Several committees have examined the problems facing the Cooperative Credit Structure in the recent past such as the Kapur Committee , Vyas Committee and more recently the Vikhe Patil Committee However, the Government of India thought it necessary to have an implementable action plan and also get a fair assessment of the extent of financial resources that it would have to commit to the revival exercise.
The Task Force due to constraints of time, addressed the issue of revival of the Short Term Credit Structure, and has suggested constitution of a separate committee to examine the issues pertaining to the Long Term Credit Structure. Evolution of the Cooperative Movement The Task Force goes back to the 's and traces the role played by officials of the colonial Government of those days in promoting cooperatives based on the remarkable success achieved in Europe, with the noble objective of liberating Indian farmers from the crushing debt burden and the tyranny of moneylenders.
The Third Phase is the post Independence Phase, where, "rapid and equitable economic development became the central focus of state policy". State Policy was perused with the view that, "the Government should ensure adequate supply of cheap institutional credit to rural areas through cooperatives". The establishment of NABARD in on the recommendation of the Sivaraman Committee "heightened the State's interest in and concern for the performance of the cooperatives in the country".
The State gave primacy to cooperatives as the sole means of delivering institutional credit to rural areas and injected large and increasing amounts of funds directly. The Committee observed that, the Government of India's Loan Waiver Scheme of , "writing off loans of farmers, greatly aggravated the already weak credit discipline in the cooperative system and led to the erosion of its financial health.
It also set an unhealthy precedent and spawned a series of schemes by the State Governments, announcing waivers of various magnitude, ranging from interest write off to partial loan write-offs".
It was around this time that concerns began to be voiced about the deteriorating health of the structure and the search began to explore ways to revitalise the cooperatives.
Vyas examined the sector in great detail. One of the solutions that offered a glimmer of hope was the Model Cooperative Law suggested by the Brahm Perkash Committee, "which could make the cooperatives self reliant, autonomous and fully democratic institutions". The progress however has been very tardy and only nine states have passed legislations on the pattern suggested by the Brahm Perkash Committee.
Only Commodity Cooperatives have migrated to the new liberal act. However, "the new law did lead to the emergence of new generation autonomous financial cooperatives albeit slowly and unevenly across the country".
Assessing the Extent of Impairment The Task Force went about assessing the extent of impairment of the system in a wider perspective of Governance, Management and Financial Health. The following is a brief summary of their assessment.
Poor Information Base The Task Force has explained at length, the absence of a reliable database on the financials of the Cooperative Credit Structure, which they observed as a major area requiring attention.
It has made two major suggestions in this regard. While the share of the cooperatives increased in absolute terms from Rs. However, the Task Force has noted that out of the total estimated 8 crore borrowers, about 6.
These data clearly indicate the reach of the cooperatives and their focus on the small borrowers as compared to Commercial Banks. Impairment in Governance On the impairment in Governance, the Task Force observed that, "the impairment of governance is deep and is represented by the composition of the boards of directors of the cooperatives and the reporting systems.
Because of the structural ordering, the lower tiers are managed by the higher tiers in varying degrees of detail in different States.
In almost all States, the function of conducting elections for the cooperative structure is vested with the State Government. Similarly, the function of auditing is also vested with a State-run audit system". Financial Performance The Task Force also made an assessment of financial impairment based on published data.
The Task Force however expresses doubts about the reliability of this data and States that "the picture presented may seem more optimistic than the reality" The Task Force also makes a passing reference to the Imbalances in the Cooperative Structure where the outstanding loans exist in the higher tier even for loans recovered and extinguished in the lower tier. The Task Force attributes this situation to poor loan recovery, high overheads and frauds.
Costs and Margins The Task Force also examined the issue of yield on assets, cost of funds and margin available to SCBs and DCCBs and observed that while financial margin yield on assets less cost of funds was reasonable, high transaction and risk cost were eroding the margins. Approach to Revival The Task Force has reaffirmed the importance of the Cooperative Structure stating that, "Cooperatives, of the mutual thrift and credit type are the only form of organisation by which economically disadvantaged individuals and groups could, through voluntary collective action, overcome their disadvantageous position in an unequal market and promote their well being".
