and Banking Institutions. This has been sympathetically done by all of them on 10-02-2000.

6. It has been also brought to the notice of NAFSCOB that Nagaland SCB in fact led processions and demonstrations on 10-02-2000 pleading for the necessary Budgetary support for the development of cooperatives.

46

7. Such a concerted effort by all the Cooperative Credit and Banking Institutions appears to have impressed the Government of India to recognize the role and importance of cooperative credit system for the development of the country and for the first time in the recent years the Union Budget for the year 2000-2001 categorically recognised its importance. However, the specific proposals with regard to strengthening the cooperative credit system have been allowed to be ambiguous. This ambiguity with regard to the setting up of fund at NABARD in view of the forth coming report of JagdishCapoor Committee has been brought to the notice of the Members of Parliament in the meeting convened by NAFSCOB and NCARDB Federation on 02-03-2000. A representation has also been made on the same day to Hon'ble Minister of State for Agriculture, Government of India.

8. Further, the delegates representing both the Federations met Hon'ble Prime Minister of India and Hon'ble Speaker of LokSabha on 03-03-2000 and impressed upon the need for clarity in the Union Budget proposal and ensure one time Budgetary support of financial assistance to the cooperatives.

Government of India, it is hoped ,will initiate urgent measures to provide one time Budgetary support with a view to cleanse the Balance Sheets of Cooperative Credit and Banking Institutions.



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A SUGGESTED SAO POLICY BY NAFSCOB

(April– June, 2000)

NAFSCOB has been in the forefront in identifying the adverse implications of the SAO Policy formulated by NABARD on the smooth functioning of State Cooperative Banks (SCBs) and District Central Cooperative Banks (DCCBs) and has been impressing upon the need for a policy which ensures smooth flow of credit for agriculture and rural development. In pursuance of the discussions the representatives of NAFSCOB had with the Managing Director, NABARD, a draft SAO policy as approved by the Board of Directions of NAFSCOB, has been forwarded to NABARD to facilitate formation of SAO policy for the year 2000-2001. The highlights of the suggested draft SAO policy for the year 2000-2001 for consideration of NABARD are as follows:

1. The production credit needs of the farmers which are being supplemented by RBI for the last 50 years should continue. The line of credit provided for SAO goes for financing production oriented programmer which cannot be allowed to suffer for want of funds. Therefore, NABARD should consider impressing upon RBI to raise the GLC limit of Rs. 5700 crores which has been stagnant for the last three years and in fact raised from Rs. 1200 crores over a period of 18 years.

2. It has been also suggested to create a fund at NABARD level to be contributed by Government of India / RBI and NABARD to be initially used in addition to present level of GLC and after achieving a breakeven level the GLC limit may be reduced in a phased manner after ensuring availability of sufficient resources for ST SAO refinance needs.

3. There is a need to withdraw the concept of withdrawal limit with immediate effect and free operations to the extent of credit limits should be allowed to each SCB.

4. A suggestion has been made for a fixation of minimum involvement for NABARD at least 15% of NABARD's ILR as the objectives of NABARD, SCBs and DCCBs are the same as far as agriculture and rural development is concerned. This simple provision will make available an estimated sum of Rs. 3500 crores. This may be done as long as the concept of minimum Involvement will be in vogue.

5. For the year 2000-2001 it is proposed the MI Limits will be 15% to 25% of ILR for SCBs and DCCBs respectively. However, it is suggested to be removed in future SAO policy with effect from the year 2001-2002.

6. The concept of additional interest for non-compliance of a 'wrong policy' is never heard of. Therefore, it was suggested to reduce the additional / penal interest from 6% to 1% in case of DCCBs and from 10% to 2% in case of SCBs with immediate effect. However, the concept of additional interest should be withdrawn in future SAO policies with effect from the year 2001-2002. The amount of additional interest already collected from few SCBs should be immediately refunded keeping in view of the level of reduction.

7. The upward rate of interest of 1.5% on the refinance from NABARD to SCBs which was enforced with effect from 1-10-1999 should immediately be withdrawn as the cooperative credit structure and farmers cannot shoulder such a heavy burden.

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8. It was also suggested that the variable rate of interest on refinance which is based on the percentage of borrowings from NABARD should range from 3% to 5.5% instead of 5.5% to 8%, as RBI announced reduction in the bank rate.

9. While the provision for Government Guarantee will continue to figure in our draft SAO policy, for 2000-2001, as it may be difficult for NABARD to withdraw with immediate effect, it is suggested that future SAO policies with effect from 2001-2002 should not envisage any Government guarantee as it does not carry any weight due to the directive from RBI that provisioning has to be made even for advance guaranteed by Government. The detailed draft SAO policy as suggested by NAFSCOB is given elsewhere in this document.

Therefore, the entire short term cooperative credit structure request NABARD to consider the suggested draft SAO policy for the year 2000-2001 and onwards which emerged out of the first ever serious consultation NABARD had with representatives of NAFSCOB in this regard.



49

JAGDISH CAPOOR TASK FORCE


Government of India appointed a Task Force on May 17, 1999 to study the Cooperative Credit System and suggest measures for its strengthening under the Chairmanship of Shri. JagdishCapoor, Deputy Governor, Reserve Bank of India in pursuance of the representation made to Hon'ble Union Finance Minister on 24 March 1999 by the National Federations representing long term and short term cooperative credit structures.

The Terms of Reference of the Task Force include : (i) to view the functioning of the cooperative credit structure and suggest measures which would make them member-driven professional business enterprises (ii) to study aspects relating to the costs, spreads and effectiveness at various tiers of cooperative credit structure and make suitable recommendations for their rationalisation and improvement (iii) to study the financial performance of the cooperative bodies and make recommendations for improving their financial health so that they can become efficient and cost effective instruments for delivery of rural credit (iv) to review the existing supervisory and regulatory mechanism for cooperative credit institutions and suggest measures for strengthening the arrangements. The Task Force, which were required to submit its Report by the end of June 1999, finally submitted its Report on 24 July 2000.

The effectiveness of the cooperative credit system in terms of the roles and responsibilities played by each of the cooperative credit institutions are also examined. The financial performance of Cooperative banks in the context of parameters required to make them efficient and cost effective institutions of rural credit delivery system are covered in Chapter –IV. Chapter-V traces the existing supervisory and regulatory framework in cooperative banks and measures required to strengthen them in the emerging context of stringent prudential and capital adequacy norms. Chapter-VI outlines the essential features of the revitalization package covering the roles and responsibilities of various agencies and players to ensure its success. The Summary of Recommendations of the Task Force is presented In Chapter –VII. The Task Force in all has made 85 recommendations.

It is heartening to note that the Task Force is convinced of the urgent need to initiate measures for the rehabilitation of cooperative banks also, which constitute the major segment of the rural financial system. The rehabilitation package for financial institutions, according to the Task Force, consists of a four dimensional programme encompassing financial, operational, organizational and systemic aspects. The Task Force has recommended that the financial assistance must be borne by the Government of India, State Government and members in the ratio of 40:40:20 respectively. The Task Force has recommended that outflows would be restricted to periodical payment of interest on the bonds issued as the share of Central and State Governments will be in the form of bonds in favour of DCCBs bearing a reasonable rate of interest. Here we observe that the beneficiary cooperative will only derive the benefit of interest income which will improve their profitability. There is no net outflow of funds to the extent of financial assistance. Further, the recommendation that the rehabilitation package is opened to all State Governments which expressly undertake to share the stipulated financial obligation and also fulfil

50

conditionalities relating to organizational, operational and systemic aspects. After examining the recommendation on the rehabilitation package for the cooperatives, we suggest the sharing pattern as follows :

Government of India : 80 per centRBI/NABARD : 15 per centEntire Cooperative Credit Structure : 5 percent

The sharing pattern of 80 and 15 per cent by Government of India and RBI/NABARD should come as only grants. Further, we are also of the view the sharing pattern of the Central and the State Governments in the from of bonds will not at all contribute to the viability of the banks. We are of the view that the issue of revitalisation process should be settled at once rather than assuming the difficulties to be faced by the identified agencies. Therefore, as the funds requirements are already known, it is essential to release the funds at once. However, process may continue. We do not agree with the view that the initiative for revitalization should be taken only in those states which take appropriate legislative measures in order to ensure elimination of duality of control etc. However, we suggest that a firm/commitment decision with regard to the revitalization package helps the State Governments to ensure expediting the legislative reforms and brining the banking activities of the Cooperatives under the purview of Banking Regulations Act. 1949. There should be immediate cash flow to cleanse the balance sheets of the cooperatives.



51

GENERAL LINE OF CREDIT SUPPORT


Government of India expect 25 per cent growth in lending for agricultural purposes so that over a decade the agriculture production could be doubled. But the cooperative credit structure which has the largest network from Apex level to grass root level and has the potential to deliver the goods may be constrained to come up to the expectation unless and until the identified following most important steps among many others, are taken to strengthen them : (1) To accept the recommendation of the Task Force “to study the cooperative credit system and suggest measures for its strengthening” under the Chairmanship of ShriJagdishCapoor, Deputy Governor, Reserve Bank of India that Task force is convinced of the urgent need to initiate measures for rehabilitation of cooperative Credit and Banking Institutions. (2) The operational problems arising out of the Seasonal Agricultural Operations (SAO) Policy of NABARD need to be seriously addressed as it has not been done for last two decades. (3) Efforts by certain elements towards 'delayering' of the well-established three tier cooperative credit delivery system may contribute to weakening the system. Therefore, there is no need to propose in terms of eliminating any one of the existing 'Tiers' of the system. (4) The production credit needs of the farmers are being supplemented by RBI for the last 50 years and even after the establishment of NABARD in 1982. NABARD often argues that it has to depend upon the General Line of Credit (GLC) support from RBI for providing refinance to SCBs for short term SAO purposes and the possible impact of such created money on the economy of the country. It is to be noted carefully that the line of credit provided for SAO purposes goes for financing production oriented programme which cannot be allowed to suffer for want of funds. The GLC support which was Rs. 1200 crores was raised to a mere Rs. 5700 crores over a period of 18 years i.e. from 1982-83 to 2000-2001. RBI is also not justified in keeping the GLC support constant for the last three years. The warning signal are such that the financial support under GLC may not be raised or continue to be stagnant. These warning signals can be attributed to the deliberate neglect of the fact about the need for fulfilling Government of India's expectation of 25 per cent growth in lending for agricultural purposes so that over a decade the agriculture production could be doubled. RBI needs to seriously think about raising the quantum of GLC support. Further, NABARD Act acknowledged its role as the principle financing institutions providing S.T., M.T. and L.T. credit to the institutional agencies purveying rural credit. Projection of NABARD merely as an arm of RBI and therefore, its refinance considered as supplementary in nature, the 'raison d'etre'for NABARD gets defeated. It is not desirable for NABARD to get caught in the old groove and concentrate on carrying out functions of a Central Banking Authority at the cost of its development role, required through enactment of the Indian Parliament.

NABARD on one hand has been providing refinance out of GLC available from RBI is fully dependent on RBI and on the other hand, the cost of borrowings from NABARD is increasing. The very objective of establishment of NABARD was to provide undivided attention, forceful direction and pointed focus towards the problems of agricultural credit. Now, the sole focus seems to be denial of concessional refinance to cooperative banks over and above the GLC available from RBI, despite availability of huge cost free resources at its disposal. Interestingly and shockingly, neither RBI nor GOI/NABARD during the last 50 years thought of creating a separate fund for providing

52

such refinance and get away from the clutches of created money. Therefore, a separate fund is suggested to ensure adequate and appropriate refinance. This fund may, initially, be used in addition to the present level of GLC support and after achieving a breakeven level, the GLC support may be reduced in a phased manner after ensuring the availability of sufficient resources for S.T. SAO refinance needs. It is high time to resist from threatening that GLC support may continue to remain either static at Rs. 5700 crores or may be reduced. Till such a fund is set up, GLC support should be enhanced from Rs. 5700 crorestoRs. 10,000 crores by RBI to NABARD.



53

A FRUSTRATING UNION BUDGET FOR COOPERATIVES

(January- March, 2001)

The Union Budget for 2000-2001 covered the areas such as Agriculture, Cooperative Credit, Rural Development, and Banking. The Union Budget for 2001-2002 is completely silent on Cooperative Credit System which in fact was perceived by the same Hon'ble Union Finance Minister as a crucial channel for credit in rural areas. Union Budget for 2000-2001 had specific proposal for Kisan Credit Card, Self-Help Groups, RIDF and in fact, it was proposed to establish a Fund with NABARD and it was assured that the details will be worked out in the light of the forthcoming recommendations of Capoor Committee constituted by Government. While the Union Budget for 2001-2002 continued to lay more emphasis on Kisan Credit Cards, Self-Help Groups and RIDF, it has conveniently ignored the assurances pertaining to establishing a Fund at NABARD to ensure a more vibrant rural cooperative credit system in spite of submission of Capoor Committee report on 24 July 2000 and holding of Consultation Meet on December 15-16, 2000 on the report and its recommendations. While acknowledging that reforms in the agriculture sector have been inadequate and must be speeded up, the Union Finance Minister referred to the formulation of a first ever National Policy on Agriculture. Further, it has been realized that the provision of adequate credit flow is critical for agriculture production and it is estimated to increase to Rs. 64,000 crores in 2001-2002 an increase of 24 per cent. However, the Budget proposals are silent on achieving this target without initiating the measures for strengthening cooperative credit institutions, which alone can deliver the goods. The performance of commercial banks in agricultural lending is well-known and is negligible. The Budget proposals in the area are not in tune with the National Agricultural Policy despite the reference to it by Union Finance Minister and clearly admitting that the reforms in agricultural sector are inadequate. While the Budget proposed reduction in the interest rates under RIDF (11.5 per cent to 10.5 per cent) and for funding the storage of Crops (from 10 per cent to 8.5 per cent), it did not address the higher refinance rate charged by NABARD for ST (SAO).

None of the Union Budget except 2000-2001 since the introduction of new Economic Policy attempted to address the issues pertaining to cooperative credit delivery system in right perspective with a sincerity of purpose and honestly. Budget for 2000-2001 promised towards such direction but it was proved that the earlier assurance was made as lip sympathy to cooperatives. According to the Budget proposal the banks will be asked to provide insurance package to the Kisan Credit Card holders to cover them against accidental death or permanent disability up to a maximum amount of Rs. 50,000 and Rs. 25,000 respectively and the premium burden will be shared by the card issuing institutions. Here it has to be noted that it was the cooperative credit and banking institutions who have issued the maximum number of Kisan Credit Cards. This proposal will certainly add to the additional burden to the institutions as they have to pay the premium. Further this proposal, if implemented, may discourage the cooperative credit and banking institutions in meeting the target fixed for them in issuing the Kisan Credit Cards. Ignoring the role of cooperatives in Banking Sector also is unfair. Cooperative Credit and Banking Institutions have again been taken for a ride. The Budget for the year 2001-2002 is frustrating for those who have concern towards cooperative credit and banking institutions.



54

IMPLICATIONS OF DIVERTING SLR INVESTMENTS BY UCBs


The first half of the Annual Monetary and Credit Policy for 2001-2002 as announced by Reserve Bank of India proposed certain measures to strengthen prudential measures for Urban Cooperative Banks in the interest of their members and depositors. Two of such measures, which are as follows, will have adverse implications on the resource base of State Cooperative Banks/District Central Cooperative Banks.

· With effect from April 1, 2003, the scheduled UCBs will need to maintain their entire SLR assets of 25.0 per cent of NDTL only in government and other approved securities. Further, compliance with CRR requirements on par with schedule commercial banks would be prescribed in due course.

· All the scheduled UCBs and non-scheduled UCBs with deposits of Rs. 25 crores and above would henceforth be required to maintain investments in government securities only in SGL Accounts with RBI or in constituent SGL Accounts of Public sector banks and PDs. Non-scheduled UCBs with deposits of less than Rs. 25 crores will have the facility of maintaining government securities in physical or scrip form.

The High Power Committee on Urban Cooperative Banks set up by Reserve Bank of India under the Chairmanship of Shri K. MadhavRao recommended that B.R. Act. Should be amended to provide that UCBs may be permitted to invest their SLR funds in scheduled cooperative banks and if there is no head office or branch of such a scheduled UCB in the place where the UCB is located, then in commercial bank till secondary market for Government securities is improved and the facility of UCBs keeping in SLR funds with DCCBs and SCBs discontinued. However, it is very important to recall the Observations of the Committee that “It recognizes that if such an amendment is made, there could be a flight of deposits from DCCBs and SCBs. In some States like Maharashtra and Gujarat about 25% of the deposits of DCCBs and SCBs are stated to be from UCBs and the impact of withdrawal of deposits by UCBs can be serious. Therefore, the above committee suggested that RBI may like to consider this recommendation in the context of the recommendations of the Task Force to Study the Cooperative Credit System and suggest measures for its strengthening, set up by Government of India under the Chairmanship of ShriJagdishCapoor, Deputy Governor, Reserve Bank of India. It may be instructive to consider the following observations and recommendations of the above Task Force:

“The Task Force understands that one of the reasons behind the plea made by the Urban Banks before the High Power committee was that they are paid lower rate of interest on the funds placed with the DCCBs and SCBs. While the Task Force agrees that market related interest should be paid by SCBs/ DCCBs on SLR deposits of PCBs, it recommends continuance of status-quo as regards the provisions of section 24 of the BR Act, 1949 (AACS) in the matter of eligibility of assets for the purpose of SLR.”

Therefore, it is very clear that none of the above two High Power Committees have recommended the investments of SLR Funds of UCBs should be diverted to Government and

55

other approved securities by ignoring the existing provisions of Section 24 of BR Act, 1949. Hence the policy announcement by RBI that UCBs will need to maintain w.e.f. April 1, 2003 their entire SLR assets of 25.0 per cent of NDTL only in Government and other approved securities is certainly unjustifiable and too hard to justify. This policy proposal, if implemented, will not permit UCBs to keep deposits with apex cooperative banks both at State and District level.

This policy proposal barring the UCBs from investing their SLR funds with DCCBs and SCBs, if implemented, will contribute to weaken the strength of cooperative credit and banking structure and also affect the smooth flow of credit for the both agriculture and other development purposes.

RBI's proposed new policy is not in tune with its original policy and principle of maintaining and strengthening the balance centre both at district and state level. The new proposal has no base and not justified as SLR investment of UCBs with SCBs and even with weak DCCBs never affected such investments. It is estimated that around 40 -50 per cent of the deposits base of DCCBs and SCBs in few States from part of the investments by UCBs. Therefore, it will not be very easy for the SCBs and DCCBs to augment their financial resource base, if the proposal is implemented with effect from April 2003. If the RBI continues to insist on implementing the proposal, it will have to seriously consider formulating a separate mechanism for strengthening the existing financial resource base of SCBs and DCCBs. This will also have to be done keeping the recommendations of the Task Force under the Chairmanship of ShriJagdishCapoor, which has been convinced about the urgent need to initiate measures to rehabilitate the cooperative banks, which constitute the major segment of rural financial system. The new initiative of RBI will drastically hamper the efforts of the cooperative credit and banking institutions, which are the only alternative channels for purveying the agricultural credit in the country. These are the only banks, which have been continuously meeting the challenges of catering to the credit requirements of agriculture and have been in the field in spite of so many constraints for the last about 100 years.

Therefore, they need to be strengthened by withdrawing the new initiative of not permitting the UCBs investing their SLR with DCCBs and SCBs. SCBs/DCCBs/PACS are already facing financial health problems for want of their due share from Government of India, RBI, NABARD and more importantly from State Governments.



56

DISHONOURING OF DEMAND DRAFTS ISSUED BY COOPERATIVES


NAFSCOB at the instance of SCBs brought to the notice of Reserve Bank of India on a number of occasions that institutions like Food Corporation of India, Indian Oil Corporation, Hindustan Petroleum etc. have issued instructions in writing that Demand Draft/Pay Order should be obtained only from Nationalised / Scheduled Banks. They do not accept the demand drafts issued by/drawn on Cooperative Banks. It has been reported to our Federation that the SCBs have taken up the issue with Government of India/Reserve Bank of India/National Bank for Agriculture and Rural Development and the issue is yet to be sorted out. Attention may be drawn to the Press Release in Times of India dated 19-07-2001 (Mumbai Edition) by US Visa Application Centre wherein it has been prominently, indicated that 'DDs drawn on Cooperative Banks not accepted.’

We are not really aware where RBI has given any discretionary powers to certain organizations whether to accept or not to accept DDs issued by/drawn on Cooperative Banks. It is a well-known fact that the SCBs both scheduled and non-scheduled banks are also covered under the provisions of Reserve Bank of India Act and Banking Regulations Act. Non acceptance of the DDs issued by/drawn on cooperative banks amounts to clear violation of the above Acts. The incidences of non-accepting the DDs of Cooperative Banks will have adverse implications on the image of the SCBs which are licenced and/or deemed to have been licenced. Therefore, RBI should consider the following suggestions at the earliest:

1. Reserve Bank of India may issue directives to all the public sector/other organizations in the

country impressing upon the need for accepting the DDs/Pay Orders of the cooperative

banks.

2. The directive also should indicate that the non-acceptance of the DDs of the cooperative

banks may attract legal action.

3. Reserve Bank of India may consider extending wider publicity through mass media such as

Newspapers, T.V., and Radio etc. That the SCBs like any other banks in the country are

defined as banks under Banking Regulation Act and the instruments such as DDs/Pay

Orders issued by/drawn on cooperative banks are the legal documents. Such publicity by

RBI will be considered as more authentic and authoritative.

4. Reserve Bank of India may seek explanation from US Visa Application Centre the justifiable

reasons for such a Press Release that “DDs drawn on Cooperative Banks not accepted.”



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NEED TO MAINTAIN MINIMUM STATUTORY REQUIREMENT OF CRR


The Reserve Bank of India exempted all Scheduled State Cooperative Banks (SCBs) from the provisions of the proviso to sub-section (1) of Section 42 of the RBI Act, 1934 for a period up to 31 December 2001. Accordingly, the Scheduled SCBs are maintaining Cash Reserves Ratio of 3 per cent of its demand and time liabilities (DTL). Further, the RBI also exempted all the Scheduled SCBs from the Provisions of Sub-Section (1A) of Section of the Act ibid for a period up to 31 December 2001. Accordingly, the Scheduled SCBs are not required to maintain additional average daily balance as required in terms of Notification issued by RBI under sub-section (1A) of Section 42 of the RBI Act, 1934.

RBI vide their reference No. RPCD.Cir/RF.BC.49/07.02.05/2001-02 dated December 31 2001 directed all Scheduled SCBs as follows:

i. In terms of section 42(1) of the RBI Act, 1934, the Scheduled SCBs required to maintain an average Cash Reserve Ratio (CRR) of 5.5 per cent on their Net Demand and Time Liabilities (NDTL) on par with Scheduled Commercial Banks and Scheduled Urban Cooperative Banks, effective from fortnight beginning January 12, 2002.

ii. However, liabilities to the banking system as computed under clause (e) of explanation of Section 2(1) of the RBI Act, 1934 are exempted from the maintenance of CRR of 5.5 per cent subject to maintenance of minimum CRR requirement of 3.0 per cent of total of demand and time liabilities as shown in the Return referred to in the Sub-Section (2) of the Section 42 of RBI Act. Further, it may be noted that inter-bank term deposits / term borrowings liabilities of original maturity of 15 days and above and up to one year are exempted even from the prescription of minimum statutory CRR requirement of 3.0 per cent.

iii. As Scheduled SCBs would maintain CRR above statutory minimum requirements, they would be paid interest on eligible cash balance maintained with RBI (i.e. the difference between the statutory minimum of 3.0 per cent and the prescribed level of 5.5 per cent) at the Bank rate (Which is at present 6.5 per cent per annum) on par with Scheduled Commercial Banks and Scheduled Urban Cooperative Banks.

