Cooperative Banking Structure has a unique position in the rural credit delivery system of India. The cooperative banking sector especially with their existence of about a century has made significant strides in the field of rural credit. Since then, the co-operative credit institutions, both in the short and the long term structures continued to play their crucial role in dispensation of credit for agriculture and rural development. Over the years, they have remained the prime institutional agencies with their vast network, wider coverage and outreach extending to remotest part of the country. Both the short term and long term cooperative credit institutions are basically farmers' organisations primarily meant to meet their credit related requirements. Although commercial banks since nationalisation, have entered rural areas and opened large number of branches and RRBs have also established a large network of rural branches to cater to the credit need of rural poor, cooperatives continue to enjoy a place of crucial importance in the rural credit scenario. Some of the niche areas where cooperatives have no competitors and cannot be replaced. The reasons for their essential existence are as under:-

• These institutions are primarily owned by the farmers, rural artisans, etc.

• They have been set up with the objective of promoting thrift and mutual help.

Cooperative credit societies at the grass root level are intended not only to cater to credit requirements of the members but also to provide several other credit linked services like input supply, storage and marketing of produce, etc. Keeping in view these special features of cooperatives, time and again, their role in dispensation of credit and allied services in the rural areas has been emphasised and their relevance underlined by several Committees right from the All India Rural Credit Survey Committee in the early 50s to Expert Committee on Rural Credit (ECRC), 2000.

The short term cooperative credit structure consists of around 98843 Primary Agricultural Credit Societies, 367 District Central Cooperative Banks and 30 State Cooperative Banks functioning with 831 and 12580 branches respectively purveying agricultural credit.

Total membership of the PACS as on 31 March 2001 stood at 999 lakh of which, borrowing members at 465 lakh constituted around 47%. In 2000-2001, the borrowing members of PACS as a percentage of total members, was below the All India percentage at 47% in several states (Andhra Pradesh 24%, Himachal Pradesh 10%, Karnataka 35%, Maharashra 36%, Orissa 40%, Rajasthan 34%). The high level of overdues in these states has drastically reduced the eligibility of a large number of members for fresh borrowings and has probably hampered the growth in borrowing membership. The borrowing members as percentage to total membership was above the All India percentage in the states of Haryana(69.8%), Punjab(67.5),Tamil Nadu (56.5) and Chhatisgarh (50.9%)

The Western states of Maharashtra and Gujarat accounted for 28% of the total PACS in the country with Maharashtra alone accounting for about 21% of the PACS. The North-Eastern states, on the other hand, accounted for less than 3% of the PACS in the Country. The Central Region (U.P. & M.P.) with one-fourth of the population predominantly rural, accounted for only 12% of the total PACS. Almost 95% of the villages in the country are covered by PACS. The average coverage was 6 villages per PACS for the country as a whole, and ranged from less than 1 village in Kerala to 117 villages in Arunachal Pradesh. In Kerala, the number of PACS(1988) were more than the villages in the State (1665).

As at the end of 2000-2001, the share capital of the SCBs stood at Rs.695 crore including government share capital amounting to Rs.64 crore. At the DCCBs level, the paid-up share capital increased from Rs.2823 crore in 1999-2000 to Rs.3118 crore during 2000-2001, a growth of 10.5%. It cannot, however, be concluded that every DCCB has adequate share capital. The adequacy of the share capital is judged on the basis of requirements of share capital of each DCCB vis-à-vis its lending programmes and its bad debts and other irrecoverables. The capital adequacy norms which have been made applicable to commercial banks in 1991-92 have not been introduced for cooperative banks. Being a major sector of the rural financial system, it is logical for the cooperative banks also to conform to the norms applicable to the commercial banks. There is hence a need to strengthen the capital base of cooperative banks. It would be ideal if the cooperative banks could comply with capital adequacy norms over a period of five to six years. The Task Force (Capoor Committee), however, recognizes that the cooperative banks, as they exist now, do not have access to the capital market as in the case of commercial banks. The Task Force feels that these constraints notwithstanding, the cooperative banks may make a beginning to move in the direction of strengthening their capital base so that they could conform to the applicable norms over a period of time.

Consequent upon the acceptance of the principle of state partnership recommended by the All India Rural Credit Survey Committee in 1954, the state governments of different states began contributing towards the share capital of the cooperative credit institutions. The main idea behind state partnership was that a cooperative institution should have the necessary minimum capital right from the start to make it viable and if this minimum was lacking, the state should make good the deficit.

