EXECUTIVE SUMMARY

Since India is agriculture oriented country, the importance of rural

banks in India is more than any other countries. The development of

rural co-operative banks in India is on the process but still it is not

fully developed.

The Co-operative banks in India was started in 1904.Co-operative

movement in India is the result of a deliberate policy of the state and

is vigorously pursued through formation of an elaborate governing

infrastructure. The successive Five-year plans looked upon the co-

operation movement as the balancing sector between public sector

and the private sector.

In India we find that the states of Maharashtra and Gujarat are well

developed. Whereas the states of Andhra Pradesh, Rajasthan and

Karnataka have shown remarkable progress in the co-operative

movement and there is a vast potential for the development of co-

operative in the remaining states.

This project is mainly focusing on the importance of co-operative

bank in the regional rural areas of our country. Because of that

reason The Government has introduced several schemes for

promoting the spirit of co-operation. Both the Indian Government as

well as the Government of the State of Maharashtra has introduced

several schemes for the co-operative bank. The NABARD role in the

building of the co-operative credit structure was that of an active

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collaborator in drawing up schemes of development with the

government of India and the State Governments, and the provider of

finance, first to the State Governments for contribution to the share

capital of co-operative credit institutions at various levels.

2

CO-OPERATIVE MOVEMENT IN THE WORLD

The earliest co-operatives were set-up among the weavers, in other

words workers in cottage industries, who were the first and the

hardest hit by the development of the mercantile economy and the

industrial revolution.

So the weavers, in order to gain access to the market in the tools of

their trade or to the market in foodstuffs set up the first co-operative

in Scotland (Fenwick, 1761; Govan, 1777 ; Darvel, 1840 ), in France

(Lyons, 1835 ), in England (Rochdale, 1844 ) and in Germany

( Chemnitz, 1845 ).

Though co-operation and mutual enterprise has been an essence of

human-society ever since it evolved, the real co-operative movement

can be credited to the Rochdale Pioneers who established a co-

operative consumer store in North England. This store can be called

as the first in the co-operative consumer movement.

The "Rochdale Pioneers", made their first aim to establish co-

operatives where the members would not only be their own

merchants but also their own producers and their own employers.

Around this time the co-operative movement was more at an

utilitarian level. The concept though old, was just being

implemented and was growing slowly. Many great thinkers, far-

sighted men and visionaries were applying their minds to find

practical solutions to the new problems and to work out better

systems of social organization.

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In Great Britain Robert Owen (1771-1858) conceived and set up

self-contained semi-agricultural, semi-industrial communities.

Dr. William King (1758-1865) helped to spread Owen’s doctrine;

his ideas were more reasonable than Owen’s and achieved more

results.

In France Charles Fourier (1722-1837), a commercial clerk,

published in 1822 his main work, a Treatise on Domestic

Agricultural Association. This could be one of the first works on co-

operation.

Though all these visionaries had articulated the philosophy of co-

operation it was not until the World-War II that an Authoritative

Commission was appointed by the International Co-operative

Alliance.

This Commission formulated or rather formalized the principles of

co-operation. They are

Voluntary and open membership

Democratic Management

Limited interest on capital

Patronage dividend in proportion of members’ transactions

Education and Training and

Co-operation among co-operatives

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CO-OPERATIVE MOVEMENT IN INDIA

Co-operation occupies an important place in the Indian economy.

Perhaps no other country in the world is the co-operative movement

as large and as diverse as it is India. There is almost no sector left

untouched by the co-operative movement.

The main areas of operation of co-operatives in India are as under.

Agricultural Credit

Agricultural Marketing

Agricultural Processing

Industrial co-operatives

Urban credit Co-operatives

Co-operative movement in India is the result of a deliberate policy

of the state and is vigorously pursued through formation of an

elaborate governing infrastructure. The successive Five-year plans

5

looked upon the co-operation movement as the balancing sector

between public sector and the private sector.

And the success is evident. Almost 50 percent of the total sugar

production in India is contributed by sugar co-operatives and over

60 percent of the total fertilizer distribution in the country is handled

by the co-operatives. The consumer co-operatives are slowly

becoming the backbone of the public distribution system and the

marketing co-operatives are handling agricultural produce with an

astounding growth rate.

Further there is the Indian Farmers Fertilizer Co-operative LTD

(IFFCO), which has been successful in setting up an effective

marketing network in most of the states for selling modern farming

technology instead of fertilizers alone. The operations of IFFCO are

handled through its more than 30,000 member co-operatives.

The National Agricultural Co-operative Marketing Federation

(NAFED) has over 5000 marketing societies. These societies operate

at the local wholesale market level and handle agricultural produce.

Thus the farmers have a market for their produce right at their door-

step

In India we find that the states of Maharashtra and Gujarat are well

developed. Whereas the states of Andhra Pradesh, Rajasthan and

Karnataka have shown remarkable progress in the co-operative

movement and there is a vast potential for the development of co-

operative in the remaining states.

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INTRODUCTION OF RURAL CO-OPERATIVE

BANKS

Co-operative banks, another component of Indian banking system,

originated with the enactment of the co-operative credit societies Act

of 1904, which provided for the formation of co-operative credit

societies. Under the Act of 1904, a number of co-operative credit

societies were started.

Co-operative banks were established in India to facilities rural

credit, and to cater to the needs of small farmers and businessmen.

They were popular with middle and lower income groups because of

the high interest rates they offered as compared to commercial

banks.

However, with the passage of time, most co-operative banks lost

their purpose. Excessive state control and politicization further led to

their deterioration. By the 1990’s, none of the privet or public sector

banks were willing to deal with co-operative banks and thus even

otherwise healthy co-operative banks were facing a tough time. In

2001-2002, many co-operative banks were rocked by scams that

exposed the malpractices in these banks. Many of these banks did

not adhere to the prudential norms prescribed by the Reserve Bank

of India.

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The distinct point between the co-operative banking sector and

commercial banking sector is the focus. First, co-operative banks

focus on the local population and micro banking among middle and

low income state of the society. As compare to nearly 300scheduled

commercial banks, inclusive of regional banks, there were more than

90000 primary agricultural credit societies in rural sector as at the

end of 2002.

Co-operative banks are an important segment of the organized sector

of the Indian banking system. They have been organized under the

provision of the co-operative society’s law of the states. They have

grown with the specific purpose of financing agriculture and other

economic units in the unorganized sector of the economy.

Both commercial banks and co-operative bank perform the main

banking functions of deposit mobilization, supply of credit, and

provision of remittance facilities. The major beneficiary, in the case

of commercial bank, is industry, trade and commerce whereas co-

operative bank have been concern with agricultural finance.

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PRINCIPLES FOLLOWED BY CO-OP BANKS

There have been also other principles like the principles of political

neutrality, correct weight and measures, purity of goods and thrift

which were also taken into consideration.

These principles have been reformulated recently by the Manchester

Congress in 1995 and now the principles of co-operation are as

follows:

I Principle: Voluntary and Open Membership:

Co-operatives are voluntary organizations; open to all persons who

use their services and willing to accept the responsibilities of

membership, without gender, social, racial, political or religious

discrimination.

II Principle: Democratic Member Control:

Co-operatives are democratic organizations controlled by their

members, who actively participate in setting their policies and

making decisions. Men and women serving as elected

representatives are accountable to the membership. In

Primary co-operatives members have equal voting rights (one

member, one vote) and co-operatives at other levels are also

organized in a democratic manner.

III Principle: Autonomy and Independence:

Co-operatives are autonomous, self-help organizations controlled by

their members. If they enter into agreements with other

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organizations, including governments or raise capital from external

sources they do so on terms that ensure democratic control by their

members and maintain their co-operative autonomy.

IV Principle: Education, Training and Information:

Co-operatives provide education and training for their members,

elected representatives, managers and employees so that they can

contribute effectively to the development of their co-operatives.

