EXECUTIVE SUMMARY

Since India is agriculture oriented country, the importance of rural banks in India is more than any other countries. The development of rural co-operative banks in India is on the process but still it is not fully developed. The Co-operative banks in India was started in 1904.Co-operative movement in India is the result of a deliberate policy of the state and is vigorously pursued through formation of an elaborate governing infrastructure. The successive Five-year plans looked upon the cooperation movement as the balancing sector between public sector and the private sector. In India we find that the states of Maharashtra and Gujarat are well developed. Whereas the states of Andhra Pradesh, Rajasthan and Karnataka have shown remarkable progress in the co-operative movement and there is a vast potential for the development of cooperative in the remaining states. This project is mainly focusing on the importance of co-operative bank in the regional rural areas of our country. Because of that reason The Government has introduced several schemes for promoting the spirit of co-operation. Both the Indian Government as well as the Government of the State of Maharashtra has introduced several schemes for the co-operative bank. The NABARD role in the building of the co-operative credit structure was that of an active

collaborator in drawing up schemes of development with the government of India and the State Governments, and the provider of finance, first to the State Governments for contribution to the share capital of co-operative credit institutions at various levels.

CO-OPERATIVE MOVEMENT IN THE WORLD

The earliest co-operatives were set-up among the weavers, in other words workers in cottage industries, who were the first and the hardest hit by the development of the mercantile economy and the industrial revolution. So the weavers, in order to gain access to the market in the tools of their trade or to the market in foodstuffs set up the first co-operative in Scotland (Fenwick, 1761; Govan, 1777 ; Darvel, 1840 ), in France (Lyons, 1835 ), in England (Rochdale, 1844 ) and in Germany ( Chemnitz, 1845 ). Though co-operation and mutual enterprise has been an essence of human-society ever since it evolved, the real co-operative movement can be credited to the Rochdale Pioneers who established a cooperative consumer store in North England. This store can be called as the first in the co-operative consumer movement. The "Rochdale Pioneers", made their first aim to establish cooperatives where the members would not only be their own merchants but also their own producers and their own employers. Around this time the co-operative movement was more at an utilitarian level. The concept though old, was just being implemented and was growing slowly. Many great thinkers, farsighted men and visionaries were applying their minds to find practical solutions to the new problems and to work out better systems of social organization.
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In Great Britain Robert Owen (1771-1858) conceived and set up self-contained semi-agricultural, semi-industrial communities. Dr. William King (1758-1865) helped to spread Owens doctrine; his ideas were more reasonable than Owens and achieved more results. In France Charles Fourier (1722-1837), a commercial clerk, published in 1822 his main work, a Treatise on Domestic Agricultural Association. This could be one of the first works on cooperation. Though all these visionaries had articulated the philosophy of cooperation it was not until the World-War II that an Authoritative Commission was appointed by the International Co-operative Alliance. This Commission formulated or rather formalized the principles of co-operation. They are

Voluntary and open membership Democratic Management Limited interest on capital Patronage dividend in proportion of members transactions Education and Training and Co-operation among co-operatives

CO-OPERATIVE MOVEMENT IN INDIA

Co-operation occupies an important place in the Indian economy. Perhaps no other country in the world is the co-operative movement as large and as diverse as it is India. There is almost no sector left untouched by the co-operative movement. The main areas of operation of co-operatives in India are as under. Agricultural Credit Agricultural Marketing Agricultural Processing Industrial co-operatives Urban credit Co-operatives

Co-operative movement in India is the result of a deliberate policy of the state and is vigorously pursued through formation of an elaborate governing infrastructure. The successive Five-year plans

looked upon the co-operation movement as the balancing sector between public sector and the private sector. And the success is evident. Almost 50 percent of the total sugar production in India is contributed by sugar co-operatives and over 60 percent of the total fertilizer distribution in the country is handled by the co-operatives. The consumer co-operatives are slowly becoming the backbone of the public distribution system and the marketing co-operatives are handling agricultural produce with an astounding growth rate. Further there is the Indian Farmers Fertilizer Co-operative LTD (IFFCO), which has been successful in setting up an effective marketing network in most of the states for selling modern farming technology instead of fertilizers alone. The operations of IFFCO are handled through its more than 30,000 member co-operatives. The National Agricultural Co-operative Marketing Federation (NAFED) has over 5000 marketing societies. These societies operate at the local wholesale market level and handle agricultural produce. Thus the farmers have a market for their produce right at their doorstep In India we find that the states of Maharashtra and Gujarat are well developed. Whereas the states of Andhra Pradesh, Rajasthan and Karnataka have shown remarkable progress in the co-operative movement and there is a vast potential for the development of cooperative in the remaining states.

