Current Co-Op Credit System Worthwhile, Feel Experts

The views of experts examined by the Group of Ministers on Co-operation regarding the delayering of the three-tier co-operative credit structure have veered towards the conclusion that the advantages of the current system far outweighs the savings targetted through delayering.

The elimination of any of the tiers of the existing structure may not result in savings of more than 0.25 per cent of the total cost incurred by the co-operative system and, hence, there is no point in disturbing the existing system, according to a senior co-operative banking sources.

These views are significant as the Committee on the Banking Sector Reforms (Narasimham Committee II) was of the view that "consideration be given to delayering of the short-term co-operative credit system, comprising the state co-operative banks (SCBs), the district central co-operative banks (DCCBs) and the primary agricultural credit societies (PACS), with a view to reducing the intermediation costs and providing the benefit of cheaper Nabard credit to the ultimate borrowers.

 

"Purely in terms of costs, if a DCCB were to be merged with the SCB, there is not much scope for savings since in the absence of a secondary level organisation, the SCB will have to depend on regional offices for discharging its role and functions for effective monitoring and supervision as also providing leadership to the PACS," pointed out another co-operative banker.

"The layering of the co-operative system is not by itself responsible for the high cost of credit. Overstaffing at practically all the tiers results in high cost of management, unproductive and unnecessary expenditure prompted by non-business considerations, cumbersome systems and procedures causing delays and inefficiency have all contributed to it," he said.

Recently, an expert committee on rural credit, which commissioned the Lucknow-based Bankers' Institute of Rural Development (BIRD) to study the existing co-operative credit structures, found that delayering achieved by an SCB taking over the DCCBs may result in somewhat better net margins at first glance. However, by offering the SCB wage scale to all the employees of the delayered structure will result in negative net margins.