They inform the general public particularly young people and

opinion leaders about the nature and benefits of co-operation.

V Principle: Co-operation among Co-operatives:

Co-operatives serve their members most effectively and strengthen

the co-operative movement by working together through local,

regional, national and international structures.

VI Principle: Concern for Community .

Co-operatives work for the sustainable development of their

communities through policies approved by their members. The

seventh Principle was added at the Manchester Congress of 1995.

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STRUCTURE OF CO-OPERATIVE BANKS

In India co-operative banks have different institutions at various

levels coming under the category of co-operative banks. They are

categorized under two main heads: agriculture and non agriculture.

In the field of agriculture credit there is separate institution to meet

the need for short and medium-term credit and for long term credit.

The co-operative credit structure for short and medium-term credit is

a three tire federal one, with state co-operative banks at apex in each

state, the central co-operative bank, at the district level, and the

primary credit societies in the village. Long-term agriculture credit

is provided by the land development banks. The structure is a two

tire one, with central land development banks at the state level and

primary land development banks or district level. In some states the

structure is unitary,

In order to adhere to the discipline of the three-tier structure and also

possibly RBI can not lend directly to primary credit societies

because of its large number, funds flow down wards from a SCBs to

the DCBs under its jurisdiction and from the latter to the primary

credit societies, which then lend to their borrowing members. The

need for higher financing agencies arises, because the PACs are not

able to raise enough funds by way of deposits from the public. The

SCBs them selves, apart from raising funds by way of owned

funds(share capital and reserve) and deposits from co-operative

societies and individual and others, borrow large amount from

mainly the RBI. This is one direct in which the RBI as the country’s

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central bank makes its credit available to the co-operative banking

system. Further, the RBI also extends credit to state Government (in

the form of long-term loans for contribution to the share capital of

co-operative credit institutions) and through NABARD.

There are also reserve flow o funds from the primary credit societies

to CCBs and from them to SCBs. This is affected by way of

contribution to the share capital of the higher financing agencies and

by way of deposits. The loan extended by the higher financing

agencies to their affiliates is linked with the share capital holdings

by this affiliate of the lending agencies. Thus, normally a primary

credit society can borrow from a CCB at most upto 10 times its

contribution to the share capital of the CCB. A similar condition

governs the borrowing limits of CCBs from their SCBs.

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CREDIT STRUCTURE OF CO-OPERATIVE BANKS

The PACSs

The Primary Agricultural Credit Societies (PACS) constitute the

`hub’ of the Indian co-op movement. Every fourth co-operative in

India is a primary credit society. The main objectives of a PACS are:

To raise capital for the purpose of giving loans and supporting

the essential activities of the members.

To collect deposits from members with the objective of

improving their savings habit.

To supply agricultural inputs and services to members at

remunerative prices.

The Primary Agricultural Co-operative Societies

Indicators Value

Village covered by PACS 99.5%

Total Number of PACS 100000

Membership per PACS

(Average)

10,00,00,000

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The DCCBs

The PACS are affiliated to the District Central Co-operative Banks

(DCCBs) who perform the following functions.

o Serve as balancing centre in the district central financing

agencies

o Organize credit to primaries

o Carry out banking business

District Central Co-operative Banks

Indicators Value

No. of Banks 361

Total membership

(Million)

1.579

Total loans advanced Rs.326,995Million

The SCBs

The DCCBs in turn are affiliated to State Co-operative Banks

(SCBs), which perform the following functions.

o Serve as balancing centre in the States

o Organize provision of credit for credit worthy farmers

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o Carry out banking business

o Leader of the Co-operatives in the States

Indicators Value

No. of Banks 28

No. of branches 742

Total membership 139,676

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OBJECTIVES OF CO-OPERATIVE BANKS

1) To understand the structural features of the credit delivery system

in a village,

2) To assess the operational dynamics of financial services rendered

by formal credit institutions especially the co-operative,

3) To analyze the profile of borrowers of Service C6operative Bank,

their economic empowerment and perception level regarding loan

repayment, and

4) To identify reasons for non-viability of rural credit institutions

and suggest measures.

5) The rural financial system in the country calls for a strong and

efficient credit delivery system, capable of taking care of the

expanding and diverse credit needs of agriculture and rural

development. More than 50% of the rural credit is disbursed by the

Co-operative Banks and Regional Rural Banks. In this direction

NABARD has been taking various initiatives in association with

Government of India and RBI to improve the health of Co-operative

banks

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6) To provide cheap and liberal credit facilities to small and

marginal farmers, agriculture laborers, artisans, small entrepreneurs

and other weaker section.

7) To save the rural poor from the money lenders.

8) To act as a catalyst element and thereby accelerate the economic

growth in the particular region.

9) To cultivate the banking habits among the rural people and

mobilized savings for the economic development of rural areas.

CO-OPERATIVE BANKS-A PROFILE

In the early 20th century, the availability of credit in India, more

particularly in rural areas was non existent. There was no organized

institutional credit for agricultural and related activities. People in

the rural areas largely depended on money lenders who lent money

at very high rates of interest. Thus, there was need to create an

institution which would cater to the needs of ordinary people and

was based on the principles of co-operative organization and

management. In 1904, the first legislation on cooperatives was

passed. In 1914, the Maclagen committee suggested a three tire

structure for cooperative banking i.e. Primary agricultural credit

societies at the grass root level, Central cooperative banks at the

district level and State cooperative banks at the state level.

Cooperative banks were expected to serve as substitutes for money

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lenders, and provide both short term and long term institutional

credit at reasonable rates of interest.

Features of cooperative banks

1) Cooperative banks are organized and managed on the principal

of co-operation, self help, and mutual help. They function with the

rule of “one member, one vote”. Function on “no profit, no loss”

basis. Co-operative banks, as a principle, do not pursue the goal o

profit maximization.

2) Co-operative banks perform all the main banking functions of

deposit mobilization, supply of credit and provision of remittance

facilities.

3) Co-operative banks provide limited banking products and are

functionally specialist in agriculture related products. However, co-

operative banks now provide housing loans also.

4) Primary Agricultural credit societies provide short term and

medium term loans

5) Co-operative banks do banking business mainly in the

agriculture rural sector. However, UCBs, SCBs, CCBs operate in

semi urban, urban and metropolitan areas also.

6) The SCBs, CCBs and UCBs can normally extend housing loans

upto Rs. 1 lakh to an individual.

CATEGORIES:

There are two categories of the co-operative banks.

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a. Short term lending oriented co-operative banks – within this

category there are three sub categories of banks viz. State co-

operative Banks, DCBs, PACs.

b. Long term lending oriented co-operative banks – within the

second category there are land development banks at three levels

state level, district level and village level.

The co-operative banking structure in India is divided into following

main 5 categories

1) Primary Urban Co-operative banks

2) Primary Agricultural Credit Societies

3) District Central Co-operative banks

4) State Co-operative Banks

5) Land Development Banks

DIFFERENCE BETWEEN RURAL CO-OPERATIVE

BANKS & RRBs

RRBs are by nature co-operative banks but are different from the co-

operative banks

1) Aim: RRBs have been established to supplement the resources

of the co-operative banks and not to complete with them. The

principle of co-operation is “all for each and each for all”. Its aim is

to provide an institutional framework to organized ‘self help’ among

persons of small means. Its basis is self-help through mutual help. It

combines economic, social and political objectives. It aims at

bringing about socio-economic changes in the country. The RRBs

aim at ‘providing credit and other facilities especially to the small

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and marginal farmers, agricultural laborers, artisans and small

entrepreneurs in the rural areas.

2) Act applicable: The RRBs are governed by the regional rural

banks Act 1976, RBI Act, NABARD Act, whereas the co-operative

banks are governed by co-operative societies Act 1965.