INTRODUCTION OF RURAL CO-OPERATIVE BANKS

Co-operative banks, another component of Indian banking system, originated with the enactment of the co-operative credit societies Act of 1904, which provided for the formation of co-operative credit societies. Under the Act of 1904, a number of co-operative credit societies were started. Co-operative banks were established in India to facilities rural credit, and to cater to the needs of small farmers and businessmen. They were popular with middle and lower income groups because of the high interest rates they offered as compared to commercial banks. However, with the passage of time, most co-operative banks lost their purpose. Excessive state control and politicization further led to their deterioration. By the 1990s, none of the privet or public sector banks were willing to deal with co-operative banks and thus even otherwise healthy co-operative banks were facing a tough time. In 2001-2002, many co-operative banks were rocked by scams that exposed the malpractices in these banks. Many of these banks did not adhere to the prudential norms prescribed by the Reserve Bank of India.

The distinct point between the co-operative banking sector and commercial banking sector is the focus. First, co-operative banks focus on the local population and micro banking among middle and low income state of the society. As compare to nearly 300scheduled commercial banks, inclusive of regional banks, there were more than 90000 primary agricultural credit societies in rural sector as at the end of 2002. Co-operative banks are an important segment of the organized sector of the Indian banking system. They have been organized under the provision of the co-operative societys law of the states. They have grown with the specific purpose of financing agriculture and other economic units in the unorganized sector of the economy. Both commercial banks and co-operative bank perform the main banking functions of deposit mobilization, supply of credit, and provision of remittance facilities. The major beneficiary, in the case of commercial bank, is industry, trade and commerce whereas cooperative bank have been concern with agricultural finance.

PRINCIPLES FOLLOWED BY CO-OP BANKS There have been also other principles like the principles of political neutrality, correct weight and measures, purity of goods and thrift which were also taken into consideration. These principles have been reformulated recently by the Manchester Congress in 1995 and now the principles of co-operation are as follows: I Principle: Voluntary and Open Membership: Co-operatives are voluntary organizations; open to all persons who use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination. II Principle: Democratic Member Control: Co-operatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In Primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organized in a democratic manner. III Principle: Autonomy and Independence: Co-operatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other

organizations, including governments or raise capital from external sources they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy. IV Principle: Education, Training and Information: Co-operatives provide education and training for their members, elected representatives, managers and employees so that they can contribute effectively to the development of their co-operatives. They inform the general public particularly young people and opinion leaders about the nature and benefits of co-operation. V Principle: Co-operation among Co-operatives: Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, regional, national and international structures. VI Principle: Concern for Community. Co-operatives work for the sustainable development of their communities through policies approved by their members. The seventh Principle was added at the Manchester Congress of 1995.

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STRUCTURE OF CO-OPERATIVE BANKS

In India co-operative banks have different institutions at various levels coming under the category of co-operative banks. They are categorized under two main heads: agriculture and non agriculture. In the field of agriculture credit there is separate institution to meet the need for short and medium-term credit and for long term credit. The co-operative credit structure for short and medium-term credit is a three tire federal one, with state co-operative banks at apex in each state, the central co-operative bank, at the district level, and the primary credit societies in the village. Long-term agriculture credit is provided by the land development banks. The structure is a two tire one, with central land development banks at the state level and primary land development banks or district level. In some states the structure is unitary, In order to adhere to the discipline of the three-tier structure and also possibly RBI can not lend directly to primary credit societies because of its large number, funds flow down wards from a SCBs to the DCBs under its jurisdiction and from the latter to the primary credit societies, which then lend to their borrowing members. The need for higher financing agencies arises, because the PACs are not able to raise enough funds by way of deposits from the public. The SCBs them selves, apart from raising funds by way of owned funds(share capital and reserve) and deposits from co-operative societies and individual and others, borrow large amount from mainly the RBI. This is one direct in which the RBI as the countrys
11

central bank makes its credit available to the co-operative banking system. Further, the RBI also extends credit to state Government (in the form of long-term loans for contribution to the share capital of co-operative credit institutions) and through NABARD. There are also reserve flow o funds from the primary credit societies to CCBs and from them to SCBs. This is affected by way of contribution to the share capital of the higher financing agencies and by way of deposits. The loan extended by the higher financing agencies to their affiliates is linked with the share capital holdings by this affiliate of the lending agencies. Thus, normally a primary credit society can borrow from a CCB at most upto 10 times its contribution to the share capital of the CCB. A similar condition governs the borrowing limits of CCBs from their SCBs.

