the role of co-operative credit societies in...
TRANSCRIPT
Chapter II
THE ROLE OF CO-OPERATIVE CREDIT SOCIETIES
IN RURAL CREDIT
The rural co-operative credit structure in India consists of two parts,
one provides short-term and medium-term loans and the other provides long-
term loans. The short-term co-operative credit structure is a three tier system
consisting of the primary co-operative credit societies at village level, central
co-operative banks at district level and state co-operative banks as apex banks
at state level. On the other hand, the long-term credit structure at the moment
is two-tier comprising primary co-operative agriculture and rural development
banks at block and district level and state co-operative agriculture and rural
development banks at top level.
The organizational structure of rural co-operative credit institutions in
India is given in chart 2.1.
Chart 2.1. Structure of rural co-operative credit institutions in India
Rural Co-operative Credit Structure in India
Short-term and Medium-term [Three Tier System]
State Co-operative Banks [Apex Level]
Central Co-operative Banks [District Level]
Primary Agricultural Credit Societies [Village Level]
Long-term [Two Tier System]
State Co-operative Agriculture and Rural Development Banks
[At Top Level]
Primary Co-operative Agriculture and Rural Development Banks [At District and Block Level]
32
Table 2.1 presents a profile of rural co-operative banks in India.
Table 2.1
A Profile of Rural Co-operative Banks in India (At end-March 2007)
(Rs. in crores)
S. No
Particulars Short-Term Long-Term
Total SCBs DCCBs PACSs SCARDBs PCARDBs
1. No. of Co-operative Banks 31 371 97,224 20 697 98,343
2. Balance Sheet Indicators
i) Owned fund (Capital + Reserves) 10,549 26,180 11,038 2,931 3,596 54,294
ii) Deposits 48,560 94,529 23,484 605 341 1,67,519
iii) Borrowings 22,256 29,912 43,715 16,662 12,751 1,25,296
iv) Loans and advances issued 52,777 82,963 49,614 2,436 1,970 1,89,759
v) Loans and advances
outstanding 47,354 89,038 58,620 18,644 12,114 2,25,770
vi) Investments 24,140 41,006 N.A. 1,916 824 67,886
vii) Total liabilities / assets 85,756 1,58,894 79,959 24,336 21,774 3,70,719
3. Financial Performance
i) Institutions in profit
a) Nos. 27 271 33,983 10 350 34,641
b) Amount of profit 319 754 749 280 419 2,521
ii) Institutions in loss
a) Nos. 4 97 48,078 8 342 48,529
b) Amount of loss (-) -44 -724 -2,402 -190 -566 -3,926
iii) Overall profit/loss (-) 275 30 -1,653 90 -147 -1,405
iv) Accumulated loss (-) -389 -5,712 N.A. -946 -2,870 -9,917
4. Non-performing Assets
i) Amount 6,704 16,495 11,558 5,643 4,316 44,716
ii) As percentage of loans outstanding 14.2 18.5 26.9 30.3 35.4 19.8
iii) Recovery of loans to demand (%)
(as on 30th June) 85.7 71.1 70.9 44 52
Source: RBI, Report on Trend and Progress of Banking in India, 2007-08. Note : N.A. – Not available.
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As on 31st March 2007, the consolidated assets of the rural co-operative
credit institutions amounted to Rs.3,70,719 crores. The rural co-operative
sector, on aggregate, held Rs.1,67,519 crores of deposits and a loan portfolio
of Rs.2,25,770 crores. Their financial performance continued to deteriorate
during 2006-07 when compared to previous year. The number of loss-making
entities continued to far exceed the number of profit-making entities.
Institution-wise, the upper-tier of the short-term (SCBs and DCCBs) and
long-term structure (SCARDBs) made profit, while the lower-tier comprising
PACSs and PCARDBs made losses. The asset quality, however, improved as
reflected in decline in the NPA ratio (as percentage of loans outstanding)
during 2006-07 in respect of both the short-term and long-term rural
co-operative credit institutions.
Primary Agricultural Credit Societies
The agricultural credit societies were established in our country after
the enactment of Co-operative Societies Act 1904. PACSs are the grass root
level arms of the short-term credit structure. They deal directly with
individual borrowers, grant short-term as well as medium-term loans and also
supply of agricultural inputs, consumer articles and providing marketing
facilities.1 Primary agricultural credit societies are the pillars of the
co-operative credit system. The edifice of the co-operative credit structure has
been built on the foundation of PACSs. They occupy a predominant position
in the co-operative structure of India and are the backbone not only of the
co-operative credit structure, but also of the co-operative marketing set-up in
so far as their non credit activities are concerned. These societies, also known
1 S.S. Muley, “Role of co-operative banks in rural credit”, Cooperative Perspective,
Vol.42, no.1-2 (2007), p.33.
34
as banks, constitute the base and vast network of credit institutions at the
village level. The higher agencies viz. SCBs and DCCBs operate and
channelise their credit flows downward through this base only. These
societies have by now covered more than 90 per cent of the country’s 5.8 lakh
villages.2 The role of PACSs assumes a greater significance in the operation of
the entire co-operative credit system for the successful implementation of
various rural development programmes.
The progress of PACSs in India has been given in table 2.2.
Table 2.2 The progress of PACSs in India
Particulars 1960-61 1970-71 31.3.1986 31.3.1994 31.3.2003
Number (in lakhs) 2.12 1.61 0.92 0.91 1.12
Membership (nos. in lakhs) 170.41 309.63 721 89,067 1,236
Deposits (Rs. in crores) 14.59 69.46 572 2,367.11 19,120.00
Loans issued (Rs. in crores) 202.75 577.88 3140 8,487.40 33,996.00
Loans outstanding (Rs. in crores) N.A. N.A. 4,323 N.A. 42,411
No. of PACSs in profit N.A. N.A. N.A. N.A. 58,683
No. of PACSs in loss N.A. N.A. N.A. N.A. 53,626
Source: Cooperative Perspective, Vol.42, no.1-2 (2007). Note : N.A - Note Available.
Table 2.2 reveals that the total number of PACSs stood at 1.12 lakhs by
the end of March 2003 when compared to 1960-61 as 2.12 lakhs. There was a
net fall of 1,00,000 PACSs within the period of 1960-61 to 2003. The number
of PACSs were decreased during the period due to the implementation of
reorganization programme of strengthening and the future development of
co-operative structure. The memberships of PACSs increased from 170.41 2 A. Seilan, “Primary agricultural credit societies – the bank of the rural masses”, Tamil
Nadu Journal of Cooperation, Vol.7, no.1 (2006), p.26.
35
lakhs in 1960-61 to 1,236 lakhs in March 2003. The deposits in PACSs stood
at Rs.14.59 crores in 1960-61 and Rs.19120 crores at the end of March 2003.