Assessing the Revival Package Eligible Purposes The Task Force took the position that the Financial Package should enable eligible institution to 1 clear accumulated losses, 2 maintain minimum capital 3 retire equity capital of the State Government. In addition, the cost of technical assessment for upgrading human resources and management systems should be covered. Accumulated Losses The Task Force after examining the idea of financing only the accumulated losses from agricultural loans, rejected it, "as it would tantamount to partial recapitalisation and would not bring the cooperatives out of the financial morass".
However, to get an accurate picture, the Task Force has suggested "engagement of specially designated auditors on a fee-based arrangement to get the true and fair picture of the institution-wise accumulated losses at all levels". Technical Assistance The Task Force has made a provision for capital support for i special audits to obtain a true and fair assessment of the financial support required by CCS, ii Hardware and Software costs for developing a Common Accounting and Management Information System.
The Task Force observed that the current trainings for the CCS are "archaic, outdated and focused more on history of cooperation and legal enactments than on matters pertaining to business". Cooper Committee : to study the functioning of the Cooperative Credit System and suggest measures for its strengthening.
Vyas Committee : as an expert committee on Rural Credit. The focus of these committees was towards: a Restoring democratic management in the societies by holding free and fair elections regulatory. Recommendations of these committees were not implemented with enthusiasm and the reform process did not gather the momentum to yield desired results despite immediate and concerted action for revitalize and strengthen the cooperatives. The agricultural credit sector remains dominated by the presence of a large number of financially fragile PACS across the country craving for rehabilitation and DCCBs and State Cooperative Banks short of seriousness, commitment and involvement.
Accordingly, the union government constituted a Task Force on Revival of Cooperative Credit Structure, vide notification dated 05 August, under the Chairmanship of Prof. Sriram, Shri A. Singh, Shri H. Chahar, Shri.
Chaube, and Shri U. Sarangi as committee members; Shri Y. Sardesai and K. Zacharias as Permanent Invitees. Recommend a practicable and implementable plan of action to revive the Short Term Cooperative Credit Structure STCCS taking into consideration the main recommendations made by the various committees in this regard.
Suggest an appropriate regulatory framework and the amendments necessary for the purpose of changes in the relevant laws. Make an assessment of the financial assistance that the Cooperative Credit Institutions will require for revival, the mode, sharing pattern and phasing of such assistance. Suggest any other measures required for improving the efficiency and viability of Rural Cooperative Credit Institutions. Collection of massive information and inputs from all the possible sources including the reports of earlier committees; Cooper Committee, Vyas Committee, Vikhe-Pail Committee et al.
Engaging the stakeholders, officials, cooperators, academics and cooperative bankers from across the country; in a wide ranging discussion, consultation and interaction process by holding meetings at Mumbai, Chennai, Kolkata, New Delhi, Bhopal, Kolhapur and Hyderabad between September to December by forming sub-group for this purpose under the leadership of Shri U.
Sarangi; III. Collection and analysis by the sub-groups constituted for detailed study of quantitative and qualitative data and information which had a bearing on governance, management and financial status of cooperative credit institutions from readily available sources; IV. The Committee in its report: i. Special Financial Assistance to wipe out accumulated losses and strengthen its capital base and to bring the Cooperative Credit System to an acceptable level of health.
Introduce legal and institutional reforms necessary for their democratic, self-reliant and efficient functioning. Qualitative improvement in personnel in all tires and at all levels through capacity building iv. Recommended a detailed course of action on the following aspects:- a. The Revival Package was finally implemented across the country in January It envisaged a combination ofcapital infusion, technical support for capacity building and legal and institutional reforms necessary for facilitating this process.
The NABARD was the implementing agency responsible for implementation of the Revival Package, which in turn involved planning and execution of a series of action plans for: a. Bringing the cooperative sector about a democratic, self-reliant and vibrant self-governing sector necessarily requiring a massive exercise to comprehensive overhaul the existing legal frame work comprising of the state cooperative laws, Banking Regulations Act, NABARD Act etc.
As an interim measure, this could be achieved by the executive edict by the concerned state till the time new law is in place. The suggested reforms in the state co- operation laws relate to the following key areas: i. Grant of full voting membership rights to all users of financial services including depositors in cooperatives other than cooperative banks ; ii. Grant of functional autonomy to the cooperatives by removing state intervention in financial and internal administrative matters of the cooperatives; iii.
