Back So much for expert panels on rural credit delivery
P. Devarajan
THE number of reports on the rural credit delivery system matches the population of co-operative credit institutions, goes a common saying in banking circles.
No expert report is vastly different from the other, and the experts cannot be blamed as rural co-operative credit bodies have been well diagnosed and nothing more can be revealed by fresh pathological studies. The rule more or less applies to the latest report, `Task Force on Revival of Co-operative Credit Institutions,' scripted by Prof. A. Vaidyanathan, Emeritus Professor, Madras Institute of Development Studies, Chennai.
Between 1900 and 1930, a study by Mr Frederic Nicholson, followed by the Edward Law Committee on Cooperative Legislation, argued for State support for co-ops and the Maclagan Committee (1915) favoured one co-op for every village. The Royal Commission said, "If co-operation fails, there will fail the best hope of rural India."
By 1945, "there already were signs of sickness in the Indian rural co-operative movement. A large number of co-operatives were found to be saddled with the problem of frozen assets because of heavy overdues in repayment. The Agricultural Finance sub-committee's recommendation that the frozen assets of the members of such co-operatives be liquidated by adjusting the claims of the society to the repaying capacity marked the beginning of State interference in the management of co-operatives and the consequent erosion in the credit discipline of the members."
From then to 2005, the script remains unchanged, with co-ops doubling as ATMs for politicians. State governments do not want to end the dual control on co-ops as otherwise the ATMs will run out of cash. A bank loan has to be paid for a healthy banking system while our politicians want free cash to be doled out.
The Task Force has placed the fund support for the three-tiered co-operative credit structure at Rs 10,839 crore based on balance sheets as of March 31, 2003. That could go up if the closing date is taken as March 31, 2004. Adding Rs 4,000 crore for contingencies the grand total comes to Rs 14,839 crore. The Task Force has linked the bailout "to a rigorous classification of the Co-operative Credit Structure into institutions which deserve capital support and those that do not" and the State Governments making legal amendments to co-op Acts for the RBI to have single point control.
A case has been made for specially designated auditors to examine the books of the credit societies to sort out the good from the bad. The Rs 10, 839-crore bailout (more taxes?) is to be divided among the Central government (Rs 5,793 crore or 53 per cent), the State government (Rs 3,402 crore or 31 per cent) and the credit co-operative societies (Rs 1,644 crore or 16 per cent).
The Task Force wants the Central government to make a grant against its share (a write-off?), provide soft loans to State Governments (if needed) and to the societies. With most State governments and co-operative societies in bad shape (going by the Task Force), the entire load could fall on the Centre, with the recap scheme being monitored by Nabard.
Why should not Nabard which has loads of free cash pick up the bill as the total relief effort will be staggered? This august body is doing nothing but refinancing and most strong lenders do not care. More, the three-tier rural credit structure pushes up the interest rate at the village counters to around 12 per cent when the government wants loans up to Rs 50,000 to bear an interest tag of 9 per cent.
Anyone can work the suggestions of the Task Force or of earlier reports if the politicians permit. That is not coming.
On the ground, the share of co-ops in the rural credit market has fallen from around 62 per cent in 1992-93 to about 34 per cent in 2002-03 "in spite of an increase of just under 10 per cent per annum in the absolute disbursement on a compounded annual basis"; the share of RRBs has risen from 5 per cent to 9 per cent and that of commercial banks shot up from 33 per cent to 57 per cent over the same period. Yet, the Task Force admits: "... we need to necessarily look to the co-operative sector for delivering credit to small and marginal farmers and those who have little or no productive assets." Perhaps, the government can take one firm decision: No more expert committees to study the rural credit delivery system.
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