It is evident from the data that PACSs have increasing trends in mobilizing the
deposits. Loans advanced increased from Rs.202.75 crores in 1960-61 to
Rs.577.88 crores in 1970-71 and further it was increased from Rs.8,487.40
crores in 1994 to Rs.33,996 crores in 2003. Besides as on 31st March 2003,
out of 1,12,309 PACSs 58,683 PACSs earned profit of Rs.404 crores and
53,626 PACSs incurred loss of Rs.1,862 crores.
Table 2.3 shows the select indicators of primary agricultural credit
societies in India (Statewise) on 2006-07.
36
Table 2.3 Select indicators of Primary Agricultural Credit Societies in India - Statewise (2006-07)
S. No.
Name of the State No. of
PACSs
No. of
villages
covered
No. of
villages
per PACS
Average
deposits
(Rs.Lakh)
Working
capital
(Rs.Lakh)
Societies in profit Societies in loss
No. Amount
(Rs.Lakh) No.
Amount
(Rs.Lakh)
Northern Region 12,720 83,547 7 19.21 16,09,183 7,013 13,080 3,538 10,740 1. Chandigarh 16 22 1 0.19 23 14 5 1 12 2. Delhi - - - - - - - - - 3. Haryana 571 7,053 12 52.27 5,33,774 189 1,824 382 5,308 4. Himachal Pradesh 2,086 19,388 9 31.37 93,743 442 937 318 84
5. Jammu and
Kashmir 937 7,396 8 54.11 1,91,537 444 1,609 403 1,781
6. Punjab 3,981 12,329 3 19.17 4,66,489 2,330 4,562 1,183 1,458 7. Rajasthan 5,129 37,359 7 4.3 3,23,617 3,594 4,143 1,251 2,097 North-Eastern Region 3,540 33,527 9 3.83 77,407 615 7,871 850 10,703 8. Arunachal
Pradesh 31 3,649 118 - 1,636 20 25 6 8
9. Assam 809 23,422 29 0.63 7,533 309 7,639 419 9,909 10. Manipur 186 - - 34.95 45,904 - - 108 201 11. Meghalaya 184 3,761 20 0.45 1,797 51 47 128 512 12. Mizoram 175 660 4 0.09 175 59 70 4 10 13. Nagaland 1,719 969 1 3.73 11,246 - - - - 14. Sikkim 166 166 1 - 146 56 6 37 4 15. Tripura 270 900 3 0.12 8,970 120 84 148 59 Eastern Region 22,160 196,754 9 161.76 9,16,286 4,992 3,084 12,379 7,189 16. Andaman and
Nicobar Island 46 109 2 1.89 281 34 0.02 - -
17. Bihar 5,969 45,098 8 1.02 46,186 1,180 604 3,962 64 18. Jharkhand 208 5,185 25 6.1 1,523 60 91 - - 19. Orissa 3,860 43,303 11 59.27 5,09,046 1,380 1,134 2,387 5,062 20. West Bengal 12,077 103,059 9 8.35 3,59,250 2,338 1,255 6,030 2,063 Central Region 15,265 192,554 13 208.54 5,98,873 7,125 9,841 4,998 18,177 21. Chhattisgarh 1,257 19,899 16 16.59 98,165 779 1,848 474 3,873 22. Madhya Pradesh 4,633 53,951 12 9.35 3,62,951 1,786 6,112 2,456 14,114
23. Uttarakhand 446 5,900 13 6.56 11,830 24 107 100 37 24. Uttar Pradesh 8,929 112,804 13 0.76 1,25,927 4,536 1,774 1,968 153 Western Region 29,086 53,958 2 105.75 15,18,445 10,481 21,175 16,599 75,529 25. Goa 77 206 3 25.94 4,476 41 17 35 13 26. Gujarat 7,956 16,289 2 2.37 4,90,635 3,339 9,565 2,675 36,680 27. Maharashtra 21,045 37,462 2 0.65 10,23,270 7,095 11,593 13,889 38,836 28. Dadra and Nagar
Haveli 8 1 - - 64 6 0.01 - -
Southern Region 14,453 76,762 5 113.82 32,75,675 3,757 19,844 9,714 1,17,836 29. Andhra Pradesh 4,064 29,207 7 7.88 5,64,084 867 1,612 3,036 24,398
30. Karnataka 4,205 27,242 6 26.68 5,08,361 1,384 5,482 2,447 9,719 31. Kerala 1,624 1,464 1 767.57 13,82,666 811 6,213 754 14,879 32. Puducherry 52 320 6 90.92 8,177 26 0.9 26 3 33. Tamil Nadu 4,508 18,529 4 55.37 8,12,387 669 6,536 3,451 68,837
Total (All India) 97,224 637,102 7 120.82 79,95,869 33,983 74,895 48,078 2,40,174
Source: RBI, Report on Trend and Progress of Banking in India, 2007-08.
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As shown in table 2.3, the number of both profit making and loss
making PACSs declined to 33,983 and 48,078 during 2006-07 from 44,321
and 53,050 respectively during 2005-06, mainly on account of reduction in the
total number of PACSs during 2006-07. The share of profit-making PACSs in
total PACS declined to 35.0 per cent at end-March 2007 from 41.7 per cent at
end-March 2006. While the total profits earned by profit-making PACSs
increased, the losses made by loss making PACSs also increased. In the
aggregate, 33.983 PACSs earned profits amounting to Rs.749 crores, while
48,078 PACSs incurred losses of Rs.2,402 crores.
For the country as a whole as at the end of March 2007, one PACS on
an average covered seven villages. While penetration of PACS (number of
village served by a PACS) was the highest in the western region, it was the
lowest in the central region. At the State / UTs level, only seven states, viz..
Chandigarh, Nagaland, Sikkim, Andaman and Nicobar Islands, Kerala,
Maharashtra and Gujarat have achieved high penetration of upto two villages.
Haryana, Arunachal Pradesh, Assam, Meghalaya, Jharkhand, Orissa,
Chhattisgarh, Madhya Pradesh, Uttarakhand and Uttar Pradesh are the states
with low penetration of more than ten villages.
The average size of deposits mobilized by PACSs was Rs.120.82 lakhs.
The average size of deposits of PACSs in Kerala at Rs.767.57 lakhs far
exceeded that of other States. In Puducherry, Orissa, Tamil Nadu, Jammu and
Kashmir and Haryana, the average size of deposits mobilized by PACSs was
Rs.90.92, Rs.59.27, Rs.55.37, Rs.54.11 and Rs.52.27 lakhs respectively.
38
In eight states (that is Himachal Pradesh, Punjab, Rajasthan, Arunachal
Pradesh, Mizoram, Sikkim, Uttar Pradesh and Goa) the number of profit-
making PACSs as well as profits earned by them exceeded the number of loss
making PACSs and the amount of losses incurred by them. Puducherry has
equal number of profit-making and loss making PACSs. In ten states (that is
Haryana, Assam, Meghalaya, Orissa, West Bengal, Madhya Pradesh,
Maharashtra, Andhra Pardesh, Karnataka and Tamil Nadu), the number of loss
making PACSs as well as the amount of losses incurred by them exceeded the
number of profit-making PACSs and the amount of profits earned by them. In
five states/UTs (that is Chandigarh, Jammu and Kashmir, Chhattisgarh,
Gujarat and Kerala) PACSs incurred over-all loss even as the number of
profit-making PACSs were more than the number of loss making PACSs. In
three states (Tripura, Bihar and Uttarakhand), PACSs earned over-all profits
even as the number of loss making PACSs were more than the number of
profit-making PACSs.
