Draft Final Report of the Task Force on Revival of Cooperative Credit Institutions

4.51 The Task Force would like to clarify that the recapitalisation of PSBs was done by the Union government, in its capacity as the owner. In the case of the RRBs, other stakeholders had also participated in proportion to their equity. Therefore, on the face of it, there does not seem to be any legal ground for the participation of the Union government in the recapitalisation process for cooperatives. However, in view of the fact that historically the Union Government has played a significant role in the development of cooperatives and indeed mentored them over time, a moral responsibility also seems to be involved. Moreover, there is indeed, an urgent need to rapidly expand agricultural credit to boost productivity and production in the agricultural sector. Taking these factors into account, as well as the fact that only a strong CCS can play a major role towards this end, the Union Government needs to involve itself in the revival of the CCS in national interest.

4.52 During discussions on the sharing pattern, it was submitted that the simplest methodology for doing so, would be to devise a formula based on fixed percentages as suggested by earlier Committees. Issues involved were debated and it was felt that formula based sharing patterns tended to become points of contention between the various stakeholders, jeopardizing the broader objective of reviving the CCS. The Task Force was of the view that the sharing pattern, above all, should be based on a formulation which is empirically verifiable, transparent, and relatively simple to implement. The consensus of the Task Force is that the sharing pattern should be based on the origin of loss, rather than an arbitrary proportion for sharing the liability.

4.53 The two arguments made above lead to the conclusion that in the fitness of things, losses arising out of loans for agricultural purposes at all the levels may be fully borne by the Union Government and an appropriate mechanism on a similar logic may be used for losses from other loans and activities. While this method can fairly easily be implemented at the level of DCCBs and SCBs, it has been mentioned earlier, that determining accumulated losses arising from different types of loans issued by PACS may be very difficult and not really commensurate with the effort involved, as the principal credit business of PACS is agricultural loans.

Sharing Pattern - PACS

4.54 Taking into account the fact that there are almost a lakh PACS at the ground level, undertaking both credit and non-credit businesses, the simplest empirically verifiable sharing formula between the Union government and stakeholders, therefore, would be one, in which the former picks up the bill for losses arising out of all the credit business of PACS. The State Governments will have to bear the losses on account of non-credit businesses (PDS, sale of fertilisers, procurement, etc.), on the ground that such non-credit business is largely driven by them.

Sharing Pattern - DCCBs and SCBs

4.55 As already mentioned, once the losses of retail outlets have been met, the losses at the level of DCCBs from their lendings to PACS at the ground level, would automatically stand reduced. It has already been mentioned that State Governments would be required to pay upfront for their existing liabilities in respect of invoked guarantees and other dues. These liabilities are not reflected in the traditional balance sheets of the cooperative banks, as they are merely shown as receivables from the government. The DCCBs also have losses pertaining to loans given by them to other cooperative societies (like marketing, handloom, consumer societies etc.), with or without government guarantees, and their direct loans to individuals for agricultural and non-agricultural businesses and loans for consumer goods etc.

4.56 As mentioned earlier, the accumulated losses arising from the loans of the DCCB's for agriculture, including their direct loans to individuals and units other than PACS, would be borne by the Union government. The DCCBs, however, would have to bear losses arising out of any other direct loans made by them, on the ground that all decisions pertaining to such loans have been taken by them.