It may kindly be appreciated by withdrawing the relaxation on CRR, all the Scheduled SCBs will be put to a position of competitive disadvantage vis-à-vis Commercial and Private Banks who have national level operations and are backed by larger deposit funds. Even with a CRR of 5.5 per cent of these Commercial and Private Banks have sufficient funds for investments or for advancements in better avenues. On the contrary the funds base of SCBs is not very large and there are limited avenues for deployment of those resources in a remunerative manner. The cooperative banks will now be required to maintain an additional 2.5 per cent of CRR at a lower rate of interest of 6.5 per cent, which affect their already not so strong financial position. The scheduled SCBs across the country will have to shell out an additional Rs. 900 crore to maintain their minimum CRR to 5.5 per cent. To maintain a higher CRR, SCBs may either have to withdraw their deposits placed with other financial institutions or institutions or alternatively sell government securities hold by them. These measures would cause a further squeeze on available

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funds for agricultural development. In the present economic scenario of slowing down of growth, falling interest rates and declining of take of credit has started squeezing the availability of good avenues of investments or advances. This has already started reducing the available profit margin with the banks. SCBs are still in the process of working out Action Plans to reduce their NPAs, make them viable and also towards professional management. In fact, RBI is also in the process of rationalising CRR prescription and keeping this in view and moving towards the long-term goal of keeping CRR normally at the statutory level, important changes are being made and CRR prescription is lowered for the commercial banks for whom recapitalization measures have been initiated.

In view of the above, RBI may have to continue to exempt all Scheduled SCBs from the provisions of proviso to sub-section (1) and sub-section (1A) of Section 42 of the RBI Act, 1934 till a final decision on the strengthening measures for the cooperative banks is taken more importantly keeping the recommendations made by the Task Force under the Chairmanship of ShriJagdishCapoor, the then Deputy Governor, RBI. Further, as was admissible in the past to commercial banks, interest may be allowed to SCBs even on the statutory minimum requirement of 3 per cent of CRR. The above direction issued by RBI may kindly be withdrawn with immediate effort.



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The Union Budget 2000-2001 for the first time made a half-hearted attempt to address the cooperative credit delivery system and recognized it as crucial channel for credit in rural areas. The above kind of recognition proved to be a 'lip sympathy' and did not result into any concrete measures as envisaged/expected to strengthen the cooperative credit institutions. Union Budget 2002-2003 appears to have moved towards creating a better environment.

It is surprising to note that the Union Finance Minister who felt particularly responsible for flow of adequate credit to the agriculture sector and who appears to have been half-heartedly convinced about the critical nature of cooperative credit structure for the agriculture sector, openly said in the full House of Indian Parliament on 28-02-2002 that Government of India will go out of the way to help reform process in cooperatives. This statement unmistakeably exhibited Pessimistic attitude/ Step Motherly treatment towards cooperatives and Revolution against Cooperative Credit delivery system. This is not expected from the Union Finance Minister who rightly and very confidently announced that the country is ready for third revolution of agricultural diversification after Green Revolution and White Revolution. By the time Union Finance Minister began to present the proposal of recapitalisation to cooperative credit structure, he appeared to have conveniently ignored his own statement made at the beginning of budget proposals that even though agriculture is a State Subject, there are number of Central Government policies that influence this Sector. Why there cannot be such a right realization that central government policies also do influence cooperative credit sector? Let us patiently wait for such a right realization but not till cooperatives are deliberately and intentionally allowed to be perished. But let us also not be pessimistic. We need to congratulate the Union Finance Minister for accepting (implied) the recommendations of JagdishCapoor Task Force (Kindly recall that the decision to set up this Task Force has been taken by the Union finance Minister in the meeting held on 24-03-1999 at New Delhi with representatives of NAFSCOB and NCARDB Federation) and Joint Committee on Revitalisation Support to Cooperative Credit Structure and also proposing a token of Rs. 100 crores. Of course this is undoubtedly under pressure and not out of conviction. The entire outlook towards present day Cooperative Credit Structure is due to non-realisation of the vision with regard to the role of cooperatives as an instrument for regeneration of India's rural economy. This outlook needs to be changed. Cooperatives and the well-wishers of the Cooperatives should work towards this goal while continuing their lobbying for strengthening measures for Cooperatives. This, in fact, also leads to building up an image-an exclusive positive image to Cooperatives. National Federations of Cooperative Bank's i.e. NAFSCOB and NCARDB Federation did a commendable job till now and paved way for reforms, recapitalization and better environment. It is now up to the Cooperation leadership at the State level to demonstrate their sincerity of purpose and commitment to Cooperatives by persuading their respective Governments to free Cooperatives from avoidable controls.



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INTER – DEPARTMENTAL GROUP OF RBI


The Reserve Bank of India constituted an Inter-Departmental Group to examine various issues more particularly to suggest ways for rationalising access to Current Account Facility with RBI keeping in view RBI's prospective liquidity management facility etc.

The Inter-Departmental Group to study the rationalization of Current Account Facility observed that non- scheduled State Cooperative Banks (SCBs) would have to be withdrawn from the Clearing House Membership and hence from the Current Account Facility. While the Group recommended for the continuation of the Current Account Facility to scheduled SCBs, it has recommended to close this facility to non-scheduled SCBs. Representation has been made by NAFSCOB to Deputy Governor, RBI to impress upon the need for continuation of the Current Account Facility with RBI. However, the Monetary and Credit Policy for the year 2002-03 states as follows:

“In order to ensure that current account facility with the Reserve Bank serves its core objectives, it has been decided that current account facility may be extended only to Scheduled Commercial Banks, Scheduled Cooperative Banks and PDs. Current account facility for entities other than those indicated above would be phased out in due course. A programme for phasing out current account facility in respect of all India financial institutions will be chalked out concurrently. At a later stage, depositories like NSDL, CDSL and other custodians like SHCIL will also be phased out and they can then operate through banks.”

The implications of the above policy are as follows:i. The non-scheduled SCBs will have problems relating to transfer of funds from one SCB to

other SCBs.ii. Banks that do not have Current Account with RBI cannot open and maintain subsidiary

General Ledger (SGL) account with RBI to hold Government and other approved securities purchased for SLR purpose or Trading in Securities.

iii. Banks that do not have SGL Account with RBI cannot open or maintain Constituents' Subsidiary General Ledger (CSGL) account with RBI for holding securities of their affiliates i.e. District Central Cooperative Banks and Urban Cooperative Banks.

iv. Since holding of securities of SGL/CSGL accounts are required, the non-scheduled SCBs will be in a disadvantageous position and will be forced to depend on Commercial banks for these purposes.

Against this background, it is necessary that RBI ensure that the exiting Current Account Facility available to non-scheduled SCBs is not withdrawn in near future or till such a time their operations are fully computerized. Further, the phasing out programme may need to be worked out after consultation with the non- scheduled SCBs.



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3 P's – ACTION PLAN FOR STCCS


The Short Term Cooperative Credit Structure, which is federal in character and mostly based on three tier pattern with 30 State Cooperative Banks (SCBs) with 865 branches at Apex Level, 370 District Central Cooperative Banks (DCCBs) with 12,892 branches at intermediary level and 98,417 Primary Agricultural Credit Societies (PACS) at village level is the most potential structure in the cooperative credit movement. It has been reported that as on 31 March 2002, out of 370 DCCBs, 139 DCCBs and out of 30 SCBs, 8 SCBs have not been complying Section 11 (1) of Banking Regulation Act 1949 (AACS). 59 DCCBs and 4 SCBs have been granted exemption by Government to carry out the banking business. Applications of few DCCBs are still under scrutiny for want of clarifications both at the Regional Office level and Head Office level of NABARD. There are few DCCBs / SCBs which are yet to submit their applications for grant of exemption which means they have been carrying out the banking business without permission.

In view of the above, it has become a matter of serious concern for all those concern with the cooperative credit institutions. The weak financial position of DCCBs/SCBs include deficit in collection of Share Capital, erosion in capital, deposits and borrowings, imbalances between borrowing and loan outstanding, poor appraisal of loan proposals, stagnant loan portfolio, lack of professionalism in Bank Management, deployment of high cost deposits in low yield income portfolios, low recovery and high level of NPAs, etc. This position needs to be reversed at the earliest.

Against this background, NAFSCOB brought out a separate report in which action plans for SCBs, DCCBs, State Governments, RBI, NABARD, Govt. of India and National Level Organisations have been identified.

We do hope that honest efforts with a sense of commitment and adherence to the suggested roles by the identified agencies will certainly lead to recomply the Section 11(1) of B.R.Act, 1949. While certain banks deserve sympathetic attention to help to overcome the present problems, it may be also necessary to work a stringent action plan against those banks which continuously and habitually fail to adhere to the suggested action plans. However, the ultimate objective of ensuring smooth flow of credit for agriculture and rural development through the existing well conceived short term cooperative credit structure should be the primary concern of all agencies. As recommended by the Task Force of JagdishCapoor, it is essential to initiate urgent measures for the rehabilitation of Cooperative Banks which constitute major segment of the rural financial system. Further, a serious re-examination of the issues such as impact of dual control, Government imposition of loss making business projects for implementation, indiscriminate granting of licences leading to non-compliance of Section 11(1), adverse implication of delay in recapitalization measures and formulating appropriate strategies in this regard shall certainly facilitate recompliance of Section 11 (1) of BR Act 1949 by majority of the banks. Each one of the concerned agencies should work towards maintaining the following 3 Ps with cooperative efforts and collaborative initiatives:

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P : Prevention of exploitation/excessive control over cooperatives.P : Protection by formulating strong Institutional Protection System.P : Popularisation of the opportunities and benefits through cooperatives by contributing to their

positive image building exercise.

Whereas Cooperatives should realise that this is the high time to :

Perform to survive and save from perishing, be Prudent enough in decision making and Pledge to fulfil their objectives



63

KHARIF LOAN INTEREST DEBT WAIVER


Continuing his earlier announcement about deferment of Kharif loans for the farmers

affected in the 12 drought hit states of the country, Hon'ble Prime Minister of India announced in

the Parliament on Wednesday, the 18 December 2002 that he has decided to waive completely the

first years' deferred liability of interest on kharif loans as a onetime measure. The farmers who

availed this facility shall be entitled to obtain endorsement of this waiver directly from their

loaning Bank. Commercial banks are therefore advised to defer the interest due in the current

financial year kharif crop loans in such a way that the first instalment interest repayment would be

20% of the deferred interest. This instalment of deferred interest which is to be waived by banks as

per Government announcement will be reimbursed by Government of India. This would be

applicable in the case of all farmers. The balance amount of the deferred interest may be

recovered in reasonable instalments thereafter. It may be reiterated that no interest should be

charged on the deferred interest. The modalities of reimbursement would be advised to banks in

due course in consultation with the Government of India.

The Suggested Measures are given below:1) The announcement of interest waiver on kharif loans affects the liquidity position of

cooperative banks. Therefore, cooperatives need to be compensated for the losses

of interest which is the only sources of income for most of these institutions, whose

entire loaning is for agriculture.2) Deferment of interest amounting to Rs. 1180 crores involves losses to the

cooperatives since interest is not to be charged on deferred interest. Since the banks

cannot redeploy these amounts they will have loss of revenue too. Therefore, there

is a need to compensate the losses of cooperatives on account of deferment of

interest of the borrowers and also has loss of interest due to opportunity lost.3) The announcement of the Government also covers the crop loans issued in irrigated

areas for which conversion support is not available under existing Stabilisation

arrangements. This amounts to Rs. 5750 croes. Added to the shortfall of fund

availability of the tune of Rs. 620 crores the total burden put on cooperative alone

on account of deferments of kharif loans interest would amount Rs. 6370 crores

which has to be met by Government of India to facilitate deferment as announced. 4) The Government's assurance of reimbursement of the first year's deferred liability

of interest on kharif loans as a onetime measure should be released immediately

though, it may not help the farmer to a greater extent Under the existing conversion

scheme, M.T. Conversion has already taken place in certain states whose impact,

may have to be kept in view. The earlier MT conversions have also blocked up

available resources of the cooperatives. In the circumstances conversions of the

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kharif disbursement to the farmers in irrigated areas for cash crop may have suitably

supported preferably through soft loans to cooperatives. 5) Government of India may make suitable announcement so as to ensure that

recovery environment is not further vitiated as the Cooperative Credit and Banking

Institutions are completely not out of their shock from the ARDR waiver, 1990 and

its adverse implications.6) The Government of India is requested to take up the issue of Crop Insurance with GIC

and ensure that GICs releases all Insurance to the affected farmers as a special

dispensation so that the burden on Govt. of India and farming community is

reduced.



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The current Union Budget 2003-04 not only ignored the cooperative Credit and Banking

Structure in the country which have made significant contribution towards agriculture and rural

development through smooth flow of credit but it has also conveniently refused to review the

place accorded to the Cooperatives in the previous budgets. The Budget also deliberately ignored

the efforts made to strengthen credit cooperatives and also the related recent important

developments. The budget proposals pertaining to credit cooperatives (in fact the proposals are

dismal) are not in tune with the great realization of Union Finance Minister “timely availability of

adequate credit is of utmost importance for the development of rural economy and agriculture”

the statement of Hon'ble Union Finance Minister that he was not satisfied with the present

arrangement regarding the timely availability of adequate credit is a clear indication of the failure

on the part of the concerned either to apprise him with regard to the agricultural credit delivery

system through credit cooperatives or the Union Finance Minister himself did not want to give a

right place to the Cooperatives. Had the Union Finance Minister consulted the representatives of

Cooperatives Credit Institutions before finalising the Budget proposals, probably the Budget

proposal could have include the proposals about the credit cooperatives. The Finance Ministry has

completely failed to understand that there is no alternative for the cooperative credit delivery

system to ensure smooth flow of credit for agriculture and rural development. The credit

cooperatives cannot be blamed or made responsible for 'a system wherein credit for motor cars is

on easier terms than for farm equipment or tractors,” as terms and conditions for credit

cooperative have always been laid down at the instance of Reserve Bank of India by NABARD. In

fact the terms under which the credit is made available to Cooperatives is much easier than the

insignificant agricultural credit made available by the Commercial Banks. Further, the Union

budget proposal that the private banks hereafter will be encouraged to open branches in rural

areas to service both farm and non-farm sectors, clearly indicates the fact that the Union Finance

Minister has not been apprised by the concerned with regard to the failure of the local are banks

proposed sometime back and also the failure of the Commercial Banks/Nationalised Bank to meet

even 18 per cent of the target towards agricultural credit out of 40 per cent priority sector lending.

The proposal to permit the private banks to open the branches in rural bank to serve both farm and

non-farm sectors and also franchising agricultural credit through Post Offices was not in

practicable Union Finance Minister further assured that he will examine afresh the whole question

of franchising agricultural credit. Here, the Union Budget appears to have conveniently ignored

the recommendations of the Task Force to Study the Cooperative Credit System and Suggest

measures for its Strengthening under the Chairmanship of ShriJagdishCapoor and also the

Recommendations of Expert Committee on rural Credit under the Chairmanship of Prof. V.S. Vyas.

These two Committees very recently have examined the whole questions of franchising

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agricultural credit and they have unanimously arrived at a conclusion that there is no alternative

for Cooperative Credit Institution and there is an urgent need for revitalizing these institutions. In

fact, they have recommended that there is an urgency in recapitalising these institutions to ensure

smooth flow of credit for agriculture and rural development. Further, the report of the Joint

Committee on Revitalisation Support to Cooperative Credit Structure under the Chairmanship of

shriBalasahebVikhePatil, former Union Minister of state for Finance has also been ignorged.

Further, the fact that the Union Budget 2002-2003 have made a token provision of Rs. 100 crores

for recapitalization of the Cooperative Credit and Banking Institutions in the country has been also

conveniently ignored. “The efforts of the Parliamentary Forum for Development of Cooperatives

have been gone completely unnoticed. Therefore it is now up to the cooperative leadership to

demonstrate their sincerity of purpose and commitment to cooperatives.



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CORPORATE GOVERNANCE


The concept and the need for good Corporate Governance in the Corporate Sector has

assumed more importance in the recent years. The Corporate Governance mechanism is shaped

by the country's political, economic and social history as well as its legal framework affecting the

national level ethos and value system. The identified essential features of good Corporate

Governance are efficiency. Professionalization, transparency in operations and accountability at

all level etc. A high level committee under the Chairmanship of Shri Adrian Cadbury was appointed

by the London Stock Exchange for the first time to spell out the methods of governance, need to

achieve the balance between the essential powers of the Board of Directors and their

accountability etc. The Sarabanes Oxley Act, 2002 emphasises timey and reliable public disclosure

of financial statements and changes in ownership of share due to trading activity, independence of

Audit Committees and obligations, strengthening of criminal penalties and addressing of conflict

of interest by security analysts etc. Taking the above examples the following committees in India

have gone into various aspects of Corporate Governance: (1) Securities and Exchange Board of

India (SEBI) constituted a committee under the Chairmanship of ShriKumaramangalam Birla, (2)

Confederation of Indian Industries (CII) and Associate Chambers of Commerce and Industries

(ASSOCHAM) have made separate studies on the issue of Corporate Governance, (3) Finance

Ministry in the Government of India set up a Committee under the Chairmanship of ShriNaresh

Chandra, (4) R. H. Patil Advisory Group on Corporate Governance, (5) M.S. Verma Advisory Group

on Banking Supervision.

According to Dr.BimalJalna, Governor, Reserve Bank of India “Corporate Governance has

never been more important than now. It is not only the business of individual bank or entity, but all

of us. Five or Ten years down the line you would not be able to operate unless we have Corporate

Governance of the best standards”. The Corporate Governance has utmost relevance to the

operations and management of Cooperative Credit & Banking Institutions particularly in view of

the Challenges before them more particularly the prevailing competitive financial environment.

The Cooperative / Corporate Governance aims to ensure Cooperative relevance and

performances by connecting members, management and employees to the policy, strategy and

decision making process. The findings and recommendations of various national and international

committees on Corporate Governance have also relevance to the Cooperative Banks in India. The

'Financial Sector Reforms' and the application of 'Prudential Norms' to the Cooperative Credit and

banking Sector have brought into focus the inherent weaknesses such as management and non-

viability of operations, high cost of management, poor investment decisions, lack of member

participation, non-professionalisation, poor quality of supervision, audit and inspection and lack

of transparency/ accountability etc. Hence the Cooperative Banks are required to develop 'Code

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of Good Government of Code of Practices' to become true member driven institutions and also to

ensure democratic and professional management, establish high standards of transparency in

their operations, adopt prudence in there banking business, undertake timely inspection and

audit establish appropriate internal control mechanisms etc. to attain a competitive edge and long

term sustenance.

In view of the above, there is an urgent need to identify various parameters for good

governance and develop Code of Corporate Governance for cooperative Credit and Banking

Institutions.



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IMPACT OF LENDING @ 9 PER CENT RATE OF INTEREST


Government of India very recently announced that crop loans of up to Rs. 50,000/- made by both Public Sector Banks, State Cooperative Banks (SCBs) and District Central Cooperative Banks (DCCBs) will attract a maximum annual interest rate of 9 per cent. Further National Bank for Agriculture and Rural Development (NABARD) has been instructed to directly refinance DCCBs so that their lending rate will come down to 9 per cent. Reacting to the query on the impact of the reduction in the lending rate on the Balance Sheet of the banks, Hon'ble Union Finance Minister expressed the view that the Public Sector Banks would be able to absorb it. The above announcements clearly indicate that consultations were held with the Commercial Banks, RBI and IBA before making the above statement. However, the Short Term Cooperative Credit and Banking Institutions comprising of SCBs, DCCBs and Primary Agricultural Credit Societies (PACS) and/or National Federationof State Cooperative Banks Ltd. (NAFSCOB) have not been consulted before making such an announcement. The consultations were held by the Finance Ministry with the banks which are not in a position to fulfil even the mandatory requirement of 18 per cent lending to the agriculture. No effort has been made to consult the cooperatives which have been lending 75 per cent of total agricultural credit out of its costly own resources. Union Finance Minister may be right in saying that Public Sector Banks will be able to absorb the reduction in the lending rate to agriculture not only because their contribution to agricultural lending is insignificant but also because the Commercial Banks have real scope of meaningful cross subsidization as they lend to all sectors including big industries, trade, commerce etc. State Bank Group and Nationalised Banks have cost free resources of Government of India, State Governments at their disposal and also cost free resources of SCBs/DCCBs in the form of CRR. SCBs and DCCBs are deprived of such facility of cost free resources and they do not have real scope of meaningful cross subsidization. NABARD's refinance in the total agricultural credit through Cooperative is only to the extent of 20 per cent and the interest rate charged a 6 percent is limited to that only. It is incorrect to say that NABARD provides entire quantum of agricultural credit at 5.5 per cent and the Cooperatives lend at 12 to 15 percent. A strong lobby opposed to the Cooperative Credit Movement in the country appears to be creating an environment to damage the image of the SCBs and DCCBs by ignoring the excellent contributions made by these institutions towards agricultural development. While the STCCIs appreciate the concern of Government of India to make available agricultural credit at lower rates to the farmers, it is felt necessary that Government of India take necessary steps to ensure viability of these institutions so as to pave way for lending agricultural credit at 9 per cent. In the absence of any strengthening measures, it may be construed as an effort to destabilize the entire cooperative credit movement in the country and it may be a big blow to Indian Agriculture.



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BANKING REGULATION (AMENDMENT) & MISCELLANEOUS PROVISIONS BILL - 2003


The Banking Regulation (Amendment) & Miscellaneous Provisions Bill 2003 has been

introduced in the LokSabha on 13 August 2003. The following statement of objects has been spelt

out while placing the Bill: “The Banking Regulation Act 1949 has been in force for more than four

decades and empowers the Reserve Bank of India (RBI) to regulate and supervise banking

companies, public sector banks and cooperative banks. While the banks have started operating in

deregulated and liberalized environment, regulation of cooperative banks continues to given a

separate treatment by restricting the applicability of the provisions of the Banking Regulation Act,

1949. The need for strengthening the financials of the cooperatives banking sector and to bring it

on par with banking companies has been felt for long and has also been emphasized by the Joint

Parliamentary Committee. The proposed legislation therefore seeks to freeze the provisions

contained in section 56 of the Act which apply to only cooperative banks and amend certain other

provisions of the Act to bring banking cooperative societies on par with banking companies in the

matter of regulation and supervision by the RBI.” There is a need to retain section 56 of the

Principle B.R. Act 1949 and continue to extend the separate treatment by restricting the

applicability of the provisions of the Act to Cooperative banks because of the Banking Regulation

(Amendment) and Miscellaneous Provisions Bill 2003 in its present form cannot be acceptable as

the provisions of the B. R. Act 1949 as applicable to banking companies has been automatically

sought to be made applicable to BCS; the proposed legislation in relation to BCS is not in tune with

the cooperative principle of self-help, self-responsibility, self-administration, independent,

voluntary in nature and also autonomous in character; the proposed legislation in relation to BCS is

not in tune with the National Cooperative by policy, which “upholds the preservation of the

distinct identity of cooperatives, its values and principles by providing an appropriate environment

and taking the required administrative and legislative measures;” the proposed legislation in

relation to BCS impinges upon the rights of the members i.e. General Body, Board of Directors of

cooperative credit and banking institutions; the proposed legislation is contrary to the provisions

of the State Cooperative Societies Acts and to some extent provisions of Multi-State Cooperative

Societies Act, 2003; the proposed legislation also raises the need and desirability of assuming

sweeping powers by any signal organization, be it, RBI or Government of India; the proposed

legislation does not attempt to seriously address the issue of duality of control in BCS which should

have been otherwise one of the most important objectives of proposed legislation. It creates more

confusion never before; Cooperation is a state subject under the entry 32 of the State List of

Constitution of India. Hence, limited application of B.R.Act, 1949 to Cooperatives. This position

even today continues to be the same. No Change in the Indian constitution with regard to status of

State List. Therefore, each state has enacted its separate legislation on cooperation. The

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cooperative societies having jurisdiction in more than one States are registered / covered under

Multi-State Cooperative Societies Act 2002. The benefits of deregulated and liberalized

environment have not, so far, uniformly percolated to all the State. Majority of the States are yet to

seriously address the issues pertaining to strengthening of Cooperatives which include

Professionalisation, Democratic Management, Legislative Reforms, dual control, recapitalization

etc. Further, the accepted recommendations of the expect committees such as Capoor Task Force,

VikhePatil Committee, etc. have not been so far implemented. Hence, it is not an appropriate time

to withdraw the separate treatment extended to cooperatives.

In view of this, there is a need for continuing the separate treatment by restricting the

applicability of the provisions of the B.R. Act 1949 to Cooperatives Banks by retaining Section 56 of

the Act. In fact, none of the Committees including Joint Parliamentary Committee (JPC)

recommended for freezing of Section 56 of B.R. Act 1949.



