NABARD has been impressing upon the State Governments the need to ensure the democratic character of cooperatives as it is an essential principle on which cooperatives have been evolved. However, notwithstanding the persuasive efforts of RBI/ NABARD, the elected Boards of Management in 10 SCBs, 4 SCARDBs, 75 DCCBs and 135 PCARDBs stood superseded as on March 2001. It is a matter of concern that a substantial number of institutions in each tier are deprived of the guidance of the elected Boards.

Audit of cooperative banks is conducted by departmental auditors appointed by the State Governments. The completion of audit is, however, a slow process in cooperative banks. The co-operatives are classified into A,B,C and D categories as per audit classification norms prescribed by RBI/ NABARD and these categories correspond to achievement levels of 60% and above, 45-59%, 30-44% and less than 30% on selected financial parameters, respectively. The audit classification serves as an index for the quality of management as well as strength of the cooperatives. Information on classification of PACS is not available for an indicative macro aggregation. However, as per (NAFSCOB) data available, 3668 PACS were reported to be dormant as at the end of 2000-2001 constituting 3.7% of the total PACS in the country. Though audit is conducted for LT structure also, similar classification is not award.

The Credit-Deposit ratio (C D ratio) is a realistic indicator of the extent to which deposits raised locally are deployed in the same area in the form of loans. The low CD ratio in certain DCCBs was mainly due to their low credit absorption capacity. CD ratio also depends on growth in mobilisation of deposits, deployment of credit, infrastructural facilities etc. In recent times, however, there has been a considerable amount of discussion on the usefulness of C D ratio as a measure of allocation of funds by banks and that a few other indicators of credit deployment have been recognised.

Comparative CD ratio of SCBs, DCCBs, Commercial Banks(separately for all branches as also rural branches) and RRBs as on 31 March 2001 is indicated in the table given below. However, prima-facie comparison of the CD ratios of these institutions may lead to a erroneous conclusion as these three types of credit institutions are not comparable among themselves as they differ in their area of operation, clientele and functional mandate. Further, the credit extended by the banks also depends on the borrowings raised by the banks for lending.

* PACS data is for 2000-01

The primaries in the cooperative structure are weak in resources and depend to a large extent on the finance provided by the higher tiers.

All India CD ratio of DCCBs as on 31 March 2001 stood at 88% as against 40% of Commercial Banks (rural branches) and 41.33 of RRBs. The DCCBs in nine states viz., A.P, Bihar, Haryana, Karnataka, Rajasthan, M.P, Orissa, Punjab and Tamil Nadu had CD ratio higher than All India average of 85%. The CD ratio was lower than the All India average in the remaining eleven states ranging from 29.1% (Uttaranchal) to 76.9% (Chhatisgarh). The CD ratio in Andhra Pradesh was high at 209.9% as the state had an integrated structure with the loans outstanding inclusive of both ST & LT wings (though the LT wing had a meagre deposit base).

The cooperative banks are not well equipped with the latest technology and technologically driven product lines. Computerisation of banks appears to be the panacea for many problems faced by the industry. It directly results in increasing productivity of work-force, introduction of technology oriented and complex products, speedier operations, facilitates volume growth and better customer service. The cooperative banks lag behind in this score affecting the staff productivity level which may be observed from Table below.

In terms of Section 11 (1) of B.R. Act, 1949 (AACS), a DCCB and a non-scheduled SCB should have a minimum share capital of Rs.1 lakh in terms of real or exchangeable value of its paid up capital and reserves. The number of banks not complying with Section 11 (1) of the Act ibid has steadily increased especially with the introduction of prudential norms and preparation of balance sheets as per guidelines on income recognition, asset classification and provisioning as per details given below. Some of these banks have not been complying with the provision for longer periods of time. The number of non complying DCCBs as on 31 March 2002 has decreased to 139 DCCBs as compared to 142 as on 31 December 2000. However, the number of State Cooperative Banks not complying with the provisions of the said section was higher (9) as compared to 6 as on 31.12.2000.

The total erosion in the value of assets of these nine SCBs taken together was Rs.597.97 crore and erosion in deposits was to the extent of Rs.105.17 crore as on 30.03.2002. The erosion in deposits of 5 SCBs were Arunachal Pradesh (13.0%), Assam (22.3%), Bihar (19.4%), Chandigarh (4.8%), Manipur (11.7%), Meghalaya (4.1%), Mizoram (14%), Nagaland( 9.7%), Tripura (1.0%). Of the 139 non-complying DCCBs, the total erosion in the value assets of aggregated to Rs. 5475.89 crore. Erosion in deposits of these DCCBs was to the extent of Rs.1828.52 crore.

