Draft Final Report of the Task Force on Revival of Cooperative Credit Institutions
Chapter 7: Transitional Problems and Long term Outlook
7.01 There are several issues relating to the transition for ensuring that it is as smooth as possible and with minimum disruption in the flow of credit to rural areas. The exact number of societies at different levels that will be eligible for assistance and the quantum of assistance they are entitled to can be determined only after their latest accounts are properly audited. The number of dormant and non-viable societies is likely to be large. The mechanisms and processes by which they are to be liquidated is one issue. There are several alternatives: merger with nearby healthy societies; take over of ground level lending in the service area of liquidated PACs by neighbouring PACS, DCCBs, CBs and RRBs; or as a last resort take over by the DCCBs as their extension counters functioning under the supervision of their nearest branch.
7.02 All these should be viewed as basically a transition phase to ensure that credit flow to the areas served by dormant and non-viable societies is not impeded. The expectation is that in due course new societies under the model law will come into being and take over the function of providing credit at the local level. The aim should be to create conditions in which the new model cooperatives can emerge in their place, without any restrictions on the number of villages they can serve or on their membership.
7.03 In the case of DCCBs and SCBs, although at present almost two out of five are non-compliant with Section 11, a number of them may become compliant once the accumulated losses of the PACS are taken care of. Even so, they will need close attention and supervision to ensure that they continue to perform to prescribe standard. There may still remain several, that need to be liquidated or merged with the nearest restructured DCCB, which will serve the needs of their service areas.
7.04 To facilitate the above, the Task Force recommends (1) appropriate amendment of existing laws to enable PACs to borrow from CCBs outside their district as well as from CBs and RRBs; and (b) set up a special task force at the State level to actively promote these linkages, so that credit flow to ground level institutions is maintained. Under such an arrangement, PACs will have a wider choice of sources from which they can borrow. The resulting competition between the latter will improve the range and quality of services PACs receive. At the same time when lending institutions decide, as they should, the volume and terms of finance on commercial considerations, PACs will be under pressure to observe stricter credit discipline.
7.05 Over the longer run, while we favour a federal cooperative credit structure, there are questions about the justification for some features of the existing system and in particular about the need for three tiers, the functional and economic viability of the huge (and often overlapping) network of branches of DCCBs and SCBs. There is clearly considerable scope for rationalisation in this respect, both for reducing costs and to improve service quality. We are, however, in favour of this issue being left to be decided, after due study, according to the circumstances and experience of each State.
7.06 The Task Force would like to underscore the fact that institutional credit to rural areas, tend to serve mostly those who have some land and/or other productive assets to offer as collateral. Lending is skewed markedly in favour of the larger and better off segments of rural society. There is reason to believe that available statistics tend to overstate the coverage (in terms of proportion of numbers and credit needs) of small and marginal farmers met by cooperatives. This bias is much more marked with CBs and RRBs.
7.07 Those who have little or no productive assets of their own - consisting of those who own very small amount of land, tenant farmers and the landless - who constitute the large majority of the rural population, hardly benefit from cooperative credit. Remedying this deficiency will be a major challenge for the future. Assessing the credit-worthiness of borrowers in this class, supervising their use of credit and ensuring prompt repayments individually is extraordinarily difficult and costly; and risks are inherently high. We have to find an effective strategy to deal with this problem. Group lending seems to offer a promising solution.