72

NATIONAL CONFERENCE : VISION 2020

(January – June, 2004)

The reference period of the current Special Issue of NAFSCOB Bulletin assumes significance because of the following (1) End of NDA Government, (2) Beginning of UPA Government, (3) Centenary of Cooperative Legislation (1904-2004) an d(4) Initiative of NAFSCOB in organizing Centenary Celebrations by conducting National Conference on Rural Cooperative Credit & Banking Institutions : Vision 2020.

The Union Finance Minister of NDA Government in his Interim Budget for the year 2004-05 announced that “Cooperative Banks have played a vital role in the delivery of rural credit. They too have a variety of problems hampering their capacity to delivery credit at reasonable rates of interest. A scheme of revitalise the cooperative credit structure, envisaging an outlay of about Rs. 15,000 crore, to be shared between the Central and State Governments, in an appropriate ratio, has been prepared. It is proposed to initiate this scheme as soon as the revised regulatory framework has been put in place.”

The common minimum Programme of UPA Government pertaining to Rural Cooperative Credit System includes the following.

1. The Rural Cooperative Credit System will be nursed back to health.2. The United Progressive Alliance will ensure that the flow of credit is doubled in the next

three years. 3. The delivery system for rural credit will be reviewed.4. Immediate steps will be taken to ease the burden of debt and high interest rate on farm

loans.5. The Common Minimum Programme aims at bringing forward constitutional amendment to

ensure the democratic, autonomous and professional functioning of the Cooperatives.

Further, the Farm Credit Package has been announced by the UPA Government with measures for achieving the objective of enhancing the flow of agricultural credit by 30 per cent i.e. to Rs. 1,05,000crores in 2004-05 of which the share of Cooperative Banks will be Rs. 39,000 crores. The measures also include Debt Relief Measures, Restructuring measures to the Four categories of farmers viz. (1) Farmers in distress, (2) Farmers in arrears, (3) OTS for small and marginal farmers and (4) Farmers in acute distress due to debt from non-institutional lenders i.e. money lenders.

The Indian Cooperative Credit Movement has already contemplated to organize various programme to commemorate the 100 years of Cooperatives Legislation. This includes organizing National Seminars, Regional Workshops, Publishing Special Issues of In-house journal, Organiszing meetings of the beneficiaries, etc. As a part of this, NAFSCOB has already organized a National Seminar on Rural Cooperative Credit and Banking Institutions: Vision 2020 to commemorate the 100 years of Cooperative Legislation In the country. A quick review of the status of rural cooperative credit delivery system/institutions revealed that there is still a need for initiating and implementing measures for strengthening them. The recommendations of the above Conference are given in details elsewhere in this Current Issue which needs to be perused by all the stake holders of Cooperatives.

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In view of the above, the following suggestions are extended :?There is a need for expediting the implementation of the Scheme announced by

NDA Government in its Interim Budget to revitalize the Cooperative Credit Structure envisaging an outlay of about Rs. 15,000 crores to be shared between the Central and State Governments in an appropriate ratio.

?There is a need to initiate urgent measures to put the revised regulatory framework in place with a sole view of addressing the duality of control on Cooperatives.

?Though the concern of UPA Government to ensure doubling of agricultural credit by providing various debt relief measures to farmers in distress are appreciated, it is essential to understand that in the absence of the recapitalization support it is possible that the institutional capability of the rural cooperative credit and banking institutions may come down and jeopardize their efforts to ensure smooth flow of credit. Therefore, the UPA Government should take measures on most urgent basis to ensure sound financial health of the cooperatives not only to help them to achieve their spelt out objectives but also to implement the developmental programmers announced by the UPA Government. In fact, the measures under Farm Credit Package should also ensure the viability of the cooperative credit institutions in addition to relieve the farmers from the debt burden and also to help the money lenders to recover the money and also to make available cost free resources to NABARD. In any case, the Government should discourage the practice of ever greening the loan accounts as recommended by Committee on Banking Sector Reforms headed by Shri M. Narasimham (1998).

?The entire Rural Cooperative Credit Structure is very much optimistic that the regular Budget for the year 2004-05 will contain the proposal for strengthening of cooperative credit delivery system including recapitalization. Therefore, the UPA Government may take necessary steps to fulfil the ambitions of the rural cooperatives credit delivery institutions. The Cooperatives Credit and Banking Institutions should work towards evolving concrete measures such as formulation of realistic Action Plans, formulation of both Short Term and Long Term Human Resources Development and Management Policies, ensures Good Corporate/Cooperatives Governance in their operations, consider becoming a party for the Institutional Protection System and finally learn to perform, compete and live.

All the stakeholders should make concerted efforts to ensure member-driven, democratic, autonomous, dynamic, strong and viable Cooperative Credit and Banking Institutions.



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FOUNDATION DAY OF NABARD


thNational Bank for Agriculture & Rural Development (NABARD) came into being on 12 July, 1982, as a result of enactment by Parliament. Agriculture Refinance Development Corporation (ARDC) has been simultaneously dissolved. Huge funds have been transferred from ARDC and form RBI (NAC-LTO) and National Agriculture Credit Stabilisation Funds. The share holding in National Bank is in the ratio of 1:4 in between Government of India and RBI.

Achievements of NABARD are many. There are important areas in which we expected NABARD to excel, but few of them remained as a dream to be achieved. Sivaraman Committee in 1981 felt the need for a new organizational device for providing undivided attention, forceful direction and pointed focus to the credit problems arising out of integrated rural development and hence NABARD. Even after 22 years, NABARD is yet to succeed to the desired extent to address the issues of agricultural credit delivery institutions, primarily cooperatives.

The performance and achievement of NABARD would have been far better than today, had it been allowed to function with freedom of autonomy. It is high time to facilitate an environment that NABARD is no more an extended arm of RBI and NABARD is capable of performing on its own. Otherwise this perception may be counter produce.

We are optimistic that the remaining period out of the third decade of NABARD shall be aimed at revitalising cooperative credit delivery system so as to ensure smooth flow of credit also effective Micro Financial Institutions.

It is beyond our comprehension to note NABARD do not have the mandate for providing finance for ST SAO. It still depends on GLC support of RBI for providing refinance support. The desirability of continuing this practice needs to be re-examined.

It may be worth to recall that the then Prime Minister of India, Late Smt. Indira Gandhi, thwhile inaugurating NABARD on 12 July 1982, expressed that NABARD should so develop that

people would regard it as a friend and a guide rather than as a rigid rather than as a rigid institution. She further said that “its cadre must be imbued with a spirit of development and services.” I suggest you kindly to note that these words carried the impulse of the past and the expectations of the future.

Smt. Ranjana Kumar, Chairperson, NABARD though fairly new to the cooperative credit delivery system has amply demonstrated within a short time, her ability to pave way for the cooperatives to compete and perform well.

ShriThorat, Managing Director, NABARD with his wide experience coupled with positive attitude is widely viewed as an asset to the cooperative credit delivery system. We do not see any reason why the cooperatives cannot excel over the other financial institutions in the area of agricultural credit.

We take this opportunity to congratulate all those who did contribute their mite to achieve the objectives of NABARD till now.

While we wish a meaningful celebration of the Foundation Day of NABARD, we suggest this would also be a day for introspection of the events.



75

NATIONAL CONFERENCE OF STATE COOPERATIVE BANKS


The Common Minimum Programme (CMP) of the United Progressive Alliance (UPA) Government pertaining to Rural Cooperative Credit System includes:i) The Rural Cooperative Credit System will be nursed back to health, ii) UPA Government will ensure that the flow of credit is doubled in the next three years, iii) UPA Government will ensure that the converge of small and marginal farmers by institutional lending is expanded substantially, iv) The delivery system for rural credit will be reviewed, v) Immediate steps will be taken to ease the burden of debt and high interest rate on farm loans. vi) UPA Government will bring forward constitutional amendment to ensure the democratic autonomous and professional functioning of the Cooperatives, vii) UPA Government will be cleared at the earliest, viii) Regulation of Urban Cooperative Banks in particular and of banks in general will be made more effective. The CMP of the UPA Government deserves a lot of appreciation and this amounts to an expression of the sincerity of the Government towards agriculture and towards the development of rural cooperative credit delivery system which ensures a substantial flow of agricultural credit. However, it needs to be observed how this expression of sincerity will be demonstrated as a reality. But CMP on rural cooperative credit system certainly gives an impression that it is a part of reform imitative.

Against this background, a National Conference of Chairman / Chief Executives of States

Cooperatives Banks has been organized on 15-09-2004 at Srinagar to discuss the specific strategies for doubling of agricultural Credit as a part of form credit package which has been announced keeping in view CMP of UPA. The observations of the conference are as follows:-

1. The Conference while duly endorsing the view of Government of India that there is a need to formulate plans to enhance the total flow of agricultural credit, expressed their apprehensions in achieving the target of doubling the agricultural credit in next three years. While there is unanimity in achieving the target fixed for 2004-2005 which represents 30 per cent increase over the flow of credit in the previous year. The Conference visualized a number of constraints in fulfilling the target of doubling the credit in the next three years.

2. The Conference while addressing the need for certain debt relief measures to the farmers who have suffered losses on account of successive droughts, floods or other calamities during the past 5 years, it has expressed constraints in appreciating the debt relief measures announced by Government of India for the Farmers in Arrears, OTS for small and marginal farmers and farmers indebted to Non-Institutional Lenders.

3. The following suggestions are extended on the guidelines for the measures to be implemented by the Cooperative Banks with regard to the farmers in arrears and farmers indebted to money lenders as it has been felt that the guideline under these two categories will cause more damage to the cooperatives than the guidelines issued on the relief measures for the other category of farmers :

3.1 The amount in arrears i.e. the overdue principle in respect of production loan and investment credit outstanding may only be rescheduled into a term loan repayable over a period of 3-5 years. (Interest outstanding should not be rescheduled).

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3.2 The Cooperative banks should be allowed to collect the interest upfront outstanding as on 31 march 2004.

3.3 It is not advisable to allow the banks to provide an initial moratorium period while fixing the repayment of the rescheduled loans. In fact initial moratorium period has to be fixed.

3.4 NABARD may be advised to restore the original guidelines with regard to the debt relief measures for farmers in arrears; farmers indebted to money lenders and OTS as issued by NABARD vide its Circular No. NB.IDD.COOP.ST/650 &307/V-20/2004-05 dated 29 June 2004 and 15 July 2004 respectively.

4. (a) The Conference while reiterating the suggestion for recapitalization called for an urgent need to nurse the cooperatives back to health. With an overall objective to implement the Farm Credit Package which includes enhancing agricultural credit flow and provided debt relief measures to identified categories of farmers.(b) The budget announcements for the year 2004-05 on “Rural Credit” proved to be unfriendly towards cooperative credit delivery system and are bot in tune with the Common Minimum Programme or Measures proposal to ensure Farm Credit Package. This trend needs to be reviewed with a view to save the cooperative credit delivery system from destabilistion.

5. An examination of the assurance given by NABARD with regard to the allocation of additional sum of Rs. 2600 crores for SAO for the year 2004-05 and a fresh loan of liquidity support for banks to the tune of RS. 1500 crores in the areas where they have been failure of kharif 2003 and Rabi 2004 prompted the Conference to respect NABARD to consider for higher allocation with reduced rate of interest.

6. Similarly, the Conference recommended for higher quantum of reference to all SCBs and DCCBs without any preconditionalities and with a reduced rate of interest to enable them to meet the target fixed by Government of India.

7. The conference requested Government of India to expedite the process of recapitalization support to the Cooperative Credit and Banking Institutions.

8. The conference suggested the Government of India to take appropriate measures to put revised regulatory framework in place with a view to address duality of control/overlapping functions to ensure autonomous, democratic and viable cooperatives.

9. The appropriateness of denial of concessional refinance for ST SAO to SCBs on behalf of DCCBs through NABARD under the pretext that “created money cannot be continued in the form of General Line of Credit”, needs to be seriously examined .

10. The conference introspected themselves and addressed the issues of developing appropriate strategies to become self-reliant with a view to reduce dependence on the financial support from the external agencies.

NAFSCOB hope that all stakeholders i.e. Govt. of India, State Governments, RBI, NABARD, Cooperatives etc. Keeping in view of the above recommendations work towards strengthening the Cooperative Credit Institutions with a view to facilitate smooth and increased flow of credit for agriculture and rural development. At the same time, NAFSCOB equally look forward for the recommendations of the Task Force setup under the Chairmanship of Prof. A. Vaidhanathan.



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RECOMMENDATIONS OF TASK FORCE


The United Progressive Alliance Government as a part of their Common Minimum Programme (CMP) included the Rural Cooperative Credit System and announced that the rural cooperative credit system will be nursed back to health, UPA Government will bring forward constitutional amendments to ensure democratic, autonomous and professional functioning of the cooperatives etc. As a part of the CMP, the above Task Force was set up on “Revival of Cooperative Credit Institutions” under the Chairmanship of Prof. A. Vaidyanathan. One of the main Terms of Reference (TOR) for the Task Force is to recommend an implementable action plan for reviving the rural cooperative banking institutions taking into consideration, inter alia, the main recommendations made by the various committees in this regard. The Task Force though originally was expected to finalise the Report by the end of October 2004 submitted the final report on February 15, 2005.

The issues of concern emerging out of the recommendations of the Task Force are as follows :-

?Campaign / Propaganda for enactment of parallel la

?Classification of CCS into eligible and ineligible for the purpose of recapitalization support.

?Criteria laid down for classifying the institutions for resources support.

?Option for States Governments and CCS to participate in the revival package.

?Special Audit to assess the accumulated losses.

?Identification of elements eligible for recapitalization amount Agencies etc.

?Sharing pattern of the revival package.

?Freedom advocated for PACS to borrow and deploy their funds and also to obtain from the

federated structure of their choice.

?Prohibiting CCS/PACS in mobilizing public deposits.

?Time frame.

The recommendations of the Task Force on the above issues of concern revealed that an

easy task of addressing their TOR was made very complicated. The recommendation with regard

to implementation of the revival package is not only a very lengthy and delayed process but an

unimplementable process. In this case, recommending an unimplementable recapitalization

package is justice denied to CCS. There is no doubt an immediate need to re-examine their

recommendations based on the comments submitted by NAFSCOB and rework out an

implementable plan. It is easy to prescribe conditionalities. But prescribing conditionalities and

linking recapitalization support to unimplementable reforms is undesirable. Such sorts of

recommendations do not result in acceptance of urgency for recapitalization for revival which, in

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fact is the need of the hour. The need for setting up of one more committee should not arise. We

have already sufficient review of the CCS to initiate, on most urgent basis, the revitalization

package. It is also very important to bring CCS first to “take off” stage and then work out

mechanism to ensure appropriate governance in consultation with all stake holders including

State Government, Regulatory Authorities/Supervisory Authorities and CCS.

Revitalisation, Revival, Rehabilitation, Restructuring, Reform Process and Recapitalisation are different processes, though they are inter related. However, there is no need to link different processes to Recapitalisation. In fact bringing the CCS to take off stage through recapitalization leads to easy implementation of reform process and other relevant processes.



79

NATIONAL MEET ON IMPLICATIONS OF REVIVAL PACKAGE


A National Meet has been jointly convened by our National Federation of State Cooperative Banks (NAFSCOB) and National Cooperative Union of India (NCUI) on 25 April 2005 with a view to assess the implications of the recommendations of the Task Force on “Revival of Cooperative Credit Societies”. The National Meet was attended by 58 participants comprising of State Secretaries of Cooperation. Registrar of Cooperative Societies, Chairman and Managing Directors of States Cooperative Banks from 21 States/Union Territories. The National Meet during the deliberations on the recommendations of the Task Force, while unanimously appreciating the recommendation for recapitalization for cooperative credit institutions expressed their serious concern on various other recommendations. Further, the National Meet unanimously felt the that the conditionalities attached to the recommendations for recapitalization are neither practicablenor implementable. The National Meet identified the areas of recommendation of the Task Force for re-examination by government of India with a view to make them more practicable and implementable and aimed at reviving the cooperative credit institutions.

While the above National Meet did not have major objections towards the suggested change in the provisions of the Act more particularly B.R. Act, the National Meet recalled the reasons for opposition expressed to a number of provisions incorporated in the Banking Regulation (Amendment) & Miscellaneous Provisions Bill 2003. The National Meet further noted that the Task Force has extracted most of the provisions of this “Rejected Bill” and suggested for incorporation of the same as a separate Chapter (Annexure XXI of the Task Force Report). Therefore, it needs to be opposed again with a view to protect the democratic character of cooperatives. Kindly appreciate the Task Force while recommending sharing pattern for the revival packages do not appear to have taken into consideration the recommendations of the earlier Committees and therefore suggested yet another unimplementable sharing pattern for the revival package. It may be appropriate to bring to your kind notice that the National Meet while appreciating the laborious work done by the Task Force in identifying the eligible elements for recapitalization, rated such as exercise futile as it will be very difficult for the Special Auditors to arrive at an exact figure based on these identified elements. Further, it has been observed that there is no point in re-looking into the origin of losses. Hence it is recommended to assess the recapitalization support based on the already assessed realistic proportion and the elements for consideration should be accumulated losses, bad debts not adjusted, ARDR claims recommended but not admitted, imbalances, losses, impact of loans waivers by GOI/State Governments, etc. The National Meet felt it is not desirable to recommend membership to the depositors with voting rights as it may create chaos in the functioning of the CCS as the number of depositors will be much larger than the shareholders of the CCS. Therefore, The National Meet has recommended that under no circumstances depositors should be given voting rights. If this suggestion is implemented, it will also create pandemonium in conducting the elections of the societies. The National Meet advocated that there must be a difference between member of CCS and the depositors of CCS.

The National Meet further discussed the future roles of the Government of India, State Governments, RBI NABARD, Federationsinaddressing the issues pertaining to the CCS. Further it is

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also important to bring to your kind notice that appropriate discussions, if held with all the State Governments (it had discussions with only 11 States including 5 smaller States) at appropriate level would have helped the Task Force in recommending an implementable revival package. Further, it is observed that there is no evidence to indicate that the Task Force had organized consultations with NABARD, an important organization for CCS. At the same time, NABARD also do not appear to have extended their suggestions/ views/ comments, as is evident from the contents of the Report. Of course, RBI has extended its analytical comments on the Report.

The entire Short Term Cooperative Credit Structure comprising of 30 State Cooperative Banks (SCBs) with 929 branches at Apex level, 368 District Central Cooperative Banks (DCCBs) with 12,933 branches at intermediary level and 1,06,021 Primary Agricultural Credit Societies (PACS) at village level are completely in the dark with regard to the implementation of at least acceptable recommendations of the Task Force. There do not appear to be any initiative from Government of India or State Government or RBI or NABARD even to hold consultations at National level on the recommendations of the Task Force. We are of the view that there is a need for expediting consultations on the recommendations of the Task Force, identify the recommendations into acceptable and non-acceptable recommendations in the interest of CCS and finally initiate the process of implementation of the acceptable recommendations which includes recapitalization to bring the CCS to take off stage and enable them to participate actively in the process of implementation of other acceptable recommendations. The mandate of the UPA Government on rural cooperative credit system needs to be respected & fulfilled.



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INTERACTIVE SESSION WITH TASK FORCE


Government of India, Ministry of Finance convened an Interactive Session with the State Governments to discuss the recommendations of the Task Force on “Revival of Short Term Cooperative Credit Structure” set up under the Chairmanship of Prof. A. Vaidyanathan on 09-09-2005 at New Delhi. Hon'ble Prime Minister of India interacted with the Chief Ministers / Governor / Lieutenant Governor / Finance Ministers / Cooperation Ministers of State Governments. Union Finance Minister, Union Minister for Agriculture, Union Minister of State for Finance, and Union Minister of State in the P.M.O. Office, Deputy Chairman, Planning Commission and ShriLeeladhar, Deputy Governor, RBI were present during the Interactive Session. Prof. A. Vaidyanathan, Chairman of the Task Force; Shri Y.S.P. Throat, Member Secretary of the Task Force; Smt. Ranjana Kumar, Chairperson, NABARD were also present during the interactive session in addition to the Secretaries and representatives of Ministry of Agriculture and Ministry of Finance, Governor/Lieutenant Governors from 3 States, Chief Ministers from 7 States, 19 Ministers of Finance/Cooperation from 17 States participated in the Interactive Session. Managing Director, NAFSCOB was also present. The following are the highlights emerged out of the Interactive Session with the State Governments on the Recommendations of the Task Force:

1. Government to India should share larger portion of the recapitalization packages in

major States and meet the 100 per cent of the estimated accumulated losses of the

Cooperative Credit Societies (CCS) in U. T. / North Eastern Status.

2. Eligibility criteria suggested by the Task Force for extending the revival package is too

stiff and moreover should not be a starting point for further deliberations. The eligibility

criteria suggested by the Task Force is not practicable to implement as most of the CCS

will be out of the revival package. Therefore, it has been suggested to withdraw the

conditionalities so as to extend the revival package for all CCS.

3. While the State Governments appreciated the need for achieving the higher level of

CRAR by the CCS, they expressed that case does not exist for higher level of CRAR to CCS

to 12 per cent. They are of the view it is enough the CCS is able to achieve the CRR up to 9

per cent. Representatives of the State Governments were of the view that norms for

Cooperatives should be different than the Commercial Banks.

4. The State Governments do not appear to have appreciated the reasoning behind the

recommendation to retire the Share Capital from the CCS. Mere retirement of their

Share Capital does not ensure member-driven organizations. However, if the strong CCS

desires to return the Share Capital of State Government, it may be welcomed. Few

representatives of the State Governments are of the view that Share Capital

contribution by the State Governments in fact helps to strengthen the CCS, some others

are of the view that the share capital may be retired in a phased manner.

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5. Special Audit to assess the accumulated losses as on 31-03-2005 may be carried out, if

necessary. All the State Governments have expressed that the Statutory Audit

conducted till now should be enough to assess the amount of accumulated losses

required for recapitalization.

6. The State Governments were of the view that additional powers may not be required for

RBI. In fact RBI while continuing control over the financial aspects of the CCS should

develop a mechanism to work jointly with Registrar of cooperative Societies with a view

to strengthen the CCS.

7. All the State Governments opposed to the proposal for voting rights to Depositors of

CCS.

8. While appreciating the recommendations of the technical assistance, the State

Governments were of the view that the process of technical assistance should not be

one time assistance and it should be a continuous process with a view to ensure viability

of the CCS.

As a number of suggestions have been extended on the major recommendations of the Task Force, Union Finance Minister felt it appropriate to hold further consultation with State Finance Minister to prepare a draft consensus paper/statement and circulate the same for confirmation and to finalise the consensus. The Task Force will appropriately pursue the statement of consensus and revise the revival package for CCS by November, 2005. The Short Term Cooperative Credit Structure are eagerly awaiting for a such a revision in the recommendation by Task Force and hope that such a revised recommendation will be practically implementable in nature. It is further hoped that the process of releasing the recapitalization assistance shall commence from the beginning of the New Year 2006.



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TASK FORCE ON REVITALISATION OF COOPERATIVE CREDIT INSTITUTIONS


In pursuance of the conclusions arrived at the Interactive Session convened by Government

of India on 09-09-2005 to finalise the recommendations of the Task Force on Revitalisation of

Cooperative Credit Institutions (CCIs) set up under the Chairmanship of Prof. A. Vaidyanathan; a

Committee of Finance Minister of State Governments met on 29-10-2005 to prepare a Statement

of Consensus. The Task Force has been asked to formulate a Revised Revival Package based on the

Statement of Consensus by the Finance Ministers of State Governments. The Revival Package

spelling out the financial legal and institutional measures for restructuring of the Cooperative

Credit Structure (CCS) has been prepared by the Task Force. The Revival Package, according to the

Task Force, is aimed at reviving the short term rural CCS and make it a well-managed and vibrant

medium to serve the credit of rural India, especially the small and marginal farmers. It seeks to (a)

provide financial assistance to bring the system to an acceptable level of health; (b) introduce legal

and institutional reforms necessary for their democratic, self-reliant and efficient functioning; and

(c) take measures to improve the quality of management. The Task Force has emphasized that all

three components are equally important and should be treated around (1) Technical Assistance,

(2) Criteria for the eligibility of the institutions, (3) Special Category Status, (4) Sharing Pattern and

(5) Implementation Mechanism. The Financial Package is aimed to cover the costs of training and

capacity building to improve the financial management skills of staff and board members, for

installation of uniform accounting and monitoring systems as well as computerization. The

Revised Package, according to the Revised Revival Package, capitalization will be full for the PACS

with the recovery levels of 50% and above. The PACS with recovery levels between 30% to 50% will

receive financial assistance in three annual back-ended instalments. While the Task Force has

admitted an anomaly in the originally suggested criteria for eligibility brought out an improvement

in their revised suggestions. However, the ST CCS are still of the view that the eligibility condition of

30% recovery level needs to be waived and all the PACS should be considered for revival package.

