Vaidyanathan committee report VAIDYANATHAN COMMITTEE REPORT ON REVIVAL OF CREDIT COOPERATIVE...

Vaidyanathan committee report

VAIDYANATHAN COMMITTEE REPORT ON

REVIVAL OF CREDIT COOPERATIVE INSTITUTIONS


o Century old Credit Institutions in India.

o Implied Values of Public –Private Partnership

o Vast Outreach.

o Local Feel & market access.

o Credit needs of small & marginal farmers met mostly through Cooperatives.

o Market Share of Cooperatives -

Rural Outlets : 69%

Rural Credit : 31%

Cooperative Credit Institutions


Rural Cooperative Credit Structure

Vast and heterogeneous network

Quantitatively impressive

112,309 PACS

367 DCCBs (12,547 branches)

30 SCBs (866 branches)

20 SCARDBs (859 branches)

768 PCARDBs (1013 branches)


Qualitatively impaired

Huge accumulated losses; High NPAs; Assets & Deposit erosion

On balance

Relevant

Should be turned around, will require substantial financial assistance

But subject to strict conditionalities regarding

• legal reforms

• institutional restructuring

• Good governance

• Regulatory prescription

Rural Cooperative Credit Structure


CCS – Governance, legal & regulatory issues

o No elections for long periods in certain States.

o Boards superseded in a number of SCBs/DCCBs

o State Governments combine the role of Dominant Shareholder, Management, Supervisor and Auditor

o Financial Disclosures not transparent

o RBI’s ability to enforce its regulatory powers constrained.

o NABARD exercising supervisory powers on behalf of RBI.


Credit related issues

Market share in agricultural credit is steadily declining from 43% in 1998-99 to 31% in 2003-04 and further to 27% by 28 Feb. 2005.

Share in disbursement of Investment Credit sharply declined from from 26% in 1998-99 to 13% in 2003-04.

Cooperatives are the only institution not achieving the targeted 30% growth in agricultural credit this year.

Recovery position is a matter of serious concern .

As on 30 June 2003 the recovery % against the demand was 61% for DCCBs and 67% for PACS.


Major issues of concern for Cooperative Credit Structure

7 out of 30 SCBs & 143 out of 367 DCCBs are not complying with provisions of Section 11(1) of BR Act, 1949 as on 31.03.2004, i.e. not meeting minimum capital requirements.

Accumulated losses, asset and deposit erosion have assumed alarming proportions.

No diversification in business; Not much scope for cross subsidization.

High cost of resources and high intermediation costs due to 2/3 tier system


200-01 2001-02 2002-03No. of SCBs 29 29 30No. in Profit 24 24 25No. in losses 5 6 5No. That hv eroded net worth 6 9 8Total accumulated losses 492 567 281

State Coop Banks


200-01 2001-02 2002-03No. of DCBs 367 368 367No. in Profit 247 243 237No. in losses 120 125 130No. That hv eroded net worth 139 139 144Total accumulated losses 3177 3770 4401

DCC Banks


200-01 2001-02 2002-03No. of PACsNo. in Profit 46807 45292 58683No. in losses 41807 45292 53626Total accumulated losses 2112 NA 4595

Approximately One lakhs

PACs


Tier 200-01 2001-02 2002-03Recovery % 82 82 79NPA % 13 13 18Recovery % 67 66 61NPA % 28 22 20Recovery % 65 67 62NPA %

SCBs

DCCBs

PACs No NPA Norms for PACs

Recovery Status of Credit institutions


Major issues of concern for Cooperative Credit Structure …..Contd.High NPAs ; high risk premium in lending

Loan appraisal systems, monitoring very poor;

Poor internal checks and controls;

Financial disclosures not transparent.

Duality of control.

Poor HR practices; non-professional banking staff.

PACS very weak; nearly half of them incurring losses; need for reorganisation and modern business development models.


Task Force on Revival of Coops

GoI constituted a Task Force under the Chairmanship of Prof. A Vaidyanathan to suggest an implementable action plan taking into account the recommendations of earlier committees.

The Task Force has submitted its report on 15 February 2005.


Strengthening governance and regulation must precede financial assistance for revival of Cooperatives.

Financial impairment of the Co-op Credit Structure(CCS)due to impairment in governance and management.

Legal and regulatory impasse deriving from duality of control.

Pervasive,rather intrusive, interference by State Govts. in financial,administrative and operational matters.

Credit Co-operatives should be autonomous and member driven.

Revival to start from PACS upwards.

Observations of Task Force


Financial Package to fund accumulated losses,build CRAR at 7%, provide for retirement of State equity and extend technology support

The estimated liability of various agencies (Short Term Credit Cooperatives only) – Rs.10,839 Cr.

o Rs 5793 Cr. (53%) by GOI

o Rs 3402 Cr. (31%) by State Govt

o Rs 1644 Cr. (16%) by the Cooperative Credit Structure

Scheme likely to take 3-5 yrs. for full implementation

RECOMMENDED FOR SIMILAR COMMITTEE FOR LONG TERM STRUCTURE


Package of Revival of Credit Cooperative Institutions

Financial Package

Institutional reforms

Legal and regulatory reforms


For PACs: All losses arising of all activities ie., agricultural and non agricultural.

For DCCBs:oLosses arising out of agricultural loses (Direct and indirect)oLosses arising from loans to other coops

Sharing Pattern


State Govts should accept the package in toto including legal and regulatory changes, institutional reforms and their share of financial commitment

Release of funds will be linked to the progress in actually implementing the revival package

Implementation


Reforms suggested

State Govts should retire from share capital

No nominees of the State Govt on the board of the institutions

Professionals on the board

Professionally qualified CEO for Banks and properly trained secretaries for PACs

CEO appointed from the board


State Govts should retire from share capital

No nominees of the State Govt on the board of the institutions

Professionals on the board

Professionally qualified CEO for Banks and properly trained secretaries for PACs

CEO appointed from the board

Reforms suggested


Regulatory and legal reforms suggested

Removing state intervention in administration and financial matters

No restrictive orders on financial matters

Wider access to financial institutions for coops

Limiting powers of state to supersede the board


Institutional Reforms

Common Accounting system

Computerization

Training to staff and management


AUDIT

For DCCBs and SCBs : Chartered Accountants

For PACs: Option for Audit from Chartered Accountants


Implementation mechanism

States will have to sign MOU with Central Govt

Willingness of state to sign

Assessment by NABARD: Special audit

Signing of MOU

Release of State Govt’s Share

Central Govt’s share will be released through NABARD


Implementation mechanism

Capacity building programs from NABARD

12 from each state master trainers: At lucknow

Trainers training at state leveles

4 days for PACs secretaries and 2 days for Board


Progress States which have signed MOU

MaharashtraOrissaMadhya PradeshGujaratAndhra Pradesh Uttar Pradesh Bihar UttaranchalArunachal PradeshHaryana


Karnataka

•Cabinet approves and again withheld

•Finally state approves during the governors regime.


THANK YOU

Vaidyanathan committee report VAIDYANATHAN COMMITTEE REPORT ON REVIVAL OF CREDIT COOPERATIVE...

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