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CREDIT STRUCTURE OF CO-OPERATIVE BANKS

The PACSs The Primary Agricultural Credit Societies (PACS) constitute the `hub of the Indian co-op movement. Every fourth co-operative in India is a primary credit society. The main objectives of a PACS are:

To raise capital for the purpose of giving loans and supporting To collect deposits from members with the objective of To supply agricultural inputs and services to members at

the essential activities of the members.

improving their savings habit.

remunerative prices. The Primary Agricultural Co-operative Societies Indicators Village covered by PACS Total Number of PACS Membership (Average) per PACS Value 99.5% 100000 10,00,00,000

The DCCBs The PACS are affiliated to the District Central Co-operative Banks (DCCBs) who perform the following functions.
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Serve as balancing centre in the district central financing Organize credit to primaries Carry out banking business

agencies
o o

District Central Co-operative Banks Indicators No. of Banks Total (Million) Total loans advanced Rs.326,995Million membership Value 361 1.579

The SCBs The DCCBs in turn are affiliated to State Co-operative Banks (SCBs), which perform the following functions.
o o o o

Serve as balancing centre in the States Organize provision of credit for credit worthy farmers Carry out banking business Leader of the Co-operatives in the States Indicators No. of Banks No. of branches Total membership Value 28 742 139,676

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OBJECTIVES OF CO-OPERATIVE BANKS

1) To understand the structural features of the credit delivery system in a village, 2) To assess the operational dynamics of financial services rendered by formal credit institutions especially the co-operative,

15

3) To analyze the profile of borrowers of Service C6operative Bank, their economic empowerment and perception level regarding loan repayment, and 4) To identify reasons for non-viability of rural credit institutions and suggest measures. 5) The rural financial system in the country calls for a strong and efficient credit delivery system, capable of taking care of the expanding and diverse credit needs of agriculture and rural development. More than 50% of the rural credit is disbursed by the Co-operative Banks and Regional Rural Banks. In this direction NABARD has been taking various initiatives in association with Government of India and RBI to improve the health of Co-operative banks 6) To provide cheap and liberal credit facilities to small and marginal farmers, agriculture laborers, artisans, small entrepreneurs and other weaker section. 7) To save the rural poor from the money lenders. 8) To act as a catalyst element and thereby accelerate the economic growth in the particular region. 9) To cultivate the banking habits among the rural people and mobilized savings for the economic development of rural areas.

CO-OPERATIVE BANKS-A PROFILE

In the early 20th century, the availability of credit in India, more particularly in rural areas was non existent. There was no organized institutional credit for agricultural and related activities. People in
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the rural areas largely depended on money lenders who lent money at very high rates of interest. Thus, there was need to create an institution which would cater to the needs of ordinary people and was based on the principles of co-operative organization and management. In 1904, the first legislation on cooperatives was passed. In 1914, the Maclagen committee suggested a three tire structure for cooperative banking i.e. Primary agricultural credit societies at the grass root level, Central cooperative banks at the district level and State cooperative banks at the state level. Cooperative banks were expected to serve as substitutes for money lenders, and provide both short term and long term institutional credit at reasonable rates of interest. Features of cooperative banks 1) Cooperative banks are organized and managed on the principal

of co-operation, self help, and mutual help. They function with the rule of one member, one vote. Function on no profit, no loss basis. Co-operative banks, as a principle, do not pursue the goal o profit maximization. 2) Co-operative banks perform all the main banking functions of deposit mobilization, supply of credit and provision of remittance facilities. 3) Co-operative banks provide limited banking products and are functionally specialist in agriculture related products. However, cooperative banks now provide housing loans also.

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4) 5)

Primary Agricultural credit societies provide short term and Co-operative banks do banking business mainly in the

medium term loans agriculture rural sector. However, UCBs, SCBs, CCBs operate in semi urban, urban and metropolitan areas also. 6) The SCBs, CCBs and UCBs can normally extend housing loans upto Rs. 1 lakh to an individual. CATEGORIES: There are two categories of the co-operative banks. a. Short term lending oriented co-operative banks within this category there are three sub categories of banks viz. State cooperative Banks, DCBs, PACs. b. Long term lending oriented co-operative banks within the second category there are land development banks at three levels state level, district level and village level. The co-operative banking structure in India is divided into following main 5 categories 1) 2) 3) 4) 5) Primary Urban Co-operative banks Primary Agricultural Credit Societies District Central Co-operative banks State Co-operative Banks Land Development Banks

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DIFFERENCE BETWEEN RURAL CO-OPERATIVE BANKS & RRBs

RRBs are by nature co-operative banks but are different from the cooperative banks 1) Aim: RRBs have been established to supplement the resources

of the co-operative banks and not to complete with them. The principle of co-operation is all for each and each for all. Its aim is to provide an institutional framework to organized self help among persons of small means. Its basis is self-help through mutual help. It combines economic, social and political objectives. It aims at bringing about socio-economic changes in the country. The RRBs aim at providing credit and other facilities especially to the small and marginal farmers, agricultural laborers, artisans and small entrepreneurs in the rural areas. 2) Act applicable: The RRBs are governed by the regional rural

banks Act 1976, RBI Act, NABARD Act, whereas the co-operative banks are governed by co-operative societies Act 1965. 3) Status: The co-operative banks do not become scheduled banks

automatically, whereas RRBs are scheduled commercial banks. The scheduled status given automatically. 4) Area of operation: Area of operation of the co-operative banks

is restricted to only one district only. But the area of operation of a RRBs is extending upto one or more districts of a state.
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5)