Further, the revised recommendation that the release of financial assistance will be contingent on

the fulfilment of legal and institutional reforms and other conditionalities is not easily

implementable and expected to delay the efforts to revive the CCS. Moreover it is not necessary to

insist on entering into MOUs. In fact exchange of letters would suffice to bring out desirable

changes/reforms. While the Task Force has recommended Special Category Status to the North

Eastern States, it is recommended for inclusion of the States like Jammu & Kashmir, Himachal

Pradesh and other States where the two tier structure is exist. The revised suggested sharing

pattern calls for sharing of the funding liability like Central Government, State Government and

CCS in the ratio of 68 : 28 : 4 respectively. The CCS are of the view that they may not be insisted to

share the liability of funding and the sharing pattern suggested for CCS may be taken care of by

NABARD.

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There are obviously number of constraints on the part of CCS to endorse fully the

recommendations of the Task Force. However, the CCS are of the strong view that the

recommended revised package to the tune of Rs. 13,592 crores has to be implemented at one go

to allow the CCS at all levels to come to a take off stage. Any further delay in recapitalizing the CCS

may lead to further accumulation of financial loss and may also lead to non-compliance of

important provision of the BR Act, 1949. The need of the hour is to ensure fulfilment of the

objective of Common Minimum Programme on Rural Cooperative Credit Delivery System namely

System namely the assurance to nurse the system back to health.



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Union Budget for the year 2004-05 allowed the Rural Cooperative Credit Delivery System to remain unhealthy. Union Budget for the year 2005-06 was rated as disappointing, disgusting and frustrating to Rural Cooperatives Credit and Banking Institutions. A quick look into proposals of Union Budget for the year 2006-07 pertaining only to cooperative Credit and Banking Institutions reveals a gloomy picture to them. The proposals do not indicate any intent to strengthen these institutions. The proposals do not reflect the objective of Common Minimum Programme on rural cooperative credit delivery system mainly the assurance to nurse the system back to health. On the contrary, the proposals either aimed at further weakening the State Cooperative Banks (SCBs) / District Central Cooperative Banks (DCCBs) financially by proposing to withdraw the concession allowed under Section 80P of the Income Tax Act by discriminating scheduled and non-scheduled banks. The proposals to ensure lending short term farm loan at the rate of 7 per cent to the ultimate borrower is no doubt welcomes, the steps to be taken to lend it is at the rate of 7 per cent through rural cooperative credit institutions is not specified and left is ambiguous. In the absence of a specific strategy towards lending policy, the Cooperatives Credit Institutions (CCIs) in the present from will find it difficult to implement this proposal and ultimately collapse. CCIs even today are facing constraints to lend the short term loan even at the rate of 9 per cent. The issue of recapitalization to short term cooperative credit institutions viz., PACS / DCCBs / SCBs remained pending in spite of a number of assurances. The proposal is completely silent on the strengthening measures to these institutions.

The cooperative banks in the absence of specific strengthening measures to ensure their financial viability will have constraints to meet the target, even at the present level. Absence of recapitalization Proposal to reduce the rate of interest on the short term farm loan to the ultimate borrower, proposal to exclude SCBs and DCCBs from the scope of Section 80P of the Income of the Income Tax Act etc. reduces the ability of CCIs to achieve the target to fulfil the desire to double the agricultural credit in three years. Therefore, it is suggested to initiate immediate strengthening measures to facilitate them to contribute significantly to the target of doubling of agricultural credit in the next three years and this should be done by April 01, 2006. NABARD is suggested to release their S.T.SAO policy document for the year 2006-07 by April 01.2006 with appropriate comprehensive and comprehendible guidelines.

Interest Liability: The proposal to credit, on or before 31 March, 2006, to the bank account of farmer an amount equal to two per cent points of the borrowers' interest liability on the principle amount to Rs. 100,000 who have availed crop loans from PACS for Kharif and Rabi 2005-06 is welcome. We welcome release of Rs. 1700 crores to NABARD.

NABARD – Refinance Policy – Rateof interest on Form Loan: We wholeheartedly welcome the strong intention of Union Finance Minister to ensure continuation of refinance from NABARD for Farm Loans at an economic rate. We understand it (economic rate) as concessional rate. We also welcome the proposal to ensure providing short term farm credit to famers at 7 per cent through Cooperative Credit Structure (CCS) and Regional Rural Banks (RRBs) with refinance from NABARD, with an upper limit of Rs. 300,000 on the principle amount. The proposed policy is expected to come into force with effect from Kharif 2006-07. While the CCS is too willing to lend farm credit at 7 per cent, the following measures may have to be initiated to fulfil his strong intentions without further weakening cooperatives:

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i. Volume of concessional refinance for agriculture credit by NABARD should be to the extent of 85 per cent of the total requirement i.e. the grass root level outstanding with no restrictions which includes availability of refinance to SCBs / DCCBs, not complying Section 11 (1) of the B. R. Act.

ii. The rate of interest on the 85 per cent should be uniform and it should be at 3 per cent to SCBs on behalf of DCCBs. SCBs and DCCBs shall ensure the availability of farm credit to PACS at the rate of 4.75 per cent, after availing a margin of 0.25 per cent and 1.50 per cent respectively. The ultimate borrower will get short term farm credit at 7 per cent.

iii. The procedure facilitates SCBs/DCCBs to maintain a strong and viable financial portfolio by developing their resources in a remunerative manner, over a period of next 10 years. Refinance Policy of NABARD on ST SAO, especially rate of interest may be reviewedafterthisperiod.

iv. The difficulties in implementing the previous policy of lending farm credit at 9 per cent need to be appreciated.

v. An attempt to implement the scheme of direct refinance to DCCBs by NABARD did not take-off. In fact, it is futile exercise as it shall not achieve the objective of lending farm credit at a lower rate of interest to eligible farmer borrowers.

vi. SCBs/DCCBs shall have to improve their efficiency and reduce operating costs etc. and help the lower tier.

vii. Implement strengthening measures to Cooperative Credit Structure/ recapitalisation to Cooperative Credit Structure at the earliest and bring them to take-off stage.

viii. SCBs/DCCBs will not be requiring any external assistance after these steps are initiated.

ix. The above measures also help to achieve the target for doubling of farm credit in three years.



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INTEREST SUBVENTION


Government of India decided to ensure short term credit to farmers at 7 per cent per annum with an upper limit of Rs. 3 lakhs on the principle amount with effect from 01 April 2006 through banks including Cooperative Credit Institutions (CCIs). Government of India also assured to provide interest subvention to NABARD. The National Federation of State Cooperative Banks (NAFSCOB) on behalf of the entire Rural Cooperative Credit and Banking Institutions i.e. State Cooperative Banks (SCBs), District Central Cooperative Banks (DCCBs) and Primary Agriculture Credit Societies (PACS), welcomed this Government of India's programme expecting that CCIs will also be provided with required subvention to facilitate lending credit at 7 per cent per annum to farmers. However, Government of India assured interest subvention @2% p.a. to Public Sector Banks and Regional Rural Banks (RRBs) in respect of short term production credit up toRs. 3 lakhs provided to farmers out of their own funds and will exclude such credit supported by NABARD refinance. Cooperatives have been denied interest subvention. According to NABARD, (1) NABARD shall increase its ST (SAO) refinance support from a level of Rs. 8,000 crore during 2005-06 to Rs. 14,000 crores during 2006-07 (2) The refinance will be provided to the Short Term Cooperative Credit Structure at 2.5% p.a. during 2006-07 as against 5.5% p.a./5.75% p.a. during 2005-06 (3) The margin of 4.5% p.a. provided to Short Term Cooperative Credit Structure during 2006-07 will be scaled down annually by 50 basis points to a level of 3% p.a. by 2009-10. Consequently, the rate of interest on refinance will be as follows (subject to any changes if required) for the year 2006-07: 2.5% p.a., 2007-08: 3.0% p.a., 3.5% p.a. and 2009-2010: 4.0% p.a. (4) The concessional refinance referred to above will be available only to those SCBs who, together with their own involvement, agree to ensure the provision of ground level credit at 7% p.a. to farmers.

The Circulars of both RBI and NABARD did not make any mention on the subvention to CCIs. Assuming that the target for lending for the CCIs for the year 2006-07 is Rs. 39,000crores, NABARD committed to extend refinance support up to a level of Rs. 14,000 crores during 2006-07 i.e. 35 per cent of the total credit requirements leaving the CCIs to lend the remaining 65 per cent of the credit requirements i.e.Rs. 25000 crores from out of their own resources. NABARD claims that their cost of funds is over 7.5 per cent and admits that the difference, at least to the extent of Rs. 700 crores. (7.5% - 2.5% = 5% x Rs. 14,000 crores = Rs.700 crores) is provided by Government of India as subvention alone. Therefore, NABARD is gained out of the business of 'refinance' support to the CCIs. CCIs, according to Government of India, RBI and NABARD requires a minimum of 4.5 per cent margin in lending short term credit. The cost of deposits of SCB and DCCB is 7.5 per cent. The cost Management and Risk Cost of SCB and DCCB may be considered as 2.5 per cent and 4.5 per cent respectively. Therefore, the total cost of fund may be taken as 10 per cent for SCB and 12 per cent for DCCB. Taking into consideration the required margin, the cost of funds of the CCIs and estimated loss due to insistence of compulsory involvement of owned funds, it is estimated that the CCIs required subvention to the level of Rs. 1750crores to facilitate them to lend short term credit at 7 per cent from out of their own funds excluding refinance support from NABARD. The level of subvention required may be more than this estimated amount, if aspects such as (a) incremental growth in agricultural lending, (b) increase in rate of interest on refinance support by NABARD in next three years, and (c) likely increase in deposit rates, are taken into consideration.

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The CCIs will have to choose between availing concessional refinance from NABARD at 2.5. per cent to the tune of 35 per cent of the total disbursement and incur huge losses by involving their own resources to make pool rate of interest at the level SCBs, DCCBs and PACS or to continue to finance short term credit by charging the existing higher rate of interest in the absence of interest subvention and adequate concessional refinance support from NABARD and as a result incur losses due to possible migration of loanee farmers fromCCIs to Nationalised Banks as these banks may be able to provide credit at 7 per cent because of adequate subvention provided by the Government of India.

Therefore, it is suggested as follows:1. To ensure required level of subvention to CCIs, which is presently estimated at Rs.1750

crores by Government. NABARD conceded a margin of 4.5 per cent on their share of Rs.1400 crores which amount to Rs.630 crores. Therefore, a net financial loss for Cooperative Banks for implementing the programme of Government of India by lending farm credit @7 per cent will be at least Rs.1120 crores (Rs.1750 crores – Rs.630 crores). Therefore, Government of India should ensure release of Rs.1120 crores as subvention to Cooperative Banks.

2. The announcement of Government of India to ensure short term credit at 7 per cent per annum to farmers, in case, is made in consultation with State Governments, then Government of India and State Governments may share the required subvention.

3. Alternatively, till the decision to provide subvention is taken, NABARD may be advised to consider extending refinance support @ 2.5 per cent to the extent of 80 per cent of total credit requirements during 2006-07. However, the issues involved in providing farm credit at lower rate of interest and continuance of providing higher quantum of refinance support at concessional rate may be reviewd next year in consultation with CCS more particularly after implementation of recapitalisation package are recommended by the Task Force on “the Revival of Rural Cooperative Credit Institutions” headed by Prof. A. Vaidyanathan.

4. The refinance policy of NABARD to SCBs for financing ST-SAO should enable the availment of concessional refinance so as to contribute to achieving the objective of doubling of agricultural credit and should not be an obstacle in achieving the objective of doubling of agricultural credit.

5. Stepping up of the flow of agricultural credit is, no doubt, a national policy. Rural Cooperative Credit Institutions should be encouraged to ensure achieving such a policy.



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REVIVAL OF STCCS


Government of India has accorded 'in principle' approval for implementation of the

Recommendations of the Task Force chaired by Prof. A. Vaidyanathan on Revival of Short Term

Cooperative Credit Structure. Government of India has approved the package as recommended by

the Task Force. The State Governments are examining the package recommended by the Task

Force and accepted by the Government of India. Further, State Governments are also seriously

considering entering into Memorandum of Understanding (MOU) for consideration and execution

of certain recommendations of the Task Force with a view to implement the revival package. The

MOU addresses very important issues including the areas of reforms in the cooperative credit

sector which will have far reaching consequences on the cooperatives in terms of freedom of

autonomy and also democratic character.

It may be appropriate to note the following very important high level committees have

been set up recently by Government of India, Ministry of Agriculture and Planning Commission, on

Cooperatives :

1. High Powered Committee on Cooperatives under the Chairmanship of Shri S. G. Patil.One of the Terms of Reference is “to suggest an appropriate policy and legislative

framework and changes required in the cooperative legislation in the country with a view to

ensure the democratic, autonomous and professional working of cooperatives,

Amendments in the Multi-State Cooperative Societies Act, 2002”.

2. Working Group on Outreach of Institutional Finance & Cooperative Reforms.One of the Terms of Reference of the Working Group Set up by Planning Commission is “to

suggest suitable strategic reforms in Cooperative Sector'.The reports of the above two Committees are expected to be made available very soon.

Considering the importance of the above committees and the nature of Terms of

Reference, most appropriate and relevant recommendations are expected from the above

two committees. Therefore, we are of the view that the recommendations of the above two

committees may also be examined for finalizing the contents of MOU and before entering

into MOU more particularly with regard to the reforms. In fact, the contents of the MOU

may be appropriately revised keeping into consideration the nature of the

recommendations of the above two committees in the area of cooperative reforms. In fact,

the above two committees are also represented by RBI, NABARD and other important

dignitaries. Further, all the above three High Powered Committees inclusive of Task Force,

constituted by Government of India, are addressing the important areas of reforms in

cooperative sector which in fact is a state subject (The intention of this editorial is neither to

recommend entering into MOU nor advocating against entering into MOU). We further

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wish to impress upon the need for taking concerted, concrete and conclusive steps in

implementing relevant reforms in cooperatives sector instead of implementing only certain

recommendations in isolation.



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SHORT TERM CREDIT TO FARMERS AT 7% P.A.-NEED FOR ENHANCEMENT OF INTEREST SUBVENTION TO COOPERATIVE BANKS


In pursuance of the decision taken by the Government of India to ensure short term credit to farmers at 7 per cent annum with an upper limit of Rs. 3 lakhs on the principal amount with effect from 01 April 2006 through banks including Cooperative Credit Institutions (CCIs), a policy decision has been taken by NABARD to extend refinance support at 2.5 per cent up to a level of around 38per cent of the total credit requirements leavings the CCIs to lend the remaining 62 per cent at 7 per cent from out of their own resources. This policy decision has been announced on 01 June 2006. While interest subvention has been provided to Nationalised Banks and Regional Rural Banks, the cooperatives have been provided the interest subvention to facilitate lending short term credit at 7 per cent p.a.

As has been already brought to the notice of Union Finance Minister, the refinance policy of NABARD, without interest subvention to facilitate the cooperatives for lending short term credit from out of their own resources was 'prescribing' instead of “enabling” and also restricted the ability to ensure smooth flow of credit for agriculture and does not enable them to achieve the objective of doubling of agricultural credit. Subsequently, the Union Finance Minister was kind enough to consider our representation to provide interest subvention to the cooperatives and accordingly at his instance NABARD communicated that “In order to ensure that the farmers receive short term credit at 7% p.a., it has been decided to provide a subvention of 2% p.a. to the cooperative banks for short term credit disbursed out of their own resources with a per borrower upper limit of Rs. 3 lakh on the principle amount for the year 2006-07. This is subject to Cooperative Banks providing short term credit to farmers at 7% p.a.”

As has been already represented to Union Finance Minister, CCIs require an interest subvention of at least 4.5. per cent p.a. enable them to lend short term credit to farmers at 7 per cent p.a. In the absence of the interest subvention of 4.5 per cent, the cooperatives banks will be incurring financial losses for implementing the programme of Government of India by lending short term credit to farmers at 7 per cent p. a. Therefore there is a need to appreciate the need for enhancement in the interest subvention by another 2.5 per cent p.a. thus making the total interest subvention to cooperatives 4.5 per cent p.a. This measure certainly enhances the ability of cooperatives to ensure smooth flow of credit to agriculture and also help to achieve the objective of doubling of agricultural credit. This measure may also be viewed as part of revitalizing CCIs, under revival package.



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UNION BUDGET FOR THE YEAR 2007-08


Finally, the inevitable happened. While the Union Budget for the year 2006-07 was a big blow mainly from the Income Tax point of view to rural cooperative credit and banking institutions, the Union Budget for the year 2007-08 announced by Shri P. Chidambaram, Union Finance Minister on 28 February 2007 is an indication of a 'bad omen' to cooperatives from the same point of view. There is nothing really left to comment on.

While the budget has acknowledged the draft National Policy for Farmers submitted by the National Commission on Farmers, it does not appear to have appreciated the observation of NCF that time is opportune for revitalizing the country's agricultural progress. This is evident because of the delay in taking a decision on the draft National Policy for farmers. Further, the Union Budget does not give an impression that revitalizing agricultural progress to great extent depends upon the right realization to urgently revitalize the cooperative credit institutions through recapitalization. The fact that everything else can wait but not revitalization to cooperatives to ensure smooth flow of credit for agriculture and rural development is not well appreciated. It may be relevant to quote Prof. M.S. Swaminathan, Chairman, National Commission on Agriculture, Food and Nutrition that “unfortunately it appears that agriculture not having to wait is an is an idea, whose time is yet to come”. Budget proposals are not pragmatics, as they have not touched the core issues pertaining to agriculture and cooperatives.

The Kind of focus given by Union Finance Minister with enhanced investment in RIDF do not in any way directly relate to strengthening measures of cooperative credit institutions. While the Budget continues to ensure the growth in the corpus of RIDF-XIII to the tune of Rs. 12,000 crore, it has been silent on the measures to ensure revitalizing the cooperative credit institutions.

The proposal to introduce “Micro Financial Sector (Development and Regulation) Bill,” 2007 in the Budget Session appears to be the first step towards further weakening the rural cooperative credit institutions (CCIs). Assurance to revive to the CCIs in the States who opted for the recommended Revised Revival Package as suggested by the Task Force on Revival of Cooperative Credit Institutions constituted by the Government of India, Ministry of Finance under the Chairmanship of Prof. A. Vaidyanathan, remained where it was in the past except repetition of conduct of Special Audit. The actual recapitalization process did not commence in any one of the nine States which have already entered into MOU. The indecisiveness which caused delay in the implementation of the recommendations of the Task Force on Revival of CCIs constituted under the Chairmanship of Prof. A. Vaidyanathan continues. If the Union Budget proposal for the year 2007-08 is an indication, the process of recapitalization under the recommended revised revival package may not be completed and that may lead to further weakening of the resource base of the CCIs.

While the measures proposed to strengthen Regional Rural Banks need to be supported, it is necessary to assure that this step is not part of the efforts to weaken cooperative credit institutions by recapitalizing them on most urgent basis and by allowing them to continue to play an important role to ensure smooth flow of credit to agriculture and rural development.

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Absence of immediate specific proposals for strengthening measures to rural CCIs, which includes non-availability of higher quantum of refinance at concessional rate cooperatives, certainly affect the achievement of ensuring credit availability of Rs.2,25,000 crore with addition of 53.37 lakh new farmers.

Further, the two per cent interest subvention scheme does not entirely support the CCIs to ensure their viability. CCIs requite interest subvention to the extent of at least 4.5 per cent to ensure viability. Enhancement in interest subvention from 2.0 per cent to 4.5 per cent really helps the CCIs to achieve doubling of farm credit.

Rejecting an appeal from the entire cooperative credit and banking sector to restore the exemption available to cooperative banks including the rural cooperative banks prior to 2006-07, under Section 80P of Income Tax Act does in fact reflect the tendencies of negative perception towards cooperatives. Further, it tends to confirm the views of most of the co-operators in the country that UPA Government does not appear to be very serious about nursing the cooperatives back to health. In fact, excluding the cooperative banks from the purview of Section 80P under the pretext that they are functioning at par with order commercial banks needs to be seriously reconsidered to help the cooperatives to come out of their problems The State and district Central Cooperatives Banks in the country will have to continue to heavily pay towards income tax if the provisions of section 80P (withdrawn in the Budget for the year 2006-07) are not restored with immediate effect.

Union Budget 2007-2008 proposed nothing to strengthen the rural cooperatives credit institutions and therefore something needs to be done on urgent basis to reverse the situation



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REVISED REVIVAL PACKAGE OF SHORT TERM COOPERATIVECREDIT STRUCTURE –SLOW PACE OF IMPLEMENTATION


Seventeen (17) States have accepted, in principle, the revival package recommended by the Task Force under the Chairmanship of Prof. A. Vaidyanathan and 11 States have been reported to have executed the Memorandum of Understandings (MOUs) with Government of India and NABARD. Andhra Pradesh Legislative Assembly passed the 'Andhra Pradesh Cooperative Societies (Amendment) Bill 2007' on 28 March 2007, which got assent of governor on 14 April 2007. Further the Haryana Co-operative Societies (Amendment) ordinance, 2007 was promulgated by Governor of Haryana on 17 April 2007. The insistence of signing the MOU with restrictive provisions and imposition to accept guidelines prescribed by RBI for ensuring 'Fit and Proper Criteria' for Directors on the Boards and Chief Executive Officers (CEOs) of rural cooperative banks, etc. are found to be some of the reasons for non-acceptance of the revival package by the remaining States. Some other reasons have been attributed to the slow pace of implementation of the Revised Revival Package in the States which have executed MOUs.

The following measures are suggested to ensure that the other state governments also opt for the revival package, execute MOUs and enact the laws:

· Redraft /revise certain provisions of the MOU, more particularly the provisions of 9.5, 9.6, 9.8, 9.14, 9.18 and 9.20.

· Revise the guidelines on “Fit and Proper” Criteria stipulated by RBI with regard to the Directors on the Boards and CEOs of rural cooperative banks.

_ It is essential that the criteria prescribed for the director should immediately undergo necessary change as the proposed fit and proper criteria is stipulated without appropriately appreciating the nature of short term cooperative credit structure comprising of SCBs, DCCBs and PACS. As is commonly and widely known the directors of DCCBs are elected from among the Directors of PACS and similarly the directors of SCBS are elected from among the Directors of DCCBs in the three tier cooperative credit structure. There cannot be any criteria which restricts members to become directors on their respective boards. This is irrespective of educational qualifications. Therefore, any imposition of educational criteria for becoming the director in any one of the tier is against the democratic character of the institution.

_ The same argument may be made applicable to the conditionalities imposed with regard to age of a director, which puts restriction on the members with age of 65 years and above to become a director. It is unfair to restrict the members from becoming the directors of the CCB and SCB. It is also unfair to restrict the members of more than 65 year of age from becoming the directors and at the same time to the non-members in the name of outstanding experts/ eminent person. The definition of outstanding experts/eminent person in fact is yet to be known and is subjective.

_ The criteria “a person already working as a director on the Board of a Bank/FI under any category, will not be eligible” needs to be deleted. This cannot be made applicable to the cooperatives especially in the three tier cooperative credit structure for obvious reasons.

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_ Multi – State Cooperation Societies Act 2002 has put restrictions only on tenure and term of office for the office bearers of the society but not as directors on the board of a society.

- Professional Directors (to be co-opted) – The Board of Directors of SCB/DCCB should have the final discretion to co-opt the professional directors within the norms/guidelines stipulated either by RBI or NABARD but not both. No delegation of power in this regard.

- Chief Executive – The Board of Directors of SCB/DCCB should have the final discretion to appoint the Chief Executive Officers within the pre-specified guidelines stipulated either by RBI or NABARD but not both. No delegation of power in this regard. In such cases, there should be any condition to obtain prior approval before appointing the CEO.