Limit participation of the state governments in the boards of cooperative banks to one nominee ; v. Allowing and facilitating transition of cooperatives registered under the state laws to migrate to the parallel law , if so enacted; vi. Withdrawal of restrictive orders on financial matters; vii. Permitting cooperatives under the parallel law, wherever enacted to be members of upper tiers under the existing Cooperative Societies Acts and vice versa; ix. Limiting powers of State governments to supersede the boards; x.
Ensuring timely elections before the expiry of the term of the existing boards; xi. Facilitating regulatory powers for RBI in the case of cooperative banks; and xii. Uniform enforceability of regulatory norms to the cooperative banks in the same manner as the commercial banks.
Vesting of powers in the RBI to prescribe appropriate criteria for election to Boards of cooperative banks in consonance with the nature of membership of primary cooperatives which constitute the membership of the DCCBs and SCBs. Mandate for appointment of persons having professional qualifications or experience as laid down by the RBI on the boards of the cooperative banks by election or by co- option with full voting rights if such persons are not elected by normal election process.
Right of appointment of the CEOs to be with the banks themselves and not the State government subject to the condition that the proposed appointee satisfies the minimum qualifications criteria laid down by the RBI and his name is approved by the RBI. This is because the income of the upper-tier banks is based on the interest collected by them from the lower tiers and some states wanted partial modification of this practice to allow adjustment of some portion of interest collected towards the principal amount due thereby reducing the income of the upper tiers in that particular year.
Criteria for determining the eligible purposes and institutions, ii. Quantum of assistance required, iii. Pattern of sharing the liability, iv. Conditionality attached and v. Time frame for restructuring 5. Release of Financial assistance under the package was linked with the implementation of the recommended legal and institutional reforms.
The states were given the option, exercisable within a period of two years; whether to participate or not participate in the package. The option could be exercised by signing of a Memorandum of Understanding MoU or Exchange of Letter of intent with the Central Government with a provision its implementation in a phased manner within a period of 3 years.
The DCCBs will thereafter be provided assistance to clear the balance of accumulated losses, if any, and to reach a minimum norm of capital adequacy. Wiping out accumulated losses as on 31 March , b. Covering invoked but unpaid and un-invoked guarantees given by the State governments and other dues to the STCCS from them c. Increasing the capital to a specified minimum level i. Refunding the share capital to State Governments e.
Providing technical assistance to cover computerization, installation of standard accounting system and MIS and for training and capacity building. The revival package specifically excluded the writing off the loans defaulted by the borrowers and the PACS were to continue to make efforts to recover these loans to improve their financial health further. Non-repayment of loans for agricultural and other businesses given by the cooperatives, b. Non-repayment of loans to individuals for other purposes like consumer goods, housing, gold loans etc.
Losses on account of non-credit businesses like Public Distribution System PDS , procurement of food grains on behalf of government, sale of fertilisers etc. Non-repayment of loans issued under government guarantees where the State government has failed to honour the guarantees after the loans have been defaulted, e.
Non-payment of dues from governments on account of waivers of loans and interest or subsidies announced by them. The Committee recommended that the state governments must ensure immediately: a. Payment to the concerned institutions of the outstanding amounts of:- i Guarantees ii outstanding amount of loan and interest waivers and iii other subsidy schemes announced by them from time to time iv accumulated interest or b. Sanction of soft loan to any state government unable to meet these commitments immediately by making a specific application to the implementing agencies.
End of such practices altogether in future. Financial Assistance Package accordingly included: a. Cost of special Audit and vetting by Chartered Accountants b. Designing of special balance sheet and training manuals, training of trainers for the special audit. Training of auditors for conduct of special audit. It was collectively estimated at Rs. By converting the excess capital into soft loan to the STCCS entity so as to ensure that the liability or cash outflow on account of reducing the state-equity participation is not devolved upon the cooperatives.
Common Accounting System CAS and accounting manual including its translation into local languages and printing, training of trainers b. Standardised common accounting software base helpful for appropriate Management Information System MIS to facilitate proper and timely decisions at all levels.
Hardware configurations i. Also the financial assistance by way of grant from the central government included the cost of: a. Designing standardized training manual, training material, translation and printing cost. Training of trainers. The assistance was to be phased over a period of two to three years depending upon the need and the completion of implementation in each State.
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