Coverage of population: the co-operative banks are voluntary

organization for masses. But the beneficiaries of the RRBs are specially class of rural area. It includes small and marginal farmers, agricultural laborers, artisans and small entrepreneurs in the rural areas. 6) Organization: the organizational set up of the co-operative

banks is pyramidal. At the apex level, state co-operative banks functions as apex body, at district level Central co-operative banks and village level Primary agricultural credit societies. It has federal set up and each unit is partially autonomous managed by depositors and borrowers on the basis of one men one vote. The RRBs are bureaucratic institutions whereas co-operatives are democratic institutions 7) Beneficiaries: the Beneficiaries of the co-operative banks are the Beneficiaries of the RRBs

mainly rural masses. Whereas

includes special class of people i.e., the weaker section of societies 8) Resources: The RRBs have owned funds which include share

capital and reserve funds as well as procured funds which include deposits and borrowings/ refinance. But the co-operative banks depend on the RBI and deposits from members. 9) Lending operations: the Co-operative banks lend mainly to the

farmers.
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10) Monitoring and control: the RRBs are controlled by the Central Government, RBI, State Government and Sponsor Banks, whereas the co-operative banks are controlled by RBI and Registrar of cooperatives. 11) Staff: the co-operative banks get talented staff. Whereas RRBs attract less talented staff

FUNCTION OF CO-OPERATIVE BANK

NABARD being an Apex Development Bank promotes agriculture and rural development through refinance support to all banks for investment credit and to Co-operative and RRBs for production

21

credit. The objective of providing refinance to eligible institutions is to supplement their resources for delivering credit for agriculture, cottage and village industries, SSIs, rural artisans, etc. thus influencing the quantum of lending in consonance with the policy of the government of India. It directs the policy, planning and operational aspects in the field of credit for agriculture and integrated rural development. Besides the refinancing activity it discharges the developmental functions which are as under:
1) 2)

It co-ordinates the operation of rural credit institutions It ensures institution building to improve absorptive capacity of It develops expertise to deal with agriculture and rural problems It assists Govt., RBI and other institutions in rural development. It provides facilities for training, research and dissemination of It assists the State Government to enable them to contribute to Under Rural Infrastructure Development Fund, NABARD

credit delivery system.

3) 4) 5)

information in rural banking.

6)

the share capital of eligible institutions

7)

extends financial assistance to State Govt. for completion of various incomplete rural projects such as Irrigation, Rural Bridges, and Roads and new projects also.
8)

It undertakes inspection of Co-operative Banks and RRBs as a

part of Regulatory function.

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The function of District Development office The basic function of district development office is planning, monitoring and co-ordination.
1)

The Potential Linked Credit Plan (PLP) prepared by district

development office has been used as reference by the credit planning agency.
2)

The monitoring of service area approach was assigned o

NABARD by RBI as it was considered advantageous to have a single rural agency to plan, co-ordinate and monitor the credit programme of banks. They also monitoring RIDF projects sanctioned to various NGOs, SHF formation and linkages.
3)

The district office of NABARD will be the principal agency for

coordinating agriculture and rural development activities of various credit agencies as also liaisoning with the development departments of State Govt.
4)

Member of various district level standing committees and other Associated with the inspections of Co-operative banks and

committees related to agriculture and rural development

5)

RRBs in the districts

THE SCHEMES OF RURAL CO-OPERATIVE BANK & ITs PROGRESS

The Government while understanding the importance of cooperatives has introduced several schemes for promoting the spirit of

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co-operation. Both the Indian Government as well as the Government of the State of Maharashtra has introduced several schemes for the co-operatives. A few of them are listed here. Take benefit of them. Scheme 1: Share Capital Contribution to Credit Institutions under LTO Fund (State Level Scheme) The Government sanctions share capital contribution to District Central Co-operative Banks. This contribution is given out of the LTO Fund of the NABARD. The provision is made every year to repay this loan. Scheme 2: Loans to Co-operative Credit Institutions for conversion of short term loans into medium term loans Scheme 3: National Agricultural Credit Stabilization Fund (Centrally Sponsored Scheme) In drought conditions the members of Agricultural Credit Societies may not be able to repay the crop loans. This scheme helps to convert their short-term loans into medium term loans and fresh crop loans are made available to the members. Scheme 4: Crop Production Incentive to Agriculturists (Dr.Punjabrao Deshmukh Crop Production Incentive Scheme) this scheme is applicable for Kharif and Rabbi Crops taken from 1.4.90 onwards. The farmers borrowing loans of RS.25, 000 or less and who repay their loans fully before the due date are eligible for 4 % of the principal amount as an incentive.