- Expedite the implementation of the provisions as incorporated in MOU by fixing the time frame for such implementation. For e.g. Release of cost of Special Audit, Technical Assistance towards training, HRD, computerisation etc.

- Practical problems arising out of Test Audit, non-adherence of proceedings of NIMC etc.

- Re-look into the Terms of Reference of District Implementation and Monitory Committee.

- Simply the procedure laid down for release of recapitalisation assistance.- Need for Consultation with short term cooperative credit institutions and/or

NAFSCOB.

The above suggestions in the MOU and guidelines on fit and proper criteria, if accepted may also be made applicable to the states which have already entered into MOUs.

Therefore, we are of the view that the existing provisions in the MOUs and guidelines on fit and proper criteria stipulated by RBI, if revised by accepting the above suggestions, the majority of the States which are left out till now will be convinced to accept the revised revival package in the states which have agreed in principle and executed MOUs is a matter of great concern to all those who appreciate the need for urgency for recapitalisation to CCS without further delay. Hence the revival package process need, be expedited.



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NEED TO EXTEND MEMBERSHIP OF NAFSCOB TO DCCBs


National Federation of State Cooperative Banks Ltd. (NAFSCOB) was established on May 19,

1964 with a view to facilitate the operations of State and Central Cooperative Banks in general and

development of cooperative credit in particular. At present 30 State Cooperative Banks (SCBs) in

the country are the members of NAFSCOB, as the membership has been, till now, confined to only

SCBs. There is an increasing demand from the District Central Cooperative Banks (DCCBs) for quite

some time to enrol them as primary members of NAFSCOB with voting rights or associate

members without voting rights. DCCBs are very important intermediaries/Central Financing

Agencies in the short term cooperative credit structure. Some of the DCCBs based on the

recommendation of SCBs are enlisted as members of 'All India Mutual Arrangement Scheme'

(AIMAS) which is conceived and coordinated by NAFSCOB. It is found appropriate and timely to

expand the membership of NAFSCOB by offering the membership to DCCBs with a view to protect

and strengthen the short term cooperative credit structure due to a number of reasons, more

particularly in the light of the likely adverse implications of implementing the recommendations of

a number of committees including the Task Force on revitalisation of cooperative credit

institutions headed by Dr. A. Vaidyanathan. The execution of MOUs for implementation of

revitalization package by the State Governments / State Cooperative Banks will have significant

impact on the functioning of short term cooperative credit institutions. Important among these

provisions in the present context are as follows:

?Allowing freedom to any cooperative credit institutions to affiliate or disaffiliate

with federal structure of its choice.

?Allowing freedom of entry and exit for any unit of Cooperative Credit Structure (CCS)

at any level with no mandatory restrictions of geographical boundaries for its

operations.

?Permitting any cooperative in all the three tiers, freedom to take loans from any RBI

regulated financial institutions and refinance from NABARD or any other refinancing

agency directly or through any RBI regulated financial institution of its choice and

not necessarily from only federal tier to which it is affiliated and similarly placing its

deposits with or making investments in any regulated financial institution of its

choice and not necessarily with only the federal tier to which it is affiliated.

?To adhere to the 'Fit and Proper Criteria' laid down by RBI for Directors and Chief

Executives.Further, delay in nursing the STCCIs back to health, withdrawal of income

tax exemption, creation of encouraging environment towards alternative credit

delivery systems, efforts to weaken the existing rural cooperative credit delivery

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system, absence of conducive policy and regulatory environment for cooperatives,

continued duality of control, efforts towards de-layering, unjustified policies

towards rates of interest on farm loans, different approaches of RBI and NABARD

towards development of cooperatives, absence of democratic Boards of

Management, proposals to merge urban banks with SCBs/DCCBs, restrictions

imposed and/or directives issued for carrying out banking business, present role of

NAFSCOB and SCBs are some of the reasons which certainly call for urgent measures

to protect the interests and strengthen the short term cooperative credit

institutions. In view of the above, the Board of Directors of NAFSCOB resolved to

agree in principle to extend membership of NAFSCOB to DCCBs. Further, a

committee has been set up by NAFSCOB to examine all related aspects of extending

membership to DCCBs followed by national consultation of DCCBs to work out

various modalities of extending membership to DCCBs. The outcome of the National

Consultation meet with DCCBs, committee recommendations and decision of

NAFSCOB Board will be crucial to the main issue. We are sure that both SCBs and

DCCBs appreciate the urgent need to protect the interests of STCCS and consider the

efforts to strengthen the same. Some concrete steps taken today can certainly make

a difference to rural cooperative credit system, tomorrow/future.



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NEED TO REVERT TO MAINTENANCE OF MINIMUM STATUTORYREQUIREMENT OF CRR AT 3% BY SCHEDULED STATE COOPERATIVE BANKS


The Reserve Bank of India Act, 1934, under Section 42 has detailed the scope and

procedure for maintenance of 'Cash Reserve' by any Bank which is included in the Second Schedule

of the Act. The ratio prescribed by the Act is 'an average balance the amount of which shall not be

less than 3% of the total demand and time liabilities.' The Act also empowers the Reserve Bank to

increase the said ratio of Cash Reserve as and when required, but up to a maximum of 15%. The

said 'Cash Reserve' which is popularly known in the banking and financial sector as 'Cash Reserve

Ratio' (CRR) has been an important, convenient and effective tool in the hands of government and

Reserve Bank of India to check inflation at one stroke of pen. It is estimated that even a 0.5%

increase in the CRR would suck approximately Rs. 14,000 crores out of the banking system and the

banking system will have that much less money for their lending operations. Over the years, the

Reserve Bank of India has revised the CRR, number of times – both upward and downward,

depending on the supply of money and rate of inflation. During the period from January 2007 to

October 2007, the Reserve Bank revised the CRR, a record number of seven times – from 5.25% in

January to 7.5% in October, 2007 – an increase of 2.25% in just a matter of ten months.

The scheduled State Cooperatives Banks (SCBs) were required to maintain Cash Reserve

only at the minimum level 3% till December 2001. However, the Scheduled SCBs have been

brought on par with other Commercial Banks with effect from January 2002, in the matter of

maintenance of CRR. However, RBI has continued the exemption granted to Scheduled SCBs from

the maintenance of CRR on the 'Liabilities to the banking system in India as computed under

Clause (e) of the explanation to sub-section (1) of Section 42 of the RBI, Act, 1934'; and

'Transactions in Collateralised Borrowings and Lending Obligation (CBLO) with Clearing

Corporation of India Ltd. (CCIL).’

Further, RBI has also withdrawn the practice of payment of interest varying from one per

cent to 3.50 per cent to all Scheduled SCBs on the eligible CRR balances with effect from April 2007.

At present the cooperative banks are mobilising resources at an average cost of 7-9 per cent. The

commercial and private sector banks have wider operational area and sufficient funds for

investment as well as for advances in better avenues. On the other hand the fund base of CSBs is

not very large. Their lending operations are largely in the agricultural sector and there are very

limited avenues for deployment of their surplus resources, if any. An increase in the level of

maintenance of CRR @ 7.5 per cent shall certainly act as severe constraint to enhance their flow of

credit to agriculture.

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The delay in nursing the short term cooperative credit & banking institutions back to health,

withdrawal of income tax exemption, absence of conducive policy & Regulatory environment for

cooperatives more particularly on interest rates structure both on advances and deposits, non-

availability of concessional refinance at an appropriate quantum do not allow the scheduled SCBs

to bear the burden of increase in CRR. An estimated additional amount of around Rs. 2000 Crores

needs to be maintained as cash reserve as a result of the increase from 3 per cent to 7.5 per cent.

The shortfall in meeting the requirement for agriculture credit needs to be raised at a higher cost,

which result in their inability to contribute towards doubling of agricultural credit. Therefore it is

suggested:

· To allow scheduled SCBs to maintain CRR at the statutory minimum of 3 per cent of their net

demand and time liability.

· To restore interest benefit at bank rate on the eligible CRR balances.



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UNION BUDGET FOR THE YEAR 2008-09


Union Budget for the year 2008-09 was presented by Shri P. Chidambaram, Union Finance Minister on 29-02-2008. We welcome the proposal to arrange to disburse agricultural credit to the tune of Rs. 2,80,000crores during 2008-09. We welcome the continuation of interest subvention to provide short term credit at 7 per cent. However, the meagre amount of Rs. 1600 crores towards interest subvention to be provided to NABARD, Commercial Banks, Regional Rural Banks (RRBs) & Cooperatives in 2008-09 more particularly in the absence of announcement of upward revision of interest subvention for cooperatives from 2 per cent to required 4.5 per cent, do not ensure the disbursement of agricultural credit at 7 per cent annum. Out of the approved financial package of Rs. 13,592 crores, a sum of Rs. 1,185 crores – a meagre 11.47 per cent has been released to cooperatives under the revised revival package for the short term cooperative credit institutions. This itself is a clear indication that the process of implementation of revised revival package for the short term cooperative credit institutions. This itself is a clear indication that the process of implementation of revised revival package which includes recapitalization support is being deliberately delayed. The progress during the last three years is tardy. No steps have been announced to expedite the process of implementation of the revised revival package. We welcome the measure to create a fund of Rs. 5,000 crores to NABARD to enhance its refinance operations to short term co-operative credit institutions. This certainly adds to the cost free resources of NABARD. Hence there is a need to reduce the rate of interest on ST SAO operations. We welcome the proposal to withdraw the Banking Cash Transaction Tax (BCTT) with effect from April 01, 2009.

The generous measures to introduce a scheme of debt waiver and debt relief to an estimated three crore small and marginal farmers and one crore other farmers with an estimated amount of Rs. 60,000 crores vitiates the loan recovery environment. The scheme involves all agricultural loans disbursed by scheduled commercial banks, RRBs and credit institutions, all types of loans taken by small & marginal farmers and one time settlement scheme for all loans in respect of other farmers. This scheme is not in tune with the accepted recommendations of relevant committees, viz., (1) Task Force on Revival of Rural Cooperatives Credit Institutions under the Chairmanship of Prof. A. Vaidyanathan and (2) Expert Group on Agricultural Indebtedness set up by Government of India under the Chairmanship of Prof . R. Radhakrishna and (3) National Commission for Enterprises in the Unorganized Sector under the Chairmanship of Prof. ArjunSengupta. Should we make a remark that these committees are not conscious of the dimensions of the problems involved in agricultural sector and are not sensitive to the difficulties of the farming community especially small and marginal farmers? It is estimated that the rural cooperative credit institutions account for a sum of Rs. 37,000 crores followed by scheduled commercial banks with Rs. 12,000 crores and RRBs with Rs. 11,000 crores. The short term cooperative credit structure apprehends that the Government of India may raise the issue of “ownership” at the time of releasing the share of the estimated amount either in cash or Bond or both towards debt waiver & debt relief to farmers disbursed by rural cooperative credit institutions. The resource position of the cooperative credit institutions with the present level of accumulated losses and in the absence of budgetary provision to meet the amount of waiver will further be deteriorated and at least a significant number of cooperative credit institutions will

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have no option but to discontinue their credit business. The common Minimum Programme on 'Rural cooperative credit delivery system' to nurse them back to health could not be fulfilled during the last four and half years. There will be a sudden and enhanced demand for fresh requirement of agricultural loans by all the farmers who have been covered under the scheme of debt waiver & debt relief and also OTS. Therefore, a separate scheme of assistance to meet this enhanced requirement of agricultural loans will have to be formulated.

It is essential to formulate a scheme of compensation/incentives to the marginal farmers holding up to one hectare and small farmers holding between 1 and 2 hectares who have repaid their loans and remained always as non-defaults. NABARD have huge cost free resources received from Government of India and therefore, NABARD may be directed not to change any interest on refinance till the efforts are made to cleanse the balance sheets of the cooperatives. Keeping in view of the sudden policy announcement in the case of debt waiver & debt relief and likely adverse implications, NABARD will have to be directed to formulate ST SAO policy for the year 2008-09 with a view to facilitate avail higher quantum of refinance with reasonable rate of interest. Since the scheme of debt waiver & debt relief and OTS has been announced without a proper consultation and in the absence of the guidelines available for implementation of the same, it does not appear to be easier to make concrete suggestions. However, it becomes necessary to set up a Task Force – 2 on revival of cooperative credit institutions again with the similar composition of Task Force No.1 to ensure a long term strategies for strengthening short term cooperative credit structure.



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AGRICULTURAL DEBT WAIVER AND DEBT RELIEF SCHEME - 2008


The Agriculture Debt Waiver and Debt Relief Scheme (ADWARDS) for farmers was announced on 29-02-2008 in the Union Budget for the year 2008-2009. The Union Cabinet gave its approval for the guidelines for implementation of the above Scheme on 23-05-2008. This Scheme is claimed to be most ambitious Debt Waiver and Debt Relief Scheme ever undertaken by any Government in India in terms of its scope, coverage and the financial costs. The ADWADRS will cover direct agricultural loans extended to small and marginal farmers – estimated to be 3.69 crores and other farmers – estimated to be around 59.75 lakhs. While the small and marginal farmers are eligible for Debt Waiver, other farmers are eligible for Debt Relief under the scheme, In the case of other farmers, there will be an One Time Settlement (OTS) Scheme under which the farmer will be given a rebate of 25 per cent of the eligible amount subject to the condition that the farmer pays the balance of 75 per cent of the 'eligible amount' or Rs. 20.000/- whichever is higher. In the case of small and marginal farmers, the entire eligible amount shall be waived. The cost of the scheme is likely to be in the order of about an unaudited sum of Rs. 71,680 crores. The Scheme will be implemented by Scheduled Commercial Banks, Regional Rural Banks and Cooperative Credit Institutions (including urban cooperative banks) and local area banks. The farmers, who have failed to repay their loans for such a longer period deserve more than the other category of farmers. Therefore, it becomes imperative to remove the restrictive clause of excluding the loans disbursed by a lending institution prior to March 31, 1997 from the above Scheme. The guideline that “the amount of interest that a lending institution may claim as reimbursement from the Central Government under this Scheme shall not in any case exceed the principle amount of the loan” is certainly unfair to the lending institutions mostly to the cooperative credit institutions which have been instructed to finance short term credit at 7% without providing adequate interest subvention. The interest subvention provided by Government of India to cooperative credit institutions may be allowed to claim at least the applicable rate of interest as reimbursement instead of limiting them and linking to the principal amount of the loan with a view to allow them to be viable. The guidelines of the Scheme include that the lending institution shall not charge any interest on the “eligible amount” for any period after 29-02-2008 in case of debt waiver of small and marginal farmers. However, in the case of an “Other farmer” who defaults in repaying his share of the eligible amount on or before June 30, 2009 and becomes ineligible for OTS relief, the bank may change interest for the period after June 30, 2009. This again creates confusion and do not appear to have justifiable reason for differentiating between the treatment of interest to be charged in the case debt waiver and in case of debt relief. It is therefore suggested to allow interest to be charged on the eligible amount for a period from 01-03-2008 to 30-06-2009 in case of debt relief provided for small and marginal farmers. Failure to allow the banks to charge interest on or after 01-03-2008 amount of loss of huge amounts on account of interest receivable from the borrower farmers for the period from 01-03-2008 to the actual date of reimbursement of the claim of the amount to be provided by Government of India. Loans are normally restructured or rescheduled when the borrower farmers are not able to repay in time and Government of India/NABARD has allowed them time to repay. In fact, these loans are otherwise overdue loans and having rescheduled it, bank should not be deprived of claims treating it as non-overdue if there revised instalments are not overdue.

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According to the explanation given in the guideline that “In the case of a farmer who has obtained investment credit for allied activities where the principle loan amount does not exceed Rs. 50,000, he would be classified as “small and Marginal farmers” and where the principle amount exceeds Rs. 50,000, he would be classified as “other farmer”, irrespective in both case of the size of the land holding, if any. This explanation does not appear to be in tune with the definition given for small and marginal farmers and as a result this will create confusion and calls for an appropriate clarification. While the cooperative banks will be willing to implement the above Scheme (irrespective of the long term adverse implications of the Scheme on the recovery environment), cooperative banks are urgently required at least immediate advance payment of 50% of anticipated claim, which may kindly be considered and released on or before June 30, 2008 or on the date of issuance of “Debt Waiver or Debt Relief Certificate”, whichever is later. 25 per cent of the estimated amount may kindly be released within one month of submission of the claims and balance after submission of audited statement. Cooperative banks will face serve resources crunch as a result of the huge demand that will be accrued in pursuance of the implementation of the Scheme and therefore appropriate arrangements will have to be ensured to provide interest free 100% refinance to meet the liquidity problem and to enable them to issue fresh loans.



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INSTITUTIONAL PROTECTION SYSTEM(July – September, 2008)

The introduction of globalisation, deregulation and technological advances has made

major impact on financial sector particularly the banking sector all over the world. Globalisation

and deregulation led to decline in bank spreads, and consequently, profitability. In India the

situation is not different, the banking sector, which plays a very vital role in the economic

development of the country, has been witnessing tremendous change. Hyper competition in all

fields of industry including banking sector led to the consolidation. Consolidation is the statutory

combination of two or more corporations to create a new corporation.

But there have been conflicts among both the internal and external stakeholders about the

merger and amalgamation efforts in co-operative banking due to various reasons and fears. But

there is need of appreciation by co-operative banks for some of the reasons for consolidation. Due

to the increasing needs to achieve economics of large scale, brand building, expanding branch

networks over a wider geographical area, mitigate the perils of NPA, and acquire synergies of

expert management and also to solve the problems associated with capital adequacy norms. The

present scenario compels the co-operative banks to get ready to face the future. Consolidation

through merger and amalgamation is one of the best ways to gain strength and to achieve the

market fitness.

Institutional Protection System:

Consolidation may raise number of problems related to protection of interest of banks and

customers, cultural issues, integration of knowledge and skills, etc. Therefore, it is necessary to

consider the Indian Institutional Protection System while consolidation of two or more banks.

Talking of protection mechanism and safeguarding the interests of the customers and the

institution, probably German is one of the first and foremost countries to develop an 'Institutional

Protection System' in 1930s. The Association of the German Co-operative Banks (BVR) in Germany

which is similar to the NAFSCOB in India have established a separate 'Institutional Protection

Division' which acts as a holding company as far as the liabilities of the member institutional are

concerned and undertakes to cover the losses which may occur within the enterprises of the

Banks.

In India, the co-operative banks are at the crossroads in view of implementation of financial

sector reforms, duality in control, vulnerability to the inherent advertisers and the systemic

weaknesses. The number of SCBs and DCCBs non-complying with Section 11 (1) is increasing, as

they do not have own funds even Rs. 1 lakh each. Although the co-operative credit movement is

almost a century old, but there is no arrangement of any institution protection mechanism in the

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line of the German system. No doubt, the country has been experimenting with rehabilitation

packages, loan waivers etc., but that has not been succeeded in bringing any sustainable viability

to the system.

The Deposit Insurance and Credit Guarantee Corporation of India(DICGC), in which the

deposits of individuals in the banking system are insured upto a limit of Rs. 1 lakh per depositor at a

half-yearly premium of 0.025 percent, which is entirely borne by the banks. Although, time to time

legislative changes takes place in this regard, but the modalities for dealing with the distressed

banks is not known.

Under the present circumstances it has been become essential and imperative for the co-

operative banking structure in India to have its own “Indian Institutional Protection System (IIPS)”

model on the line of German mainly through the contributions and participation of the member

institutions particularly at the Apex and intermediary level of co-operative credit structure.



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CORPORATE SOCIAL RESPONSIBILITY


Corporate Social Responsibility (CSR) exhorts firms to diverse from their sole aim of

maximizing profits and lay more importance on improving the economic and social standards of

the community in their countries of operation. CSR is best defined as “The continuing

commitment by business to behave ethically and contribute to economic development while

improving the quality of life of the workforce and their families as well as of the local community

and social at large” (Would Business Council). Similarly, co-operatives are demonstrating social

responsibility of their own way as they are based on the principles of democratic control and

concern for community. Hence, CSR principles have been a constant practice since origin of

cooperative, and even before the CSR concept were defined.

CSR Understanding in India:CSR is not a new concept in India. It has been well established in India by the organizations

having strong values for families. Historically also CSR has been a strong influence on business,

government and society. According to kumar and V. Balsari (2002) four models of CSR can be

identified in India.· Voluntary commitment to public welfare based on ethical awareness of board social needs:

The Gandhian Model.· State driven polices including state ownership and extensive corporate regulation and

administration: The Nehru Model.· Corporate responsibility primarily focused on owner objectives: Milton Friedman Model.· Stakeholder responsiveness, which recognises direct and indirect stakeholder interests:

The Freeman Model.

CSR and Cooperative Banking Sector:Cooperatives are entering in a new dynamic to promote their organizational identity.

Cooperatives realise the need to emphasize their differences and rediscover the relevant

characteristics of their own business model. They seek to highlight their “good practices” and

improve some others. As a consequence, the implementation of the CSR concept is a natural and

logical step in the assertion of the cooperative identity.

Cooperative as a part of CSR in India recognize that alleviation of poverty remains a major

challenge before Government of India. It has been also realized that acceleration of economic

growth with a focus on sectors which are employment-intensive, facilitates the removal of poverty

in the long run. However, this strategy needs to be complemented with a focus laid down on

provision of basis services for improving the quality of life and the people and direct State

intervention in the form of targeted antipoverty programmes. As a part of CSR, a number of

schemes have been designed and formulated and the cooperatives as a part of CSR assume

appropriate responsibility in addressing the issues towards removal of poverty.Indicators for

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Assessment of C S R:In order to assess the extent of CSR in cooperative banking sector the indicators of CSR are given as

below: 1. Principle of social responsibility – (a) Legitimacy, (b) Public responsibility, (c)

Managerial discretion.2. Processes of social responsiveness – mechanism for critical review of social issues

relevant to firm and analytical body for social issues as integral part of policy making.3. Outcomes of social responsibility –

(a) Internal stakeholder effect – Owner/shareholders, managers, employees.(b) External stakeholder effects – Customers/consumers, natural environment,

community, suppliers.(c) External institutional effects.

Co-operative enterprises around the world are increasingly becoming involved in CSR as

means to increasing their competitive edge in the market in the credit, banking, consumer and

producer sectors. Practicing of CSR from cooperative in India can also lead for sustainable

development and help for building long term international competitiveness.



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INVESTMENT PORTFOLIO MANAGEMENT


Investment Portfolio Management is the management of fund by diversifying its

investment into various financial instruments, to reduce the risk and increase the return. It

depends on the requirement of the investor as well as the risk bearing capacity of the investor. The

management of the investment portfolio by the cooperative banks is very crucial in the context of

competition, complexities of financial instruments and risk-prone nature of investments. Portfolio

investment in government securities and bonds are subject to macro ceilings/prescriptions which

are changed from time to time. The issue of managing, mitigating and minimizing the risk in the

investment portfolio appears to be a major challenge.

Against this backdrop, the seminar was envisaged, and its intention was to:

a. to sensitise the Chief Executives and Senior Executives about the significance,

needed systems and safeguards for handling investment portfolio;

b. to provide practical tips in processing / making investment decisions;

c. to revisit the systems and practices in vogue in the Apex Banks and get necessary

feedback through direct interaction and

d. to provide a forum for sharing mutual experiences and best practices, if any.

The national seminar made very important suggestions, which may have long term

implications on the management of funds in SCBs / DCCBs. The suggestions include:

a. To manage huge investments, SCBs can form a study group to take stock of

investment options according to the general economic conditions, market stability /

volatility, etc. both for long term and short term investments.

b. Amalgamated investment portfolio of cooperative institutions in the state could be

handled by the SCB through its Subsidiary General Ledger / Constituent Subsidiary

General Ledger (SGL / CSGL) account with RBI.

c. SCBs should stay present / continue their presence in market. This would provide a

continuous knowledge of the movement, trend factors.

d. The Board should be asked to strengthen their investment portfolio to give their

bank a steady and assured return.

e. Broking agencies should be rated and listed by banks after exercising due diligence.

f. The investment policy should clearly spell out the role of broker (s).

g. Exposure limits should not be exceeded. This should form a part of the investment

policy and reviewed at regular interval.

