Cooperative model leads to inclusive growth: D Subbarao

Reserve Bank of India (RBI) Governor D Subbarao today said the disenchantment with ‘casino banking’ in certain developed economies underscored the dangers of over-financialisation of the real economy.

Casino banking is the practice of commercial banks engaging in unduly speculative or risky financial activities to record high profits.

“In comparison, the cooperative business has been more resilient. This structure ensures cooperatives are not enterprises run just for shortterm profits, but a business model for long-term sustainability and inclusive growth,” Subbarao said. He was speaking at ‘Leveraging Cooperative Advantage’, an international conference on cooperatives. “The recent financial crisis has taught us some very important lessons. Globally, the cooperative movement covers over a billion people, generating economic activity, resources and jobs. Hence, the cooperative philosophy is an excellent example of a valuebased business model. The countries with the most significant number of people in the cooperative membership are India, China and the US. The countries in which the presence of cooperative banks is significant are Germany, France, the Netherlands and Italy,” he said.

Subbarao advised cooperatives to adopt new technologies, as this had become amajor factor in determining the essence of modern banking efficiency.

On the infirmities of the Indian cooperative sector, he said, “Weak finances, growing NPAs (non-performing assets) and a poor resource base are the factors contributing to the declining performance of cooperatives at the bottom level. These grass-root institutions mostly depend on higher agencies. The cooperative structure is biased towards borrowers and depositors get unequal treatment—only borrowers can become members of the cooperative. Depositors are either nonmembers or ‘nominal’ members, with no voting rights. But it is possible to cure these infirmities and revive the cooperative structure into a healthy and vibrant one.” On the deteriorating financial position of unlicensed cooperative banks, he said, “As on April 1, there were 41 cooperative banks that couldn’t meet even the relaxed licensing norms. To maintain the integrity of the cooperative system and to protect public interest, the Reserve Bank imposed directions on these banks, prohibiting them from accepting fresh deposits.” “The growth of cooperatives in India has been impressive. It covers a wide array of activities, including credit and banking, fertilisers, sugar, dairy, marketing, consumer goods, handloom, handicraft, fisheries and housing. The Indian cooperative movement, comprising about 6,00,000 cooperatives, is arguably the largest cooperative movement in the world, providing self employment to millions of poor people.”