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Scheme 5: In the industrial co-operative societies of weaker sections of the societies, the Government has several schemes. 1. The Government sanctions share capital in the ratio 1:3, to enable the societies to borrow funds from the financial institutions. 2. Financial Assistance for Tools and Equipment's 3. Interest Subsidy for Working capital: The government gives an interest subsidy up to 3.5% to 4.5% on the amount borrowed by the co-operative. This scheme helps to reduce the burden of interest on the co-operative society which is to be paid to financial agencies. Scheme 6: Central Sector Scheme for Development of Women Cooperatives Under this scheme financial assistance would be provided by the Central Government on 100 % basis to the newly formed cooperative societies by the women as well as existing womens cooperatives. The financial assistance is as under

No. Item Subsidy Total

Share Capital

Working Capital

1. New Societies 1, 00,000 2. District Federation 2, 00,000

40,000

40,000

20,000

80,000

80,000

40,000

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3. State Federation 5, 00,000

2, 00,000

2, 00,000

1, 00,000

Scheme 8: Co-operative Godowns: The Warehousing Corporation 90% assistance for the construction of Godown out of which 50% is loan and 40% is Government share capital.

IMPLEMENTATION OF DEVELOPMENT ACTION PLAN (DAP)/MEMORANDUM OF UNDERSTANDING (MOU)

In order to strengthen Cooperative Credit Institutions both in ShortTerm and Long-Term Structures as viable units on a sustainable basis, NABARD had introduced a mechanism of DAP/MoU aiming
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at institution specific measures in 1994-95. The cooperative banks, throughout the country had prepared the base DAPs and executed the base level MoUs for 5 years terminating March 2000. The second round of DAPs, and MoUs covered the period 2000-01 to 2002-03 which was extended by one more year i.e.upto March 2004. Since then the base-level DAP/MoU covered a larger period of 3 to 5 years. The first phase of DAP/MoU (1994-2000) concluded in March 2000 and thereafter second phase was started to cover 3 years (i.e. 2001-03) Annual MoU for 2002-03 and was entered for the year 2003-04. The third phase of DAP/MoU started from the year 200405 for a period of 3 years. During the third phase of DAP/MoU covering the period 2004-05 - 2006-07 for the first time PACS have been introduced to planning process. They are required to prepare DAP and enter into an understanding with the branch of DCCB. The mechanism of DAP/MoU has helped in building appreciation and awareness for strategic planning facilitating, in turn, sustainable viability at all levels. The feedback received indicates that there was positive impact on the performance of banks as a result of introduction of DAP/MoU through reduction of CoM and cost of resources. The DAP planning process, as an internal strategy for corporate planning, had facilitated in creating an awareness in the cooperative banking structure and RRBs about the need for strategic planning for corporate success. The process of preparation of Bank-specific Development Action Plans (DAPs) introduced for RRBs during the year 1994-95 has

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been continued during the year 2004-05 for improving the performance of RRBs in a specified time frame.

RBIS

POLICIES

IN

RELATION

TO

CO-

OPERATIVE CREDIT
The RBI since its inception has been concerned with the problems of agriculture credit. It has been conducting studies to identify the problems of agricultural credit. It was found in the studies conducted in 1930s that almost entire finance required by agriculturists in
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India was supplied by money lenders the part played by co-operative and other agencies being negligible. In 1951, the RBI appointed an All-India Rural credit survey committee to conduct a comprehensive rural credit survey. It was found that only 3.1 per cent (of Rs.750 crores worth of borrowings of the cultivators) was owed to co- operative societies. It was found that co-operative credit fell short of the right quantity was not of the right type ,did not serve the right purpose and often Failed to go to the right people . The committee concluded that thought co-operation has failed but it must succeed. It was realized that only the co-operative credit system can play the prime role in the provision of rural finance. This was rightly thought so since there is the existence of vast network of village level primary credit societies through- out the country. further , these societies have intimate knowledge of local problems .A require structure was already available for an effective credit delivery system for rural areas, therefore, RBI has made all possible efforts to strengthen and improve the co-operative credit structure. The RBI was assigned a crucial role on three main items: The development of co-operative credit, Expansion of co-operative economic activity and Training of co-operative personnel.

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The RBIs role in the building of the co-operative credit structure was that of an active collaborator in drawing up schemes of development with the government of India and the State Governments, and the provider of finance, first to the State Governments for contribution to the share capital of co-operative credit institutions at various levels, and secondly, to the co-operative credit structure it self to meet its requirements of short- term, and long-term, finance. The details are given as below: PROVISION OF FINANCE The RBI extends finance under two a) Agriculture finance: the RBI extends finance to agriculturists indirectly through co-operative sector. The credit extended is of three types i.e. short term, medium term and long term. To meet its aforementioned financial obligation, the RBI had established in 1956 two national funds 1) The national a Agriculture credit fund (long term operations) 2) The national Agriculture credit (Stabilization) fund, the first und is used for: a. Advancing to state co-operative banks- medium term loans for agriculture and allied purposes, b. Making loans to state land development banks etc, c. Purchasing the debentures of state land development banks, and d. Making loans and advances to NABARD, started with an initial contribution of Rs. 10 crores in 1956, the total outstanding under this fund had grown to Rs. 3,315 crores by the and of June 1990 through
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annual subscription from the profits of the RBI. The second fund, viz. NAC (stabilization) fund, is used for converting the RBIs short term loans and advances to state co-operative banks into medium term loans whenever they are enable to pay their dues in time owing to drought. Famine or other natural calamities. This fund was set up in 1956 with an initial contribution o Rs. 1 crore. The total outstanding under this fund stood at Rs. 660 crore at June end 1990. b) Non Agricultural finance: the RBI also provides short- term finance for a. The production marketing activity of cottage and small-scale industries, and b. The purchase and distribution of fertilizers, these loans are generally provided through state co-operative bank against guarantees of the state governments. However, all such finances have constituted a small property (less than %) of the total RBI short-term finance to co-operatives. The bulk of it goes to agricultural co-operatives