39
Table 2.4 Primary Agricultural Credit Societies in India - select indicators
(Rs. in crores)
Item As at end–March Percentage variations
2006 2007 2005-06 2006-07
A. Liabilities
1. Total resources (2+3+4) 69,871 78,237 2.1 12.0
2. Owned funds (a+b) 9,292 11,039 1.0 18.8
a) Paid-up capital of which : 5,644 6,138 1.3 8.8
Government contribution 622 648 0.2 4.2
b) Total Reserves 3,648 4,900 0.6 34.3
3. Deposits 19,561 23,484 3.1 20.1
4. Borrowings 41,018 43,714 1.9 6.6
5. Working capital 73,387 79,959 -2.7 9.0
B. Assets
1. Total Loans Issued (a+b) 42,920 49,613 9.5 15.6
a) Short-Term 35,624 40,796 11.7 14.5
b) Medium-Term 7,296 8,817 -0.4 20.8
2. Total loans outstanding (a+b) 51,779 58,620 6.1 13.2
a) Short-Term 34,140 37,764 5.1 10.6
b) Medium-Term 17,639 20,856 8.2 18.2
C. Overdues
1. Total demand 50,979 54,112 6.7 6.1
2. Total collection 35,503 38,359 11.9 8.0
3. Total balance (Overdues) (a+b) 15,476 15,753 -3.6 1.8
a) Short-Term 11,387 11,558 -2.3 1.5
b) Medium-Term 4,089 4,194 -7.0 2.6
4. Percentages of overdues to total demand
30.4 29.1
Source: RBI, Report on Trend and Progress of Banking in India, 2007-08.
As revealed in table 2.4, the total resources of PACSs increased during
2006-07 mainly on account of the increase in owned funds and deposits. The
working capital of PACSs also registered a high growth of 9 per cent during
40
2006-07. On the asset side, the loan portfolio expanded by 13.2 per cent
during the year as compared with 6.1 per cent during 2005-06. The loan
portfolio expanded on account of growth in both the short-term and medium-
term loans. Both the total demand made and the total collections increased in
the year 2006-07. Collections, however, grew relatively sharply, resulting in
total overdues as percentage of total demand declining to 29.1 in 2006-07
from 30.4 during 2005-06.
Central Co-operative Banks
The Central Co-operative Banks occupy a cardinal position in the
short-term co-operative credit structure. They form an important link between
the apex co-operative bank and primary agricultural co-operative banks.
When the Co-operative Societies Act was passed in 1904, there was no
provision for the formation of central banks. The sponsors of the co-operative
movement expected that the rural credit societies would be able to attract
substantial deposits from the members and well-to-do sections of the village
community and their savings would be available to meet the needs of the
needy in the villages. It was also contemplated that any deficiency in the funds
would be made good by loans from the government. But these expectations of
the promoters did not materialize. The isolated and poorly managed societies
failed in the first instance to tap funds from the more affluent and secondly
they could not augment their own capital base by encouraging thrift and self-
help among their members.
As the movement gained popularity, the societies started increasing in
number by leaps and bounds. But the financial arrangements envisaged did not
41
yield enough money to meet their growing requirements. The
Co-operative Societies Act was, therefore, amended on 1912 with a view to
permitting the registration of Central Societies. It may be of interest to note
that even before the amendment some central banks had been established to
cater to the financial needs of the primary societies. The first central bank was
registered in Uttar Pradesh in 1906 as a primary society. But the first perfect
central bank in the modern sense saw the light of the day in the former Central
Provinces and Berar. In Rajasthan the first central co-operative bank was
started in 1910 at Ajmer. But the revised Act stimulated the growth of the
central financing agencies and within a few years a large number of such
banks were established.3
Objects and Functions
The chief object of central co-operative banks is to meet the credit
requirements of member societies. They finance agricultural credit societies
for production purposes, marketing societies for marketing and supply
operations and industrial and other societies for working expenses. They work
as an intermediary to link the primary societies with the money market.
Further, the central banks serve as the balancing centre for adjusting the
surplus and deficiency of the working capital of the primary credit societies.
Besides providing loans, the central co-operative banks also provide certain
normal banking facilities to the members such as acceptance of deposits,
remittance of funds, collection of cheques, etc. In some States, they are
responsible for supervision and inspection of primary societies. In brief, the
following are the main objects of a central co-operative bank:
3 B.S. Mathur (1996). Co-operation in India. Agra: Sahitya Bhawan,
pp.174-175.
42
i. To act as a balancing centre of finance for the primary societies in the
district by providing them with funds when they have a shortage and by
serving as a clearing house for their funds, which are surplus.
ii. To encourage thrift and collect savings from members and others.
iii. To provide a safe place for investing the reserves of primary societies.
iv. To provide other banking facilities to the members.
v. To develop and extend banking facilities in rural areas.
vi. To develop the co-operative movement in the district on sound lines and
to act as a friend, philosopher and guide.
vii. To supervise, guide and control the working of member societies.
Progress of District Central Co-operative Banks
The central co-operative banks form an important link between the
apex co-operative bank and PACSs. The financial resources for the DCCBs
consist of share capital, reserve fund out of profit, membership fee from
primary societies, deposits from public and other institutions and loans from
the apex bank. The progress of DCCBs in India is given in table 2.5.
43
Table 2.5 Progress of the District Central Co-operative Banks in India
(Rs. in crores)
Particulars 1991 1998 1999 2000 2001 2002 2003
Number of DCCBs 356 367 367 367 367 368 367
Owned funds N.A. 6,223 7,652 10,116 12,180 11,288 16,573
Deposits 10,250 36,228 40,112 54,248 61,786 68,586 73,879
Borrowings N.A. 11,547 12,871 14,658 16,935 18,772 19,635
Working capital N.A. 54,655 65,466 77,679 87,821 N.A. N.A.
Loans issued 11,070 34,780 40,397 46,619 45,019 55,915 64,665
Loans outstanding N.A. 31,516 36,949 44,538 52,491 59,283 64,068
Recovery performance (% of demand)
N.A. 70 70 70 67 66 61
No. of DCCBs in profit N.A. N.A. N.A. N.A. 247 243 237
No. of DCCBs in loss N.A. N.A. N.A. N.A. 120 125 130
Source: Cooperative Perspective, Vol.42, No.1-2 (2007).
Note : N.A. - Not Available.
