As many as eight cooperative banks failed in this fiscal so far, resulting in credit insurance company DICGC paying a little over Rs 143 crore to depositors.

Among the eight cooperative banks, which failed to repay deposits to customers, four are from Maharashtra, three from Karnataka and one from Gujarat.

In the last financial year, 26 cooperative banks had closed operations.

Under the norms of Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India (RBI), a maximum of Rs 1 lakh is paid to a depositor in case a bank goes insolvent.

The Reserve Bank’s credit insurance arm has paid over Rs 143.5 crore to depositors of eight cooperative banks which went bankrupt till July in 2011-12, according to DICGC.

The DICGC paid the maximum amount of Rs 48.7 crore to Ichalkaranji Cooperative Bank of Maharashtra. This was followed by another Maharashtra-based lender Samata Sahakari Bank whose depositors were paid Rs 38.83 crore.

Besides, the credit insurance company paid Rs 31.9 crore to depositors of Anyonya Cooperative Bank of Gujarat and also Rs 15.37 crore to the account holders of Vidharbha Cooperative Bank of Maharashtra.

At the same time, the insurer paid Rs 2.5 crore each to Laxmi Sahakari Bank of Maharashtra and Chadchan Sree Sangamehwar Urban Cooperative Bank of Karnataka.

There is huge scope for IFFCO Kisan Sanchar in Bhandara district of Maharashtra as farmers are openly being charged with Rs 850 as yearly subscription to a SMS service that sends alerts about farm produce prices, weather etc, while giving them farm loans.

Some nationalized and rural banks are reportedly charging farmers.

About 5,900 farmers have availed Rs 20 crores from Wainganga Krishna Gramin Bank. WKGB reportedly charged some farmers Rs 850 in each farm loan to start the SMS service by Reuters Market Light.

RML,a multinational company gives daily information on cell phone to farmers about market rates of agriculture produce, weather forecasts and time to time advice for better yields.

Iffco Kisan Sanchar empowers farmers and people living in rural India with pertinent and high quality information and services, through affordable communication network, in a sustainable manner. Recently even US President Obama praised the idea of Iffco Kisan Sanchar and it also won Coffey International Award in UK.

Norms for Licensing of new urban cooperative bank has been released by RBI with far reaching consequence. The new norms would help corporatize urban cooperative banks which slide into controversy every now and then.

The new norms talk of overhauling the entire system where bank directors and chairman would have no day to day interference in the working of UCB.

The new norms also push strongly for converting the credible credit society into urban cooperative banks.

Main recommendations

UCBs play a useful role and there is need for a greater presence of UCBs in unbanked districts and in centers having population less than 5 lakh. It is necessary to encourage new entrants to open banks and branches in States and Districts which are unbanked or inadequately banked. It is equally necessary to discourage new entrants from opening branches in Districts and population centers which are already adequately banked.

The existing well managed co-operative credit societies meeting certain financial criteria like profits, capital adequacy, NPAs’ proportion etc. should be given priority for granting licenses as urban co-operative banks particularly in unbanked or inadequately banked centers.

New UCBs’ Minimum Capital should be

(a) UCBs operating in only one state in Rs 50 Lakh

(i) North Eastern Regions

(ii) In other States but confined to unbanked districts

(iii) In other States but confined to ‘C’ and ‘D’ category population centers of banked districts

(b)  UCB operating in only one State with 50% or more branches in ‘C’ and ‘D’ category population centers should be Rs 100 lakh

(c) UCB operating in only one State but without requirement to have branches in ‘C’ and ‘D’ category population centers Rs  300 lakh

(d) UCBs which wishes to operate in more than one State after five years of successful operations Rs  500 lakh

In respect of existing co-operative credit societies opting to be converted in to UCBs, the minimum capital required will be as per norms prescribed above or as per RBI’s per branch head room capital prescription, whichever is higher.

Unbanked District means a District without any existing UCB.

Organization Structure of New UCBs

There should be segregation of the ownership of the UCB as a co-operative society from its functioning as a bank. The new organization structure shall consist of a Board of Management in addition to the Board of Directors.

The Board of Directors (BoD) would be elected in accordance with the provisions of the respective Co-operative Societies Acts and would be regulated and controlled by the RCS / CRCS.

The (BoD) will establish a Board of Management (BoM), consisting of persons with professional skills, which shall be entrusted with the responsibility for the control and direction of the affairs of the Bank assisted by a CEO who shall have the responsibility for the management of the Bank.

RBI would have unfettered powers to control and regulate the functioning of the UCB and of its BoM and of the CEO in exactly the same way as it controls and regulates the functioning of the Board of Directors and the Chief Executive in the case of a commercial bank.

It should be made a condition of the license that every new UCB should be required to have a Board of Management (BoM) to be appointed by the Board of Directors (BoD) and a Chief Executive Officer (CEO) to be appointed by the BoM. While the BoD will be responsible for laying down the broad contours of strategy, the BoM will be vested with the mandate to direct and control the day-to-day operations of the UCB within the limits set by the BoD. At least 51 per cent of the members of the BoM should have special knowledge or practical experience in the matters specified in Section 10 A(2) of the B. R. Act, 1949.