3) Status: The co-operative banks do not become scheduled banks

automatically, whereas RRBs are scheduled commercial banks. The

scheduled status given automatically.

4) Area of operation: Area of operation of the co-operative banks

is restricted to only one district only. But the area of operation of a

RRBs is extending upto one or more districts of a state.

5) Coverage of population: the co-operative banks are voluntary

organization for masses. But the beneficiaries of the RRBs are

specially class of rural area. It includes small and marginal farmers,

agricultural laborers, artisans and small entrepreneurs in the rural

areas.

6) Organization: the organizational set up of the co-operative

banks is pyramidal. At the apex level, state co-operative banks

functions as apex body, at district level Central co-operative banks

and village level Primary agricultural credit societies. It has federal

set up and each unit is partially autonomous managed by depositors

and borrowers on the basis of one men one vote. The RRBs are

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bureaucratic institutions whereas co-operatives are democratic

institutions

7) Beneficiaries: the Beneficiaries of the co-operative banks are

mainly rural masses. Whereas the Beneficiaries of the RRBs

includes special class of people i.e., the weaker section of societies

8) Resources: The RRBs have owned funds which include share

capital and reserve funds as well as procured funds which include

deposits and borrowings/ refinance. But the co-operative banks

depend on the RBI and deposits from members.

9) Lending operations: the Co-operative banks lend mainly to the

farmers.

10) Monitoring and control: the RRBs are controlled by the Central

Government, RBI, State Government and Sponsor Banks, whereas

the co-operative banks are controlled by RBI and Registrar of co-

operatives.

11) Staff: the co-operative banks get talented staff. Whereas RRBs

attract less talented staff

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FUNCTION OF CO-OPERATIVE BANK

NABARD being an Apex Development Bank promotes agriculture

and rural development through refinance support to all banks for

investment credit and to Co-operative and RRBs for production

credit. The objective of providing refinance to eligible institutions is

to supplement their resources for delivering credit for agriculture,

cottage and village industries, SSIs, rural artisans, etc. thus

influencing the quantum of lending in consonance with the policy of

the government of India. It directs the policy, planning and

operational aspects in the field of credit for agriculture and

integrated rural development.

Besides the refinancing activity it discharges the developmental

functions which are as under:

1) It co-ordinates the operation of rural credit institutions

2) It ensures institution building to improve absorptive capacity of

credit delivery system.

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3) It develops expertise to deal with agriculture and rural problems

4) It assists Govt., RBI and other institutions in rural development.

5) It provides facilities for training, research and dissemination of

information in rural banking.

6) It assists the State Government to enable them to contribute to

the share capital of eligible institutions

7) Under Rural Infrastructure Development Fund, NABARD

extends financial assistance to State Govt. for completion of various

incomplete rural projects such as Irrigation, Rural Bridges, and

Roads and new projects also.

8) It undertakes inspection of Co-operative Banks and RRBs as a

part of Regulatory function.

The function of District Development office

The basic function of district development office is planning,

monitoring and co-ordination.

1) The Potential Linked Credit Plan (PLP) prepared by district

development office has been used as reference by the credit planning

agency.

2) The monitoring of service area approach was assigned o

NABARD by RBI as it was considered advantageous to have a

single rural agency to plan, co-ordinate and monitor the credit

programme of banks. They also monitoring RIDF projects

sanctioned to various NGOs, SHF formation and linkages.

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3) The district office of NABARD will be the principal agency for

coordinating agriculture and rural development activities of various

credit agencies as also liaisoning with the development departments

of State Govt.

4) Member of various district level standing committees and other

committees related to agriculture and rural development

5) Associated with the inspections of Co-operative banks and

RRBs in the districts

THE SCHEMES OF RURAL CO-OPERATIVE BANK

& IT’s PROGRESS

The Government while understanding the importance of co-

operatives has introduced several schemes for promoting the spirit of

co-operation. Both the Indian Government as well as the

Government of the State of Maharashtra has introduced several

schemes for the co-operatives. A few of them are listed here. Take

benefit of them.

Scheme 1: Share Capital Contribution to Credit Institutions under

LTO Fund (State Level Scheme)

The Government sanctions share capital contribution to District

Central Co-operative Banks. This contribution is given out of the

LTO Fund of the NABARD. The provision is made every year to

repay this loan.

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Scheme 2: Loans to Co-operative Credit Institutions for conversion

of short term loans into medium term loans

Scheme 3: National Agricultural Credit Stabilization Fund

(Centrally Sponsored Scheme)

In drought conditions the members of Agricultural Credit Societies

may not be able to repay the crop loans. This scheme helps to

convert their short-term loans into medium term loans and fresh crop

loans are made available to the members.

Scheme 4: Crop Production Incentive to Agriculturists

(Dr.Punjabrao Deshmukh Crop Production Incentive Scheme)

this scheme is applicable for Kharif and Rabbi Crops taken from

1.4.90 onwards. The farmers borrowing loans of RS.25, 000 or less

and who repay their loans fully before the due date are eligible for 4

% of the principal amount as an incentive.

Scheme 5: In the industrial co-operative societies of weaker sections

of the societies, the Government has several schemes.

1. The Government sanctions share capital in the ratio 1:3, to enable

the societies to borrow funds from the financial institutions.

2. Financial Assistance for Tools and Equipment's

3. Interest Subsidy for Working capital:

The government gives an interest subsidy up to 3.5% to 4.5% on the

amount borrowed by the co-operative. This scheme helps to reduce

the burden of interest on the co-operative society which is to be paid

to financial agencies.

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Scheme 6: Central Sector Scheme for Development of Women Co-

operatives Under this scheme financial assistance would be provided

by the Central Government on 100 % basis to the newly formed co-

operative societies by the women as well as existing women’s co-

operatives. The financial assistance is as under

No. Item                    Share Capital     Working Capital     

Subsidy         Total

1. New Societies           40,000              40,000                   20,000

1, 00,000

2. District Federation      80,000              80,000                 40,000

2, 00,000

3. State Federation        2, 00,000           2, 00,000               1, 00,000

5, 00,000

Scheme 8: Co-operative Godowns: The Warehousing Corporation

90% assistance for the construction of Godown out of which 50% is

loan and 40% is Government share capital.

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IMPLEMENTATION OF DEVELOPMENT ACTION

PLAN (DAP)/MEMORANDUM OF

UNDERSTANDING (MOU)

In order to strengthen Cooperative Credit Institutions both in Short-

Term and Long-Term Structures as viable units on a sustainable

basis, NABARD had introduced a mechanism of DAP/MoU aiming

at institution specific measures in 1994-95. The cooperative banks,

throughout the country had prepared the base DAPs and executed

the base level MoUs for 5 years terminating March 2000. The

second round of DAPs, and MoUs covered the period 2000-01 to

2002-03 which was extended by one more year i.e.upto March 2004.

Since then the base-level DAP/MoU covered a larger period of 3 to

5 years. The first phase of DAP/MoU (1994-2000) concluded in

March 2000 and thereafter second phase was started to cover 3 years

(i.e. 2001-03) Annual MoU for 2002-03 and was entered for the year

2003-04. The third phase of DAP/MoU started from the year 2004-

27

05 for a period of 3 years. During the third phase of DAP/MoU

covering the period 2004-05 - 2006-07 for the first time PACS have

been introduced to planning process. They are required to prepare

DAP and enter into an understanding with the branch of DCCB.

The mechanism of DAP/MoU has helped in building appreciation

and awareness for strategic planning facilitating, in turn, sustainable

viability at all levels. The feedback received indicates that there was

positive impact on the performance of banks as a result of

introduction of DAP/MoU through reduction of CoM and cost of

resources. The DAP planning process, as an internal strategy for

corporate planning, had facilitated in creating an awareness in the

cooperative banking structure and RRBs about the need for strategic

planning for corporate success.