Table 2.5 reveals that the total number of DCCBs stood at 356 in 1991
and increased to 368 in 2002, and came down to 367 in 2003. The deposits in
DCCBs stood at Rs.10,250 crores in 1991 and further it had gone up to
Rs.73,879 crores in 2003. The borrowing of DCCBs in India during 1998 was
recorded as Rs.11,547 crores, which further went up to Rs.12,871 crores in
1999, and further it had gone up to Rs.19,635 crores in 2003. The total loans
issued by DCCBs increased from Rs.11,070 crores in 1991 to Rs.64,665
crores in 2003 indicating tremendous increase in the loans issued by DCCBs
in India. The outstanding loans of DCCBs increased from Rs.31,516 crores in
1998 to Rs.64,068 crores in 2003. The recovery performance of DCCBs came
down from 70 per cent in 1998 to 61 per cent in 2003 to their total demands.
44
Similarly in 2003, out of total DCCBs, 237 DCCBs earned profit and 130
DCCBs suffered losses.
Table 2.6 gives the liabilities and assets of DCCBs in India
Table 2.6
Liabilities and assets of DCCBs in India
(Rs. in crores)
Item
As at end-March Percentage variations
2006 2007 2005-06 2006-07
Liabilities
1. Capital 4,748 (3.3) 5,458 (3.4) 9.3 15.0
2. Reserves 18,702 (13.1) 20,722 (13.1) 15.8 10.8
3. Deposits 87,532 (61.2) 94,529 (59.5) 6.6 8.0
4. Borrowings 24,217 ((16.9) 29,912 (18.8) 7.3 23.5
5. Other liabilities 7,891 (5.5) 8,273 (5.2) -3.5 4.8
Total liabilities/assets 1,43,090 1,58,894 7.3 11.0
Assets
1. Cash and Bank balance 10,695 (7.5) 11,274 (7.1) 24.8 5.4
2. Investments 36,628 (25.6) 41,006 (25.8) 1.9 12.0
3. Loans and advances 79,202 (55.3) 89,038 (56.0) 8.3 12.4
4. Other assets 16,565 (11.6) 17,575 (11.1) 5.2 6.1
Source: RBI, Report on Trend and Progress of Banking in India, 2007-08. Note : Figures in parentheses are percentages to total.
45
The business operations of District Central Co-operative Banks
(Table 2.6) continued to expand. Assets of DCCBs grew by 11 per cent during
2006-07 as against 7.3 per cent growth achieved during 2005-06. The
composition of the liabilities/ assets of DCCBs remained broadly unchanged
between end-March 2006 and end-March 2007. Deposits continued to be the
principal source of funds for DCCBs, although their share declined.
Borrowings, however, increased sharply, implying growing reliance by the
DCCBs on outside sources for expansion. On the asset side, both the loans and
advances and investment portfolio grew at higher rates when compared to
previous year.
Table 2.7
Region-wise profit/loss making District Central Co-operative Banks
(As at end-March)
Region
2006 2007
Profit Loss Profit Loss
Nos. Amount
(Rs.crores) Nos.
Amount
(Rs.crores) Nos.
Amount
(Rs.crores) Nos.
Amount (Rs.crores)
Northern Region 64 213.64 5 19.45 55 119.39 16 44.01
Eastern Region 50 96.14 14 35.43 45 42.78 19 59.39
Central Region 74 158.91 30 174.01 71 121.16 33 186.00
Western Region 34 244.23 15 245.81 37 166.99 12 241.63
Southern Region 54 406.60 26 450.00 63 304.09 17 192.91
All India Total 276 1,119.52 90 924.7 271 754.41 97 723.94
Source: RBI, Report on Trend and Progress of Banking in India, 2007-08.
During 2006-07, out of 368 reporting DCCBs, 271 made profits
amounting to Rs.754 crores, while 97 DCCBs made losses to the tune of
Rs.724 crores.
46
State Co-operative Banks
Immediately after the launching of the co-operative movement in India,
the need for a strong and efficient bank at the apex level was felt. The
exigency was considerably pressing as the financial resources of the central
banks were inadequate. There were many central banks which had ample
surplus funds which they could not suitably invest, while other central banks
at times were confronted with a shortage of funds. The central banks could
overcome this difficulty by interlending between themselves, but the same
was not considered as a practical proposition, for it was likely to give rise to
the interlocking of liabilities which was dangerous. The only way to be out of
difficulty was the creation of a central institution at the provincial level which
would act as a clearing-house for capital, pool the resources and canalize the
surplus of one locality to meet the deficiency of another to the advantage of
the province as a whole. There was yet another difficulty which the central
banks had to face in the absence of an apex institution. They had to face the
problem of accommodation in the busy season and investment of idle money
during the slack season. In the absence of an apex institution they had to
invest their surplus money in government securities and postal savings which
generally yielded low returns. But these banks had to pay interest at
substantially high rates to obtain accommodation, due to low state of their
credit. Thus, the situation was that whereas they had to pay heavily for
obtaining accommodation during the busy season, the yield secured from
investment of idle funds in the slack season was very low. The central banks
were thus put to unnecessary loss. There was a need for a strong apex
institution at the provincial level to balance this seasonal excess and
47
deficiency of funds and equate the demand and supply of capital.4 The
remedy lays in the formation of a central organization prepared always to take
off the idle money in the slack season and supply the affiliated societies and
co-operative banks with fluid resources in the busy season.
The Maclagan Committee emphasized the need for establishing an apex
bank in each major province.5 The apex co-operative banks were, therefore,
established at the provincial level with the chief object of co-ordinating the
work of central banks and linking up the co-operative credit organization with
the central money market and the Reserve Bank of India.
The apex co-operative bank occupies an important position in the entire
structure of co-operative short-term credit. It is the head of the
co-operative movement in the state and is expected to play a positive role with
regard to co-operative credit system. The apex bank is significant not only in
mobilizing the financial resources needed by the movement, but also for
deploying them appropriately among the various sectors of the movement.
4 B.S. Mathur (1996). Op.cit., pp.204-205. 5 Ibid., p.205.
48
The progress of the State Co-operative Banks in India is presented in
table 2.8.
Table 2.8 Progress of the State Co-operative Banks in India
(Rs. in crores)
Particulars 1991 1998 1999 2000 2001 2002 2003
Number of SCBs 28 28 29 29 30 30 30
Owned funds N.A. 3,319 4,135 4,911 5,837 5,208 7,672
Deposits 6,708 22,189 25,788 29,557 32,606 36,260 39,335
Borrowings N.A. 8,558 9,739 10,859 11,685 11,673 12,208
Working capital 22,373 34,667 39,222 44,035 49,490 N.A. N.A.
Loans issued 6,593 29,523 32,834 37,368 34,307 34,663 38,642
Loans outstanding N.A. 19,588 21,909 25,709 29,848 32,710 34,758
Recovery performance [as % of demand]
N.A. 84 81 83 84 82 79
No.of SCBs in profit N.A. N.A. N.A. N.A. 24 24 25
No. of SCBs in loss N.A. N.A. N.A. N.A. 6 6 5
Source: Cooperative Perspective, Vol.42, no.1-2 (2007). Note : N.A. - Not Available.
