Reserve Bank of India (RBI) governor Chakravarty Rangarajan yesterday expressed concern over the poor financial health of co-operatives and regional rural banks (RRBs) and stressed the need for revitalising the rural credit system to give an impetus to agricultural growth.
We need to put the rural financial institutions on a sound footing, both organisationally and finanicially so that they can meet effectively the credit needs of a wide spectrum of farmers, Rangarajan said inaugurating a three-day conference on Banking for Agricultural and Rural Development here.
Only 44 of the 196 RRBs in the country made profits in 1995-96, while the total losses of the RRBs that year stood at Rs 468 crore taking their accumulated losses to Rs 2,150 crore.
The problems associated with RRBs are low interest rates, poor margins and high operating cost. Most of them are in the red. They have ceased to be low cost institutions as was conceived originally, he said.
The co-operative credit system was also far from being healthy and needed to be revamped immediately.
Co-operatives relied excessively on funds from higher level structure and suffered from excessive state control, while they performed poorly in deposit mobilisation and recovery of loans, he said.
Rangarajan said the weakness of co-operatives lay in the weakness of base level institutions like the primary agricultural credit societies, which hardly mobilised public deposits.
The lower tier institutions, he said, always looked for refinance, while the state governments exercised pervasive control on financial and administrative matters.
There were, however, success stories among cooperatives, which provided hope for the future and other rrbs needed to emulate them in appraising loan applications, laying thrust on mobilisation of rural savings and operational diversification.
In revitalising the rural credit system, importance needed to be given to recapitalisation, better recovery of dues and rationalising interest rates.
As many institutions had witnessed erosion in their capital, suitable recapitalisation mechanism would have to be evolved, which must be preceded by policy reform and operational changes. A more conducive climate for recovery must be built and lenders must resolve not to announce across-the-board waivers, he observed.
The lending rates, the rbi governor said, should compensate sufficiently the cost of funds, transaction cost and default risk. Pti srn ss kk 07111708 d