The process of preparation of Bank-specific Development Action

Plans (DAPs) introduced for RRBs during the year 1994-95 has

been continued during the year 2004-05 for improving the

performance of RRBs in a specified time frame.

28

RBI’S POLICIES IN RELATION TO CO-

OPERATIVE CREDIT

The RBI since its inception has been concerned with the problems of

agriculture credit. It has been conducting studies to identify the

problems of agricultural credit. It was found in the studies conducted

in 1930’s that almost entire finance required by agriculturists in

India was supplied by money lenders the part played by co-operative

and other agencies being negligible. In 1951, the RBI appointed an

All-India Rural credit survey committee to conduct a

comprehensive rural credit survey. It was found that only 3.1 per

cent (of Rs.750 crores worth of borrowings of the cultivators) was

owed to co- operative societies.

It was found that co-operative credit fell short of the right quantity

was not of the right type ,did not serve the right purpose and often

Failed to go to the right people . The committee concluded that

29

thought co-operation has failed but it must succeed. It was realized

that only the co-operative credit system can play the prime role in

the provision of rural finance. This was rightly thought so since

there is the existence of vast network of village level primary credit

societies through- out the country. further , these societies have

intimate knowledge of local problems .A require structure was

already available for an effective credit delivery system for rural

areas, therefore, RBI has made all possible efforts to strengthen and

improve the co-operative credit structure.

The RBI was assigned a crucial role on three main items:

The development of co-operative credit,

Expansion of co-operative economic activity and

Training of co-operative personnel.

The RBIs role in the building of the co-operative credit structure was

that of an active collaborator in drawing up schemes of development

with the government of India and the State Governments, and the

provider of finance, first to the State Governments for contribution

to the share capital of co-operative credit institutions at various

levels, and secondly, to the co-operative credit structure it self to

meet its requirements of short- term, and long-term, finance. The

details are given as below:

PROVISION OF FINANCE

The RBI extends finance under two

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a) Agriculture finance: the RBI extends finance to agriculturists

indirectly through co-operative sector. The credit extended is of

three types i.e. short term, medium term and long term.

To meet its aforementioned financial obligation, the RBI had

established in 1956 two national funds

1) The national a Agriculture credit fund (long term operations)

2) The national Agriculture credit (Stabilization) fund, the first und

is used for:

a. Advancing to state co-operative banks- medium term loans for

agriculture and allied purposes,

b. Making loans to state land development banks etc,

c. Purchasing the debentures of state land development banks, and

d. Making loans and advances to NABARD, started with an initial

contribution of Rs. 10 crores in 1956, the total outstanding under this

fund had grown to Rs. 3,315 crores by the and of June 1990 through

annual subscription from the profits of the RBI. The second fund,

viz. NAC (stabilization) fund, is used for converting the RBI’s short

term loans and advances to state co-operative banks into medium

term loans whenever they are enable to pay their dues in time owing

to drought. Famine or other natural calamities. This fund was set up

in 1956 with an initial contribution o Rs. 1 crore. The total

outstanding under this fund stood at Rs. 660 crore at June end 1990.

b) Non Agricultural finance: the RBI also provides short- term

finance for

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a. The production marketing activity of cottage and small-scale

industries, and

b. The purchase and distribution of fertilizers, these loans are

generally provided through state co-operative bank against

guarantees of the state governments. However, all such finances

have constituted a small property (less than %) of the total RBI

short-term finance to co-operatives. The bulk of it goes to

agricultural co-operatives

RURAL BANKING -   Present Scenario

Households availing banking Services 

Rural penetration of banking and Insurance is very low

Excess Dependence on Private Financiers at very high interest

rate

Rural People

Distancing themselves due to lack of awareness

Difficulty in fulfilling Bank ’ formalities

Number of Rural Branches was maximum  in 1993

Thereafter number of Rural Branches has been declining

Reason for Reduction of Rural Branches

Closure

Reclassification of the Area due to population growth

32

Rural Sector Reforms started in 1991

As the focus on the profitability has been increasing the rural

Branches are being closed. 

In earlier decades, In spite of re-classification, number of Rural

Branches increased

Rural Branches Growth and Decline

Population and Bank Branch Coverage  

Level of Urbanization has increased during the decade

The share of urban and Metro population increased due to

Up gradation of certain Semi Urban areas into Urban areas

Migration from Rural / Semi Urban to Urban / Metros

In Urban and Metros Population per Branch has decreased whereas

in Rural and Semi Urban population per branch has increased

during the last decade

The shift will be more towards Urban / Metro if we consider the

ATMs and other delivery channels available in Metros which are

equivalent to part of a branch but not added to the number of

branched

  Strategies for successful Rural Banking  

Co-operative bank are Rural oriented and their operating expenses

are less

33

They have to play a lead role in Rural financing and expanding the

Rural customer base

Commercial Bank can select the route of financing through

agencies

Micro Credit Institutions

NBFCs

Encourage linkage of more Self help Groups

 Solutions of problem of co-op bank in rural area

Training Needs 

Bank to take up entrepreneurial skill development programmes

Training to develop Business Skills

Training on Leadership Skills

Training on Proper Accounting practices

Training to create Quality awareness

Training and Knowledge dissemination on Industrial and

Tertiary Sector Opportunities

Provision of Know How Technologies

Activities and Success Stories of other SHGs should be shown

under video coverage

Technology implementation for   Prosperity of Rural Poor

   Technology Implementation in Bank in Rural

To bring down the transaction cost

34

Packaging and delivering Rural Credit

Technology can handle large number of transactions at less cost

Can facilitate

Document management

People identification

Technology in   Rural India – Key Issues  

Improving Networking and   Communication facilities through

wireless technology and last mile connectivity

Processor & other Hardware should be made cost effective with 

multiple economic options

Indigenization of Technology equipments  and making them user

friendly for mass adoption (on the lines of NOKIA mobile

phones)

Enable continuous functioning  through  in built power back up

Enable them to function in hot and humid conditions without

necessitating Air conditioning equipments

Limitations for bringing technology to Rural India  

Lack of Electrification  & Uninterrupted Power supply

Communication networking – Cabling and other issues – Non

viable

35

Distance factor, low requirement and lack of good roads and

transport facilities deter suppliers and service providers

Lack of persons with technical knowledge in the Rural areas

For trouble shooting / up gradation / maintenance technicians

have to come from nearby towns - Time consuming and

expensive

Alternative Delivery Channels could not be extended to Rural

areas

Due to lack of infrastructure

Strategies of co-operative banks for successful Rural Banking

Full computerization

Less manpower requirement 

Can handle large volume of accounts

Processing of Loan Applications, Maintenance of huge number

of documents, dealing with renewal, identification of borrowers are

made easy and effective

Many Banks have started computerization of Rural and Semi

Urban Branches

Alternative delivery channels to Complement / Supplement

Branch Banking

 Providing urban infrastructure at Rural Centre (PURA)  

Now large number of small villages depend on few big towns

Excess dependence of Rural People on Urban Centre for

purchase of Inputs and marketing their output will be reduced

36

Transaction / Intermediary cost will be less resulting in better

margin

Migration towards existing Urban Centres will be reduced and

the population pressure on Urban centres will reduce

IT related Infrastructure hubs to be developed in such centres

similar to development of IT parks in Urban Centres where

from all types of technical services will be made available to

surrounding villages within a specific radius

Hardware and software services, Communication towers and

Communication services should be made available in those

centres

Banking in Rural Areas - Challenges  

Some Banks are unwilling to operate Branches in Rural areas

because

Low Profitability

Large Number of accounts

Low Value Transactions

Less Number of Transactions

Few activities and less opportunities for services other than

deposit and Credit

Huge Staff Cost

Difficult to implement Technology

Large area of Operation – Difficult Reach

37

TASK FORCE ON REVIVAL OF RURAL

COOPERATIVE CREDIT INSTITUTIONS

1) The Government of India had set up a Task Force in August 2004

to suggest an action plan for reviving rural cooperative credit

institutions including legal measures necessary for facilitating this

process. The Task Force has carefully examined available literature

on the subject including the work of earlier committees and has also

met about 150 cooperators, officials, and politicians from all over

the country before arriving at its recommendations.