Table 2.8 shows that there were 28 SCBs in 1991 and further raised to
30 in 2001 and since then it remained same upto 2003. The owned funds of
SCBs were increased from Rs.3,319 crores in 1998 to Rs.7,672 crores in 2003.
There has been a noticeable increase in the amount of owned funds of SCBs.
The deposits in SCBs stood at Rs.6,708 crores in 1991 and increased to
Rs.39,335 crores in 2003. It shows that progress made by SCBs in deposit
mobilization. During 1991, the issued loans of SCBs were Rs.6,593 crores
which increased to Rs.38,642 crores in 2003, but during 2001 the issued loan
comes down to Rs.34,307 crores. The recovery performance of SCBs
49
decreased during the period from 1998 to 2003, except 2001. Out of the total,
5 SCBs suffered losses in 2003.
Table 2.9 shows the liabilities and assets of the State Co-operative
Banks in India.
Table 2.9
Liabilities and assets of State Co-operative Banks in India
(Rs. in crores)
Item
As at end-March Percentage variations
2006 2007 2005-06 2006-07
Liabilities
1. Capital 1,114 (1.5) 1,246 (1.5) 10.1 11.8
2. Reserves 9,431 (12.3) 9,303 (10.8) 11.1 -1.4
3. Deposits 45,405 (59.4) 48,560 (56.6) 2.4 6.9
4. Borrowings 16,989 (22.2) 22,256 (26.0) 16.3 31.0
5. Other liabilities 3,542 (4.6) 4,392 (5.1) 4.5 24.0
Total liabilities/assets 76,481 85,756 6.5 12.1
Assets
1. Cash and Bank balance 4,323 (5.7) 9,290 (10.8) -34.5 114.9
2. Investments 27,694 (36.2) 24,140 (28.2) 18.8 -12.8
3. Loans and advances 39,684 (51.9) 47,354 (55.2) 6.2 19.3
4. Other assets 4,781 (6.3) 4,971 (5.8) 4.6 4.0
Source: RBI, Report on Trend and Progress of Banking in India, 2007-08. Note : Figures in parentheses are percentages to total.
The balance sheet of SCBs (Table 2.9) expanded significantly during
2006-07. On the liabilities side, deposits continued to account for the largest
50
share of the resources of SCBs, despite the modest decline in the share during
the year 2006-07. However, the share of borrowings increased during the year.
High growth in borrowings, which outpaced the growth of other components
during the year, indicates that SCBs continued to rely heavily on outside
sources for their expansion. Capital and deposits also witnessed a higher
growth during the year 2006-07. On the asset side, while loans and advances
grew at an accelerated pace, investments declined by 12.8 per cent. Cash and
bank balances registered a sharp increase during the year.
In Tamil Nadu, the Tamil Nadu State Apex Co-operative Bank Limited
(TNSACB), over the last ten decades has played a stellar role in the service of
agriculture and rural development in Tamil Nadu through the district central
co-operative banks, primary agricultural co-operative banks and primary
weavers co-operative societies. The state co-operative bank extends short-term
and medium-term loans and advances primarily for agricultural and other
allied activities. It also provides credit for various rural development projects
through district central co-operative banks, consortium arrangements and
directly through its head office and branches. In addition to providing loans
and advances, it extends various other ancillary banking facilities such as
hiring of safe deposit lockers, accepting articles for safe custody, funds
transfer, etc.
51
The bank takes up the following activities6 towards affiliated
development.
1. It forms consortium of district central co-operative banks for financing
various co-operative sugar mills in the state.
2. It helps the district central co-operative banks to channelise their
investments both for statutory and non-statutory purposes. It assists them
trading in securities by providing expertise for buying and selling of
securities.
3. The bank has constituted the “Primary Co-operative Development Fund”
for the purpose of providing financial assistance to primary agricultural
co-operative banks in Tamil Nadu for construction of strong rooms,
purchase of jewel safes, installation of defender doors, installation of
modern banking counters, etc.
4. The apex bank monitors the functioning of district central co-operative
banks in the state, inspects their activities periodically and provides
necessary guidance for the efficient running of the banks.
5. The bank has formulated the deposit guarantee scheme for primary
agricultural co-operative banks at the instance of Government of
India/Government of Tamil Nadu with a view to providing insurance
coverage for the deposits accepted by the primary agricultural
co-operative banks.
6. The bank has a separate cell for monitoring the progress made under
development action plans for all the district central co-operative banks
and primary agricultural co-operative banks in the state.
6 Government of Tamil Nadu, Co-operation Department Policy Note: 2004-2005, pp.2-3.
52
7. The bank has created a technical cell for the purpose of providing
technical expertise on project evaluation to all the district central
co-operative banks for the purpose of clearing projects under non-farm
sector schemes of National Bank for Agriculture and Rural Development.
8. The bank convenes state level technical committee meeting every year
for fixing uniform scales of finance for all crops for each district in the
state.
Primary Co-operative Agriculture and Rural Development Bank
(PCARDBs)
The PCARDBs are at the lowest level of long-term co-operative credit
structure. They are at block level. They provide long-term loans to their
members for the purpose of minor irrigation, agricultural machinery,
development of land, etc. The primary banks obtained their finance from the
following sources:
a. Share capital
b. Deposits
c. Grants and subsidies from government bank.
d. Admission and other fees.
e. Grants and subsidies from government
f. Borrowings from other agencies.
53
Table 2.10
Progress of Primary Co-operative Agriculture and Rural Development Banks in India
(Rs. in crores)
1998 1999 2000 2001 2002 2003
Number of PCARDBs 745 745 755 755 768 768
Owned funds 989 1167 1379 1628 2494 2730
Deposits 99 166 218 235 256 222
Borrowings 5,888 6,777 7,647 8,412 1,034 11,217
Working capital 7,285 8,824 9,982 10,838 N.A. N.A.
Loans issued 1,594 1,735 1,819 1,865 2,045 2,151
Loans outstanding 5,840 6,778 7,611 8,352 9,982 10,775
Recovery performance (% to demand) 55 60 58 53 56 59
No. of PCARDBs in Profit N.A. N.A. N.A. 183 191 226
No. of PCARDBs in Loss N.A. N.A. N.A. 572 577 542
Source: Cooperative Perspective, Vol.42, no.1-2 (2007). Note : N.A. - Not Available.
Table 2.10 indicates that the number of PCARDBs has slightly
increased from 745 in 1998 to 768 in 2003. Deposits of PCARDBs showed an
increasing trend. The loans issued stood at Rs.1,594 crores in 1998 and
increased to Rs.2,151 crores in 2003. It showed that there has been a
phenomenal raise in the amount of loan operations of PCARDBs. The loans
outstanding increased from Rs.5,840 crores in 1998 to Rs.10,775 crores in
2003. The recovery performance increased from 55 per cent in 1998 to
59 per cent in 2003.
