Clean-up act continues for co-op banks

The sector will get a Rs 11,000 crore package based on the Vaidyanathan Committee Report

Finance minister P Chidambaram announced that the government has given "in principle" acceptance to the recommendations of the Vaidyanathan Committee report on the restructuring of the beleaguered cooperative banking sector.

"Co-operatives is a state subject and hence the onus is on the state governments to take up the offer of the finance minister and accept the recommendations of the task force", said Y S P Thorat, managing director, National Bank for Agriculture and Rural Development (Nabard) and member secretary of the Vaidayanathan Committee.

Implementation of the recommendations will lead to significant improvement in the health of co-operative sector, he added. This, in essence, means that the sector may get a revival package of around Rs 11,000 crore collectively from the central government, state government and credit co operatives.

The finance minister has urged those state governments which are in favour of reviving the sector to begin the process of implementing the recommendations soon.

The committee had recommended total flexibility for the operation of the scheme and that respective state governments will have up to two years to decide whether or not to participate in the scheme.

As per the estimates of the Vaidyanathan Committee report, the financial package is expected to fund the accumulated losses of about Rs 8,566 crore (including existing receivables from state governments).

Besides, this will help the banks to achieve a minimum 7 per cent capital adequacy ratio and back the overall initiative with technical and technological support aggregating Rs 670 crore.

Addressing the issue of poor governance, the task force had recommended conferring full voting rights to all users of financial services including deposits, delimiting state government interference in administrative and financial matters and empowering RBI with full regulatory authority in regard to co-operative banks and exiting state government equity and participation in boards of credit co-operatives.

The total number of licensed state co-operative banks (StCBs) and central co-operative banks (CCBs) stands at around 13 StCBs and 73 CCBs, said the RBI report on trend and progress of banking in India 2003-04.

The financial position of most of the StCBs and CCBs has been deteriorating. The accumulated losses of CCBs have increased to Rs 4,442 crore in 2002-03 from Rs 3,217 crore in 2000-01 said the report on trend and progress of banking in India 2003-04.

As on March 31, 2003, the gross NPAs to gross credit of StCBs and CCBs increased to 18 per cent (12.7 per cent) and 22 per cent (18.3 per cent) in 2000-01, respectively, said the report. During 2003-04, the RBI rejected licence application of 7 CCBs and StCBs.