The Task Force considered all the comments and its responses are

annexed to the report.

2) The cooperative movement was started in our country on the

initiative of the government more than 100 years ago and can be

divided into four phases. In the First Phase (1900-30), the

Cooperative Societies Act was passed (1904). The major

development during the Second Phase (1930-50) was the pioneering

38

role played by Reserve Bank of India in guiding and supporting the

cooperatives. However even during this phase, signs of sickness in

the Indian rural cooperative movement were becoming evident. In

the Third Phase (1950-90), the All India Rural Credit Survey was set

up which not only recommended state partnership in terms of equity

but also partnership in terms of governance and management. The

Fourth Phase from 1990s’ onwards saw an increasing realization of

the disruptive effects of intrusive state patronage and politicization

of the co-operatives, especially financial cooperatives, which

resulted in poor governance and management and the consequent

impairment of their financial health. A number of committees were

therefore set up to suggest reforms in the sector.

3) At present the rural cooperative credit structure consists of

112,309 primary agricultural credit societies (PACS), 367 district

cooperative banks (CCBs) and 30 state cooperative banks (SCBs).

On an average, there is one PACS for every 6 villages; these

societies have a total membership of 12 crore but only about 50

percent of them borrow from the PACS. A large proportion of PACS

also serve as outlets for inputs and for the public distribution system

for food and other essential items.

4) The financial position of the system is weak and deteriorating.

The accumulated losses of PACS are estimated roughly on the basis

of available incomplete data at Rs. 4,595 crore as on 31 March 2003.

The position of DCCBs is also equally unsatisfactory; with

accumulated losses aggregating Rs.4, 401 crore and erosion in

39

deposits being Rs.3, 100 crore. Due to such financial impairment,

cooperatives have been steadily losing their capacity to meet the

Rapidly growing credit needs of agriculture. In the early 1990s, they

accounted for over 60 percent of the total institutional credit to

agriculture, while currently their share has fallen to about one-third.

This situation gives cause for serious concern.

5) The revival package is therefore aimed at first bringing the PACS

to an acceptable level of financial health through cleansing of their

balance sheets and strengthening their capital base and then move on

to upper tiers. This step will enable PACS to clear their dues to the

upper tiers and thereby reduce the accumulated losses of

DCCBs.The DCCBs will then be provided an assistance to clear any

remaining balance of accumulated losses and to reach a minimum

norm of capital adequacy.

The Financial Package

6) Assistance will be available for the following purposes: wiping

out accumulated losses, covering invoked but unpaid guarantees

given by the state governments, increasing the capital to a specified

minimum level, retiring government share capital and technical

assistance.

7) Accumulated losses will cover losses on account of the following:

i. Non-repayment of loans for agricultural and other businesses

given by the cooperatives

40

ii. Non-repayment of loans to individuals for other purposes like

consumer goods, housing, gold loans etc.

8) Since cooperatives do not have a standardized accounting system,

and PACS in many states do not make adequate provisions against

non-repaid loans, and also because of delays in auditing, as well as

lack of uniform standards, their latest audited balance sheets may not

provide a true picture. The Task Force has therefore recommended

special audit of accounts as of 31st March 2004 be undertaken for

this purpose, and the cost of these special audits (Rs. 46 crore) will

also be borne by the revival package.

Accumulated losses at various level

9) It has been reported that as on 31 March 2003, accumulated losses

of PACS aggregated Rs. 4,595 crore. The true picture can be

obtained only after conduct of special audits on uniform basis. As

mentioned earlier, PACS in most states undertake both credit

business and non-credit business (like PDS etc.). Although PACS

give loans for agriculture and many other purposes, most of their

loans are

For agricultural purposes.

10) The accumulated losses of SCBs aggregate Rs. 281 crore. Most

of these losses are expected to get wiped out after the package is

implemented and losses of PACS and DCCBs are covered. The

residual losses will however, be covered.

41

Minimum Capital requirement in cooperatives

11) All commercial banks and RRBs are now required to maintain a

capital to risk weighted assets ratio (CRAR) of a minimum of 9%

and are expected to increase it further. This norm has so far been not

applied to cooperatives. However, as cooperatives work in smaller

areas and also primarily with one major activity – agriculture – they

in fact need a higher CRAR than others. The Task Force has

recommended that assistance necessary to bring all cooperatives,

Including PACS, to a minimum CRAR of 7% may be provided and

cooperatives then may be asked to increase it to 12% within five

years from their internal resources.

Technical assistance

15. Cooperatives will need assistance to computerize them and

install sound accounting and monitoring systems to remain

competitive. They will also need to train their staff and board

members in a large way. The costs for all these activities will be met

through grant assistance. The total technical assistance of Rs. 670

crore under the package therefore includes Rs. 46 crore for special

audits, Rs. 516 crore for accounting systems and computerization

and Rs. 108 crore for training and capacity building.

Registrar of Cooperative Societies:

16. As making legal amendments is time consuming process, the

Task Force has recommended that under the existing powers, the

42

state governments may issue Executive Orders to bring in the

desired reforms which will relate to:

i. Ensuring full voting membership rights on all users of financial

services including depositors

ii. Removing state intervention in administrative and financial

matters in cooperatives

iii. Withdrawing restrictive orders on financial matters

17. The Task Force had also suggested a model Cooperative Law

that can be enacted by the state governments. It also recommends

that in states where there are already two laws, the old cooperative

societies Act and the new Act on the lines of the model Act, it would

be better to gradually converge and have only one Act so as to

reduce confusion and legal problems. In respect of states which do

not pass the model Act, the Task Force has recommended for

inclusion of a separate chapter for Agricultural and Rural Credit

Societies incorporating the

Provisions salient in the model Act in the extant Cooperative

Societies Acts.

43

WEAKNESS OF CO-OPERATIVES IN RURAL

CREDIT

There is a three-tire wide network of co-operative credit structure

meeting the rural credit requirement. Though the co-operative credit

movement in India developed in numbers but its performance

considered as poor due to reason more than one. So far as financial

weakness of the co-operative credit institutions is concerned, their

low income and low credit worthiness is mainly responsible for the

affairs. As a result, large number of societies became dormant i.e.

societies which do not advance or collect loans for quite a few years.

The administrative problem was another major obstacle stood in the

way of effective functioning of the co-operative credit institution.

While lack of sense of business management and administrative led

to insolvency of many primary credit societies, it also accounted for

the poor recovery performance of many credit societies particularly

after 1981. The mounting overdues are another factor inhibiting

expansion of coverage and lending of these societies. Thus, overdue

took the effect of choking of the credit channel.

44

In India the co-operative credit structure is also victim of the

problem of organizational weaknesses. Lack of organizational skills

in the co-operative credit structure was also responsible for the

fragmented approach of the co-operative towards finding solutions

to rural problems without trying to meet all the wants of activities. It

was found that in many cases co-ordination between the central co-

operative banks and primary agricultural societies as also between

credit and non-credit societies was lacking. The necessity or the re-

organization o large number of societies has not been denied in

government reports.

Though the number of co-operative credit societies has increased but

their scale of activities and coverage is not satisfactory. In fact the

size of credit societies accounted for a low volume of loan

transactions and this is supposed to have endangered the viability of

the credit societies. Further, the coverage of credit societies is not

considered as satisfactory and it is reported that a relatively small

proportion of the total cultivators borrowed from the co-operatives.