54
Table 2.11 presents the liabilities and assets of PCARDBs in India
Table 2.11
Liabilities and assets of PCARDBs in India (Rs. in crores)
Item As at end-March Percentage variations
2006 2007 2005-06 2006-07
Liabilities
1. Capital 922 (4.3) 918 (4.2) 0.2 -0.4
2. Reserves 2,665 (12.5) 2,678 (12.3) 21.4 0.5
3. Deposits 382 (1.8) 341 (1.6) 4.9 -10.7
4. Borrowings 13,066 (61.1) 12,751 (58.6) 2.5 -2.4
5. Other liabilities 4,331 (20.3) 5,085 (23.3) 3.5 17.4
Total liabilities/assets 21,365 (100) 21,774 (100) 4.7 1.9
Assets
1. Cash and Bank balance 224 (1.1) 223 (1.0) 7.3 -0.4
2. Investments 778 (3.6) 824 (3.8) -3.2 5.9
3. Loans and advances 12,740 (59.6) 12,114 (55.6) 0.9 -4.9
4. Other assets 7,623 (35.7) 8,612 (39.6) 12.5 13.0
Source: RBI, Report on Trend and Progress of Banking in India, 2007-08. Note : Figures in parentheses are percentages to total.
The balance sheets (Table 2.11) of PCARDBs continued to expand
during 2006-07 but at a lower rate (1.9%) when compared to previous year
(4.7%). This could be attributed to the substantial decline in both deposits and
borrowings. The share of borrowings, the most important source of funds in
the overall liabilities also declined. Reserves of PCARDBs, after showing a
substantial increase during 2005-06, remained almost at the same level during
2006-07. On the asset side, investments recorded a sharp growth, reversing the
55
trend of the last year, while loans and advances declined by 4.9 per cent
during 2006-07.
State Co-operative Agriculture and Rural Development Banks
(SCARDBs)
The State Co-operative Agriculture and Rural Development Banks are
the agencies for lending long-term credit to agriculture. They are working at
state level. The main function of SCARDBs is to raise long-term funds to
finance primary co-operative agricultural and rural development banks
affiliated to them or finance individuals directly through their branches and to
encourage thrift and co-operation amongst the ultimate members. The
SCARDBs get their finance from the following sources.
a. Share capital
b. Issue of debentures
c. Loans from State Bank of India on the guarantee of state
governments
d. Admission and other fees
e. Deposits
f. Grants and Subsidies
g. Other funds.
56
Table 2.12 Progress of the State Co-operative Agriculture
and Rural Development Banks in India (Rs. in crores)
1998 1999 2000 2001 2002 2003
Number of SCARDBs 19 19 19 20 20 20
Owned funds 1,685 2,353 2,702 3,034 2,484 2,891
Deposits 203 240 422 535 572 545
Borrowings 9,772 1,051 12,390 13,431 14,845 4,189
Working capital 11,716 13,078 15,074 16,896 N.A. N.A.
Loans issued 2,295 2,439 2,532 2,586 2,747 2,964
Loans outstanding 9,182 10,441 11,565 12,596 14,147 15,385
Recovery performance (% to demand) 61 62 62 58 60 62
No. of SCARDBs in Profit N.A. N.A. N.A. 10 9 8
No. of SCARDBs in Loss N.A. N.A. N.A. 10 11 12
Source: Cooperative Perspective, Vol.42, no.1-2 (2007). Note : N.A.: Not available.
Table 2.12 reveals that the SCARDBs issued loans of Rs.2,295 crores
in 1998 and it increased upto Rs.2,964 crores in 2003. In 1998, loans
outstanding was found to be Rs.9,182 crores and further it had raised to
Rs.15,385 crores in 2003. The percentage of recovery of SCARDBs to
demand stood at 61 per cent in 1998 and it increased to 62 per cent in 2003.
57
Table 2.13 shows the liabilities and assets of the SCARDBs in India.
Table 2.13
Liabilities and assets of SCARDBs in India
(Rs. in crores)
Item
As at end-March Percentage variations
2006 2007 2005-06 2006-07
Liabilities
1. Capital 801 (3.2) 794 (3.3) 1.3 -0.9
2. Reserves 2,354 (9.6) 2,137 (8.8) 8.7 -9.2
3. Deposits 636 (2.6) 605 (2.5) 4.6 -4.9
4. Borrowings 17,075 (69.4) 16,662 (68.5) -0.6 -2.4
5. Other liabilities 3,739 (15.2) 4,138 (17.0) 6.0 10.7
Total liabilities/assets 24,604 (100) 24,336 (100) 1.4 -1.1
Assets
1. Cash and Bank balance 365 (1.5) 279 (1.1) 1.4 -23.6
2. Investments 1,885 (7.6) 1,916 (7.9) 1.0 1.6
3. Loans and advances 17,713 (72.0) 18,644 (76.6) 1.8 5.3
4. Other assets 4,641 (18.9) 3,497 (14.4) 0.0 -24.6
Source: RBI, Report on Trend and Progress of Banking in India, 2007-08. Note : Figures in parentheses are percentages to total.
As shown in table 2.13, the assets and liabilities of the SCARDBs
declined (1.1%) during 2006-07. Borrowings, the main source of funds,
as well as deposits declined between 2.4 and 4.9 per cent. Net owned funds
also witnessed a decline. On the asset side, loans and advances grew
58
by 5.3 per cent, while investments recorded a moderate growth of 1.6 per cent.
Cash and bank balances and other assets, however, witnessed a sharp decline.
Primary Agricultural Credit Societies in Tamil Nadu
The first agricultural credit society in Tamil Nadu was started in Tirur
in 1904 immediately after the passing of the Co-operative Credit Societies Act
1904. As on 30.06.1915, there were 1446 agricultural credit societies. Until
1918 about 300 societies came into existence every year. In 1918-1919 the
number of societies increased by more than 800 and till 1927-28 there was an
addition of primary agricultural credit societies between 750 and 1000. As on
30.06.1921, the number of societies was 5,199 and the membership was
2,74,808. The average membership per society works out to 53. The financial
particulars of the primary agricultural credit societies as on 30.6.1921 are
given below.
(Rs. in lakhs)
Borrowings 156.23
Loans outstanding against members 159.65
Reserve fund and other funds 9.58
Working capital 183.86
Profit 1.93
Loss 2.84
About thirty years later, the number of agricultural credit societies rose
to 10,887 with a membership of 6.66 lakhs and a paid up share capital of
59
Rs.59.22 lakhs as on 30.06.1950.7 The other financial particulars of these
societies are given in the following statement.
(Rs. in lakhs)
Borrowings 652.36
Loans outstanding against members 831.62
Reserve fund and other funds 149.86
Working Capital 999.73
Profit 14.33
Loss 10.91
The average membership per society in 1949-50 was 61. There was,
thus, an increase of only eight members in the average membership during the
period from 1920-21 to 1949-50. This can be termed as poor progress. There
is however, an increase under borrowings, loans outstanding against members,
reserve fund and other funds and working capital as on 30.06.1950 when
compared to the corresponding figures as on 30.06.1921.8
Introduction of a scheme for expansion of rural credit in 1949-50
A scheme for the expansion of rural credit co-operatives
was introduced in February 1949 to cover at least 50 per cent of the villages
and 30 per cent of the population. In 1949-50, agricultural credit
co-operatives covered 41.40 per cent of the villages. During this year, 6,444
rural credit societies undertook some multi-purpose activity like distribution
7 K. Keshav Kini, “Primary Agricultural Credit Societies in Tamil Nadu” Tamil Nadu
Journal of Cooperation, Vol.1, no.1 (2000), p.34. 8 Ibid., pp.34-35.