Though the State Governments are participating in the share capital of DCCBs/PACS/LAMPS out of the loan availed from NRC(LTO) fund of NABARD upto a limited extent, they should also contribute to the share capital from budgetory allocation to strengthen the capital base, particularly of weak banks and societies. As on 31 March 2001, the total contribution of the state governments in the share capital of the co-operative credit institutions (ST) stood at Rs.1100 crore representing an increase of 15.3% over the previous year

The composition of total resources (owned funds + deposits + borrowings) of the short term cooperative credit structure indicated that deposits constituted a major segment of the resource-base of the SCBs and DCCBs. The PACS, however, continued to depend on borrowings from higher financing agencies. At DCCB level, the owned funds and deposits formed about 12.4% and 68.7% of the total resources, respectively. Borrowings accounted for only 18.9%. In the case of SCBs the composition of total resources was 11.0% owned funds, 65.5% deposits and 23.5% borrowings

Deposits of SCBs and DCCBs in the country stood at Rs32626 crore and Rs.61745 crore, as on 31 March 2001 representing an increase of 10.4% and 14.6%, respectively over the previous year. The deposits of DCCBs ranged from as high as Rs.17863 crore (Maharashtra) to a meagre Rs.18 crore (Assam). There were large regional variations in mobilisation of deposits by DCCBs. Of the total deposits of DCCBs at Rs.61745 crore, four states accounted for 57% [viz. Maharashtra(28.9%), Gujarat(10.5%), Tamil Nadu(10.4%) and Uttar Pradesh (7.2%). While DCCBs in Eastern Region accounted for a meagre share of 6.7% [viz. West Bengal(3.3%), Orissa(1.9%), Bihar(1.0%) and Jharkhand (0.5)% the SCBs in the N E Region with deposits at Rs.1130 crore as on 31 March 2001 accounted for just 3.5% of deposits of all SCBs as on that date.

Resource mobilisation continued to be a major area of weakness of the PACS. At present, most of the PACS are totally dependent on the finance provided by DCCBs. In case the DCCBs are weak, the PACS are starved of finance which affects the expansion of both the credit and non-credit functions of PACS. The majority of PACS had very little to show by way of deposit mobilisation except in a few states like Kerala and Tamil Nadu. Kerala is the only state where PACS have made such headway and a significant progress in mobilization of rural deposits as compared to other states.

The deposits of the PACS in the country stood at Rs13481 crore (provisional) as on 31 March 2001 representing a growth of about 8.2% over the previous year. The deposits of the PACS ranged from as high as Rs. 5791 crore (Kerala) to a mere Rs.0.44 crore (Jammu and Kashmir) as on 31 March 2001. Apart from Kerala, the PACS in the states of Tamil Nadu and Orissa mobilised sizeable deposits of Rs.3014 crore and Rs.2092 crore as on 31 March 2001, respectively.

Total loans issued by SCBs and DCCBs declined from Rs.37368 crore and Rs.46619 crore during 1999-2000 to Rs.34307 crore and Rs.45016 crore, respectively during 2000-2001, registering decrease of 8.2% and 3.4%, respectively. There were, however, large regional variations in credit disbursals by DCCBs in 2000-2001. Three states viz. Maharashtra (28.1%), Punjab (9.3%) and Gujarat (8.1%) accounted for 45.5% of total loaning followed by Andhra Pradesh (7.2%), Uttar Pradesh (7.2%), Haryana (6.8%), Kerala (6.7%), Karnataka (6.7%) and Tamil Nadu at (6.2%). The remaining nine states accounted for a meagre 13.7% of the total loaning by DCCBs

The aggregate recovery of all SCBs during 2000-01 was slightly higher at 83.89 per cent as compared to 83.37 per cent during 1999-2000 and continued to register an improvement and reversed the downward trend during the earlier three years declining from 86% during 1996-97 to 84% during 1997-98 had further declined to 81% during 1998-99. The decline in recovery levels over the last few years has been arrested and this is a positive development. However, the aggregate recovery of DCCBs during 1999-2000 at 70% further declined to 67% during 2000-01 as compared to the near constant recovery levels of 70 per cent during the years 1996-97 to 1998-99

During 2000-01, the recovery performance of SCBs continued to be extremely poor in the case of banks in North East Region, Bihar and J&K as in the earlier years. The recovery percentage of Manipur SCB was lowest at 3.66% followed by J&K SCB (20%), Bihar SCB (22%), Assam SCB (22%), Tripura SCB (24%), Arunachal Pradesh SCB (27%), Nagaland SCB (28%) and Mizoram SCB (29%). During 2000-01, 19 of the 29 SCBs registered recovery levels lower than the all India average level of 84 per cent.

Among DCCBs, recovery level (state average) was lower during 2000-01 as compared to 1999-2000 levels in 9 states and in the remaining 11 states the same showed marginal improvement. The DCCBs in the states of Assam, Bihar, Jharkhand and J&K continued to report poor recovery levels of 9.65%, 22.94% , 19.14% and 26.68% respectively.

