VAIDYANATHAN COMMITTEE REPORT ON REVIVAL OF CREDIT COOPERATIVE INSTITUTIONS

Cooperative Credit Institutions Century old Credit Institutions in India. Implied Values of Public –Private Partnership Vast Outreach. Local Feel & market access. Credit needs of small & marginal farmers met mostly through Cooperatives. Market Share of Cooperatives - Rural Outlets : 69% Rural Credit : 31% Vaidyanathan committee report

Rural Cooperative Credit Structure Vast and heterogeneous network Quantitatively impressive 112,309 PACS 367 DCCBs (12,547 branches) 30 SCBs (866 branches) 20 SCARDBs (859 branches) 768 PCARDBs (1013 branches) Vaidyanathan committee report

Rural Cooperative Credit Structure Qualitatively impaired Huge accumulated losses; High NPAs; Assets & Deposit erosion On balance Relevant Should be turned around, will require substantial financial assistance But subject to strict conditionalities regarding • legal reforms • institutional restructuring • Good governance • Regulatory prescription Vaidyanathan committee report

CCS – Governance, legal & regulatory issues No elections for long periods in certain States. Boards superseded in a number of SCBs/DCCBs State Governments combine the role of Dominant Shareholder, Management, Supervisor and Auditor Financial Disclosures not transparent RBI’s ability to enforce its regulatory powers constrained. NABARD exercising supervisory powers on behalf of RBI. Vaidyanathan committee report

Recovery position is a matter of serious concern . Credit related issues Market share in agricultural credit is steadily declining from 43% in 1998-99 to 31% in 2003-04 and further to 27% by 28 Feb. 2005. Share in disbursement of Investment Credit sharply declined from from 26% in 1998-99 to 13% in 2003-04. Cooperatives are the only institution not achieving the targeted 30% growth in agricultural credit this year. Recovery position is a matter of serious concern . As on 30 June 2003 the recovery % against the demand was 61% for DCCBs and 67% for PACS. Vaidyanathan committee report

Major issues of concern for Cooperative Credit Structure 7 out of 30 SCBs & 143 out of 367 DCCBs are not complying with provisions of Section 11(1) of BR Act, 1949 as on 31.03.2004, i.e. not meeting minimum capital requirements. Accumulated losses, asset and deposit erosion have assumed alarming proportions. No diversification in business; Not much scope for cross subsidization. High cost of resources and high intermediation costs due to 2/3 tier system Vaidyanathan committee report

State Coop Banks Vaidyanathan committee report

DCC Banks Vaidyanathan committee report

PACs Vaidyanathan committee report

Recovery Status of Credit institutions Vaidyanathan committee report

Major issues of concern for Cooperative Credit Structure …..Contd. High NPAs ; high risk premium in lending Loan appraisal systems, monitoring very poor; Poor internal checks and controls; Financial disclosures not transparent. Duality of control. Poor HR practices; non-professional banking staff. PACS very weak; nearly half of them incurring losses; need for reorganisation and modern business development models. Vaidyanathan committee report

The Task Force has submitted its report on 15 February 2005. Task Force on Revival of Coops GoI constituted a Task Force under the Chairmanship of Prof. A Vaidyanathan to suggest an implementable action plan taking into account the recommendations of earlier committees. The Task Force has submitted its report on 15 February 2005. Vaidyanathan committee report

Observations of Task Force Strengthening governance and regulation must precede financial assistance for revival of Cooperatives. Financial impairment of the Co-op Credit Structure(CCS)due to impairment in governance and management. Legal and regulatory impasse deriving from duality of control. Pervasive,rather intrusive, interference by State Govts. in financial,administrative and operational matters. Credit Co-operatives should be autonomous and member driven. Revival to start from PACS upwards. Vaidyanathan committee report

Rs 1644 Cr. (16%) by the Cooperative Credit Structure Financial Package to fund accumulated losses,build CRAR at 7%, provide for retirement of State equity and extend technology support The estimated liability of various agencies (Short Term Credit Cooperatives only) – Rs.10,839 Cr. Rs 5793 Cr. (53%) by GOI Rs 3402 Cr. (31%) by State Govt Rs 1644 Cr. (16%) by the Cooperative Credit Structure Scheme likely to take 3-5 yrs. for full implementation RECOMMENDED FOR SIMILAR COMMITTEE FOR LONG TERM STRUCTURE Vaidyanathan committee report

Package of Revival of Credit Cooperative Institutions Financial Package Institutional reforms Legal and regulatory reforms Vaidyanathan committee report

Losses arising out of agricultural loses (Direct and indirect) Sharing Pattern For PACs: All losses arising of all activities ie., agricultural and non agricultural. For DCCBs: Losses arising out of agricultural loses (Direct and indirect) Losses arising from loans to other coops Vaidyanathan committee report

Implementation State Govts should accept the package in toto including legal and regulatory changes, institutional reforms and their share of financial commitment Release of funds will be linked to the progress in actually implementing the revival package Vaidyanathan committee report

State Govts should retire from share capital Reforms suggested State Govts should retire from share capital No nominees of the State Govt on the board of the institutions Professionals on the board Professionally qualified CEO for Banks and properly trained secretaries for PACs CEO appointed from the board Vaidyanathan committee report

State Govts should retire from share capital Reforms suggested State Govts should retire from share capital No nominees of the State Govt on the board of the institutions Professionals on the board Professionally qualified CEO for Banks and properly trained secretaries for PACs CEO appointed from the board Vaidyanathan committee report

Regulatory and legal reforms suggested Removing state intervention in administration and financial matters No restrictive orders on financial matters Wider access to financial institutions for coops Limiting powers of state to supersede the board Vaidyanathan committee report

Institutional Reforms Common Accounting system Computerization Training to staff and management Vaidyanathan committee report

For DCCBs and SCBs : Chartered Accountants AUDIT For DCCBs and SCBs : Chartered Accountants For PACs: Option for Audit from Chartered Accountants Vaidyanathan committee report

Implementation mechanism States will have to sign MOU with Central Govt Willingness of state to sign Assessment by NABARD: Special audit Signing of MOU Release of State Govt’s Share Central Govt’s share will be released through NABARD Vaidyanathan committee report

Implementation mechanism Capacity building programs from NABARD 12 from each state master trainers: At lucknow Trainers training at state leveles 4 days for PACs secretaries and 2 days for Board Vaidyanathan committee report

Progress States which have signed MOU Maharashtra Orissa Madhya Pradesh Gujarat Andhra Pradesh Uttar Pradesh Bihar Uttaranchal Arunachal Pradesh Haryana Vaidyanathan committee report

Karnataka Cabinet approves and again withheld Finally state approves during the governors regime. Vaidyanathan committee report

THANK YOU Vaidyanathan committee report