Under the Banking Regulation Act, 1949, the National Bank is entrusted with the statutory responsibility of periodical inspection of State Cooperative Banks (SCBs) and District Central Cooperative Banks (DCCBs). In addition, the National Bank also conducts periodical inspection of state level cooperative institutions such as State Cooperative Agricultural and Rural Development Banks (SCARDBs), Apex Weavers Cooperative Societies, State Cooperative Marketing Federation, etc. which voluntarily opt for such inspections. The basic objective of these inspections is to assess the financial and managerial strengths of the banks to protect the interest of depositors as well as maintain sound banking systems in conformity with the banking laws and regulations. The National Bank continued to adopt what is popularly known as CAMELSC approach in its on-site inspection of banks and it has introduced off-site surveillance system during 1998-99. During the year 2000-01, 175 banks (11 SCBs, 11 SCARDBs, 153 DCCBs) and 11 Apex institutions were inspected. These inspections revealed, inter alia, that financial and systemic weaknesses continued to exist in the functioning of these banks. Major deficiencies observed include high level of NPAs, mounting overdues, high transaction cost coupled with lower margin, poor quality of loan appraisal, inadequate internal checks and control, lack of professionalism in their management and growing imbalances in the different tiers of cooperatives.

The Board of Supervision (for SCBs, DCCBs and RRBs) set-up as an internal committee of the National Bank in November 1999, held two meetings during the year 2000-01. In these meetings the BoS reviewed the financial position of those weak cooperative banks whose impaired assets eroded 50% or more of their deposits. Board of Supervision recommended to RBI to initiate measures, wherever warranted and apprised the concerned State Governments about the precarious financial position of cooperative banks in their states and issued necessary warning signals to the identified banks. Cooperative Development Fund.

With a view to strengthening the cooperative credit institutions NABARD provides financial assistance to cooperative credit institutions for giving impetus to institutional development in the form of grant-in-aid, soft loan or grant-cum-soft loan for various purposes aimed at improving the performance of these institutions from Cooperative Development Fund (CDF) constituted for the purpose. Sanctions and Disbursements (Cumulative)

As on 31 March 2002, sanctions and disbursements from the Fund aggregated Rs.49.31 crore and Rs.39.22 crore respectively. The important highlights in this regard are :

• Of the total sanctions, the SCBs' share stood at 49.6% and SCARDBs' at 34.4%. Amongst the various purposes, the support to PACS for provision of infrastructure has the maximum share (23.0%), followed by computerisation (15.8%) and purchase of vehicles (13.3%).

• Six States viz., Andhra Pradesh, Tamil Nadu, Madhya Pradesh, Uttar Pradesh, Karnataka and Orissa have been sanctioned more than Rs.200.00 lakh each while four States viz., Punjab, West Bengal, Bihar and Rajasthan have been sanctioned between Rs.100.00 lakh and Rs.200.00 lakh each.

• Two States, viz., Tamil Nadu and Madhya Pradesh have utilised more than Rs.200.00 lakh each while four States viz., Uttar Pradesh, Karnataka, Orissa and West Bengal have utilised between Rs.100.00 lakh and Rs.200.00 lakh each.

• An amount of Rs.123.53 lakh was sanctioned as grant from CDF for conducting a number of studies and seminars to facilitate successful implementation of DAP/MoUs.

• Disbursements increased, by 25%, from Rs.3131.54 lakh as on 31 March 2001 to Rs.3921.56 lakh as on 31 March 2002.

• Awards : generated a spirit of competition.

• ACSTI/JLTCs : HRD improvements in cooperative banks.

• KCC : popularisation process.

• As reported by Regional Offices and in some impact studies, the infrastructure assistance to PACS has had an overall positive impact on deposit mobilisation by PACS in the States of Madhya Pradesh, Orissa, Karnataka, Tamil Nadu, West Bengal, Uttar Pradesh, Gujarat and Andhra Pradesh. It had enabled the PACS to get a new look and thereby enhanced level of confidence of general public which helped increase in deposit accounts besides creating a sense of safety and security of savings among the clientele.

• Utilisation of CDF assistance sanctioned for Computerisation is generally satisfactory inasmuch as it had helped in improving MIS, generating statutory and other returns, better maintenance of records, faster disposal/ exchange of information, etc.

• Impact of CDF assistance, provided for Motor Cycles to the field Staff (LT structure only), for improving recovery performance, however, cannot be co-related to enhanced recovery. However, increased mobility on account of vehicle support had facilitated improved bank-borrower relationship which helped increase in the number of visits to borrowers, better field monitoring and supervision, etc. Recovery had improved in Madhya Pradesh SCADRB, J&KCCLDB and Nagaland SCB after vehicle support to the banks.

[Source: Website of NABARD]