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h. Need for organizing investment portfolio management seminars on regional basis

for better appreciation and clear understanding of the issues involved.Therefore,

the management of SCBs / DCCBs needs to address the suggestions on priority basis

with a view to ensure efficient funds management and adherence to regulatory

requirements as well as reduce the risk and increase the returns. Formulation of an

appropriate policy for financial/investment management is a must in this direction.



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COMMITTEE ON FINANCIAL SECTOR REFORMS


Government of India in consultation with Reserve Bank of India constituted a Committee on Financial Sector Assessment (CFSA) in September 2006 to undertake a comprehensive self-assessment of India's financial sector including rural cooperative credit institutions viz. State Cooperative Banks (SCBs) and District Central Cooperative Banks (DCCBs). The Committee submitted its Six volume report entitled “India's Financial Sector: An Assessment” to the Hon'ble Union Finance Minister on March 25, 2009. The Six volume report which is expected to be viewed as a package complementing one another covered (i) Macro-Economic Environment, (ii) Aspects of Stability and Performance of Financial Institutions, (iii) Financial Markets, (iv) Financial Infrastructure and (v) Transparency Issues. The Committee report also raised certain developmental issues in the socio-economic context. The recommendations of the CFSA pertaining to rural cooperative credit institutions centred around the major issues such as (a) Licencing of Cooperatives, (b) Capital Adequacy, (c) Regulation and Supervision – Need for a separate Regulatory and Supervisory Authority, (d) Corporate Governance and (e) Assessment of Basel Core Principles (BCPs). The CFSA suggested the need for a roadman to ensure that the banks which fail to obtain a licence by 2012 should not be allowed to operate as this will expedite the process of consolidation and weeding out of non-viable entities from the cooperative space. Moreover, CFSA proposed to work out a roadmap for achieving this objective in a non- disruptive manner in consultation with NABARD. The panel appointed by CFSA is of the view that in respect of rural cooperatives, the migration to Basel I can be considered with the implementation of the revival package based on the Vaidyanathan Committee recommendations as at present the cooperative banks do not have any requirement of maintaining risk-based capital. CFSA observed that dual control in the cooperative sectors affects the quality of supervision and regulation between the RBI/NABARD and the Government. The role of NABARD as a Development Financial Instruction (DFI) and regulator / supervisor of rural financial institutions can be considered for suggestion appropriately so that NABARD can function exclusively as a specialized DFI, while regulatory and supervisory powers are vested with a separate regulatory authority. The Committee recommended in favour of formation of separate regulatory and supervisory authority. CFSA also recommended that the best governance principle could be considered for introducing greater professionalism and as a best practices guide for corporate governance in cooperative institutions. According to CFSA, the assessment of BCPs as regards SCBs/DCCBs reveals that they are compliant/largely complaint as regards transparency and cooperation, major acquisitions, large exposures, related parties, credit risk, problem assets and method of on-going supervision, accounting and disclosure, corrective and remedial powers of supervisors etc. However, they are non-compliant/materially non-complaint as regards capital adequacy, risk management process, market risk, liquidity risk, operational risk, interest rate risk in banking book, internal control and audit, abuse of financial services etc. CFSA in its concluding remarks observed that the financial results of the cooperative and rural banking structure show some degree of vulnerability, but they are systematically not very large. There is a need to address issues relating to governance and government overlap in the regulation of this sector. The regulatory structure requires a significant overhaul. While MOU's between the Government and RBI/NABARD have been a welcome attempt to circumvent the problems arising out of a dual control of regulation of

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cooperative banks, this progress made in this regard should be continuously monitored so that it evolves with changing circumstances and withstands the test of time.

While endorsing the recommendation of the CFSA on certain issues such as Licencing, Capital adequacy, Corporate Governance, Assessment of Basel Core Principle (BCPs), Regulation and Supervision, it was observed by the Board of Directors of NAFSCOB that there is an urgent need to expedite the revision in the licencing norms both for SCBs and their branches. The members are also of the view that RBI should disclose the reasons for not granting the licence for eligible SCBs and DCCBs. NAFSCOB is of the opinion that a roadmap to ensure that only licenced banks operate in the cooperative space can be drawn only after appropriate revision in the norms for licence and grant of licence to all the eligible banks based on the revised norms. NAFSCOB fully endorsed the view of CFSA that there is a need for a separate regulatory and supervisory authority for rural cooperatives as NABARD has limitation to enforce satisfactory compliance on inspection observations. Further, NAFSCOB recommended that there is a need for a separate organizational device for cooperatives in place of NABARD. Further, Since RBI proposed to set up a Working Groups to implement the recommendations of CFSA, the Board of Directors of NAFSCOB are of the opinion that involvement in consultations with representatives of NAFSCOB in the process of implementing the recommendation of CFSA is highly desirable.



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Union Budget for the year 2009-10 was presented by ShriPranab Mukherjee, Union Finance Minister on 06-07-2009. While acknowledging the flow of agricultural credit during 2008-09, which was Rs. 2,87,000 crore, Finance Minister has set the target for agricultural credit during the year 2009-10 as Rs. 3,25,000. In order to achieve the increased target for agricultural credit, the finance minister has proposed to continue the interest subvention scheme for short term crop loans to farmers for loans up to Rs. 3 lakhs per farmer at an interest rate of 7 per cent per annum. The finance minister has announced an additional interest subvention of 1 per cent as an incentive to those farmers who repay their short term crop loans on repayment schedule, effectively bringing down the rate of interest for such farmers to 6 per cent per annum. The Finance Minister also announced an additional budget provision of Rs. 411 crore over and above the interim budget estimates towards interest subvention. We welcome the proposal to disburse agricultural credit to the tune of a targeted amount of Rs. 3,25,000crores during the year, which is 16.07 per cent more as compared to the target for the year 2008-09.

We also welcome the continuation of interest subvention during the year 2009-10 to provide short term credit at an interest rate of 7 per cent per annum. However, we are of the view that the restricted availability of refinance from NABARD and increase in the rate of interest for the same outweighs the advantages of increased interest subvention @3%. Therefore, the need for interest subvention at least to 4.5 to 5 per cent may have to be considered to ensure the target of Rs. 3.25,000 crore for agricultural credit is achieved. The rate of interest on refinance of NABARD also needs to be considered accordingly.

We also welcome the additional interest subvention of 1 per cent as an incentive to those farmers who repay crop loans on schedule. This certainly helps to create better recovery environment and ensure significant improvement in loan recovery.

Further, it is encouraging to note that the time limit to the farmers having more than 2 Ha. Of land to pay 75 per cent of their over dues under the Agriculture Debt Waiver and Debt Relief

thScheme – 2008 (ADWARDS) has been extended from 30 June 2009 on 31 December 2009 and we welcome the same.

We have noted the proposal to setup a Task Force for examining the issues involved in debts by large number of farmers from money lenders in Maharashtra and not converted under ADWARDS. However, the scope of the Task Force should be expanded to other states in the country.

We welcome the abolition of Fringe Benefit Tax (FBT) on the value of certain fringe benefits provided by employers to their employers.



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CLIMATE CHANGE AND AGRICULTURE


The major cause of climate change is emission of CO2 (Carbon dioxide). It has been reported that the USA stood first with 20.01 MT per capita emissions of CO2. At the same time European Union, Japan and China contributes 9.40, 9.87 and 3.60 MT per capital emissions of CO2 respectively. According to National Action Plan on Climate Change, Gol, Indian per capita contribution to CO2 emission is 1.02 MT. Here, it is important to mention that, global impacts like melting of Glacier, north Antarctica etc. are mainly due to past emissions by developed countries. Hence, developed countries should extend adequate financial support to poor nations to help them fight climate change.

Global efforts in order to fight climate change had taken place as United Nation conducted Climate Change Conference in Copenhagen during 7-18 December 2009 to secure a fair, ambitious, and binding agreement to combat the climate change. Draft Copenhagen accord can be summarized as: more responsibility for developed countries, global goal of bringing temperatures below by 2°C, establishment of Copenhagen Green Climate Fund, incentives to low emitting developing economies should be provided to develop on low emission pathway, establishment of technology mechanism to accelerate development and transfer and assessment of the implementation of this accord to be completed by 2015. Copenhagen summit also agreed to raise US $30 billion emergency finance during next three years to facilitate fight pollution. In addition, the accord also put a goal of channelling $100 billion a year by 2020 to developing countries to deal with the causes and consequences of global warming. Accord also agreed that developed countries shall provide adequate, predictable and sustainable financial resources, technology and capacity-building to support the implementation of adaption action in developing countries. However, Copenhagen accord could not ensure a binding agreement mainly due to the constraints expressed by few developing countries, including India.

thThe ICA General Assembly held at Geneva on 19 November 2009 adopted a resolution addressing the issues connected with climate change. As cooperative are the community-based and member-based organizations, and it is highlighted in cooperative principle as 'Concern for Community', it is clear that, cooperatives have larger role in tackling the climate change by preparing the community to cooperate each other in taking action against climate change. Climate change makes direct impact on agriculture by affecting monsoon, plate diseases, insect pest, soil quality and crop production etc. Change in monsoon resulted in frequent drought, heavy rainfall and flood. In the light of depletion of ozone, higher exposure to ultra violet rays of the sun, diseases of plant increases as new germs, viruses and bacteria came into existence which causes to decline the productivity of agricultural crops. In addition, pests like mosquito, fly, grasshopper etc. increase in number due to global warming and thereby causing spread of a number of diseases.

Hence, agriculture cooperative have greater potential and can play a crucial role in promotion of farm practices that contribute towards climate change mitigation as well as adaptation. Adaptation to climate change for small –scale agricultural produces involves livelihood diversification. Agriculture and rural cooperatives can link small and marginal farmers and other rural poor with larger rural/ urban/ international markets through value-addition, thereby creating off-farm livelihood opportunities for vulnerable rural poor.



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UNION BUDGET - 2010-11


Union Finance Minister ShriPranab Mukherjee presented the Union Budget for the year 2010-11 in the LokSabha on February 26, 2010. Our views on most important proposals related to Agriculture Cooperatives, Banking etc. are presented as below.

We appreciate the policy of Government of India to ensure extending geographic coverage of banks and improve access to banking services. It is a matter of great satisfaction to note that RBI will consider granting some additional banking licenses to private sector players which may include Non Banking Financial Companies subject to fulfilling the eligibility criteria. However, we wish to make a comment that licensing policy pertaining to cooperative banks of RBI do not appear to be without any ambiguity and anomalous. RBI has taken decades to formulate an appropriate policy of grating licence to the cooperative banks which includes State Cooperative Banks (SCBs) and District Central Cooperative Banks (DCCBs). Even today, 16 out of 32 SCBs are allowed by RBI to carry out the banking business without granting them the banking licence. Similarly, more than 274 DCCBs out of 373 DCCBs are allowed by RBI to carry out the banking business without granting them the banking licence. Committee on Financial Sector Assessment (CFSA) set up by Government of India and RBI under the Chairmanship of Dr.Rakesh Mohan, the then Deputy Governor, RBI suggested that there is a need to draw up a roadmap for ensuring that only licenced banks operate in the cooperative space. The CFSA also recommended that a roadmap is also needed to ensure that banks which fails to obtain a licence by March 2012 would not be allowed to operate. Therefore, it is essential that the RBI should expedite the issue of licence to SCBs and DCCBs without laying down the conditions which do not have direct relevance to banking and viability of the banks. Liberalisation of the policy of grating licence will also expedite the process of consolidation and weeding out of non-viable entities from the cooperative space. Further, RBI should adopt the policy in such a way that most of the existing SCBs and DCCBs become eligible for grant of licence so as to ensure fulfilment of the objective of Government of India to extend geographic coverage of the banks and ultimately improve access to banking services.

We welcome the four-pronged strategy of government of India to ensure agriculture growth. As a part of the strategy of Government of India to ensure agriculture growth it is proposed (a) to raise the target for availability of agriculture credit to Rs. 3,75,000 crore from Rs. 3,25,000 crore (b) to extent by six months the period for repayment of the loan amount by farmers from December 31, 2009 to June 30, 2010 under Agriculture Debt Waiver and Debt Relief Scheme for Farmers (ADWARDS) (c) to continue the interest subvention scheme during the year 2010-11 with a provision for an additional one per cent interest subvention making the total interest subvention to 2 per cent as an incentive to those farmers who repay their short term crop loans as per schedule, this is in addition to the regular interest subvention of 2 per cent to facilitate provision for lending crop loans up to Rs. 3.00 lakhs at 7 per cent per annum and (d) to continue the Financial Inclusion Fund (FIF), Financial Inclusion Technology Fund (FITF) and proposal to augment, with Rs. 100 crore for each of these funds, proposal to double the corpus fund of 'Micro-Finance Development and Equity Fund' to Rs. 400 crore in 2010-11.

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While, we welcome the proposals, we observe that the justified demand of NAFSCOB on behalf of the entire short term cooperative credit institutions to enhance the interest subvention to at least 4.5 per cent to enable cooperatives to lend at 7 per cent per annum to farmers is not considered in the current Union Budget. Further, the restoration of income tax exemption would have helped the cooperatives to ensure smoothly flow of agricultural credit.

We also welcome the proposal of Government of India to set up a Financial Sector Legislative Reforms Commission to rewrite and clean up the financial sector laws to bring them in line with the requirements of the sector. It is highly desirable to involve NAFSCOB in the process of finalizing the Financial Sector Legislative Reforms by ensuring that the Financial Sector Legislative Reforms Commission consults NAFSCOB.

NAFSCOB on behalf of the entire short term cooperative credit institutions welcomes the Union Budget proposals to create a number of funds which includes National Clean Energy Fund, National Social Security Fund for unorganized sector workers.

In spite of representation, Government of India is yet to initiate the restoration of Section 80P exempting cooperative banks from the payment of Income Tax. We hope, in future, an appropriate decision shall be taken towards exempting cooperative banks from the payment of Income Tax, which helps them to evolve higher quantum of agricultural credit.



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National Consultation and Review Meet on Implementation of Revival Package of STCCS

(April-June, 2010)

The issue of extending recapitalisation assistance/support to Cooperative Credit

Institutions (CCIs) has been under consideration since the beginning of 1990's. A number of

committees such as JNL SrivastavaCommittee (1996), Working Group on Agricultural Credit and

Cooperatives appointed by Planning Commission (1196 and 2001), Cabinet Note of Union

Ministry of Agriculture, approved by Committee of Secretaries, GoI on 4-11-1997, Expert Group

to fine tune the suggestions, JagdishCapoor Task Force (2000), Expert Committee on Rural Credit

(2000), Joint Committee on Revitalisation Support to Cooperative Credit Structure popularly

known as VikhePatil Committee (2001) etc. recommended the urgent need for recapitalisation of

CCIs. The Capoor Task Force report has been very widely discussed and in fact the

recommendations have been perused by Chief Ministers (CMs) in the Conference convened by

Government of India which was presided by the then Hon'ble Prime Minister of India. The then

Hon'ble Union Finance Minister in his interim Budget for the year 2004-05 announced that a

scheme to revitalise the cooperative credit structure envisaging an outlay of about Rs.15,000

crores, to be shared between the Central and State Governments, in appropriate ratio has been

prepared. However, the scheme announced by then Hon'ble Union Finance Minister was neither

finalised nor implemented.

Subsequently, as a part of the Common Minimum Programme (CMP), the GoI appointed

Task Force on Revival of Cooperative Credit Institutions under the chairmanship of Prof. A.

Vaidyanathan. One of the main Terms of Reference of the Task Force was to recommend an

implementable action plan for reviving the rural cooperative banking institutions. The Task Force

submitted the final report to Government of India in the month of February 2005.

GoI convened the meeting of CMs of all States for consultation on the report,

subsequently,GoI has accepted the recommendations of Task Force. State Governments have

been advised to consider opting for revival package with certain conditionalities. Andhra Pradesh

is first among the 25 states which have entered into a Memorandum of Understanding (MoU)

with GoI and National Bank for Agriculture and rural Development (NABARD) in the year of 2006

to implement the Revival Package.

National Federation of State Cooperative Banks (NAFSCOB), since 2005, has been closely

reviewing the steps initiated by various agencies and the status of implementation of the Revival

Package. NAFSCOB has been interacting with the Govt. of India, Reserve Bank of India (RBI),

NABARD, State Governments and the member State Cooperative Banks who are actually

implementing the Revival Package, on regular basis. In fact NAFSCOB took lead in organising a

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consultation meet in close collaboration with the National Cooperative Union of India (NCUI) at

New Delhi on 25.04.2005 to deliberate on the recommendation of the Task Force.

After a time span of five years of consultation meet held on 25-04-2005 at Delhi and nearly

four years into implementation of Revival Package, Board of Directors of NAFSCOB thought it

proper to hold wider consultations at national level to review the status and implementation of

recommendations of Revival Package of Short Term Cooperative Credit Structure (STCCS) in the

country. Accordingly, National Consultation and Review Meet on Implementation of Revival

Package of STCCS has convened by NAFSCOB with the support of NABARD and NCUI on 28 and 29,

April 2010 at New Delhi. The main objectives of the National Consultation and Review Meet were

to review (i) implementation of Revised Revival Package of STCCS, (ii) Human Resource

Development with particular reference to training and capacity building efforts and (iii) Rural

Cooperative Credit Institutions and related issues.

Shri. P. K. Basu, IAS, Secretary, Ministry of Agriculture (A&C) GoI, Dr. K.C. Chakrabarty,

Deputy Governor of RBI, ShriUmesh Chandra Sarangi, IAS, Chairman, NABARD among others,

graced the occasion. Commissioners/Secretaries(Coop)/Registrars of Cooperative Societies of few

states, Chairmen and Chief Executives of all SCBs participated in the National Consultation.

National Consultation called upon the Government of India to intervene to ensure the

adoption of Revised Revival Package by all the States and recommended flexibility in the provisions

of Memorandum of Understandings (MoUs) to help other States to opt for the Revival Package.

The National Consultation observed that the revised policy for grant of licence to the branches of

SCBs is not entirely in tune with the basic spirit of the recommendations made by the Task Force.

The current 'Special Issue' of NAFSCOB Bulletin has been brought out with a view to

disseminate the information on objectives of National Consultation, modus operandi of

Consultation, deliberations of panel discussions, recommendations of the National Consultation

etc.



118

ROLE OF PACS AS BCs TO ENSURE FINANCIAL INCLUSION


The financial inclusion is the 'process of ensuring access to financial services & timely and

adequate credit where needed by vulnerable groups such as weaker sections and low income

groups at an affordable cost'. Access to financial services by the vulnerable and poor groups is

necessary for poverty alleviation and social cohesion. In India, vulnerable and poor groups of

people are mostly concentrated in villages and remote places. These groups include small &

marginal farmers, land less labourers, fishermen/women, unskilled labourers, labourers in small

and cottage industries, illiterates, socially backward classes, persons living below poverty line etc.

Pursuant of the recommendation made by Dr. C. Rangarajan Committee on 'Financial

Inclusion' (January, 2008) two funds viz., Financial Inclusion Fund (FIF) and Financial Inclusion

Technology Fund (FITF) are constituted at NABARD to extend financial support to activities of

banking institutions under Financial Inclusion scheme. Each fund consists of an overall corpus of

Rs.500 crore which contributed by Government of India, Reserve bank of India and NABARD in the

ratio of 40:40:20.

As compared to Regional Rural Banks (RRBs) and Commercial Banks (CBs), STCCS is playing a

very important role in taking financial services to vulnerable group of people who live in villages.

For instance, STCCS have more than 50 per cent of agricultural credit accounts as compared to

RRBs and CBs put together. On an average, one Primary Agricultural Credit Society (PACS) provides

services to 6 villages. As on March 2010, total numbers of PACS in India are 95, 633, it indicates the

strong network of STCCS in villages and remote rural areas in India.

Reserve Bank of India issued guidelines for engaging Business Correspondents (BCs) as part

of extension of banking services to ensure Financial Inclusion subject to compliance of certain

guidelines. These guidelines allow the Scheduled Commercial Banks including Regional Rural

Banks and Local Area Banks to formulate a policy for engaging BCs with the approval of their Board

of Directors. The eligible individuals/entities to be considered as BCs include Cooperative

Societies registered under Mutually Aided Cooperative Societies Acts / Cooperative Societies Acts

of States / Multi State Cooperative Societies Act. The other individuals/entities are –

i) Individuals like retired bank employees, retired teachers, retired government

employees and ex-servicemen, individual owners of kirana/medical/Fair Prices

shops, individual Public Call Office operators, agents of Small Savings schemes of

Government of India/Insurance Companies, individuals who own Petrol Pumps,

authorized functionaries of well-run Self Help Grouops (SHGs) which are linked to

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banks, any other individual including those operating Common Service Centres

(CSCs);

ii) NGOs/MFIs set up under Societies/Trust Acts and Section 25 Companies;

iii) Post Offices; and

iv) Companies registered under the Indian Companies Act, 1956 with large and

widespread retail outlets, excluding Non-Banking Financial Companies (NBFCs).

Scope of Activities:

The scope of activities of BCs include (i) identification of borrowers; (ii) collection and

preliminary processing of loan applications including verification of primary information/data; (iii)

creating awareness about savings and other products and education and advice on managing

money and debt counseling; (iv) processing and submission of applications to banks; (v)

promoting, nurturing and monitoring of Self Help Groups/Joint Liability Groups/Credit

Groups/others; (vi) post-sanction monitoring; (vii) follow-up for recovery, (vii) disbursal of small

value credit, (ix) recovery of principal/collection of interest; (x) collection of small value deposits,

(xi) sale of micro insurance/mutual fund products/pension productions/other third party

products and (xii) receipt and delivery of small value remittances/other payment instruments.

The activities to be undertaken by the BCs would be within the normal course of the bank's

banking business, but conducted through the BCs at places other than the bank premises/ATMs.

Neither the RBI nor NABARD issued guidelines allowing SCBs and DCCBs to engage the

cooperative societies as BCs. Non-issuance of guidelines allowing DCCBs to engage PACS as BCs

will have adverse implications in the overall functioning of the STCCS towards achieving Financial

Inclusion. If the Commercial Banks are allowed to work with PACS as BCs, it is likely that the

existing deposits with PACS will automatically migrate to commercial banks which in turn will

impact the funds position of DCCBs and SCB. Secondly, if the commercial banks do not engage

PACS as BCs it is likely that the commercial banks will open other BCs. Commercial banks will offer

more services. This will certainly impact PACS – such of those which are viable and eventually it

will have an adverse impact on the short term cooperative credit institutions which include SCBs

and DCCBs. The SHG movement and the presence of micro finance institutions have already made

a dent into the cooperative credit delivery system. There is every possibility with allowing the

commercial banks to engage PACS as BCs may further impact the rural cooperative credit delivery

system. Further, cooperatives have an advantage compared to commercial banks in appreciating

and understanding the functioning, complexities and potentialities of PACS. PACS are also a part

of the well conceived three tier cooperative credit delivery system and it may not be desirable for

the cooperatives to identify, develop and engage their BCs outside cooperative fold. DCCBs may

not be able to handle such a situation by themselves and therefore appropriate for them to engage

PACS as BCs. As BCs, the PACS can accept deposits on behalf of DCCB and do other activities as

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well. DCCB can do bancassurance etc. In this case, cooperatives deserve to be supported

financially and the available funds should be made available to them liberally so as to help them to

work towards ensuring Financial Inclusion. There will be multiple advantages for PACS to function

as BCs for DCCBs. They are (a) Rural Deposits can be mobilized by PACS for DCCBs, (b) PACS will be

viable as they will get free income for various services rendered for DCCB. Risk cost will come

down. Imbalance may not occur, (c) Financial Inclusion can take place even without technology as

the PACS and DCCBs have the accounting system to sustain. Outlet in the village is a huge

advantage for cooperatives. (d) Member deposit – as it will be the deposit of DCCB will get deposit

insurance coverage. (e) PAC – BC can handle both deposit and loans – unlike other BC they don't

need any initial training, etc. (f) There are more than one lakh PACS, 40 per cent is functional. This

will help cooperatives grow fast.

In view of the above, the urgency for issuing the guidelines to DCCBs for engaging PACS as

BCs for successful implementation of the Financial Inclusion needs to be recognized. Further,

cooperatives are the most potential channel to ensure financial inclusion and they deserve liberal

financial assistance to carry out the mission.



