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Rural Cooperatives Repositioning (Shri R. Gandhi Deputy Governor - February 9 2016 - at the National Conference of Cooperative Banks Regaining Leadership in Agricultural Finance held at BIRD Lucknow)

News and Press Release - Dated:- 11-2-2016 - I am glad to be addressing you all at this National Conference on Cooperative Banks - Regaining Leadership in this historic city of Lucknow. It is a very contemporary issue. Actually, it is an ever-green issue for the past over a century or so. You only need to recall the famous saying by the All India Rural Credit Survey of 1951 Cooperation has failed. But, cooperation must succeed . That showed that cooperation had a chequered history in India, with .....

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, rural credit cooperatives have a unique position in the rural credit delivery system. Through the short and long-term structures, they continue to play a crucial role in dispensation of credit for increasing productivity, providing food security, generating employment opportunities in rural areas and ensuring social and economic justice to the poor and vulnerable. Several committees, from the All India Rural Credit Survey Committee to the Vaidyanathan Committee have stressed the relevance and .....

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ing of produce, supply of consumer goods, etc. 4. The journey has not been smooth for the cooperative banking structure. There were legal, structural and organisational rigidities which created conflicts and challenges in the functioning of cooperatives. 5. Reserve Bank of India as regulator of banks is mandated to maintain a sound and stable banking system. Since banks are highly leveraged entities and accept unrestricted amount of uncollateralised public deposits, it is important to ensure tha .....

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system. The regulatory regime continued to be less rigorous for the cooperative banks. Capital adequacy and other prudential norms were not applied to cooperative banks. However, as commercial banks continued to make significant strides in expansion of business, product diversification and technology adoption, weaknesses in the cooperative system became more and more conspicuous and posed a threat to their survival. Particularly, the relevance and existence of cooperative banks came into questio .....

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Task Force, chaired by Prof. A. Vaidyanathan has recommended that any financial restructuring without addressing the root causes of the weaknesses of the system would not result in its sustained revival. The Task Force made several suggestions including a financial package for cleaning up the balance sheets of STCCS, legal and institutional reforms necessary for cooperatives to function as democratic institutions. One of the major recommendations was on capital adequacy norms for the three tiers .....

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censing norms for state and central cooperative banks. The twin initiatives resulted in licensing of a large number of banks starting from 2008. Progress in licensing of state and central cooperative banks Position as on State Coop. Banks Central Coop. Banks Licensed Unlicensed Total Licensed Unlicensed Total 31.3.2006 13 18 31 73 298 371 31.3.2009 14 17 31 75 296 371 31.3.2010 22 9 31 176 195 371 31.3.2011 24 7 31 221 150 371 31.3.2012 30 1 31 329 42 371 31.6.2013 31 1^ 32 348 23 371 As on date .....

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nks. Hence, the banks were placed under phased implementation of Basel I norms with a target of 7% CRAR by March 31, 2015 and 9% CRAR by March 31, 2017. The banks were allowed to raise the additional capital resources through Long Term (Subordinated) Deposits and Innovative Perpetual Debt Instruments. As on March 31, 2015, 30 StCBs and 301 CCBs had CRAR of 7% or above. 10. Pursuant to the Banking Laws (Amendment) Act 2012, CRR to be maintained by non-scheduled StCBs and CCBs and SLR to be mainta .....

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epartment was bifurcated and rechristened as Department of Cooperative Bank Regulation (DCBR) and Department of Cooperative Bank Supervision (DCBS). While supervision of UCBs is vested with DCBS, supervisory functions in respect of StCBs and CCBs remain with NABARD. The new arrangement is aimed at achieving synergy and harmonization in regulation of cooperative banks without losing sight of the structural differences in rural and urban cooperative credit systems. 12. Some of the recent policies .....

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powers to our Regional Offices in most of these areas. Financial Performance of State and Central Cooperative Banks 13. Today the StCBs and DCCBs display a reasonable financial strength. Their combined capital and reserves stood at ₹ 20.1 thousand crores for the StCBs and ₹ 51.04 thousand crores for the DCCBs as on March 31, 2015. The combined balance sheet, as on March 31, 2015, of all state cooperative banks stood at ₹ 1.98 lakh crore and that of the district central coopera .....

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48.60 13.81 2 Reserves 11823.68 12331.13 11147.76 14845.63 4.29 -9.60 33.17 3 Deposits 86428.84 94516.14 104207.43 102591.87 9.36 10.25 -1.55 4 Borrowings 43424.04 50947.50 60938.92 68413.44 17.33 19.61 12.27 5 Other Liabilities 7564.23 7445.42 6752.64 6838.11 -1.57 -9.30 1.27 Total Liabilities 152749.26 168293.78 187584.42 197853.58 10.18 11.46 5.47 Assets 1 Cash & Bank balances 7835.78 8729.02 18286.26 6469.95 11.40 109.49 -64.62 2 Investments 58427.32 59389.3 61880.15 69592.96 1.65 4.19 .....

