NABARD had appointed an Expert Committee headed by Prof. V S Vyas in August 2000 to review the emerging scenario in rural credit and preparation of workable comprehensive plan of action for a more effective rural credit by an expert body. The committee submitted its report on 23 July 2001. The core recommendations of the Committee are briefly indicated below:

• Changes in rural economy may necessitate involvement of new financial agencies or groupings such as SHGs, NBFC, etc.

• Progressive integration of financial markets and autonomy to institutions and accountability necessary.

• Subsidy driven programme may do more harm than good.

• New innovations such as formation of Joint Liability Groups, freeing land lease market, contract farming, etc. need to be encouraged.

• Promote watershed development and disseminate experience gained.

• Review methods of fixing scales of finance.

• Rectify imbalance between finance for production and that for post harvest operations.

• Improve links between credit and marketing.

• Remove hurdles in taking up non crop activities and finance the same.

• FIs must prepare for a more pro-active role, shed excessive caution and explore alternative methods of providing finance, to boost private investments.

• Credit institutions need to play larger role in financing non farm activities.

• Act expeditiously on recommendations of Capoor Committee on revitalisation of cooperatives and place Rs.500 crore with NABARD for the purpose. State Governments be allowed to borrow from RIDF at concessional terms to meet their share.

• The Model Cooperative Act may be adopted in all states and B.R Act be made applicable to cooperatives with appropriate modifications.

• Restore health of PACS by scrapping cadre system, allow mobilisation of deposits by PACS and linking them for borrowings from higher tiers and restrict voting rights to active members, audit by professional CAs and design alternative deposit insurance schemes.

• Selective de-layering of ST cooperative credit structure.

• Integration of long term and short term structures, and to begin with strengthening of LT structure.

• After revitalisation and other reforms provide guarantee free refinance with relaxed norms for disadvantaged / under developed areas / states

Continued involvement of commercial banks in rural lending.

• CBs need to offer value added services through rural branches to improve viability of these branches.

• Reduction of interest rates on RIDF deposits to deter banks from substituting agricultural advances with RIDF deposits.

• Make SAMIS returns statutory

• Ensure credit flow to disadvantaged sections and areas - amount of shortfall in lending to weaker sections be called in to RIDF and restrictions on interest rates on small loans be removed.

• Credit for ST and LT for both agriculture and non farm activities be progressively under KCC.

• The process of recapitalisation of RRBs should be completed speedily and extended to remaining banks.

• Sponsor Banks to select Chairman and provide other need based support.

• In case of patently non viable RRBs the option of liquidation be considered.

• RRBs earning profit and without any accumulated losses to adhere their CD ratio to a minimum of 60% and improve it by 5 percentage points annually and if they fail to improve CD ratio they shall deposit the shortfall into RIDF at 7% interest.

• Sponsor Banks to review system for monitoring performance of ARBs and give necessary autonomy in portfolio management and in evolving innovative credit products.

• Convert ARBs into LABs i.e. banking company and restrict setting up of LAB by private sector.

• Draft appropriate amendments to ARB Act to incorporate the recommendations of the committee.

• Attention to selection of leaders, motivating and training of personnel, incentives, etc.

• Human resources requirement study to be conducted for cooperatives and excess staff be redeployed / offered VRS, etc.

• CBs may start rural branches based on business levels.

• Cadre system of secretaries in PACS be abolished and selection of functionaries left to management.

• Cooperative CEOs be professionals and adequately empowered and ex-officio board members.

• Need to motivate and train the employees manning PACS, rural branches of CBs and ARBs.

• Computerised back and front office operations.

• Improve facilities provided to employees in rural branches Legal Environment.

• Need to improve legal environment both to increase the disbursal of rural credit and achieve better recovery.

• State Government may support the efforts of credit institutions by improving and updating land records, waive stamp duty and registration fees on loan documents, etc.

• A national consensus be built to deter political parties / other public organisations from giving call to borrowers not to repay their loans.

• Convene Annual Rural Credit Conference involving all stakeholders

• RBI should announce rural credit policy and review achievements, advocate revitalisation of cooperatives and extension of B.R Act to cooperatives, ensure greater involvement of CBs in rural credit, monitor lead bank performance, extend greater support to NABARD with an increase of 10% to 15% annually in its General Line of Credit to NABARD and allow access to National Industrial Credit.

• NABARD to play more active role, form a venture capital subsidy, allow preferential interest rates on its refinance to thrust sectors, make CDF more pro-active, sharpen DAP/MOU, open more DDM Offices, incorporate greater disclosure in balance sheet of cooperative banks and ARBs and publish Trends and Progress in Cooperative Banks and ARBs from March 2002.

• GOI to support revitalisation of cooperatives and ARBs, carefully select nominees to ARB board, legislate enabling measures, defer incidence of corporate income tax on NABARD by 5 years, etc.