Members of the BoD can be members of the BOM provided they fulfill the conditions specified. Members of the BoM can be paid such sitting fees as the BOD may decide subject to a ceiling to be specified by RBI. The BoM to follow a Code of Corporate Governance to be specified by RBI.

The CEO shall be responsible for the management of the whole or substantially the whole of the affairs of the UCB but shall be subject to the control and direction of the BoM. The appointment of the CEO shall be subject to the prior approval of RBI.

Audit by a Chartered Accountant to be appointed by the BoM from out of a panel of approved auditors maintained by RBI and subject to rotation after four years.

Umbrella Organization

There should be two separate Umbrella Organizations viz. a national level organization which provides payments and settlement services and other services normally provided by central banks as also liquidity support to its members; and one or more organizations which provide the management, IT, training and other services which the UCB sector needs.

The national level UO should preferably be in the form of a multi-state UCB with membership being restricted to and mandatory for all UCBs other than scheduled UCBs.

Member UCBs should be required to maintain their CRR in the form of deposits with the UO.

The UO should invest its funds only in the form of balances with RBI, deposits with commercial banks or in SLR securities and in no other form.

The UO should offer Repos and Reverse Repos facilities to UCBs in the same manner as RBI offers to commercial banks and at the same rates of interest.  In turn, it should enjoy Repos and Reverse Repos facilities with RBI.

UCBs can avail of Repos facilities only to the extent of their excess SLR holdings.

Until the Payments and Settlements facilities are provided directly to UCBs, the UO will act as a gateway to provide these services for a fee to UCBs. In turn, the UO will be a member of the Payments and Settlement System.

Being a UCB, the UO would have a Board of Management and will be subject to the regulation, supervision and inspection of RBI.

Saraswat Cooperative Bank  has done a great favour to all the banks including PSUs and private banks in the matter of loan recovery. The incident relates to Sangli district in Maharashtra where the local administration did not pay heed to Saraswat Bank request for lending administrative help.

Forced to wall, Cooperative Giant Saraswat Bank approached  Bombay High court which issued directions not only to District Magistrate of Sangli but also to all the other Collectors of each district of the State to  dispose of within two months the pending applications of various banks seeking possession of the secured assets of defaulters for recovery of loans.

Cooperative Bank had sought directions to Collector and Magistrate in Sangli district of the state to provide administrative assistance under section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act for taking possession of secured assets of defaulters.

Justice Anoop Mohta and Justice D Y Chandrachud also directed the Sangli Collector to expeditiously conclude all such pending applications within a period of one month.

“We also direct that in future, all the Collectors and District Magistrates shall maintain a record of such applications and endeavor to conclude the hearing and pass final orders thereon within two months”, the bench observed.

Accordingly, the judges disposed of the petition filed by Saraswat Bank alleging failure of the Sangli Collector to adhere to the law in relation to the exercise of powers under

section 14 of the Securitisation Act.

Saraswat Bank contended that six applications, some of them for several years, are pending with the office of the District Collector and despite this, the collector has not

initiated any expeditious steps under Section 14. As a result, recovery of a large amount of Rs 2.70 crore has been held up.

The bank pleaded its Deputy General Manager of Sangli branch had personally met the Sangli Collector who allegedly declined to render administrative assistance as required under the law.

The bank further argued that the Sangli Collector was not following procedures in law in disposing of applications under section 14 of the act. No dates are fixed for attendance of bank officers and no communication is furnished regarding the status of applications.

On many occasions, the bank argued, the defaulters were allowed to intervene and their applications were entertained. In several cases, the proceedings were found to be missing and no information could be provided by the staff of collector’s office, the high court was told.

On July 20, the High Court after considering the record was prima facie of the view that the conduct of the Collector was in clear breach and disregard of law.

The court observed the IAS officer was duty bound to act in accordance with the letter and spirit of the legislation under section 14 of Securitization Act.

The respondents also filed replies justifying their acts in some cases.

However, the HC noted that it would not go into all the cases cited by them. “It would suffice to note that in several such cases, the Sangli Collector had not taken action for nearly three years. In certain cases, action was not taken merely on the ground that a suit was pending.

The government auditor CAG has sought details from cooperative banks, regarding the implementation of the Rs 71,000-crore farm debt waiver scheme.

It has also sought information from other banks including regional rural banks about the waiver scheme.

The scheme provided relief to about four crore farmers. Information has been sought to examine how effectively the Agricultural Debt Waiver and Debt Relief Scheme was

implemented, sources said.

The Comptroller and Auditor General (CAG) is in the process of collating information on the implementation of the scheme. Once the report is finalised it will be presented in

Parliament.

Usually, CAG does not audit banks as it is done by the RBI and chartered accountants.

In 2008, the government had announced the scheme for waiving loans of about three crore farmers and giving partial relief to one crore more cultivators.

Under the scheme, marginal farmers cultivating crops in agricultural land of up to five acres got full debt waiver on their short-term crop loans. The scheme, which was for a

limited period of 30 days, closed on June 30, 2008.

Other farmers having more than five acres of land, received a one-time settlement relief after the payment of a portion of the debt.

The debt relief scheme, however, ended in June 2010.