Cooperative banks are at receiving end in the wake of the Cobrapost sting which eposed some top banks involved into money-laundering. Nabard Managing Director Prakash Bakshi has, however, taken up cudgels on their behalf.

NABARD said that it has found no shortcoming pointing towards any such activity.

“Every year we do an inspection and we have not found anything like that,” National Bank for Agriculture and Rural Development’s (NABARD) chairman Prakash Bakshi said.

Reserve Bank of India has reportedly found that cooperative banks are used as conduits.

The cooperative banks tie-up with scheduled commercial banks to expand their reach. Co-operative banks can accept cash under Rs 50,000 from customers and earn commission.

When asked about the misuse of the system and if this amounts to regulatory arbitrage, Bakshi said, “It is the same regulation for everybody. Banking Regulation Act is same for everybody.”

Online portal Cobrapost had in its sting operation allegedly proved some executives at three top private banks — ICICI Bank, HDFC Bank and Axis Bank – agreeing to receive unverified sums of cash and put them in their investment schemes and benami accounts in violation of anti-money laundering laws.

Earlier this month, it had followed up with a similar operation, showing executives at over 20 financial institutions, including State Bank of India and Life Insurance Corporation of India, offering similar services.

The Reserve Bank has maintained that no transaction has happened while the sting also does not point to “money laundering”.

RBI Governor D Subbarao has also said: “RBI is not directly involved… even banks are not directly responsible. They are not expected to inquire about the source of income. It is for government and tax authorities to check money laundering.”

Courtesy: IE

Cooperative banks are mostly the whipping horses for Nabard and RBI. But what they do not seem to take into account is the unviable propositions these banks are subjected to. A case in point is Karnataka.

Karnataka Chief Minister said on Thursday that the state has decided to wave loans to the tune of Rs.25000 obtained by farmers from the agri-cooperative societies.

Karnataka has had a deficient monsoon and some portions of the state are already seriously affected by drought.

Talking to the press at Bangalore ,Chief Minister Jagdish Shettar said, his govt.would have to undertake both short term and long term measures to organise relief works. The state govt. has called upon the center to waive loans given to farmers by the nationalised banks.

Well, nationalized banks ever eager to earn profit, may or may not pay heed to CM, cooperative banks have no options and would rather happily help the poor farmers out.

Observers say it is evident from Chief Minister’s remarks that the cooperative bodies would play a role in fighting the difficulties arising out of drought in the state.

The RBI has been exercised by the existing weak rural cooperative credit structure in the country. The three tier structure-State Cooperative Bank,District Cooperative Bank and PACS may go for a revamp.

RBI has formed a committee headed by Nabard Chairman Prakash Bakshi and given it the required authority to re-examine the Short Term Credit Structure (STCCS) and offer a slew of suggestions for making major improvements in rural credit delivery system.

According to the RBI release, the committee will thoroughly analyze the STCCS and offer alternative   ideas of bringing down the cost of credit. It will also carefully investigate all options including the feasibility of establishing a two tier STCCS as against the present three tier arrangement.

It is worth mentioning that STCCS is meant to meet the credit needs of the small and marginal farming population in the country.

The RBI statement adds the committee will primarily focus its attention on the role being played by the state and district cooperative banks in meeting the agricultural credit needs.

It will also try to find out the cooperative banks that are not capable of continuing for a long time, the diluted licensing criteria laid down by the RBI notwithstanding.

The release says the committee will submit its recommendations within three months.

The IT giant Wipro has provided the state cooperative banks in 5 states of the country with the core banking solution in a bid to extend e-banking facilities to customers in the countryside. Wipro sources say the cooperative banks are located in Bihar, Haryana, Maharashtra, Punjab and Utter Pradesh.

As  desired by Nabard, the IT company will undertake computerisation of 76 state  and district  cooperative banks including nearly three thousand branches existing in several states across the country.

Provision of computer facilities will mark a revolutionary change in the functioning of the cooperative banks operating in rural areas.

Farmers will be able to receive e-payments towards subsidy, sending of money from cities to the countryside will become easy.