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9700.84 11147.76 12942.53 8.83 14.9 16.10 2 Reserves 24785.29 30299.71 29044.59 38102.41 22.25 -4.14 31.19 3 Deposits 187770.03 208218.15 235920.76 257563.83 10.89 13.3 9.17 4 Borrowings 53924.39 64968.09 72776.30 80199.64 20.48 12.0 10.20 5 Other Liabilities 19817.32 21281.93 15139.04 16917.15 7.39 -28.86 11.75 Total Liabilities 295210.90 334468.72 364028.45 405725.56 13.3 8.84 11.45 Assets 1 Cash & Bank balances 21028.96 19214.98 22974.75 21842.77 -8.63 19.57 -4.93 2 Investments 93869.59 1 .....

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lining trend. There are wide variations region-wise too. In 2014, NPAs of StCBs varied between 1.93% in northern region and 17.12% in north-eastern region. In respect of CCBs, it was 5.27% in northern region and 10.98% in eastern region. During the same year, percentage of recovery to demand was 97.9 in northern region and 49.10 in north-eastern region for StCBs. Recovery to demand was 83.16% in northern region and 67.23% in eastern region in respect of CCBs. State Cooperative Banks Year CRAR % .....

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. We have prescribed fit and proper criteria for Chief Executive Officers of StCBs and CCBs. The Constitution (97th Amendment) Act mandates appointment of at least two professional directors in the Boards of cooperative banks. The Act has also covered other issues aimed at improving governance and autonomous functioning of cooperative societies such as engagement of professionally qualified auditors, tenure of Board, conditions for supersession of Board, active participation of members in annual .....

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rgence between audited financial parameters and that assessed by NABARD, particularly in respect of reporting of NPAs and provisioning. Since audited financial statements are relied upon for granting various regulatory approvals and assessing compliance standards, quality of statutory audit needs to be improved. For achieving this, we have planned to conduct workshops / seminars for statutory auditors to familiarise them with our instructions. We will be taking the help of Institute of Chartered .....

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stage will ease the pressure on recoveries at a later date and help to curtail expenditure on litigations. Continuous monitoring of loan accounts with give signals on creeping sickness and delinquencies and effective steps aimed at recovery at an early stage will prevent deterioration of asset quality. Further, higher provisioning towards NPAs severely erodes profitability. Banks should look for more fee-based activities to supplement their earnings. 18. Another area of persistent and serious c .....

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ion is an imperative in today s banking. Implementation of CBS in StCBs and DCCBs which was started in 2012 has been completed in all 32 StCBs and 347 licensed DCCBs. These banks can now offer RTGS and NEFT facilities to their customers through direct or sub-membership route and also participate in Direct Benefit Transfer Scheme. RBI has already circulated the criteria for offering mobile and internet banking facilities by these banks. Since the technology brings its own risks, cooperative banks .....

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te locations leveraging technology. NABARD extends support to cooperative banks in implementing the technology assisted banking platform and setting up Financial Literacy Centres and Common Service Centres with ICT-enabled kiosks to create awareness and demand for products and services. Financial assistance is provided from Financial Inclusion Fund for implementation of CBS in cooperative banks, data migration from PACS to DCCBs, issue of RuPay and KCC cards and meeting expenditure towards micro .....

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anaging the IT systems and outsourcing database management activities. 22. With the adoption of technology and liberalisation of regulatory policies, cooperative banks are foraying into new business activities where they have no familiarity. Training and capacity building assumes importance in the present context. Adequate training should be imparted to people at all levels including employees, Board of Directors and auditors to improve productivity, efficiency and professionalism. Cooperative b .....

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ogy, every cooperative bank should provide on its website where customer can access information about products, procedures, forms, fees / charges, annual reports, etc. Customers should have the facility to communicate to the bank through e-mails. Transparency will improve confidence of customers, bank s image and reduce complaints. 24. Cooperative banks are now functioning in a highly competitive environment. Entry of more players in the banking arena and technology have increased options to cus .....

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How and why do I say so? There are very many types of economic entities like a proprietary firm, partnership firm, society, trust, company, body corporate, beside the cooperative. Of these, which one has got mentioned in the Constitution of India? It is cooperatives. That too, not just a passing mention; but, a full section on how cooperatives have to be formed, governed and operated has been incorporated as a part of our Constitution, thanks to 93rd Amendment. 26. Not only that, you look at the .....