The highest recovery of 99.56% has been reported by Jullunder DCCB in Punjab follwed by Rajkot DCCB (98.40%) in Gujarat, Chennai DCCB (97.74%) in Tamil Nadu, Satara DCCB (96.76%) in Maharashtra and Pithoragarh DCCB (96.69%) in UP. At the other end the lowest recovery below 10% was reported by the following DCCBs in Bihar viz. Madhepura-Supaul (3.74%), National(Bettiah) (5.42%), Motihari (7.55%), Muzaffarpur (8.23%), Daltonganj (since delicensed- 7.79%). During 2000-01, 179 DCCBs showed improvement in recovery percentage over the 1999-2000 levels.

During 2000-01, 188 DCCBs registered decline in recovery percentage over the 1998-99 levels.

The overall profitability of the SCBs and DCCBs was better during the year 2000-2001 than in the previous year. The SCBs as a group posted net profit of Rs.204.04 crore during 2000-2001 as against net profit of Rs.141.08 crore in the previous year. During 2000-2001, 6 SCBs reported loss amounting to Rs.12.63 crore. During 1999-2000, 224 of the 367 DCCBs reported profit aggregating Rs.428.36 crore and 143 DCCBs suffered loss to the extent of Rs.511.61 crore. During the year 2000-2001, 245 DCCBs were in profit aggregating Rs.593.37 crore and 112 DCCBs were in loss amounting to Rs.514.45 crore. The improvement in the profitability position of SCBs was partly on account of the fact that they are now required to make only incremental provisions. The provisioning requirements of the SCBs and DCCBs continued to reflect on profitability figures this year also.

The NPAs constituted 13.02% (SCBs) and 18.03% (DCCBs) of their total loans and advances outstanding as on 31 March 2001. The same as on 31 March 2000, the fourth year of application of prudential norms, were 10.94% (SCBs) and 17.28% (DCCBs). The aggregate NPAs were estimated at Rs.3889.28 crore (SCBs) and Rs.9370.98 crore (DCCBs) as against Rs.2813.69 crore (SCBs) and Rs.7637.60 crore (DCCBs) as on 31 March 2000. The amount provisioning made by the SCBs during 2000-01 was higher at Rs.1546.57 crore as against Rs.1330.55 crore during 1999-2000.

Due to improved profitability during the year 2000-2001, the level of accumulated losses of SCBs came down from Rs.502 crore as on 31 March 2000 to Rs.493 crore as on 31 March 2001. Accumulated losses of SCBs constituted 0.94 per cent of the total assets as at the end of March 2001 (1.06 per cent as at the end of March 2000). The accumulated losses at the DCCBs level as on 31 March 2001 stood at Rs.3243 crore as against Rs.2864 crore registering an increase of 13%. In all the states except of Himachal Pradesh, some of the DCCBs carried accumulated losses as on 31 March 2001. As on 31 March 2002, as many as 9 SCBs (Assam, Arunachal Pradesh, Bihar, Chandigarh, Manipur, Mizoram, Meghalaya, Nagaland and Tripura) and 139 DCCBs were not complying with the provisions of Section 11(1) of BR Act 1949(AACS). The total erosion in the value of assets as on 31 March 2002 in respect of 139 DCCBs and 9 SCBs aggregated to Rs.6073.86 crore and erosion in deposits of these banks was to the extent of Rs.1933.69 crore.

The PACS, a vital link in the ST cooperative credit structure have been financially weak. A majority of them are too small in size to be economical and viable, besides many are dormant. The PACS continue to rely heavily on external support and have not yet been able to become self-reliant in respect of resources through deposit mobilisation, share linkage and share capital affecting their growth and expansion of business activities.

The PACS is the kingpin of the Cooperative Banking System. It is the edifice on which the entire superstructure of the short-term Cooperative Credit System is established. In other words, the PACS is the foundation of the Cooperative Credit Movement. It is the PACS which deals directly with the individual farmers, provides short-term and medium-term credit, supplies agricultural inputs, distributes consumers articles and also arranges for marketing of produce of its members through a cooperative marketing society. The PACS must function as a viable unit responsive to the needs, aspirations and convenience of its members, particularly, the members of the more vulnerable sections of the society. It must function effectively as a well-managed, multi-purpose society providing a package of services including credit, supply of agricultural inputs and implements, consumer goods, marketing services, technical guidance and mobilize the savings of the rural people as deposits. The PACS, therefore, has to be developed as real service society with focus on weaker sections.

Some of the critical problems of primary level co-operative credit institutions apart from poor resource mobilisation are :

• lack of diversification in business portfolio

• low volume of business

• declining trend in borrowing membership

• high level of overdues

• high cost of management

• imbalances in loan outstandings

• involvement in non/less profitable PDS business

• low interest margins

• low skilled staff

• lack of professionalisation

• weak MIS

[Source: Website of NABARD]