The cooerative banks will expand their business and activities and they will be on a par with the rest of the banks in terms of application of technology and banking methods.

Indian Cooperative has received a mail from Rajiv Padia who also finds NABARD role vis a vis cooperative banks not constructive. Debate being soul of intellectual process we produce below his take on the subject. Excerpts

Hello Sir,

NABARD and RBI both are are responsible for this condition of CCI. They always put restrictive policies on State and District Central Cooperative Banks.

They never allow these banks to come out of artificially crafted well in frog-in the well manner.

While in the matter of financial discipline and economic prudence they are treated at par with Commercial Banks but when it comes to doing profitable business, they are reminded of their puniness.

In the given scenario CCIs can survive only if they are allowed to venture out and do business in other sectors and are not entrapped to agriculture or PACS alone.

RBI and NABARD still think that State and District Cooperative Banks are meant for PACS only.

We have visited USA and studied working of credit unions. It has been observed they survive even where big banks fail in USA.

RBI and NABARD must have some positive policies for State and District coop Banks.

Rajiv Padia

A piece on Indian Cooperative on the pettiness of Nabard in celebrating its foundation day has invited criticism in the true spirit of democracy. Many people believe that Nabard has done well for the cooperative banks and it does not deserve the uncharitable comments.

The editorial of Indian Cooperative would, however like to clarify that the scope of the piece was not an attempt to analyze Nabard in totality. It pertained to the issue of non-invitation to cooperative banks on the occasion.

However, Managing Director of NAFSCOB contests the view-points that Nabard has done enough for the cooperative banks. The views are his and not that of Indian Cooperative.

Excerpts

Dear Sir

It is essential that each one of us has to be very attentive towards the concluding remarks of Governor, RBI on the 30th Foundation of NABARD on 12 July 2012 in Mumbai.

“What NABARD does and how well it does will be a very crucial factor in our agricultural sector’s performance.”

Let me add that ……..will be a crucial factor in the survival of rural cooperative credit & banking institutions which have great potential to ensure smooth flow of agricultural credit .But we should also analyze  what NABARD did for them during last 30 years.

All of us believe what NABARD did for cooperatives during last 30 years. (Mostly good as per the few CCIs)

1.Allowed cooperatives to accumulate losses and then recapitalize from the amount received from GOI. 2.Allowed them to be unhealthy for a very long time

3. Made them to continue to lay heavy reliance on refinance and heavy dependence on NABARD

It performed the roles of 1.Promotional 2.Developmental 3.Refinance 4.Supervisory 5.Regulatory 6.Monitoring etc of which roles with S No 4 & 5 -very  effectively.

How far is it true! Let us soul-search.

NABARD in all fairness, we should acknowledge, attempted to do during last 30 years, as follows:

Towards HRD,C-PEC, Computerisation in CCIs, Common Accounting System for DCCBs & PACs, ODI for cooperative Banks, Formulation of DAPs, Preparation of standard Audit Manual for PACs, Utilization of CDF etc.

The share of cooperatives in agriculture credit because of these efforts of NABARD for last 30 years is what it was prior to 1982.

Ideally it should help cooperatives become Self Reliant without forcing them to continue to heavily depend on NABARD for everything.

We on our part should hold consultations among ourselves and other relevant organizations to identify the areas that are critical and help NABARD to perform, with a view to ensure agricultural credit’s performance by taking cooperatives into confidence.

Dr.D.Subba Rao,Governor, Reserve Bank of India said “I am delighted to be a part of NABARD’s celebrations of its completion of thirty years. This is a special occasion for NABARD, of course; but also a special occasion for the Reserve Bank, for NABARD was incubated in the Reserve Bank before it rolled out as an independent development financial institution in 1982.The bondage between our two institutions has not only remained strong but is getting stronger. We share a common goal – of furthering……………………”

What about bondage between them and rural cooperatives? Let us initiate appropriate preventive steps so as to ensure that the above stronger bondage between RBI and NABARD does not drastically and adversely affect the functioning of Rural cooperative credit delivery system.