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HUMAN RESOURCE DEVELOPMENT POLICY FOR SHORT TERM COOPERATIVE CREDIT STRUCTURE (STCCS)


The Task Force to study the cooperative credit system under the Chairmanship of Shri

Jagdish Capoor in 1999 observed that human resource development is an important component

for the success of any organisation. In 2000, the Expert Committee on Rural Credit under the

Chairmanship of Prof. V. S. Vyas also stressed the need and importance of human resource policy.

The Task Force on Revival of Rural Cooperative Credit Institutions (2005) constituted under the

Chairmanship of Prof A. Vaidyanathan had made recommendations about implementation of

human resource policy including fit and proper criteria, training, computerisation etc. As

cooperation being a state subject, there are wide variations in the policies followed by various

states. Thus, there was a need for focusing exclusively on issues of human resource policy of STCCS.

Accordingly, as per recommendations of the Task Force on Revival, a “Working Group on Human

Resource Policy for Short Term Cooperative Credit Structure” was constituted by NABARD to

formulate and suggest comprehensive human resource guidelines for the SCBs and DCCBs, under

the Chairmanship of Shri S. K. Mitra, Executive Director, NABARD.

The Working Group had examined the data and information obtained from SCBs, DCCBs

and NAFSCOB and held extensive discussions with officials of concerned institutions/federations

etc. The working group while making important observations on staff strength, recruitment,

placement, training, promotion and lack of career planning etc., studied these issues and made

necessary recommendations for enabling SCBs and DCCBs to operate efficiently and effectively in

the highly competitive environment. SCBs were categorised as A, B, C, and D on their business level

(A = business above Rs.10,000crore, B = Rs.5,000 crore to Rs.10,000 crore, C = Rs.2,000 crore to

Rs.5,000 crore and D = up to Rs.2,000 crore). Similarly, branches of SCBs were also categorised into

A, B, C and D.

The working group recommended three categories of staff – Officers, Clerical and support

staff. The group also suggested SCBs to make assessment of staff requirement, assigning unique

identification number (UIN), to issue identity cards and liveries etc. to employees. Engagement of

independent agency for recruitment, and fixing the eligibility standards, fixing the ratio between

promotion and direct recruitment were also recommended by the group. Other

recommendations made by the working group include transparent transfer policy, outsourcing of

non-core functions, comprehensive review of service rules and funding support by NABARD from

its Cooperative Development Fund (CDF) for computerisation of STCCS by way of grant and soft

loans. The group also felt the need for improvement in the quality of training and capacity building

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of STCCS. The working group assessed the training needs of the staff and envisaged a major role of

Board of Directors in sustainability of STCCS.

To develop a cadre of technical and professional competence, the NABARD has set up

“Centre for Professional Excellence in Cooperatives” (C-PEC) in BIRD, Lucknow. The group

suggested NABARD to provide financial support to STCCS for availing training facilities in C-PEC,

BIRD.

Further, the working group recommended that a separate State level Steering Group

comprising HR professional, representatives of NABARD, Co-operation Department of State Govt.,

BIRD and other Training Establishments of NABARD, SCB and select DCCBs need to be constituted

for preparation of a road map for implementation of the recommendations of the working group,

monitoring and review thereof, at least for a period of three years. Representative of NAFSCOB

could be a special invitee. This group would report on the progress, every quarter, to the State

Level Task Force (SLTF) constituted by NABARD.

Therefore, we are of the view that the state governments and or SCBs need to initiate the

immediate measures to implement the recommendations of the working group which include

setting up of a State level Steering Group with the spelt out objectives.



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MULTI-STATE COOPERATIVE SOCIETIES (AMENDMENT) BILL - 2010


Government of India enacted the Multi-Unit Cooperative Societies Act in 1942 to facilitate

the organization, administration and functioning of cooperative societies with objects not

confined to one state and serving the interests of members of such societies from more than one

state. The lack of uniformity and inadequacies in the then existing arrangement rendered it

necessary to replace the Multi Unit Cooperative Societies Act, 1942 by a common comprehensive

Central legislation namely, the Multi-State Cooperative Societies (MSCS) Act, 1984 providing for a

central authority to be responsible for their registration, promotion and supervision. In view of the

increasing demand of cooperative societies for more autonomy and democratic management

with less control from the Central or State Government, a Committee under the Chairmanship of

ChoudharyBrahmPerkash was set up. The report of the said Committee suggested a model

cooperative law. Based on the said report, the MSCS Act, 1984 was replaced by MSCS Act, 2002.

In view of the recommendations made in the report of High Powered Committee on

Cooperatives and suggestions received from the Cooperative sector. Government of India felt the

need to amend the MSCS Act 2002. Therefore, Government of India introduced the MSCS th(Amendment) Bill 2010 in LokSabha on 20 December 2010 and it was referred to Parliamentary

Standing Committee on Agriculture headed by ShriBasudebAcharia for examination. The Bill

proposed to amend the MSCS Act, 2002 inter alia, (a) to make the management of these

cooperative societies more responsible to the members and accountable by making provision for

(i) constitution of Interim Board, (ii) accounting standards, (iii) constitution of Audit and Ethics

Committee, (iv) calling for information or explanation by the Central Registrar of the MSCS, (v)

Special Audit; (b) strengthen the provision relating to election of the members of the Board of the

MSCS; (c) make provisions for broad based representation in the Board of the MSCS by providing

reservation for the Scheduled Castes, the Scheduled Tribes and women; (d) take certain measures

which would facilitate the building of self-reliant, democratic and professionally efficient

cooperative institutions; (e) bringing transparency in the functioning of the MSCS by making

provision for appointment of Cooperative Information Officer, Chief Information Officer for

providing information about the affairs and management of the MSCS and also make provision for

appeal.

A meeting of Chairmen and Chief Executives of all National Level MSCS was convened on 23

November 2010 by National Cooperative Union of India (NCUI) to peruse the proposed

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amendments and National Federation of State Cooperative Banks (NAFSCOB) took active part in

the deliberations. The views emerged out of the meeting; most important proposed amendments

are presented below.

· The power to amend the bye-laws, inconformity with proposed Act should remain with the

General Body of the Society which is supreme. Therefore, the proposal to give power to

Central Registrar to register the amendments with modification needs to be withdrawn

(Section 11).

· The original provision of amalgamation or transfer of assets and liabilities may be retained as

the resolution passed by General Body of the Society should be considered good enough for

this purpose. Thus, the proposal to decide with the approval of Central Registrar need not be

considered (Section 17).

· The suggested new provision giving discretionary power to Central Registrar to declare a

MSCS as a sick society leading to a constitution of interim Board for a major period of 5 years

should be withdrawn.

· The power for cancellation of registration of the Society may not vest in the Central Registrar

as while registering a Society, the Registrar is expected to examine all aspects of the Society

(Section 21).

· The original provision of redemption of shares on the face value of the shares in the case of

refund of share capital held by the government should be retained. The proposed

amendment 'MSCS may refund in full or part of the share capital held by the Government,

who shall accept such redemption on the face value or book value of shares, which ever is

higher' is not in accordance with cooperative principles. The Proposed amendment

envisages that refund of shares to Government on face value or book value; in case of a

member it is face value. Therefore, it is not advisable to maintain two standards, thus the

proposal to amend this section needs to be dropped (Section 35 (2)).

· The Constitution Amendment Bill does not provide for induction of nominated members and

making them eligible to be elected as President/Vice-President of the Board and therefore

the proposed provision is not in tune with the democratic principles of cooperative. Only

elected members should be eligible for this purpose. Hence, the proposal to allow nominated

members to be elected as Chairman or Vice-Chairman of the Board needs to be withdrawn

(Section 45).

· The existing provision may continue as the Constitution Amendment Bill provides for special

audit only where government holds more than 51% share capital. Therefore, the proposal to

omit the provision of order for special audit of a MSCS if the Government or State

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Government either by itself or both holds less than 51% of paid up share capital or of the

shares in such MSCS needs to be dropped (Section 77 (1)).

· The proposal to establish a Cooperative Rehabilitation and Reconstruction Fund are

appreciated (New Provision, Section 63 (A)).

However, appropriate measures needs to be taken to ensure that the proposed Bill does not

aim at giving sweeping powers to Central Registrar of Cooperative Societies over the Management

of National Level MSCS and issues such as power to decide the disputes, panel of auditors, auditing

standards, extending period for holding election etc. Further, the proposed amendments should

ensure freedom of autonomy to the democratically managed MSCS.

'CO-OPERATIVE ENTERPRISES BUILD A BETTER WORLD'


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DEREGULATION OF INTEREST RATE ON SAVINGS BANK DEPOSIT (April-June, 2011)

The Reserve Bank of India, as a part of Financial Sector Reforms during 1990-1997,

deregulated interest rates on deposits, other than savings bank deposits. The interest rate on

savings bank deposits remains unchanged at 3.5 per cent per annum since March 1, 2003.

Pursuant to the Second Quarter Review of Monetary Policy 2010-11 announcement on November

2, 2010 and keeping in view progressive deregulation of interest rates, a Discussion Paper has been

prepared to delineate the pros and cons of deregulating the savings bank deposit interest rate.

The Discussion Paper prepared by Reserve Bank of India was placed on its website for feedback

from general public. It was also an attempt to take on board the suggestions/feedback of various

stakeholders for either maintaining the status quo or deregulating the savings deposit interest

rate. The suggestions/feedback sought from the general public focussed on five major issues viz.

(1) Whether the savings deposit interest rate be deregulated at this point of time? (2) Whether

savings deposit interest rate be deregulated completely or in a phased manner, subject to a

minimum floor for some time? (3) How can the concerns with regard to savers (senior citizens,

pensioners, small savers, particularly in rural and semi-urban areas) be addressed in case savings

deposit interest rate is deregulated? (4) How serious are concerns relating to a possible intense

competition amongst banks and asset-liability mismatches if savings deposit interest rate is

deregulated? and (5) Should higher interest rate be paid on savings deposits without a cheque

book facility?

We express the following preliminary views subject to ratification by the Board of National

Federation of State Cooperative Banks (NAFSCOB) the process of deregulation of interest rates,

which began in the early 1990s and almost completed by October 1997 should be revived. The

interest on savings bank deposit is the only interest rate that remains to be deregulated. Therefore,

it suggests that it is desirable to deregulate, even at this point of time, the saving bank deposit

interest rate. We suggest complete deregulation of interest rates on savings bank deposits. We

are of the view that there may not be a need for fixation of minimum floor rate. We are also of the

view that the interest rates on savings bank deposits may be decided by banks for all the depositors

in a deregulated policy environment. The concerns of senior citizens, pensioners etc. are being

taken care by offering higher rate of interest on term deposits. Similar concern may be

demonstrated by banks in case of savings bank depositors. The competition, no doubt, amongst

banks will be very intense under the deregulated policy environment. This may be allowed keeping

in view of the benefits for the savings bank depositors. This may also help to inculcate the savings

habit, exploit the potential that is available at all levels and mobilize the resources. We are of the

view that all the depositors of the savings bank account within the same category should be

offered the same rate of interest without any discrimination. However, certain guidelines may be

issued with regard to utilization of the cheque facility, need for levying fee for utilizing the cheque

book beyond fixation of minimum number of leaves to be used per month by the depositors.



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FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION(July-September, 2011)

There are more than 60 Acts and multiple Rules and Regulations in the India's financial

sector and many of them are decades old. Further, the large number of amendments made in

these Acts over a period increased the ambiguity, anomaly and complexity of the financial system.

Therefore, the Government of India recognized the need to review, rewrite and streamline the

financial sector Laws, Rules and Regulations and to bring them in harmony with the requirements

of India's fast growing financial sector.

Persuant to the Union Budget (2011-12) presentation, the Financial Sector Legislative

Reforms Commission (FSLRC) under the Chairmanship of Justice (Retd.) B. N. Srikrishnawas thformed on 24 March 2011. The major task before the Commission is to simplify and rewrite

financial sector legislations, including subordinate legislations, to achieve harmony and synergy

among them. It is also expected to remove ambiguity, regulatory gaps and overlaps among various

legislations by making them more coherent and dynamic. In the long-term, it would help usher in

the next generation of reforms, contribute to efficient financial intermediation enhancing the

growth potential of the nation.

The Commission has been asked to submit its report to the Union Finance Minister within

24 months which will be processed thereafter by the Department of Economic Affairs for

implementation. The Terms of Reference of the Commission are: (i) examining the architecture of

the legislative and regulatory system governing the Financial sector in India, (ii) examine if

legislation should mandate statement of principles of legislative intent behind every piece of

subordinate legislation in order to make the purposive intent of the legislation clear and

transparent to users of the law and to the Courts, (iii) examine if public feedback for draft

subordinate legislation should be made mandatory, with exception for emergency measures, (iv)

examine prescription of parameters for invocation of emergency powers where regulatory action

may be taken on ex parte basis, (v) examine the interplay of exchange controls under FEMA and FDI

Policy with other regulatory regimes within the financial sector, (vi) examine the most appropriate

means of oversight over regulators and their autonomy from government, (vii) examine the need

for re-statement of the law and immediate repeal of any out-dated legislation on the basis of

judicial decisions and policy shifts in the last two decades of the financial sector post-liberalisation.

(viii) examination of issues of data privacy and protection of consumer of financial services in the

Indian market, (ix) examination of legislation relating to the role of information technology in the

delivery of financial services in India, and their effectiveness, (x) examination of all

recommendations already made by various expert committees set up by the government and by

regulators and to implement measures that can be easily accepted and (xi) examine the role of

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state governments and legislatures in ensuring a smooth inter-state financial services

infrastructure in India, (xii) examination of any other related issues.

Therefore, it is an appropriate time to present the suggested legislative changes in the

existing most relevant Acts such as Banking regulation Act, RBI Act, NABARD Act, Cooperative

Societies Act, Multi State Cooperative Societies Act, Deposit Insurance Act, etc.



129

UN INTERNATIONAL YEAR OF COOPERATIVES (IYC) – 2012


The United Nations (UN) proclaimed the year 2012 as the 'International Year of Cooperatives' (IYC – 2012) to acknowledge the cooperatives for their valuable contributions towards economy, social change, successful business, creation of employment opportunities and robust to the global economic crisis etc. The IYC – 2012 aims at increasing the public awareness about cooperatives, how they benefit their members and contribute to socio-economic development and the achievement of Millennium Development Goals; promoting awareness of the global network of cooperatives and their efforts in community building, democracy and peace; promoting the formation and growth of cooperatives among individuals and institutions to address common economic needs and for socio-economic empowerment and encouraging Governments and regulatory bodies to establish policies, laws and regulation conducive to cooperative formation and growth. Accordingly, the right slogan, 'Cooperative Enterprises Build a Better World' is released.

stUnited Nations officially launched the IYC – 2012 on 31 October, 2011 at the United Nations General Assembly. As the International Cooperative Alliance (ICA) represents the global

thcooperative movement and it launched the IYC – 2012 officially in ICA's General Assembly on 18 November, 2011 at Cancun in Mexico. Over 2,000 delegates representing 300 organisations from 83 countries witnessed the launch of the IYC – 2012 in General Assembly of ICA. From India, NAFSCOB took lead in representing the Indian Short Term Cooperative Credit Structure at the launch of IYC – 2012. Following the launch of IYC – 2012, Ms. Dame Pauline Green, President of ICA addressed the plenary session of cooperative executives represented by different countries. As part of the event of launch of IYC – 2012, the ICA held various events during 14-18, November, 2011. The representatives from various cooperatives across the world presented their theme based paper in the event of IYC – 2012 launch.

During the presentation of theme based papers from representatives across the world felt that the cooperative movement globally needs to dramatically lift its public profile to take it to the outside area of cooperative sector and play with other business models in the world.

The International Year of Co-operatives offers the global co-operative community a platform to demonstrate that co-operatives offer a diverse, values-based business model to provide a sustainable source of revenue for communities and individuals. Thus, the General Assembly of ICA at Cancun gave an opportunity to raise the global profile of cooperatives during IYC – 2012 by creating common global messages and common global presence to influence the key decision makers across the world to support cooperative movement which is creating solutions for economic crisis in the world.

Every cooperative irrespective of their size and objectives /functions should rise to the challenges of turning the UN declaration into actions during the entire period of 2012 and beyond.



130

UNION BUDGET WEAKENS RURAL COOPERATIVE CREDIT DELIVERY SYSTEM


Union Finance Minister ShriPranabMukherjee presented the Union Budget for the year 2012-13 in the LokSabha on March 16, 2012.

The Finance Minister identified five objectives to address effectively in the ensuing fiscal year, viz. (i) Focus on domestic demand driven growth recovery; (ii) Create conditions for rapid revival of high growth in private investment; (iii) Address supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation; (iv) Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts and (v) Expedite coordinate implementation of decisions being taken to improve delivery systems, governance and transparency and address the problem of black money and corruption in public life. At the outset, we welcome those objectives. Further, we present below our views on most important proposals more particularly those related to Agriculture, Cooperatives, Banking, etc.

As a part of the strategy of Government of India to ensure agriculture growth, it is proposed to raise the target for agriculture credit in 2012-13 to Rs.5,75,000crore from Rs.4,75,000 crore during the year 2011-12. The budget proposal also sought to continue the interest subvention scheme for providing short term crop loans to farmers at 7 per cent interest per annum in 2012-13 and the additional subvention of 3 per cent will continue to be made available to prompt paying farmers. In addition, the same interest subvention on post-harvest loans upto six months against negotiable warehouse receipt will also be available with a view to encourage the farmers to keep their produce in warehouse. We welcome this proposal. However, the budget is silent on the continuous justifiable demand of the rural cooperative banks for an interest subvention of at least 4.5 per cent to facilitate advancing loans to farmers at 7 per cent per annum and therefore, it is assumed that the present interest subvention of 2 per cent will continue to be made available to the banks. We are of the view that upward revision of interest subvention to the banks from 2 per cent to 4.5 per cent would certainly ensure in achieving the target of Rs.5,75,000 crore for agriculture credit and further contribute to increase in the share of rural cooperative credit institutions in agricultural lending. We also welcome the budget proposals for (a) setting up of Short term Credit Refinance Fund for Regional Rural Banks at the level of NABARD, (b) decision to modify to make Kisan Credit Card (KCC) a smart card which could be used at ATMs, (c) proposal to extend the scheme of capitalization of weak RRBs by another 2 years to enable all the states to contribute their share, (d) proposal to enhance the allocation under Rural Infrastructure Development Fund (RIDF) to Rs.20,000 crore. It is further proposed to earmark an amount of Rs.5,000crore from the above allocation exclusively for creating warehouse facilities under RIDF. We also welcome the proposal to provide a total sum of Rs.15,888crore for capitalization of Public Sector Banks, Regional Rural Banks and other financial institutions including NABARD. Government, in this connection appears to be examining the possibility of creating a financial holding company which will raise resources to meet the capital requirements of Public Sector Banks. However, we note here with serious concern the slow pace of implementation of the

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recapitalization process as enunciated under the Revival Package and approved by the Government of India to the rural cooperative credit institutions. We also note with serious concern that the recapitalization support though made available to the cooperative credit institutions in the States which have opted for the Revival Package, similar support is yet to be made available to the District Central Cooperative Banks (DCCBs) in the country. In the absence of the recapitalization to the DCCBs, it is quite possible that few DCCBs may face difficulty in achieving the CRAR of even 4 per cent, which is one of the requirements for grant of licence.

We appreciate the proposed measures for a comprehensive action plan to bring banking payment structure at par with global standards and also the proposal to develop a central Know Your Customer (KYC) depository in 2012-13 to avoid multiplicity of registration and data upkeep. While we appreciate the proposals aimed at ensuring Financial Inclusion, the support sought by the rural cooperative credit and banking sector is yet to be appropriately addressed which includes the issue of Business Correspondents. Further, we sincerely welcome the proposal to move official amendments to (a) The Pension Fund Regulatory and Development Authority Bill, 2011, (b) The Banking Laws (Amendment) Bill, 2011 and (c) The Insurance Laws (Amendment) Bill, 2008 in this session of the Parliament. Further, we also welcome the proposal to move the following Bills in the Budget Session of the Parliament:

a. The Micro Finance Institutions (Development and Regulation) Bill, 2012;b. The National Housing Bank (Amendment) Bill, 2012;c. The Small Industries Development Bank of India (Amendment) Bill, 2012;d. National Bank for Agriculture and Rural Development (Amendment) Bill, 2012;e. Regional Rural Banks (Amendment) Bill, 2012; f. Indian Stamp (Amendment) Bill, 2012; andg. Public Debt Management Agency of India Bill, 2012.h. However, we recommend a specific amendment to the Banking Regulation Bill, 1949

to facilitate Cooperative Bank of India to be defined as the Bank so as to become eligible for grant of licence to carry out the banking business which may serve the purpose of addressing the systemic gap of the cooperative banking structure.

The Budget proposal, it has been observed, is silent on restoring the Income Tax exemption available to the cooperative banks under Section 80P of the Income Tax Act, 1961.

Union Budget 2012-13 do not appear to have appreciated the significant role played by the rural cooperative credit and banking institutions. Further, the Union Budget did not propose any measures to strengthen them. If this trend continues it may weaken the entire cooperative credit delivery system/profile and therefore needs to be addressed to avert such a grave situation.



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LICENCING OF SCBs AND DCCBs(April-June, 2012)

The provisions of the Banking Regulation (B.R.) Act 1949 (AACS) have been extended to all

State Cooperative Banks (SCBs), District Central Cooperative Banks (DCCBs) and Urban

Cooperative Banks from March 1, 1966. As per the norms prevailing for issuing banking licence to

SCBs and DCCBs, as on March 1, 1966, out of 28 SCBs, only 10 SCBs and 38 out of 352 DCCBs have

been granted licence. The trend of issuing banking licence to SCBs and DCCBs has been very slow

since then.

National Federation of State Cooperative Banks (NAFSCOB) has been, since 1992,

impressing upon Reserve Bank of India (RBI) to appreciate the need to review the then existing

norms for licencing and also expedite grant of licence to the SCBs and DCCBs. NAFSCOB at one

point of time argued the desirability of allowing them to carry out banking business without

licence instead of granting licence. RBI moved on the representation of NAFSCOB after 15 years in

this regard.

The Government of India in consultation with RBI had constituted a 'Committee on

Financial Sector Assessment' (CFSA) in September 2006 to undertake a comprehensive self-

assessment of India's financial sector including rural cooperative credit institutions viz. SCBs and

DCCBs, under the Chairmanship of Dr.Rakesh Mohan, the then Deputy Governor, RBI. The

Committee had submitted its Six volume report entitled, 'India's Financial Sector: An Assessment' thto the Hon'ble Union Finance Minister, ShriPranab Mukherjee on 25 March, 2009. One of the

recommendations of the CFSA was to prepare a roadmap for ensuring that only licenced banks

operate in the cooperative space and to ensure that the banks which fail to obtain a licence by

2012 would not be allowed to operate.

As a result of implementing the recommendations of CFSA, 30 out of 31 SCBs and 306 out of

371 DCCBs have been granted licence as on March 31, 2012, we understand, out of 65 unlicensed

DCCBs, 24 DCCBs have been further recommended for grant of licence, leaving the remaining 41 to

carry out the banking business with restrictions and conditionality.

RBI, in the light of the above has initiated action against one SCB and few DCCBs which could

not fulfil the criteria by March 31, 2012 to become eligible for grant of licence by issuing directions

under Section 35A of B.R. Act 1949 (AACS). The directions which include not to accept fresh

deposits including Saving Bank (SB) Accounts, Current Accounts, Fixed Deposit Accounts,

Recurring Deposit Accounts and/or any other deposit account by whatever name called will have

far reaching consequences and negative impact, not only on the unlicensed SCB/DCCBs, but also

on the trust factor of the entire cooperative credit and banking institutions which included

licensed SCBs/DCCBs. The negative publicity generated out of the direction of the RBI and the

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manner in which these directions have been made public is resulting in withdrawal of deposits

even from the licensed SCBs and DCCBs, thereby, weakening their financial base and the

reputation base. However, the bank is allowed to renew the existing deposits.

Therefore, there is a need to reconsider the imposition of Section 35A of B.R. Act 1949

(AACS) on these banks and also consider extending the time frame for fulfilling the criteria and

obtain licence. It is also necessary to consider extension of the time frame for obtaining licences

from the present deadline of 31 March 2012 to 31 March 2014 or till the recapitalisation assistance

is released to those unlicensed DCCBs by Government of India and/or by State Governments. We

should not allow the member driven democratic cooperative organisations to perish because of

the reasons which can easily be addressed.