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ches of economic life, notably agriculture, minor irrigation, small industries and processing, marketing, distribution, rural electrification, housing and construction and provision of essential amenities for local communities. Even the medium and large industries and in transport an increasing range of activities can be undertaken on cooperative lines . The Eighth Five Year Plan (1992-1997) laid emphasis on building up the cooperative movement as a self-managed, self-regulated and self-reliant .....

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the basic activity of India, in every village as well as elsewhere; and finally, indeed, to make the cooperative approach the common thinking of India....Therefore, the whole future of India really depends on the success of this approach of ours to these vast numbers, hundreds of millions of people . 28. Why this kind of attention, belief and expectations on cooperation? Is it because, it is more than 100 years old? Or is it because of the innate features that go to define a cooperative? Or is i .....

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ms of economic activity chain. Be it credit, mortgage, production, marketing, storage, sales, distribution, consumption, wholesale, retail, services, advisory, research, etc. etc. - you name it, the cooperatives were everywhere. Be it agriculture, allied services, rural industries, manufacturing - small, medium and large, services, you name any segment of economic activity, they were there. Such a wide swathe of the presence of cooperatives could not have happened without the magnitude and depth .....

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es had been recommending constitution of Agricultural banks. In 1901 the Famine Commission recommended the establishment of Rural Agricultural Banks through the establishment of Mutual Credit Associations, and such steps as were taken by the Government of North Western provinces and Oudh. The underlying idea of a number of persons combining together was the voluntary creation of a new and valuable security. A strong association competent to offer guarantees and advantages of lending to groups in .....

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tion of the post of registrar of cooperative societies and registration of cooperative societies for various purposes and their audit. 31. The underlying idea of all Mutual Credit Associations, such as we recommend, is that a number of persons, by combining together, create a new and valuable security, which none of them previously possessed as individuals. Co-operation substitutes for isolated and helpless agricultural units a strong association competent to offer guarantees and capable of insp .....

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ne Commission 1901. Doesn t ring several bells? Our modern day Self Help Groups (SHG), Joint Liability Groups (JLG), Micro Finance Institutions (MFI) were all in the thought process some full hundred years before. Perhaps, they were the ideas well ahead of their times. Cooperatives in the First Half of 20th Century 33. The first half of the 20th century saw phenomenal growth of cooperatives in general and the number of credit cooperatives in particular had reached more than two lakh. But what wa .....

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29.2 61.2 64.0 57.1 Government 3.3 5.3 6.7 4.0 5.7 2.3 Co-op. Society/bank 3.1 9.1 20.1 28.6 18.6 27.3 Commercial bank incl. RRBs 0.8 0.4 2.2 28.0 29.0 24.5 Insurance - 0.1 0.3 0.5 0.3 Provident Fund - 0.1 0.3 0.9 0.3 Others institutional agencies* - 9.3 2.4 Non-Institutional Agencies 92.8 85.2 70.8 38.8 36.0 42.9 Landlord 1.5 0.9 8.6 4.0 4.0 1.0 Agricultural Moneylender 24.9 45.9 23.1 8.6 6.3 10.0 Professional Moneylender 44.8 14.9 13.8 8.3 9.4 19.6 Traders and Commission Agents 5.5 7.7 8.7 3. .....

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amous saying, Cooperation has failed; but it must succeed . Cooperatives in Second Half of 20th Century 35. The next half century received quite a lot of rhetoric. I had quoted them before viz., about making the cooperative approach the common thinking of India, dependence of the whole future of India on the success of cooperative movement, building cooperative movement being the central aim of National Policy as a part of planned development, cooperatives to be the principal basis of organising .....

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CS) as on March 31, 2014 at the grass root level. The combined balance sheet, as on March 31, 2015, of all state cooperative banks stood at ₹ 1.98 lakh crore and that of the district central cooperative banks at ₹ 4.06 lakh crore. Their Gross NPA stood at 4.8% and 9.1% respectively as on March 31, 2015. Their combined Net Profits were ₹ 1,005 crore and ₹ 793 crore respectively. 37. Are we satisfied with this? Of course not. Why? First of all, these numbers hide wide varia .....

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o-economic entities, are being operated as socio-political entities. Opportunities Lost 38. These weaknesses of the cooperatives have caused certain serious opportunities slip by the cooperative system. What do I mean by this? Please recall the recommendations of the Famine Commission 1901 which I quoted earlier. They had recommended that micro finance, self-help groups, joint liability groups, etc. as a part and parcel of cooperative banks. Where are they today? Not with the cooperatives. They .....

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