60
of seeds, manures, agricultural implements and controlled commodities like
rice, sugar, kerosene, etc.9
Co-operative Agricultural Banks
Following the recommendations of the Rural Credit Survey Committee,
twelve large sized societies known as co-operative agricultural banks whose
liability was limited to a multiple of the share capital subscribed by the
members were organized in 1955-56. More banks were organized
subsequently and as on 30th
June 1961, 329 co-operative agricultural banks
were functioning in the state. In November 1958, the National Development
Council enunciated the principle that agricultural credit co-operatives should
be organized on the basis of village community as a primary unit and that they
should not only disburse credit, but also undertake supply of agricultural
requisites to the members. The state government accepted the
recommendation and directed the Registrar of Co-operative Societies not to
organize agricultural banks any more.10
Intensive Agricultural District Programme
The intensive agricultural district programme popularly known as the
package scheme was introduced in Thanjavur district on 13th
April 1960 in 23
community development blocks. A compact group of villages (317) was
selected to cover 1/5 of the cultivated lands (about 2.23 lakh acres). In these
blocks one hundred and eighty-two rural credit co-operatives were to issue
credit and agricultural inputs to their members on the basis of farm production
9 K. Keshav Kini, Op.cit., p.35. 10 Ibid., p.36.
61
plans which were prepared for them by the community development blocks.
The objective of the scheme was to maximize agricultural production by
providing timely credit with cash and kind components, consisting of mainly
chemical fertilizers, pesticides and seeds. The programmes were extended to
other areas on the subsequent years.11
Introduction of the crop loan scheme
In 1966-67, a rationalization of short-term lending policies was effected
by the introduction of the crop loan system. Under this system, the issue of
loans coincided with the commencement of agricultural operations and the
dates of the recoveries of the loans were fixed, a month or two after the
harvest. There were the cash and the kind components to a loan. The cash
portion was given for wages of labour, hire charges of plough bulls etc. The
kind portion consisted of chemical fertilizers, seeds and pesticides etc. Scales
of finance were fixed for each crop per acre. Landless tenants were also to be
issued loans under this scheme. The linking of credit with marketing was an
important plan of the crop loan system.
The following statement gives particulars of the issue of loans by
agricultural credit societies during the years 1978-79, 79-80 and 1980-81.
Year
Issue of Loans
(Rs. in crores)
1978-79 122.48
1979-80 68.61
1980-81 45.51
11 K. Keshav Kini, Op.cit., p.36.
62
There was a decline in the issue of loans from 1978-79 onwards. The
decline in the issue of loan was mainly due to heavy overdues. As on
30.06.1962, the percentage of overdues to demand was 9.2 and as on
30.06.1981, it was 43.8 indicating that the collection drive was not particularly
effective.12
While as on 30.06.1951, the average membership and the paid up
share capital per society were 83 and Rs.1,033, as on 30.06.1981, the average
membership and the paid up share capital were 1,055 and Rs.88,635
respectively. It may be seen that the increase in membership and the paid up
share capital over the years has been quite satisfactory. The results were
achieved either by weeding out uneconomic units or amalgamating them with
viable and potentially viable societies.13
Primary Agricultural Co-operative Banks
The primary agricultural credit societies have been designated as
primary agricultural co-operative banks in Tamil Nadu. As on 30.06.1987,
there were 4,655 primary agricultural co-operative banks in the state. On that
date, the membership of these banks was 60.13 lakhs and the paid up share
capital was Rs.6,068.90 lakhs. As on 30.06.1981 the membership per society
was 1,055 while as on 30.06.1987 it went upto 1,292. The progress can be
termed as satisfactory.
12 K. Keshav Kini, “Primary Agricultural Credit Societies in Tamil Nadu”, Tamil Nadu
Journal of Cooperation, Vol.1, no.1 (2000), pp.41-42. 13 Ibid., p.42.
63
As on 30.06.1981, the deposits per society worked out to Rs.36,485
whereas as on 30.06.1987, the deposits were Rs.1,19,795 per bank. Good
progress was registered by these banks in mobilizing deposits. Loan issues
also registered an increase in 1986-87 as compared with 1980-81. In 1986-87,
the loans issued were Rs.30,416.77 lakhs while in 1980-81 the loan issues
were Rs.4,550.65 lakhs.
Action plan for strengthening the primary co-operative agricultural
structure was launched on 1999. A memorandum of understanding was
entered into by the Tamil Nadu State Apex Co-operative Bank with
NABARD. The objective was making all the primary agricultural co-operative
banks viable. In each Regional Joint Registrar’s region, a task force was set
up under the chairmanship of the Regional Joint Registrar and 118 banks were
identified under the scheme. The scheme envisages that either the banks
amalgamate themselves with other banks or go into liquidation.
The details of the number of banks in which the state participated in the
share capital from 1994-95 to 1998-99 are given below.
Year No. of PACBs
1994-95 705
1995-96 1640
1996-97 851
1997-98 922
1998-99 973
In 1992, a deposit guarantee scheme was introduced to help the banks
to strengthen their deposit base. Under the scheme, the central co-operative
64
banks guarantee the deposits of the primary banks. While as on 31.03.1993,
the banks had deposits of Rs.357 crores, on 31.03.1999 they increased to
Rs.2045.40 crores. The progress recorded was indeed spectacular.14
A fact that cannot escape our notice is that as on 31.03.1997, out of
4,957 primary agricultural co-operative banks, as many as 3,778 banks were
working on loss, the loss being Rs.6,814.13 lakhs. As on 30.06.1993 out of
the loans outstanding of Rs.1,435.79 crores, the overdues were Rs.398.71
crores. As on 30.06.1998 the overdues constituted 32.4 per cent of the loans
outstanding.15
The primary agricultural co-operative banks in the villages meet the
short-term agricultural credit requirements of the farmer members towards
their cultivation operations. The period of repayment of short-term loan
ranges between 12 and 15 months. The banks issue medium-term loan also to
the members for undertaking subsidiary occupation allied to agricultural
activities like purchase of milch animals, sheep rearing, poultry farming, etc.
The time of repayment of these loans is 3 to 5 years. These banks provide
loans for cultivation on personal surety basis as per the scales of finance
which are fixed by a state level committee.