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RBI EXPERT COMMITTEE ON STREAMLINING OF STCCS(July - September, 2012)

The Reserve Bank of India constituted an Expert Committee under the Chairmanship of

Dr.PrakashBakshi, Chairman, NABARD to reviewthe existing Short Term Cooperative Credit

Structure(STCCS) focusing on structural constraints in rural credit delivery system and explore

various ways to strengthen the rural cooperative credit architecture with appropriate institutions

and instruments of credit to fulfill credit needs. Objectives of the Committee areto make an in-

depth analysis of the STCCS and examine various alternatives with a view to strengthen the

structure, reduce the cost of credit, including feasibility of setting up of a two-tier STCCS as against

the existing three-tier structure. The Terms of Reference (TOR) of the Expert Committee are (i) to

assess role played by State & District Central Cooperative Banks in fulfilling the requirement of

agriculture credit, the primary purpose for which they were set up, (ii) to identify Cooperative

Banks that may not be sustainable in the long run even if some of them have met the diluted

licensing criteria for the time being, (iii) to suggest appropriate mechanism for consolidation by

way of amalgamation, merger, takeover, liquidation and delayering, (iv) to suggest pro-active

measures that need to be taken in this direction by the cooperative banks themselves, GOI, State

Governments, RBI and NABARD and (v) any other issues and concerns relevant to the subject

matter.

The implementation of recommendations of the most important Committees/Task Force,

more particularly the implementation of the Revitalisation Package are in the process aimed at

legal, financial, institutional, regulatory and structural reforms. Therefore, we are of the view that

there do not appear to be any urgency of setting up of the Expert Committee with the above TOR

and it is certainly untimely. However, we apprehend that the Expert Committee has been

constituted with a twin motive of identifying the cooperative banks with a view to delicencing and

reopening the issue of delayering the well-conceived three tier short term cooperative credit

structure. The Agricultural Credit Review Committee 1989 (ACRC) under the Chairmanship of

Prof. A. M. Khusrowas of the firm view that the 'intangible advantage that accrued to the system

under the existing three tier structure far outweighed meagre saving'. Thus, concluded that there

was no advantage in abolishing any of the tiers but positive advantages in continuing with the

three tier structure. Expert Committee on Rural Credit under the Chairmanship of V.S. Vyas (ECRC

– 2001) rightly observed that 'delayering by itself may not result in any substantial cost saving or a

more efficient system'. Task Force recognised the “important role that the cooperative network

can play in delivering credit to sections of the rural population, which cannot, or are unlikely, to

be reached through commercial and rural banks”.

RBI appropriately acknowledged the importance of the existing structure of STCCS as 'Rural

cooperative credit structure in India is an important mechanism to reach credit to the smallest

man in the remotest areas of the country'. Further, the Task Force (Prof. Vaidyanathan) rightly

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observed that 'in a country predominated by small or marginal land holdings, the reach of the

cooperative system is much deeper than the other institutional arrangements in the rural

areas'. The STCCS provide all banking and other services to its clients in rural areas. Further, the

share of STCCS in disbursement of Kisan Credit Cards (38.57%), formation and linking of Shelf

Help Groups (15.47%) is considerable.

The STCCS is in the midst of implementation of the Revitalisation Package. RBI Expert

Committee should look into various measures that would be required for strengthening STCCS

and delayering is certainly not the one. Instead of delayering, the need of the hour is to provide

assistance in developing appropriate technology for enhancing efficiency to increase the level

of CRAR and ensure compliance of licencing norms.PACS should be allowed to function as BCs

of DCCBs.

Further, we, on behalf of the entire short term cooperative credit structure, strongly

recommend towards continuation of the existing structure and help to ensure increase in the

number of licensed cooperative banks, thus making three tier short term cooperative credit

structure viable, strong, dynamic, autonomous and democratic.



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CULMINATION OF INTERNATIONAL YEAR OF COOPERATIVES – 2012 (IYC – 2012)


The UN proclaimed the year 2012 as the IYC to acknowledge the cooperatives for their valuable contributions towards economy, social change, successful business, creation of employment opportunities and robust to the global economic crisis etc. The IYC-2012 aimed at increasing the public awareness about cooperatives, how they benefit their members and contribute to socio-economic development and the achievement of Millennium Development Goals; promoting awareness of the global network of cooperatives and their efforts in community building, democracy and peace; promoting the formation and growth of cooperatives among individuals and institutions to address common economic needs and for socio-economic empowerment and encouraging Governments and regulatory bodies to establish policies, laws and regulation conducive to cooperative formation and growth. Accordingly, an appropriate slogan 'Cooperative Enterprises Build a Better World' was released.

The year-long celebration of IYC – 2012 gave an opportunity to cooperatives world-wide to introspect their strengths, weakness and demonstrate their potentialities to become cooperative business model as an alternative means for business and socio-economic development. Dr.DuvvuriSubbarao, Governor, RBI rightly mentioned that “cooperatives have a very meaningful role to play in today's complex, globalizing world”. He further, argued that the cooperative ethic remains relevant even today and “indeed, we have become even more aware of the value of a member driven, grass root institution like the cooperative after witnessing the devastation caused by the greed and excess of the financial sector that resulted in the global financial crisis of 2008-09”. The socio-economic development mainly depends on inclusive growth and cooperation. Cooperatives have potential for inclusive growth as their roots lie in rural and under developed areas. Thus, cooperatives can play a very positive role in economic development. Cooperative credit institutions which based on cooperative philosophy are best example of a value based business model as their mobilising deposits and lending are based on their knowledge of the borrower rather than the collateral. Mr. Ban Ki-moon, the UN Secretary General, rightly said that 'Cooperatives are a reminder to the international community that it is possible to pursue both economic viability and social responsibility'. Therefore, the world is looking towards cooperatives as a safeguard for financial stability against the era of financial crisis.

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During IYC-2012, the International Cooperative Alliance (ICA), the Co-operative Group andCo-operatives UK jointly organised Co-operatives United as culminating event of the IYC in

th ndManchester, UK from 29 October, 2012 to 2 November, 2012.The ambitious plan in the Blueprint for a Cooperative Decade - the “2020 Challenge” - is for the co-operative form of business by 2020 to become:

· The acknowledged leader in economic, social and environmental sustainability· The model preferred by people· The fastest growing form of enterprise

According to Mr. Charles Gould, Director General, ICA “with the blue print we indicate to use the base of IYC, the exposure of the limits of other models of business to global desire for sustainability, to raise cooperatives awareness and impact and to step up to take our full and rightful place in the global economy.

Pursuant to the decision taken by the Board of Directors of National Federation of State Cooperative Banks (NAFSCOB), Five Regional Seminars and One National Seminar during the year IYC-2012 have been organized with an emphasis on five selected themes viz., (1) Cooperative Enterprises Build A Better World – Strategies to fulfil the IYC theme, (2) Need for Institutional Protection System (IPS) in Short Term Cooperative Credit Structure, (3) Strategies for implementing KYC & AML Policy, (4) To ensure Financial Inclusion aimed at inclusive growth and (5) Development and Strengthening Strategies for Rural Cooperative Credit and Banking Institutions.

NAFSCOB is proud of the resounding success of its IYC 2012 initiatives. The entire credit goes to the stakeholders of the rural Cooperative Credit Institutions for their keen interest throughout 2012. The enthusiasm, inspiration and the confidence generated by IYC 2012 under the leadership of Ms. Dame Pauline Green, President, ICA, NAFSCOB and the spirit of cooperatives, it is hoped, will continue to be maintained to promote the image and power of cooperatives throughout the world. IYC 2012 was a great success with a primary objective to raise public awareness of the cooperatives as a serious value based member driven controlled model of enterprises being achieved. Therefore, we should resolve not to let this great momentum that IYC has generated simply come to an end. We should resolve to continue the spirit of IYC 2012. We thank our members and everyone else that helped raise the profile of NAFSCOB and develop its image during the IYC-2012.



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RECOMMENDATIONS OF EXPERT COMMITTEE TO EXAMINE THREE-TIER STCCS& UNION BUDGET 2013-14


The Reserve Bank of India constituted an 'Expert Committee to Examine three tier Short Term Cooperative Credit Structure (STCCS)' on 23 July 2012 under the Chairmanship of Dr. PrakashBakshi, Chairman, NABARD. The broader objective of the Committee was 'to review the existing STCCS focussing on structural constraints in rural credit delivery system and explore various ways to strengthen the rural cooperative credit architecture with appropriate institutions and instruments of credit to fulfil credit needs'.

thThe Expert Committee submitted its report to RBI on 15 January 2013. The Committee has made a number of recommendations. A perusal of few most important recommendations compels us to express our concern and anxiety about the future of the very existence of grass root level organisations in STCCS. The recommendations include (i) Recommendation of converting CCBs/SCBs as Urban Cooperative Banks, (ii) Making it compulsory for PACS to work as Business Correspondents (BCs) to carry out loaning operations as well as deposits collection on behalf of the CCBs and also force them to be on the books of CCBs, (iii) proposal that all the depositors and borrowers of PACS would become normal shareholding members of the CCB with voting rights, (iv) Converting SCBs into Multi-State Federal Cooperative Bank, (v) Amendment of Acts and (vi) Technology before September 2013. The recommendations do not appear to be maintaining the status quo of the structure in its original form i.e., continuation of the three tier STCCS in the major states and two tier STCCS in smaller states. If the recommendations of the Committee are accepted, there will probably be a total collapse of STCCS and also a vacuum in the credit delivery system more particularly small and marginal farmers. However, the recommendations of the Expert Committee which are aimed at financial, promotional and developmental reforms are most welcome.

UNION BUDGET – 2013-14:

Dr. P. Chidambaram, Hon'ble Finance Minister, Government of India presented the Union thBudget for the year 2013-14 on Thursday the 28 February 2013. We welcome the proposal for

allocation of Rs.27,049crore to the Ministry of Agriculture, an increase of 22 per cent over the revised estimate of the current year. A sum of Rs. 3,415 crores will be provided to agricultural research. We also welcome the increase in target of agricultural credit from Rs.5,75,000crore in 2012-13 to Rs.7,00,000 crore for the year 2013-14. We also welcome the continuation of the interest subvention scheme for short term crop loans wherein the farmers who repays the loan on time will be able to get credit at 4 per cent per annum. The Budget proposals which include raising the corpus of RIDF – XIX in 2013-14 to Rs. 20,000 crores to be operated by NABARD and proposal to provide for working capital as term loan at a concessional interest of 6 per cent to Handloom Weavers are most welcome. An additional sum of Rs. 96 crores in 2013-14, will be allocated to the Ministry of Textile for Interest Subvention to help individual weaver and Primary Cooperative Societies is certainly a measure to strengthen Handloom Cooperatives.

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We look forward for the report of the Financial Sector Legislative Reforms Commission (FSLRC). While we note and appreciate the concern of the Government of India for its proposal to provide Rs.12517 crores to infuse additional capital into 13 Public Sector Banks and to provide a further amount of Rs. 14,000 crores in 2013-14, a capital infusion to ensure compliance of Basel III regulations, we regret to note the hostile attitude of Government of India towards recapitalisation to the STCCS. Infact, the recapitalisation process initiated as a result of the recommendation of the Task Force on “Revival of Rural Cooperative Credit Institutions” by Prof. A. Vaidyanathan is still incomplete and this should be given an urgent attention.

We look forward to the intervention of Government of India to bring cooperative banks on CBS and e-payment system by 31-12-2013. Union Budget should have focussed on the Income Tax exemptions to Cooperative Banks, in addition to the promise made to (i) Women, (ii) Youth and (iii) Poor.



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ST SAO POLICY OF NABARD- NEED FOR A REVISION

(April-June, 2013)

While inaugurating NABARD in 1982, the late Prime Minister Smt. Indira Gandhi expressed

that “NABARD should so develop that people would regard it as a friend and a guide rather than as

a rigid institution. Also its cadre must be imbued with a sprit of development and services”. The

basic objectives of policy for provision of refinance to cooperative banks are (a) to supplement the

resources of State Cooperative Banks (SCBs)/District Central Cooperative Banks (DCCBs) for

meeting the production needs/working capital needs of farmers/weavers/rural artisans etc.,(b) to

improve the ground level credit flow for various agricultural and allied activities/non farm

activities in rural areas, (c) to enable coop banks to have incidental access to cross-subsidization of

their own high cost resources, and (d) to ensure building up of a sound, efficient, effective and

viable co-op credit structure. Financing to farmers for SAO remained as a priority business of rural

cooperative banks since beginning (even before NABARD came into existence).The resources for

the purpose are in general , mix of borrowing from RBI/NABARD and the resources available with

the structure itself. In fact cooperative banks cannot help approaching NABARD for refinance to

the extent the resources fall short of their requirement and are for viable operations. This, in fact,

is also the justification for existence of NABARD. The line of credit provided by NABARD for

financing ST SAO goes for production credit /oriented programmes and therefore cannot be

allowed to suffer either for want of funds or for want of compliance of certain unprescribed norms

& unacceptable norms. The need of imposing diluted criteria of norms should not arise in case of

ensuring smooth flow of higher quantum of refinance to agricultural credit. Any restrictive ST SAO

refinance policy certainly acts as a serious deterrent in implementing the proposal of Government

of India, to increase the target of agricultural credit for the year 2013-14 and implementation

thereof.

The ST SAO policy ofNABARD for the year 2013-14, unfortunately, restricts the sanction of

refinance to co-operative banks based on certain stringent conditions and creates hurdles on co-

operative credit institutions in ensuring delivery of credit. The Short Term Cooperative Credit

Structure (STCCS) has been providing major chunk of crop loan over the years for seasonal

agricultural operations. It is observed that the recent guidelines announced by NABARD on ST

refinance to State Cooperative Banks for refinancing SAO denied access to refinance for those who

fail to comply with the provisions stipulated under the policy. In fact, the need of imposing strict

criteria of norms should not arise in case of ensuring smooth flow of higher quantum of refinance

to agricultural credit. Such impediments will adversely affect the implementation of credit plan

and other segments of refinancing of cooperative banks. A perusal of the revised ST SAO refinance

Policy amply demonstrated that the sole focus of present policy seems to be denial of higher

quantum of refinance and also reduce the number of eligible banks for grant of refinance on

concessional basis, if any.

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It is frustrating to note that NABARD failed to demonstrate its developmental concern. ST

SAO policy for the year 2013-14 is not in tune with Pro Active role of Govt. of India towards

Enhancing Quantum of Agricultural Credit through Rural Cooperative Banks. Therefore, we urge

NABARD to have a relook at its STSAO policy for 2013-14 and make the necessary changes which

are required to enhance credit flow to the cooperative sector. The policy should be transformed

from rigid norms to flexible norms aimed at smooth flow of credit to agriculture and rural

development.



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ASSETS & LIABILITIES AND DEPOSITS OF PACS STAND TRANSFERRED TO DCCBs TO FUNCTION AS BUSINESS CORRESPONDENTS


National Bank for Agriculture and Rural Development (NABARD) vide Circular No. 150/IDD-09/2013 (Ref. No.NB.IDD/ICBC/824/ICBC-14/2013-14) dated 22 July 2013 issued the following directives purportedly to cooperative banks regarding Primary Agricultural Credit Societies (PACS) to act as Business Correspondents (BCs) of District Central Cooperative Banks (DCCBs)/State Co-operative Banks (SCBs) at the instance of Reserve Bank of India (RBI): (1)The assets of PACS arisen out of all lending operations will stand transferred to the books of CCB/StCB along with the related liabilities. (2) Similarly, all deposits collected by the PACS would also be transferred to the CCB/StCB. (3) PACS will not accept deposits on its account and will not do lending operations of any kind on its behalf henceforth under this arrangement. (4) The commission to be paid/charged may also vary as per the types/kind of activities/services rendered. (5) PACS would, however, continue to do other businesses such as agri-related services, marketing of agri-inputs, hiring/maintenance of agricultural tools/equipments, agri-clinics, procurement of farmers' produce, PDS, and other non-financial services etc., as an independent entity out of its own fund and earn income/service charges for providing all these service charges. (6) The share capital mobilized by the PACS from its members by way of share linked capital of the loans provided will now stand transferred to the books of CCB/StCB and will form part of share capital of CCBs. (7) The borrowing members and the depositors will have to become the members of CCB/StCB. The CCB/StCB may decide upon collection of additional share capital or otherwise from its borrowing members under this new arrangement so that the CCB/StCB would be able to comply with the consequential CRAR requirement, if any. (8) CCB/StCB will make arrangements to ensure transfer of relevant securities/documents executed in the name of PACS on its name.

StCBs/DCCBs/PACS are the entities in the Short Term Cooperative Credit Structure (STCCS) formed as per the provisions of the State Cooperative Societies Act and Rules.The existing provisions of the Sate Cooperative Societies Act does not support the directives issued by NABARD purportedly at the instance of RBI. An attempt to implement the Circular would certainly impinge on the rights of members without appropriate legal amendments more particularly the issue of transferring assets of PACS arisen out of all lending operations to the books of DCCB/StCB along with the related liabilities. Resorting to legal amendments to the State Cooperative Societies Act to facilitate them to implement the contents of the NABARD Circular is neither politically advisable nor economically helpful.

RBI while issuing the guidelines in September 2010 for engaging BCs suggested that scheduled commercial banks including Regional Rural Banks (RRBs) and Local Area Banks (LABs) may engage Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/Cooperative Societies Acts of States/Multi State Cooperative Societies Act as BCs. The guidelines of RBI do not envisage transfer of assets and liabilities of PACS to Commercial Banks. The guidelines also do not envisage that the deposits collected by the Cooperative Societies (PACS) would also be transferred to Commercial Banks. Accordingly to NABARD, RBI vide letter dated 10 June 2013 advised that “In States where CCB/StCB are fully computerized and are entirely on CBS

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mode, PACS may be allowed to function as BCs of CCBs the same way they are functioning as BCs of Scheduled Commercial Banks for the purpose of financial inclusion”. This gives a very clear indication that PACS are not required to transfer their assets and liabilities/deposits to DCCBs/StCBs. It is most inappropriate to resort to issue such a Circular and to take away the roles and responsibilities of PACS just because they cannot on their own issue electronicKisan Credit Cards) KCCs and also cannot be part of Electronic Direct Benefit Transfer system. It is utmost essential to appreciate the distinction between the roles and responsibilities of PACS and also the objectives of issuing electronic KCCs and Electronic Direct Benefit Transfer system. At the same time, it is also not appropriate to take away the existing roles of PACS just because they are unable to provide banking services, issue of KCCs, which can be transactable/working on ATMs and POS devices. PACS have the potential and therefore they may be allowed to function as BCs for few identified areas of businesses such as mobilization of loan applications involving higher investments on behalf of DCCBs/StCBs without transferring their assets and liabilities and also deposits. While the concept of BC is well appreciated to address issues under Financial Inclusion, it does not call for transfer of assets and liabilities and also the deposits collected by PACS to DCCBs/StCBs.

The recommendation of the Expert Committee and the Circular issued by NABARD will have adverse implications on the autonomy, independent management of PACS and their democratic character. There do not appear to be any justification in identifying an entity, to almost merge with the higher financing agency at the district level or state level who is basically the principal financers, to function as BC and earn commission. If this is forced to happen, would amount to over a period of time to delayering of one of the well-conceived three tier STCCS. Similarly the merger of the liabilities of PACS with DCCBs as envisaged in the Circular will adversely affect even the stronger DCCBs and weaken them over a period of time. Such a measure may force the intermediary level tier of DCCBs to vanish from out of the well-conceived STCCS. If this is the hidden agenda of the Circular, this should not be allowed to happen. The loans outstanding of PACS with DCCBs in most cases are more than the loan outstanding due from its members. Unless the issue of imbalance is resolved the financial viability of DCCBs would be in danger. Further, the merger of assets and liabilities of PACS with DCCBs also needs to be tackled even before contemplating or resorting to any other measure. The Expert Committee would have given top priority for that issue and related strengthening and streamlining measures.

The contents of the Circular are neither legally tenable nor practically implementable and ththerefore need to be withdrawn. Meanwhile, the circular issued by NABARD on 6 September

2013 clarifying that “the decision of PACS functioning as BC will be taken by cooperative banks, State Governments, PACS and other stakeholders”, helps to gradually remove the apprehensions in the mind of stakeholders about the total collapse of PACS.



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ICA BLUEPRINT FOR A CO-OPERATIVE DECADE


Cooperatives provide hope in the world to cope with financial turbulence and enrich the socio-economic status of members. Cooperatives are mainly based on democratic principle, thus they are helpful in gathering economic resources and covering wider range of human needs by making timely decisions. Cooperatives provide employment opportunities, participation, build self-confidence and create social capital. Mr. Ban Ki-moon, UN Secretary General rightly said that “Co-operatives are a reminder to the international community that it is possible to pursue both economic viability and social responsibility”.

International Cooperative Alliance (ICA) had brought out the 'Draft Blueprint for a stCooperative Decade' and had placed the same in the Extraordinary General Assembly held on 31

October, 2012 in Manchester where in the said blueprint was finalised and approved by the ICA thGeneral Assembly held on 4 November, 2013 in Cape Town, South Africa. NAFSCOB made its

presence and represented Short Term Cooperative Credit Institutions inboth occasions.

Blueprint for a Cooperative Decade' acknowledged leader in economic, social and environmental

sustainability, model preferred by people and fastest growing form of enterprise.

Summary of the Blueprint Strategy:There are five interlinked and overlapping themes of the Blueprint strategy, which is

extracted and illustrated as follows:

The United Nations International Year of Co-operatives-2012 (IYC 2012) marked the beginning of a world-wide campaign to take the co-operative way of doing business to a new level. The vision-2020 of the ' is for the co-operative form of business to become the

The 2020 Vision seeks to build on the achievements of the IYC and the resilience demonstrated by the co-operative movement since the great financial collapse. By pursuing the strategy outlined in document, ICA aims to make 2011-2020, a Co-operative Decade of confident growth.The IYC has provided a powerful focal point for the cooperative sector. It has heightened its sense of shared purpose, illustrated by the range of activities and celebrations of the International Year, by the number of international conferences and summits held around the world with agreed outcome declarations, as well as the wide-spread take-up of the 2012 International Year logo by co-operatives around the world. It has raised the profile of co-operatives beyond the boundaries of the sector itself, in civil society and amongst governmental and inter-governmental bodies.

Co-operatives already make a significant contribution towards alleviating pressing global problems viz., environmental degradation and resource depletion, unstable financial sector, increasing inequality, growing global governance gap, seemingly disenfranchised younger generation, loss of trust in political and economic organisations. But, with appropriate support and greater understanding and recognition, they could contribute much more. Therefore, ICA believes that the major priorities are to make more and more people aware of the co-operative form of enterprise, to provide people with the tools and back-up to establish, fund and develop sustainable co-operatives, and to remove barriers that get in their way.

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Participation:

Therefore, as envisaged by ICA as a part of Blueprint Strategy, (a) ewithin membership and governance to a new level, (b) position co-operatives as builders of sustainability, (c)

ecure reliable co-operative capital while guaranteeing member control.



Co-operatives are better because they give individuals participation through ownership, which makes them inherently more engaging, more productive, and both more useful and more relevant in the contemporary world. The aim is to elevate participation within membership and governance to a new level.

Sustainability:Co-operatives are better because their business model creates greater economic, social and environmental sustainability. Co-operatives are better because they are a business model that puts people at the heart of economic decision making and bring a greater sense of fair play to the global economy. The objective is to develop our external identity.

Identity:This is looked at through the lens of identity – which is defined by the core values and principles of co-operation, and needs to be communicated through a powerful and distinctive message to ensure that co-operatives are seen and understood by everybody from policy-makers to the general public. So the aim is to build the co-operative message and secure the co-operative identity.

Legal frameworks:Co-operatives in every jurisdiction sit within a legal framework. This framework plays a critical role for the viability and existence of co-operatives. The Blueprint seeks to ensure supportive legal frameworks for co-operative growth.

Capital:Co-operatives need access to capital if they are to be established, grow and flourish. The aim is to secure reliable co-operative capital while guaranteeing member control.

levate participation

build the co-operative message and secure the co-operative identity, (d) ensure supportive legal frameworks for co-operative growth and (e) s

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