Important Role of Co-operatives in the Process of Nation Building

Dhananjaya Kumar Singh

Cooperative banks are in hot water in the present state of economic affairs. Most of them have been removed from the financial map owing to the rising number of non performing assets and an indiscipline of sorts in their functionality. Due to the lack of maintenance of a cash reserve repo, a number of such banks have not been able to pay back the rightful funds of even their depositors.

The important role of co-operatives in the process of nation building of our country has been noteworthy, more so in agriculture & rural development. Co-operatives have completed over 100years in doing so. It is important to note in this that the waiver of agricultural loans and advances from time to time have made a serious dent in the profits of co-operative banks. Most of the borrowers have preconceived the fact that in due course of time their loans would be waived. This has made the recovery processes extremely difficult and painstaking. Banks haven’t even received the compensation for these loan waiver schemes from the government and which has further added to their misery.

The central government’s focus has unfortunately been towards only the co-operative sugar mills of Maharashtra. While these mills have received annual compensatory packages, the co-operative banks are yet to received any such packages. On the contrary, nationalized banks have been well endowed with such packages. It is highly unfortunate that the co-operative banks in spite of their initiatives of providing easy micro finance to farmers and other impoverished sections of the society, have been treated with a negative bias by the central government. If this point of view of the central government does not change, then the cooperative banks would soon be wiped off their existence in the country, a fact which is well supported by even the Reserve bank of India (RBI).

The Deposit Insurance Guarantee Corporation (DIGC) which runs under the aegis of the RBI to redress the claims effectively, even after regular premium payments have been made by the cooperative banks. In some cases the cooperative banks are shut down due to bankruptcy, even then these claims are not redressed for over 4-5 years after the closure. As a result, there are a number of banks which have not been able to pay back their depositors their rightful & hard earned money. There is a perception that this is a result of the DIGC’s inability to redress claims because of its own dismal financial situation. Who is responsible for this RBI or Govt. of India. At any rate the justification for such an unfortunate situation and the question of the depositors getting their money back is something which only the RBI should clarify.

The strict banking guidelines which are applicable to these cooperative banks functioning from semi urban and rural areas are comparable with the stringent banking norms of banks in developed countries such as the USA & Russia. How justified in this standardization when applied to cooperative banks which are playing on low credit margins and functioning in the unorganized sectors such as agriculture, micro finance, unemployment, trying to aid the weaker and impoverished sections of the society?

The norms and procedures which the co-operatives have followed for over a 100 years and which have effectively contributed to the process of nation building of our country have been made to stand incompetent by the RBI without any substantial basis or justification. This is an unfortunate mockery of an effective time tested national banking system. This mockery is further aggravated and directed to the nation on the whole when systems and procedures of an international context are forcibly applied onto our socio-economic set up. The conduct of RBI towards cooperative banks is comparable to the expectation of a Gangubai of our Rural India to look and behave like a Hillary Clinton of the USA.

The process of benchmarking for rendering a bank ‘weak’ has also been changed to a system of ‘grading’. The basic concept of rendering a bank ‘weak’ now rests on the concept of ‘Capital Risk Adequacy Ratio’ (CRAR). Banks under this basic concept of CRAR are being labeled weak by way of an imaginary fear. For instance the ‘Risk Weight’ of the cash reserves of State Bank of India (SBI) is 20%. Does that mean therefore, that the possibility of SBI going bankrupt is 20% or is it that this 20% also signifies the Risk Weight of other Cooperative Banks?

Another discrepancy in this module of grading is that the Risk Weight of loans and advances extended by banks is highly variable. In some cases it is 74% while in other it is an ridiculous as 100%. There have been instances in the past where this Risk Weight has been pegged at even 125% and the Risk Weight of all banks had been ascertained at 125%.

The parliament of India has entrusted the RBI with all the rights and authority. However rethinking and reinspecting this authority is imperative in the present context and in this process there should be a fearless & proactive participation by the organizers and managers of cooperative banks. However they are not being able to do so since they don’t wish to be in the bad books of the RBI, is the Democracy?

To add to the misery of cooperative banks, the UPA government at the center, for the first time after independence, has forced upon them, the twin troubles of Income Tax and Service Tax, 2-3 years back. This regulation has acted as the last nail in the coffin for the cooperative banks. The President of Bharatiya Janata Party, Shri Rajnath Singh while expressing his views over resolution on agriculture in the Lok Sabha on 17th July 2009, had demanded the waiver of Income Tax from cooperative organisations in very strong words. This clearly brings to the fore, Bharatiya Janata Party’s positive thought process which has always been in the favour of the farmers and other impoverished and weaker sections of the nation.