Recapitalisation funds for co-operative banks likely

The forthcoming Budget is likely to announce a financial package and propose necessary amendments to the Banking Regulation Act (BRA) to revive the ailing co-operative credit institutions.

In line with the Vaidyanathan Committee report, the finance ministry is expected to sanction a revival package of around Rs 11,000-15,000 crore with partnership of central government, state government and credit co-operatives for the troubled co-operative credit institutions, said banking sources.

Amendments to the BRA is also likely to be suggested conferring full voting rights to all users of financial services in co-operative institutions including deposits. This will ensure better vigilance on the banks.

The poor financial status of the credit co-operatives is mainly on account of increased political interference in management, said banking sources.

The co-operative banks are neither covered by the entire gamut of prudential norms, specially the CRAR norms, nor does the Reserve Bank of India (RBI) have direct control on its regulatory prescriptions, they added.

There is also a proposal to limit state government interference in administrative and financial matters. In the process, RBI will be empowered with the full regulatory authority in regard to co-operative banks.

On the anvil is introduction of prudential norms including capital adequacy for all financial co-operatives including primary agricultural credit societies (PACS).

They are the grassroots level arm of short-term co-operative credit, mediate directly with individual borrowers, grant short term to medium term loans and also undertake distribution and marketing functions. There are around 1,12,309 PACS as on March 31, 2003, with about 120 million members.

The financial package will be a mix of grants and soft loans from the Centre to state governments and credit co-operatives. Of the total grant, the Centre's share would be 55 per cent, states' 30 per cent and the co-operatives themselves 15 per cent.

This is in accordance with the recommendations of the Vaidyanathan committee report.

As per the estimates of the Vaidyanathan Committee report, the financial package proposed is expected to fund the accumulated losses of about Rs 8,566 crore (including existing receivables from state governments), take the system to the CRAR of a minimum of 7 per cent, provide for return of state government equity of about Rs. 1,243 crore in credit co-operatives, and back the overall initiative with technical and technological support aggregating Rs 670 crore.

The total number of licenced state co-operative banks (StCBs) and central co-operative banks (CCBs) stands at around 13 StCBs and 73 CCBs.

The financial position of most of the StCBs and CCBs has been deteriorating. The accumulated losses of CCBs have increased to Rs 4442 crore in 2002-03 from Rs 3217 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 licences application of 7 CCBs and StCBs.