Draft Final Report of the Task Force on Revival of Cooperative Credit Institutions
3.57 Having perused the reports of earlier committees, the Task Force agrees with their central approach and thrust that the cooperative credit structure (CCS) needs:
- Special financial assistance to wipe out accumulated losses and strengthen its capital base
- Institutional restructuring to make for democratic, member driven, autonomous and self-reliant institutions
- Radical changes in the legal framework to empower the RBI to take action directly in matters and to the extent deemed appropriate for prudent financial management of banks, and
- Qualitative improvement in personnel in all tiers and at all levels through capacity building and other interventions, leading to an increase in overall efficiency.
3.58 Our recommendations on the specific measures in each of these spheres are detailed in subsequent chapters. They should be viewed as an inter-related, integrated package, to be calibrated by time and institutional responsibility. The package needs to be implemented in a way that it may have a synergetic impact in improving the health and vitality of the cooperative credit structures. Any propensity to pick and choose its recommendations cannot but destroy the "warp and woof" of the fabric, that constitutes its core. Unless the conditionalities prescribed go hand in hand with the resource support, the ailments characterising the cooperatives will not be addressed, and the money invested will go down the drain. If the assignment given to the Task Force is not to be repeated by another committee in the future, it is necessary that the package prescribed by it be accepted in full. Such an approach will have the best chance of being accepted by the stakeholders as the basis for reform and revival.
Chapter 4: General Approach and Financial Restructuring
4.01 The Task Force is of the view that financial restructuring of the cooperative credit structure (CCS) must follow some basic principles, enumerated below.
- Re-engineering, including financial re-engineering, must cover all the tiers of the cooperative credit structure. In the opinion of the Task Force, a superstructure can only be as strong as the base. Recapitalisation and restructuring the intermediate and upper tiers of the cooperative credit structure, without addressing the infirmities at the primary level, would defeat the objectives of reviving and revitalizing the CCS. Primary agricultural cooperative societies (PACS) are the foundation of the short-term cooperative credit structure and much of the weakness of the upper tiers is because of their poor financial health and deficiencies in the way they are organized and managed.
- The Revival Package (RP), therefore, must include assistance for restoring the PACS to acceptable levels of financial health. It must put in position an environment and specific measures that could enable the PACS to evolve into democratic, self-governing and financially well managed institutions.
- It has been brought to the notice of the Task Force that such an exercise could be difficult because the number of credit cooperatives at the base level is very large. To overcome this difficulty, the Task Force has suggested some simple criteria for identifying eligible institutions, sharing patterns, etc.
- Recapitalisation must cover the aggregate erosion of capital in all the tiers of the CCS. It was pointed out to the Task Force that financial constraints pose a case for partial recapitalisation, limited to losses arising out of agricultural lending alone. The Task Force is not in agreement with this line of reasoning, as it believes that partial recapitalisation, like under-financing projects, have the potential to place the entire resource support at risk.