Further, please continue to work to impress upon both of them to build stronger bondage with Rural cooperatives, so as to ensure smooth flow of agricultural credit. Otherwise it is impossible for both of them to fulfill their joint responsibility, without strong cooperatives, for the flow of agricultural credit.

CBS has been launched on the Foundation Da but there was no cooperatives around.

We should reinforce message to all that “Cooperative Enterprises Build A Better world” and a force to reckon with. Otherwise ,it will be miserable for rural cooperatives in the days to come.

Bhima Subrahmanyam

MD,NAFSCOB

Nabard, primarily conceived to act as a catalyst for rural development, celebrated its 30th Foundation day in Mumbai on Thursday without any participation from the cooperative banks.

It invited almost all the commercial banks but chose to sideline the cooperative banks that happen to be one of its main subjects. Only exception was the Maharashtra State Cooperative Bank but it chose not to send any representative.

Interestingly, the speakers including the Governor of Reserve Bank of India dwelt mostly on the subject of cooperatives exposing Nabard’s pettiness in the matter.

In an ideal situation Nabard and the cooperative banks should have been partners in the endeavour of developing agricultural India.
NAFSCOB, the apex federation of the cooperative banks was also ignored.

When Indian Cooperative contacted Nafscob Managing Director Dr Bhima Subranmaniyam to know his reaction he was quick to add “may be our writing frequent letters to PM and the President is not liked by Nabard”.

The story of hostilities between Nabard and Nafscob dates back to five years ago.

Nabard is not the only organization that keeps the cooperative institutions and their leaders at arm’s length. Only recently was IFFCO’s booking of Vigyan Bhawan overruled by the Environment Ministry even though the former had booked it well in advance.

Such slights have become commonplace and unless a self-less and dynamic cooperative leadership appears on the horizon the Babus would keep rubbing the cooperatives the wrong way. What an appalling commentary on a country of 25 crore cooperators!

The cooperative banks’ financial woes are just refusing to go away in Maharashtra.  After the Maharashtra State Cooperative Bank, several district cooperative banks have surfaced as candidates for a similar bailout.

At least, half a dozen district cooperative banks are in serious financial difficulties and have been stopped from accepting fresh deposits.

According to Harshavardhan  Patil , Minister Cooperatives,  the crisis-ridden banks would , in the foreseeable future , be  inspected by Nabard and if given a clean bill of health they would be able to get their banking licence.

A source familiar with the cooperative banking scene in Maharashtra, however, says at least two of the six district cooperative banks seem past redemption as their negative net worth is extremely high.

Nabard has stepped in, in a big way to promote development in Chhattisgarh.  Nabard has decided to spend thousands of crore on various sectors of the economy in the state.

Nabard is also paying special attention to the cooperative sector providing it necessary technological help. The cooperative banks ‘for example’ are being put on core banking system.

According to Nabard, most of the money earmarked for Chhattisgarh would be spent on agricultural development as 80 percent people in the state are still dependent on farming. A sizeable amount would also be spent on developing infrastructure.

Commentators are agreed that the Nabard’s massive financial intervention could shepherd Chhattisgarh   towards a rapid political pacification.

The RBI has put scores of cooperative banks in the country under scrutiny as the lenders failed to meet the basic norms on capital and net worth. The apex bank has stopped the lenders from getting deposits from the public.

The RBI move is intended to change the way the hapless banks are working. The banks are expected to bring about a discernible improvement in their situation. Otherwise, they would be in trouble.

Officials of the RBI and Nabard would be responsible for keeping an eye on how these banks are working to overcome their difficulties.

According to Nabard Chairman, there were altogether 50 cooperative banks that were threatened with closure.  Of them, 8 cooperative banks could meet the norms while 42 banks could not meet the norms and have therefore been put under watch.

According to an estimate, the country has 30 state and 370 district central cooperative banks. The total deposits of these banks counted 2.31 trillion and their total assets were worth 3.39 trillion in 2010.

As per recommendations made by a panel, the cooperative banks should not have excessive non-performing assets nor should they indulge in any financial irregularities. The banks are supposed to have at least a net worth of 1 lakh.

The RBI is of the opinion that these banks are badly managed and are seriously compromised by graft and corruption spreading through them.