The status of borrower, it will be clear that among the cultivators

who obtain loans, were the relatively big farmers more than

relatively the poor and small cultivators.

45

DIFFICULTIES FACED BY CO-OPERATIVE BANKS

IN RURAL AREA

1) Slow progress: The progress of co-operative banks is not upto the

expectation and is slow when comparing other type of banks

because of many restrictions on their operations.

2) Limited scope of investment: the main objective of co-operative

banks is to provide credit facilities to the poor people i.e., to small

and marginal farmers and other weaker sections. They were

originally having limited scope to invest their surplus funds freely.

3) Delay in decision making: the co-operative banks directly or

indirectly by various agencies i.e., NABARD, RBI. Thus it takes

long time to take decision on some important issues. This, in turn

affects the progress of co-operative banks.

4) Lack of training facilities: generally the staff of co-operative

banks is urban oriented and they may not know the problems and

46

conditions of rural areas. Lack of training facility concerning these

areas also affects the growth of co-operative banks.

5) Poor recovery rate: the recovery performance of the co-operative

banks is not up to the mark. the reason for poor recovery of loans

and mounting overdue are; inadequate supervision and follow up

action to assess the end use of credit by co-operative banks due to

inadequate staff in banks, poor identification of beneficiaries,

inadequate generation of output and income by the beneficiaries,

poor marketing facilities.

6) Lack of local participation: rural co-operative banks have not

received sufficient local participation. The co-operative banks have

been trust upon the rural people from above without involving local

people in its operation and management. In this connection, it is

suggested that knowledgeable persons in the rural areas need be

associated with the management of co-operative banks.

7) Lack of co-ordination: there is lack of proper co-ordination

between co-operative banks and other institutional financing

agencies like commercial banks and RRBs. Also, there is inadequate

co-ordination between co-operative banks and other developmental

agencies operating in rural areas. This has hampered the progress of

co-operative banks.

47

8) Poor development of rural areas: in spite of several efforts made

during the course o development plans to promote the development

of rural areas, it has not taken place in a significant way. The areas,

at present lack economic infrastructures like; facilities of marketing

storage and distribution of inputs. Besides, social infrastructure like;

schools, medical facilities. As a result, co-operative banks find it

extremely difficult to operate in such areas.

MAIN PROVISIONS OF THE ACT AS APPLICABLE

TO CO-OPERATIVE BANKS

The Amending Act has added to the principle Act a new Part-Part V,

which consists of Section 56.

Section56 of the principle Act, added as above, provides to the effect

that the provisions of the Act as in force for the time being shall

apply to, or in relation to, co-operative societies as they apply to

banking companies, but subject to the modifications laid down in the

section and that all references to a “banking company” or “the

company” or “such company” in the Act shall be construed as

references to such co-operative banks to which the Act applies, as

specified in the preceding paragraphs.

Section 56 then proceeds to specify the modifications in several

sections of the Act to make them applicable to co-operative banks.

Thus, when the Act is to be applied to those co-operative banks to

which it is made applicable, its sections are to be read a modified by

Section 56.

48

The second amending Act 58 of 1968 while imposing social control

over banks, introduced some amendments to Section 56 of the Act,

Section 56 has also been amended by the National Bank for

Agriculture and Rural Development Act, 1981(Act 61 of 1981) and

the Act 1 of 1984. The following is the summary of some of the

main provisions of Section 56:

RESTRICTION ON LOANS AND ADVANCES

Section 20 of the Act as applicable to co-operative banks and as

amended by Act 23 of 1956 and Act 58 of 1968 reads as under:

1) No co-operative bank shall-

a) Make any loans or advances on the security of its own shares

b) Grant unsecured loans or advances-

i) to any of its director

ii) to firm or private companies in which any of its directors is

interested as partner or managing agent or guarantor

2) Every co-operative banks shall, before the close of the month

succeeding that to which the return relates; submit to the reserve

bank a return in the prescribed form and manner showing all

unsecured loans and advance granted by it to companies in cases

(other than those in which the co-operative bank in prohibited under

sub- section 1) to make unsecured loans and advances) in which any

of its directors is interested as director or managing agent or

guarantor

49

It will be observed that section 20 as now applicable to co-operative

banks is practically similar section 20 as was applicable to banking

companies before the social control. All the restriction now imposed

after 1-2-1969 on loans and advances by banking companies are not

applicable to co-operative banks.

BANKING PRODUCTS & SERVICES: For Service,

Security & Prosperity

Current Account

Savings Bank Account

Recurring Deposit Scheme

Fixed Deposit Scheme

Fixed Deposits linked with Recurring Deposits Scheme

Monthly Income Deposit’s Scheme

Loan Linked Housing Deposit’s Scheme

Loan Linked Children Education Deposits Scheme

1. CROP LOANS

Short terms loans are provided for Seasonal Agricultural operation

to Farmers, (cash & kind) through Service Co-operative Societies

spread all over Meghalaya as per approved scales of finance, time

schedule both under NCL, Cash Credit Systems & Kisan Credit

Cards.

50

2. TERM LOANS

Medium & Long Term Loans are extended to the Farmers through

the affiliated Service Co-operative Societies direct for allied

agricultural activities like land development, minor irrigation,

purchase of farm machinery, poultry, goat rearing, pisciculture,

diary, horticulture, plantation & Horticulture schemes.

3. CASH CREDIT ACCOMMODATION

Cash Credit accommodations are provided to Co-operative Societies

for procurement, marketing of agriculture and minor forest produces

and also for dealing in consumer goods, etc.

4. HOUSING LOANS

Salaried persons are extended Housing Loan facilities for

construction of their residential houses in CD Block Head Quarters

and other selection areas against adequate securities.

5. TRANSPORT VEHICLE LOANS

The Bank provides M.T. Loans to Transport Societies and educated

unemployed youths for creation of self-employment generation &

extension of easy mobility to the people of the State.

6. CONSUMER DURABLES LOANS

Salaried persons are provided consumer durables loans for purchase

of T.V. Set, Radio, Refrigerator, Two-Wheelers, Musical

51

Instruments, Cooking Gas, Furniture and various other approved

items.

7. CASH CREDIT FACILITIES

Govt. appointed whole sellers are extended Cash Credit/Loan

facilities for dealing in controlled commodities against adequate

securities.

8. TERM LOANS FOR TOURISM DEVELOPMENT

Term Loans are provided for encouraging young & enterprising

entrepreneurs and unemployed persons for creating self-employment

opportunities through Tourism Development.

9. DEPOSIT LINKED HOUSING LOANS AND SCHEMES

The scheme is intended for regular constituents of the Bank for

construction of their residential houses with financial assistance

from the Bank.

10. INTEGRATED VILLAGE DEVELOPMENT SCHEME (IVDS)

The scheme is intended to help formation of homogeneous groups

with 5 to 20 members in the rural areas in the co-operative sector

and extend loan assistance to them for improving their socio-

economic conditions by undertaking various economic activities

which are socially useful and economically viable.

11. PERSONAL LOAN

Salaried persons are provided Personal Loans for any bonafide need

of unspeculative nature in the shape of overdraft facilities against

adequate securities.

52

12. EDUCATIONAL LOAN

Educational Loans are provided to parents/deserving students for

higher studies in India/abroad adequate securities.

13. LOAN FOR PROFESSIONAL & TECHNOCRATS

Credit facilities are extended to Doctors, Lawyers, Technocrats and

other Professionals to set up Clinic, Consultancy firms etc. against

adequate securities.

OTHER SCHEMES AND SERVICES

Financial Assistance to Urban Banks, Weavers Co-ops, Industrial

Co-ops, Joint Farming Societies, etc.

Conversion of short term (Agri) Loans affected by Natural

Calamities into Medium Term Loans.

Implementation of comprehensive Crop Insurance Scheme for

the benefit of the farmers.