RURAL BANKING - Present Scenario Households availing banking Services

Rural penetration of banking and Insurance is very low

Excess Dependence on Private Financiers at very high interest

rate
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Rural People

Distancing themselves due to lack of awareness Difficulty in fulfilling Bank formalities Number of Rural Branches was maximum in 1993 Thereafter number of Rural Branches has been declining Reason for Reduction of Rural Branches Closure Reclassification of the Area due to population growth Rural Sector Reforms started in 1991 As the focus on the profitability has been increasing the rural Branches are being closed. In earlier decades, In spite of re-classification, number of Rural Branches increased Rural Branches Growth and Decline

Population and Bank Branch Coverage

Level of Urbanization has increased during the decade The share of urban and Metro population increased due to Up gradation of certain Semi Urban areas into Urban areas Migration from Rural / Semi Urban to Urban / Metros

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In Urban and Metros Population per Branch has decreased whereas in Rural and Semi Urban population per branch has increased during the last decade The shift will be more towards Urban / Metro if we consider the ATMs and other delivery channels available in Metros which are equivalent to part of a branch but not added to the number of branched Strategies for successful Rural Banking

Co-operative bank are Rural oriented and their operating expenses are less

They have to play a lead role in Rural financing and expanding the Rural customer base

Commercial Bank can select the route of financing through agencies

Micro Credit Institutions NBFCs Encourage linkage of more Self help Groups

Solutions of problem of co-op bank in rural area Training Needs

Bank to take up entrepreneurial skill development programmes Training to develop Business Skills Training on Leadership Skills

33

Training on Proper Accounting practices Training to create Quality awareness Training and Knowledge dissemination on Industrial and Tertiary Sector Opportunities Provision of Know How Technologies Activities and Success Stories of other SHGs should be shown under video coverage

Technology implementation for Prosperity of Rural Poor Technology Implementation in Bank in Rural

To bring down the transaction cost Packaging and delivering Rural Credit Technology can handle large number of transactions at less cost Can facilitate Document management People identification

Technology in Rural India Key Issues

Improving Networking and Communication facilities through Processor & other Hardware should be made cost

wireless technology and last mile connectivity

effective with multiple economic options

34

Indigenization of Technology equipments and making them

user friendly for mass adoption (on the lines of NOKIA mobile phones)

Enable continuous functioning through in built power back up

Enable them to function in hot and humid conditions without

necessitating Air conditioning equipments Limitations for bringing technology to Rural India

Lack of Electrification & Uninterrupted Power supply

Communication networking Cabling and other issues Non Distance factor, low requirement and lack of good roads and

viable

transport facilities deter suppliers and service providers

Lack of persons with technical knowledge in the Rural areas

For trouble shooting / up gradation / maintenance technicians

have to come from nearby towns - Time consuming and expensive

Alternative Delivery Channels could not be extended to Rural

areas

Due to lack of infrastructure

Strategies of co-operative banks for successful Rural Banking

Full computerization Less manpower requirement Can handle large volume of accounts

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Processing of Loan Applications, Maintenance of huge number

of documents, dealing with renewal, identification of borrowers are made easy and effective

Many Banks have started computerization of Rural and Semi

Urban Branches

Alternative delivery channels to Complement / Supplement

Branch Banking Providing urban infrastructure at Rural Centre (PURA)

Now large number of small villages depend on few big towns Excess dependence of Rural People on Urban Centre for purchase of Inputs and marketing their output will be reduced Transaction / Intermediary cost will be less resulting in better margin Migration towards existing Urban Centres will be reduced and the population pressure on Urban centres will reduce IT related Infrastructure hubs to be developed in such centres similar to development of IT parks in Urban Centres where from all types of technical services will be made available to surrounding villages within a specific radius Hardware and software services, Communication towers and Communication services should be made available in those centres

Banking in Rural Areas - Challenges

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Some Banks are unwilling to operate Branches in Rural areas because

Low Profitability Large Number of accounts Low Value Transactions Less Number of Transactions

Few activities and less opportunities for services other than deposit and Credit

Huge Staff Cost Difficult to implement Technology Large area of Operation Difficult Reach