As on 2003-04, there were 4,555 primary agricultural co-operative
banks in the state.16
During 2003-04, the Government has sanctioned
Rs.56.60 lakhs as share capital to 115 primary agricultural co-operative banks
14 K. Keshav Kini, “Primary Agricultural Co-operative Banks”, Tamil Nadu Journal of
Cooperation, Vol.1, no.1 (2000), pp.43-44. 15 Ibid., p.44. 16 Government of Tamil Nadu, Co-operation Department Policy Note, 2004-05.
65
coming under the purview of Salem, Tiruchirapalli, Kumbakonam and
Sivagangai District Central Co-operative Banks for availing loan from
National Bank for Agriculture and Rural Development from its National
Rural Credit [LTO] Fund. A sum of Rs.500 is provided as interest free loan
to women members of primary agricultural co-operative banks to increase
their share capital for obtaining enhanced loan amount. In 2003-04, an
amount of Rs.10 lakhs has been sanctioned under this scheme benefitting 2000
women members.17
Rural co-operative banking sector in post economic reform period
The role of rural co-operative banking sector is inevitable in the
development of agriculture in India. Indian agriculture has been going through
a serious crisis during the post-reform period. Besides domestic concerns,
such as decline in productivity, high input-cost, declining public sector
investment, inadequate availability of institutional credit and raising
agricultural imports. Indian agriculture has also been facing external
challenges under the WTO regime.18
Now farmers have to face the challenge
of increased production with less production cost, so that their produce stands
competitively in global market, where prices will be the dictating factor.19
In
the wake of WTO Agreement on Agriculture and with the removal of
quantitative restrictions on imports of various agricultural commodities with
effect from 1st April, 2001, the co-operative marketing organizations have
been taking steps to improve their competitive edge in terms of cost-
17 Government of Tamil Nadu, Co-operation Department Policy Note, 2004-05. 18 S.P. Singh and M.R. Behera, “Indian Agriculture and WTO”, Yojana, Vol.50,
(September, 2006), p.24. 19 Prasoon Verma, “Agriculture as an Industry”, Yojana, Vol.50 (September, 2006), p.20.
66
effectiveness, improvement in quality standards and control on management
and operational costs.20
The agriculture sector is the mainstay of Indian economy as it supports
more than half a billion people, by providing employment to nearly
52 per cent of the workforce in our country. However, the agriculture sector
faces many challenges which affect its growth. Recognizing the importance of
agricultural sector in the overall growth of the country, the Ministry of
Agriculture has initiated several policies and programmes to increase crop
production in the country and improve farm incomes. Fulfilling its
commitment towards farmers welfare, the government announced a Rs.71,680
crores agricultural debt waiver and debt relief scheme, which is the first of its
kind since independence for farmers covering direct agricultural loans.21
This is an age of co-operative reforms. Several reforms have already
made their way into the functioning of the co-operative banks of the nation.
However, a lot remains to be done. We cannot run away from the fact that the
co-operative banks have not realized their full potential. However, this does
not mean that the very model of co-operative behaviour is outdated. An
impartial assessment of the performance of the banks will lead to the
formulation of appropriate policy reforms.22
In order to face the challenges of
globalization and liberalization, which affect all major sectors of the economy,
the co-operative banking sector has to necessarily reinvent itself, by
20 G.H. Amin, “Development of Agriculture Co-operatives in India”, The Cooperator,
Vol.45, no.5 (2007), p.183. 21 Sharad Pawar, “Agriculture sector: some issues”, The Cooperator, Vol.46, no.8 (2009),
p.343. 22 Sharad Pawar, “Co-operative banks: some issues”, The Cooperator, Vol.45, no.4 (2007),
p.127.
67
improving its operations, strengthening corporate governance, introducing
high level of technology and improving human resource quality.23
The main focus of the recommendations of the Task Force on Revival
of Rural Co-operative Credit Institutions headed by Prof. A. Vaidyanathan
was to restore the autonomy of the credit co-operatives by scaling down the
control and interference by the state governments through amendments to the
State Co-operative Societies Acts. Amendment to the Banking Regulation
Act, 1949 was also recommended. Further the recommendations of the Task
Force included provision of financial assistance for recapitalization to fund the
accumulated losses of the short-term co-operative credit structure, evolving
a common accounting system, management information system (MIS) and
computerization and HRD initiatives. The proposed financial assistance was
made contingent upon the introduction of institutional, legal and regulatory
reforms.
In January 2006, the central government announced a revival package
with an estimated outlay of Rs.13,596 crores, based on the recommendations
of the Task Force. Release of financial assistance was made conditional to
certain legal and institutional reforms, viz. amendments to Co-operative
Societies Acts, introduction of professionals on boards of co-operatives,
introduction of common accounting system (CAS) and management
information system (MIS).
23 Oscar Fernandes, “Co-operative banks: some issues”, The Cooperator, Vol.45, no.4
(2007), p.131.
68
As on March 31, 2008, a special audit was completed in
59,294 PACSs affiliated to 279 DCCBs. State-level task forces were
constituted in the implementing states to review regulatory issues relating to
co-operative banks. By end-September 2008, Governments of nine states
passed bills to amend their Co-operative Societies Act. NABARD has
developed and circulated CAS and MIS to PACSs for adoption. These were to
be operationalised in all implementing states with effect from April 1, 2008. In
a move towards recapitalizing eligible PACSs, NABARD released Rs.3,980
crores as the Government of India’s share in recapitalization.24
In the revival of co-operative banking sector, the Government of
Tamilnadu is playing an important role. The decision of the Government to
waive all agricultural loans and interest thereon outstanding as on 31.3.2006
amounting to Rs.6,866 crores25
has given a new lease of life to the entire
co-operative sector. While the scheme has broken the shackles of indebtedness
among the farming community, it has greatly improved the cash flow within
the co-operative credit sector, facilitated greater provision of credit and other
inputs for agricultural production and improved their operational viability.
Tamilnadu Government has signed a Memorandum of Understanding
with Government of India and NABARD for implementation of the scheme of
revival of short-term co-operative credit structure based on the
recommendations of Prof. A. Vaidyanathan Committee. A special scheme was
launched by the government to rejuvenate about 1192 weak primary
agricultural co-operative banks with the help of primary co-operative
24 RBI, Report on Trend and Progress of Banking in India, 2007-08, pp.194-195. 25 Government of Tamil Nadu, Co-operation Department Policy Note: 2006-07.
69
development fund. Most of the societies in the above category had fallen
dormant because of the lack of resources and had stopped lending and other
operations. To help them to restart lending, a special cash credit at the rate of
Rs.20 lakhs per society is being provided by DCCBs at a concessional rate of
interest. The government is taking all efforts to inculcate the habit of financial
discipline among the farmers. As a special measure, government has reduced
the interest rate from 9 to 7 per cent for the crop loans on 2006-07 and further
reduced to 5 per cent for all crop loans being repaid promptly by the farmers.
This has been further reduced to 4 per cent in 2008-09.26
Having examined the role of co-operative credit societies in rural
credit, the financial performance of the sample PACBs has been analysed in
the next chapter.
26 Government of Tamil Nadu, Co-operation Department Policy Note: 2008-09.