Godown Loans to Service Co-operative Societies.

Overdraft facilities to regular constituents of the Bank.

Kisan Credit Card Scheme for Farmers

53

NEW POLICY IN THE RURAL CREDIT FOR BANKS:

As indicated earlier, after 1969, there was a rapid spread of branches

of commercial banks in the rural areas. As a result, there was

duplication of efforts and scattered lending over wider areas. In

order to avoid this, a new policy was adopted in 1988 which is

known as the” Service Area Approach". Under this policy, each

semi-urban and rural branch of commercial bank is assigned a

specific area comprising of a cluster of villages within which it will

operate. Thus, the compactness in the area of operation will make it

easy for the clientele to approach the bank for credit. It will also help

the bank in credit planning and monitoring of the Funds. The banks

are supposed to prepare annual credit plans for all the adopted

villages.

54

AGRICULTURAL CO-OPERATIVE AND NABARD:

REFINANCING

While it is fact that outreach of the primary co-operative banks

extends to almost every corner, the fact remains that their

disbursement of Rs. 12,500 million is much higher than the total

deposits and share capital (including the government share).

Moreover, Kerala alone accounts for nearly 50 per cent of the total

mobilization by PACS which reflects rather poor credit mobilization

by PACS in the rest of the country. The objectives of the PACS

when they were set up were primarily mobilization of local resource

and disbursement of credit. Most primary societies in the country,

with the exception of Kerala, have failed miserably in these tasks. In

fact, if refinance from higher structure were not available, these co-

operative societies would soon have to close shop. The availability

of easy finance from NABARD is therefore preventing growth and

development potential of the primary agricultural co-operative

societies. Likewise in the case of district Central Co-operative

Banks, we see that the borrowings from SCB/NABARD account for

88.7% of the total borrowings. Similarly, the sate Co-operative

55

Banks borrowings from NABARD are to the extent of 78.8%. The

message is quite clear – without the support of NABARD, the entire

structure would become unviable.

SUPERVISION OF BANKS

9

The National Bank is vested with the powers of inspecting State Co-

operative Banks (SCBs), District Central Co- operative Banks

(DCCBs) and Regional Rural Banks (RRBs) under the Banking

Regulation Act, 1949. In addition to the statutory inspections, the

National Bank also conducts voluntary inspection of State Co-

operative Agriculture and Rural Development Banks (SCARDBs),

Apex Weavers’ Co-operative Societies, State Co-operative

Marketing Federations, etc. The basic objective of inspection is to

assess the financial soundness and managerial efficiency of these

banks and their compliance with banking rules and regulations, etc.,

in order to protect the interests of the depositors.

Supervisory Concerns

Against the backdrop of financial sector reforms, the supervision of

financial institutions has assumed greater importance. The Basle

Committee recommendations on Income Recognition, Asset

Classification and Provisioning were adopted internationally. To

keep pace with the internationally accepted standards/practices, the

56

National Bank re-engineered its supervision strategy and adopted

CAMELSC approach with emphasis on core areas like Capital

adequacy, Asset quality, Management, Earnings, Liquidity,

Systems/Procedures and Compliance. In the changed scenario, the

inspection process has gone beyond fault finding/’catch-all-

approach’ to the broader concept of supervision which encompasses

on-site inspection, off-site surveillance and supplementary

appraisals. Of the above, Off-Site Surveillance System (OSS) which

was introduced in 1998-99, has gained importance as a means of

ensuring continuous supervision. OSS is a mechanism for on-desk

evaluation for continuous and closer monitoring of client institutions

through various statutory and special returns. A computer-based

system has been developed in-house to scrutinise/analyse the off-site

returns and to issue warning signals to the banks wherever

warranted. During the year, bank officials as also officials of the

National Bank dealing with OSS, were sensitized through

workshops on OSS, operational problems, etc. The Fifth

‘Conference of Chief Co-operative Audit officers’ of various states

was also convened during the year. The conference has provided a

forum for useful interaction/discussions with ‘State Audit

Departments’ on issues of common interest. With a view to

developing the necessary skills to effectively perform in the

changing scenario, the inspecting officers of the National Bank were

deputed for various domestic/overseas training in different areas

relating to supervision.

57

THE CHALLENGE TO THE CO-OP SECTOR

The biggest challenge to the co-op sector, especially in the area of

agri-credit co-ops is one of sustainability and relevance. As

mentioned earlier, in the absence of any transaction cost advantages

to the primary co-operative, the village level branch of a CB/RRB

may find it easier to access funds from its own headquarters than the

PACS. There are no easy solutions to this dilemma of easy credit

adversely affecting the relationships of primary societies with their

members and their federal structures.

The process of change has already begun in India with the ILO CO-

OPNET/CO-OPREFORM Programme supporting the change in the

macro-policy environment for co-ops. As co-ops become member

centered, and mobilizes their own resources, the quality of capital

and management is bound to improve. They will then be able to

function as true member organizations, with supplemental

/incremental support from state agencies, but not critically

dependent as the scenario is today. This will require that the co-op

credit structure at all three levels make a comprehensive effort to

manage the funds and resources internally. There are several

examples within the country to show that primary co-op societies

58

can manage and finance the entire credit requirements of agricultural

operations in a village.

The fact that rural lending can be run on commercially sound

principles has been vindicated by the success of several thrift and

credit societies in different regions of the country. The GRAMEEN

Bank in Bangladesh, the SEWA in Ahmedabad and CDF supported

groups in AP (although operating on different principles) are

instances which show that a proper design, management and

governance structure with involvement of stakeholders holds the key

to succession fact, NABARD is now encouraging the CBs to set up

SHGs for group loaning in the rural areas- both in the farm and the

non-farm sector.

59

CO-OPERATIVES AND CREDIT

Cooperatives all over the world have become an effective and

potential

Instrument of economic development. There are 4510 Primary

Agricultural Co-operative banks at the village level, providing short

term and medium term credit facilities to the agriculturists. The

Primary Agricultural Co-operative banks have covered 85.96 per

cent of the agricultural families in the State and 79.57 per cent of the

agricultural families of weaker section in terms of their operational

holdings.

ACHIEVEMENTS DURING THE NINTH AND TENTH FIVE

YEAR PLAN PERIOD AND THE PROGRAMME FOR 2005-2006

1. Credit Cooperatives

i) Issue of short term and Medium Term loans:

The quantum of short term and medium term loans issued by the

Primary Agriculture Co-operative Bank It has been programmed to

issue loans to the extent of Rs.1097.50 Crores under short term and

Rs.59.80 Crores under Medium term loans during the year 2005-

2006.

60

(ii) Issue of Long Term loans:

The long term credit needs of the agriculturists are met by 181

Primary Agriculture and Rural Development Banks. The details of

long term loans issued by the Primary Agricultural and Rural

Development Banks during IX and X Five Year It has been

programmed to issue long term loans to the extent of Rs.220.00

Crores during 2005-2006.

(iii) Issue of Jewel Loans:

The Jewel loan provided by the credit Cooperatives during the year

2004-2005 is Rs.4849.32 Crores. The programme for issue of jewel

loans for the year 2005-2006 will be Rs.5800.00 Crores.

iv) Crop Loan:

The State Government set a target of Rs.1037 crores to be given as

crop loan to the farmers by the Co-operative banks during the year

2004-05 as against the provision of Rs.616.59 crores during the last

year. So far an amount of Rs.955.31

crores has been provided as crop loans benefiting 4.76 lakh farmers.

The State Government have over the last four years, provided

various concessions to the farmers who have been affected by

natural calamities. The concessions given on the credit front are as

given below:- (Rs. in Crores)

1 Relief to farmers on interest and Penal Interest scheme 2001

310.51

61

2 Waiver of interest to Small and Marginal farmers who got

annavari certificates in 2002 61.05 %

3 15% State Government share in the conversion of the crop loans of

kharif 2002 20.00 %

2. Consumer Cooperatives

The Consumer Co-operative through their network in the State,

distribute consumer goods at reasonable prices to the public both in

urban and rural areas.