TASK FORCE ON REVIVAL OF RURAL COOPERATIVE CREDIT INSTITUTIONS

1) The Government of India had set up a Task Force in August 2004 to suggest an action plan for reviving rural cooperative credit
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institutions including legal measures necessary for facilitating this process. The Task Force has carefully examined available literature on the subject including the work of earlier committees and has also met about 150 cooperators, officials, and politicians from all over the country before arriving at its recommendations. The Task Force considered all the comments and its responses are annexed to the report. 2) The cooperative movement was started in our country on the initiative of the government more than 100 years ago and can be divided into four phases. In the First Phase (1900-30), the Cooperative Societies Act was passed (1904). The major development during the Second Phase (1930-50) was the pioneering role played by Reserve Bank of India in guiding and supporting the cooperatives. However even during this phase, signs of sickness in the Indian rural cooperative movement were becoming evident. In the Third Phase (1950-90), the All India Rural Credit Survey was set up which not only recommended state partnership in terms of equity but also partnership in terms of governance and management. The Fourth Phase from 1990s onwards saw an increasing realization of the disruptive effects of intrusive state patronage and politicization of the co-operatives, especially financial cooperatives, which resulted in poor governance and management and the consequent impairment of their financial health. A number of committees were therefore set up to suggest reforms in the sector.

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3) At present the rural cooperative credit structure consists of 112,309 primary agricultural credit societies (PACS), 367 district cooperative banks (CCBs) and 30 state cooperative banks (SCBs). On an average, there is one PACS for every 6 villages; these societies have a total membership of 12 crore but only about 50 percent of them borrow from the PACS. A large proportion of PACS also serve as outlets for inputs and for the public distribution system for food and other essential items. 4) The financial position of the system is weak and deteriorating. The accumulated losses of PACS are estimated roughly on the basis of available incomplete data at Rs. 4,595 crore as on 31 March 2003. The position of DCCBs is also equally unsatisfactory; with accumulated losses aggregating Rs.4, 401 crore and erosion in deposits being Rs.3, 100 crore. Due to such financial impairment, cooperatives have been steadily losing their capacity to meet the Rapidly growing credit needs of agriculture. In the early 1990s, they accounted for over 60 percent of the total institutional credit to agriculture, while currently their share has fallen to about one-third. This situation gives cause for serious concern. 5) The revival package is therefore aimed at first bringing the PACS to an acceptable level of financial health through cleansing of their balance sheets and strengthening their capital base and then move on to upper tiers. This step will enable PACS to clear their dues to the upper tiers and thereby reduce the accumulated losses of DCCBs.The DCCBs will then be provided an assistance to clear any
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remaining balance of accumulated losses and to reach a minimum norm of capital adequacy.

The Financial Package 6) Assistance will be available for the following purposes: wiping out accumulated losses, covering invoked but unpaid guarantees given by the state governments, increasing the capital to a specified minimum level, retiring government share capital and technical assistance. 7) Accumulated losses will cover losses on account of the following: i. Non-repayment of loans for agricultural and other businesses given by the cooperatives ii. Non-repayment of loans to individuals for other purposes like consumer goods, housing, gold loans etc. 8) Since cooperatives do not have a standardized accounting system, and PACS in many states do not make adequate provisions against non-repaid loans, and also because of delays in auditing, as well as lack of uniform standards, their latest audited balance sheets may not provide a true picture. The Task Force has therefore recommended special audit of accounts as of 31st March 2004 be undertaken for this purpose, and the cost of these special audits (Rs. 46 crore) will also be borne by the revival package.

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Accumulated losses at various level 9) It has been reported that as on 31 March 2003, accumulated losses of PACS aggregated Rs. 4,595 crore. The true picture can be obtained only after conduct of special audits on uniform basis. As mentioned earlier, PACS in most states undertake both credit business and non-credit business (like PDS etc.). Although PACS give loans for agriculture and many other purposes, most of their loans are For agricultural purposes. 10) The accumulated losses of SCBs aggregate Rs. 281 crore. Most of these losses are expected to get wiped out after the package is implemented and losses of PACS and DCCBs are covered. The residual losses will however, be covered. Minimum Capital requirement in cooperatives 11) All commercial banks and RRBs are now required to maintain a capital to risk weighted assets ratio (CRAR) of a minimum of 9% and are expected to increase it further. This norm has so far been not applied to cooperatives. However, as cooperatives work in smaller areas and also primarily with one major activity agriculture they in fact need a higher CRAR than others. The Task Force has recommended that assistance necessary to bring all cooperatives, Including PACS, to a minimum CRAR of 7% may be provided and cooperatives then may be asked to increase it to 12% within five years from their internal resources.
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Technical assistance 15. Cooperatives will need assistance to computerize them and install sound accounting and monitoring systems to remain competitive. They will also need to train their staff and board members in a large way. The costs for all these activities will be met through grant assistance. The total technical assistance of Rs. 670 crore under the package therefore includes Rs. 46 crore for special audits, Rs. 516 crore for accounting systems and computerization and Rs. 108 crore for training and capacity building. Registrar of Cooperative Societies: 16. As making legal amendments is time consuming process, the Task Force has recommended that under the existing powers, the state governments may issue Executive Orders to bring in the desired reforms which will relate to: i. Ensuring full voting membership rights on all users of financial services including depositors ii. Removing state intervention in administrative and financial matters in cooperatives iii. Withdrawing restrictive orders on financial matters 17. The Task Force had also suggested a model Cooperative Law that can be enacted by the state governments. It also recommends that in states where there are already two laws, the old cooperative societies Act and the new Act on the lines of the model Act, it would be better to gradually converge and have only one Act so as to
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reduce confusion and legal problems. In respect of states which do not pass the model Act, the Task Force has recommended for inclusion of a separate chapter for Agricultural and Rural Credit Societies incorporating the Provisions salient in the model Act in the extant Cooperative Societies Acts.

