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

5.08 In short, a radical change is necessary in the way cooperative credit societies are constituted, managed and regulated at present. That such change is essential for reviving and revitalising the system has been strongly emphasised by the Capoor, Vikhe Patil and Vyas Committees. The need for change in the Cooperative Credit Structure (CCS) has also been widely appreciated by chairmen and chief executives of cooperative institutions, senior officials of state cooperative departments, and leading public figures, who have argued for reform, as well as representatives of trade unions of cooperative sector employees - all of which has been of little avail. State Governments have shown little inclination towards the needed reforms. There is, as a matter of fact, a strong opposition to reforms from entrenched vested interests, who stand to lose control over the very considerable resources channelled through the cooperatives.

5.09 Exhortation will not lead us far. Strong inducements are imperative. To break the impasse and induce essential and basic institutional reforms, it is essential to link eligibility for assistance and its release to the implementation of reforms in the Revival Package. The vision of the Task Force is that in the long run, the financial cooperatives should turn into the self reliant, member centric institutions, envisaged by the Self Reliant/Mutually Aided Cooperative Societies Act. It has to, however, take into account that the Cooperative Societies Act (CSA) has been in vogue for so long, that it has acquired a settled status.

5.10 The Task Force is of the view that rural financial cooperatives should be dealt with as a distinct and separate class and recommends incorporation of a separate chapter in the extant Cooperative Societies Act, for the cooperative banks. The Task Force believes that the introduction of a separate chapter will at last pave the way for focused attention on cooperative banks and their superintendence and governance. Having said this, the Task Force reiterates, indeed exhorts, State Governments to take steps to ensure that the suggested measures acquire the force of law, as expeditiously as possible.

5.11 In the interregnum and in view of the fact that the process of revitalising the CCS cannot be delayed, the Task Force recommends that the State Governments enter into MOUs with Regulatory and Supervisory agencies, for facilitating an appropriate governance and superintendent structure. Accordingly, the Task Force, has prescribed a working draft of a Model Bill (Annexure XX). The Task Force has also prescribed the provisions to be incorporated as a special chapter in the extant Cooperative Societies Act in Annexure XXI, and an indicative list of items which should be included in the MOU between the State Government and RBI in Annexure XXII.

Conditionalities relating to Reform measures

5.12 The Revival Package for the CCS entails assistance for financial restructuring of the cooperative societies, provided of course their State Governments agree to participate in the package. It is also imperative that the State Governments make a formal commitment to make specified changes in their legal and administrative framework, relating to the functioning of cooperative credit institutions. Although, the willingness for participating in the Revival Package will be totally optional, once exercised, the concerned State Government and the CCS units will have to accept the entire package in toto. There cannot be a pick and choose method for various components of the package. The key elements of which are :

• State Governments should accept the Union Government's scheme in full, including the legal and regulatory changes, institutional reform, and their share of financial commitment
• State Governments not in agreement now may be given two years to consider, after which participation in the Union Government's scheme may stand closed
• PACS, DCCBs and SCBs to also have the option to exercise options available in the scheme