The value of retail sales affected during 2004 -2005 was Rs.2348.18

crores. The programme for 2005-2006 is 2780.00 crores.

NEW SCHEMES –2005-06

1) Interest free loans to Women members of Primary Agricultural

Co-operative Banks for enhancing their borrowing power:

The Women in the rural areas belonging to weaker sections are

finding it Difficult even to contribute the share capital for availing

the loan facility extended by the Primary Agricultural Co-operative

Banks. The borrowing power of a member is linked to share capital

subscriptions. The sanction of share capital loan at Rs.500/- per

women member will enable them to raise loans for agricultural

purposes which will generate employment opportunities for women

members. It is proposed to assist 2000 women members of

respective primary Agricultural Co-operative banks at the rate of

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Rs.500/- per member and the outlay will be Rs.10 lakhs during

2005-06. This will help to improve the standard of living.

2) Interest free loans to Women members of Urban Co-operative

Banks for

Enhancing their borrowing power:

The Urban Co-operative Banks provide credit facilities to urban and

Semi-Urban population for various purposes like carrying out

repairs or additions to Houses, carrying on petty trades, small scale

cottage industries etc., and the sanction of loans by these banks are

linked to the share capital subscription by the members. Considering

the hardships experienced by women members of these banks in

remitting the required level of share capital for availing loan

facilities. A provision of Rs.5 lakhs has been made for the benefit of

1000 women members at the rate of Rs.500/- each during 2005-06.

3) Interest free loans to Women members of Primary co-operative

Agricultural and rural Development Banks for enhancing their

borrowing

Power: In the case of Primary co-operative Agriculture and rural

Development Banks (PCARDB) the borrowers have to contribute

5% of the loan amount towards the share capital. These banks cater

to the long-term credit needs of the rural people. As the Rural

women folk are mostly unemployed and economically weak, they

find it difficult to invest the required share capital for availing credit

from the banks. A sum of Rs.5 lakhs has been provided for the year

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2005-06 towards sanction of loan to 500 women members at the rate

of Rs.1000/ per member.

4) Interest free loan to physically handicapped women for availing

credit

From co-operative Bank.

The Government is keen on promoting economic rehabilitation of

persons with disabilities through loan assistance by the co-operative

Banks. Further the economic conditions of the physically

handicapped women are far from satisfactory as most of them are

below poverty line. This scheme envisages in interest free loan to

physically handicapped women to facilitate them to invest a share

capital to avail loan assistance from Co-operative banks so as to

improve their standard of living. Under this scheme, 1000

physically handicapped women will be benefited at the rate of

Rs.500/- per member. An amount of Rs.5 lakhs is provided for

2005-06.

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PRIMARY DATA

1) What are the act prevailing in co-operative Societies?

The co-operative societies Act was passed in 1904 & a new co-

operative societies Act was passed in 1912.

2) What is the Objective of co-operative banks when it started in

India?

Co-operative banking in India was started with the objective of

providing finance to the agriculturist and thus relieving him from the

clutches of the village money lenders, i.e., to solve the problem of

rural people.

3) What type of loan provided by co-operative banks in rural area?

The Co-operative banks provide two types of loan i.e.

a. Short term loans

b. Long term loans

The short term finance is purely for seasonal basis like Crop Loan. It

is generally for 12 months. But can be increased by 6 months if the

farmers face some problems. When loans are repayable by farmers

then again farmer can able to take loans.

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4) What about the interest schemes offered to the customer?

The interest rate that is changed in respective schemes. Interest rate

is flexible. But normally interest rate is 7% on loan taken by

farmers. It depends on loan.

5) What are the problems faced by co-operative banks in rural area?

The co-operative banks faced lots of problem in the rural area i.e.

the main problem of co-operative banks is recovery of loans from

the farmers.

The recovery performance of the co-operative banks is not up to

the mark. the reason for poor recovery of loans and mounting

overdues are; inadequate supervision and follow up action to assess

the end use of credit by co-operative banks due to inadequate staff in

banks, poor identification of beneficiaries, inadequate generation of

output and income by the beneficiaries, poor marketing facilities

The progress of co-operative banks is not upto the expectation

and is slow when comparing other type of banks because of many

restrictions on their operations.

The co-operative banks directly or indirectly by various

agencies i.e., NABARD, RBI. Thus it takes long time to take

decision on some important issues.

6) Why rural co-operative bank widely preferred in rural area?

Rural co-operative banks are preferred in rural areas because it

gives loans at a relatively low interest rate & they try to help the

farmers while repayment by increasing their time duration &

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provide tailor made schemes to the farmers. Because the main aim

of co-operative banks is to help the farmers.

7) How C-operative banking help in development of rural area?

Co-operative banks play vary important role in development of

rural area by providing short term and long term loans to the

farmers. The short term finance is purely for seasonal basis. And co

operative banks provide various schemes to the farmers like

KISHAN CREDIT CARD.

Also help in repayment of loan by extending duration.

8)In order to make rural population aware of the banking facility

what step bank should be taken?

1) Demonstration

2) Road shows

3) Person to Person

Co-operative banks more prefer third option. Direct communication

is better than any other communication. As rural people or farmers

are illiterate so face to face communication is better through this

bank can able to solve the difficulties of the farmers. So Co-

operative banks more prefer third option for explaining their benefits

of the banking facility like various schemes & product of the bank.

9) What is the three tire structure of co-operative banks?

The rural co-operative banking follows the three tire structure for

provide adequate finance to the rural people. The three tie structure

is as follows;

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NABARD

State Level Co-Operative Banks (SCB)

District Central Co-operative Banks (DCCB)

Primary Agriculture Credit Society (PACS)

Farmers & small Entrepreneur

The NABARD is Apex institution NABARRD not provide direct

loans to the farmers. It provides finance to the State Level Co-

Operative Banks (SCB).NABARD provides state wise finance for

rural development. Then (SCB) gives finance to the (DCCB) this

bank not directly deals with the farmers. This bank gives finance to

the Primary Agriculture Credit Society (PACS). And this bank gives

direct finance to the farmers. PACS provide different types of loan

to the farmers with less interest rate. Also provide different schemes

for rural development.

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10) Credit structure of the co-operative banks?

Credit Structure

NABARD not involved in the direct credit helps to any rural

development activities, since NABARD is apex institution it has

three tire systems for refinancing rural development activities: which

is explained following

Primary Agriculture Credit Society (PACS)

Primary Agriculture Credit Societies are the bottom payer in the

Credit these societies are directly in contact with the local farmers.

They have all necessary information, such as land occupied by him,

his requirement etc of the farmers. They give loans to the farmers at

decided rate of interest.

District Central Co-operative Banks (DCCB)

These banks provide refinance to PACS to meet their credit needs

for granting loans to farmers. District level Co- Operative bank have

many PACS under in it so not all loan granted by the PACS are

refinance by DCCB. Only 80% to 90% are refinanced by the DCCB.

State Level Co-Operative Banks (SCB)

All the DCCB are the member of the SCB. And these DCCBs

depend upon the SCB for the credit requirement as DCCB have

many PACS under in it. Like not all Credit to farmers by PACS is

refinanced by the DCCBs, SCB also not refinanced by the SCB.

Apex level institution (NABARD)

NABARD plays very vital role in the credit distribution channel. It

provides refinance facility to all SCB against loan sanctioned to

DCCBs.

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BIBLIOGRAPHY

BOOKS REFERRED:

Indian banking.

Newspaper referred:

Times of India

Economic times

WEBSITES REFFERED

www.nabard.org

www.google.com

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