• State Governments to take greater interest in ARBs and cooperatives, devise internal system to make the best use of District Credit Planning, promote private sector participation in rural development by creating better facilities.

• Panchayati Raj and civil society institutions can be made effective partners and helpmates to credit bodies in various pursuits, such as deposit mobilisation, awareness creation and recovery.

During the consultative process on finalisation, the implementation mechanism for the recommendation of "Task Force to Study the Functioning of the Cooperative Credit System and Suggest Measures for its Strengthening" (known as Capoor Committee). In the conference of Hon'ble Chief Ministers held in New Delhi on 25 August 2001, some of the issues relating to revitalisation assistance could not be resolved and the Government of India set up a Joint Committee of the Cooperative Ministers of 8 selected states, NABARD, RBI, GOI and Ministry of Agriculture and Cooperation, Ministry of Finance as the members under the Chairmanship of Hon'ble Union Minister of State for Finance, Shri Balasaheb Vikhe Patil, to make appropriate recommendations in respect of the following issues:

• Determination / identification of sharing pattern of revitalization assistance amongst GOI, State Governments and the cooperatives;

• Funding mechanism;

• Feasibility of de-layering of cooperative credit structure especially with a view to regulating intermediation cost.

The committee has submitted its report and the summary recommendations of the Task Force in respect of Revitalisation Assistance are as under:

• The package for revitalisation of cooperative credit institutions shall consist of a four dimensional programme encompassing the financial, operational, organisational and systemic aspects of functioning of these institutions.

• The revitalisation should not be an across-the-board process and it should be confined to the potentially viable units only.

• The assistance would be provided to bring the cooperative credit institutions to 'take off' stage and enable them to stand on their own.

• The assessment of viability in each case will have to be done following the usual principles of expected volume of business over a period of time, level of income to be generated and whether a turnaround will be possible in five to seven years beyond which the assistance will not be available.

• Viability of member PACS would largely determine the viability of central cooperative banks at the district level in which the PACS federate. The banks may be taken up for revitalisation carefully on a selective basis even if the process of selection is time consuming.

• Given the priorities of the successive Five Year Plans to strengthen the food security measures through increased agricultural production and enhanced credit flow for the purpose, the central and State Governments should take the lead in the formulation of revitalisation / revamping package for the cooperative credit institutions.

• The base-level institutions would be kept at the center-stage of the assistance programme. The higher tiers would also need additional support depending upon the position of their assets.

• Finding funds required for this purpose in a single year may be difficult for both the central and the State Governments. Since the revitalization process is quite elaborate, a longer time frame would be required for this purpose.

• The initiative should be taken only in those states which take appropriate legislative measures for ensuring elimination of duality in control in cooperative banking institutions. The State Governments should also commit their appropriate financial and administrative support.

• The share of GOI and the State Governments in S.T. structure should be 40% each and in L.T. structure it should be 45% each. The balance amount has to be mobilized by way of contributions from the members.

• The share of GOI and the State Governments may be in the form of bonds bearing a reasonable rate of interest and these bonds may be extinguished over a period of five years (20% each year) after an initial moratorium of three years. This will not involve large outgo of funds from both GOI and State Governments as the outflows would be restricted to periodical payments of interest on the bonds.

• The bonds on behalf of PACS would be issued in favour of DCCB and interest income would go to the credit of PACS and appropriated towards clearing of dues of such PACS.

• The members' contribution could be retained at PACS level to be used for its credit business.

• A national level Committee may evolve the modalities for selection of banks.

• Certain broad conditionalities have been suggested that have to be followed in selection of banks and provision of revitalisation assistance.

The Joint Committee has submitted its report on 7th December, 2001. Recommendations of the Joint Committee are as under:

• The Joint Committee concurs with the Capoor Committee recommendation that the assistance would be provided to bring the cooperative credit institutions to "take off" stage and enable them to stand on their own.

• Parameters / items of computation of assistance amount at PACS/DCCB/ PCARDB/SCARDB levels to be identified.

• Revitalisation assistance would be computed with reference to the financial position shown in the duly audited and published Balance Sheet and Profit and Loss Accounts as on 31 March 2001.

• Amount of assistance identified at different levels in both ST and LT structure be shared by the GOI and State Governments in the proportion of 60 : 40. In case of NER states and Jammu & Kashmir, the share is 90 : 10.

• The assistance will be provided in form of Self-extinguishing bonds which will be issued by the GOI and State Governments for their own share. The interest thereon will be paid by the GOI and the State Governments out of budgetary allocations each year. The amount of bonds may be so fixed that the predetermined rate of interest the institutions receive 10% of amount of revitalisation assistance each year. These bonds will be self-extinguishing in nature and after the period of 10 years, the bonds will be extinguishing without any redemption of the principal amount.

[Source: Website of NABARD]