WEAKNESS OF CO-OPERATIVES IN RURAL CREDIT

There is a three-tire wide network of co-operative credit structure meeting the rural credit requirement. Though the co-operative credit movement in India developed in numbers but its performance
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considered as poor due to reason more than one. So far as financial weakness of the co-operative credit institutions is concerned, their low income and low credit worthiness is mainly responsible for the affairs. As a result, large number of societies became dormant i.e. societies which do not advance or collect loans for quite a few years. The administrative problem was another major obstacle stood in the way of effective functioning of the co-operative credit institution. While lack of sense of business management and administrative led to insolvency of many primary credit societies, it also accounted for the poor recovery performance of many credit societies particularly after 1981. The mounting overdues are another factor inhibiting expansion of coverage and lending of these societies. Thus, overdue took the effect of choking of the credit channel. In India the co-operative credit structure is also victim of the problem of organizational weaknesses. Lack of organizational skills in the co-operative credit structure was also responsible for the fragmented approach of the co-operative towards finding solutions to rural problems without trying to meet all the wants of activities. It was found that in many cases co-ordination between the central cooperative banks and primary agricultural societies as also between credit and non-credit societies was lacking. The necessity or the reorganization o large number of societies has not been denied in government reports. Though the number of co-operative credit societies has increased but their scale of activities and coverage is not satisfactory. In fact the
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size of credit societies accounted for a low volume of loan transactions and this is supposed to have endangered the viability of the credit societies. Further, the coverage of credit societies is not considered as satisfactory and it is reported that a relatively small proportion of the total cultivators borrowed from the co-operatives. The status of borrower, it will be clear that among the cultivators who obtain loans, were the relatively big farmers more than relatively the poor and small cultivators.

DIFFICULTIES FACED BY CO-OPERATIVE BANKS IN RURAL AREA

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1) Slow progress: The progress of co-operative banks is not upto the expectation and is slow when comparing other type of banks because of many restrictions on their operations. 2) Limited scope of investment: the main objective of co-operative banks is to provide credit facilities to the poor people i.e., to small and marginal farmers and other weaker sections. They were originally having limited scope to invest their surplus funds freely. 3) Delay in decision making: the co-operative banks directly or indirectly by various agencies i.e., NABARD, RBI. Thus it takes long time to take decision on some important issues. This, in turn affects the progress of co-operative banks. 4) Lack of training facilities: generally the staff of co-operative banks is urban oriented and they may not know the problems and conditions of rural areas. Lack of training facility concerning these areas also affects the growth of co-operative banks. 5) Poor recovery rate: the recovery performance of the co-operative banks is not up to the mark. the reason for poor recovery of loans and mounting overdue are; inadequate supervision and follow up action to assess the end use of credit by co-operative banks due to inadequate staff in banks, poor identification of beneficiaries, inadequate generation of output and income by the beneficiaries, poor marketing facilities.

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6) Lack of local participation: rural co-operative banks have not received sufficient local participation. The co-operative banks have been trust upon the rural people from above without involving local people in its operation and management. In this connection, it is suggested that knowledgeable persons in the rural areas need be associated with the management of co-operative banks. 7) Lack of co-ordination: there is lack of proper co-ordination between co-operative banks and other institutional financing agencies like commercial banks and RRBs. Also, there is inadequate co-ordination between co-operative banks and other developmental agencies operating in rural areas. This has hampered the progress of co-operative banks.

8) Poor development of rural areas: in spite of several efforts made during the course o development plans to promote the development of rural areas, it has not taken place in a significant way. The areas, at present lack economic infrastructures like; facilities of marketing storage and distribution of inputs. Besides, social infrastructure like; schools, medical facilities. As a result, co-operative banks find it extremely difficult to operate in such areas.

MAIN PROVISIONS OF THE ACT AS APPLICABLE TO CO-OPERATIVE BANKS

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The Amending Act has added to the principle Act a new Part-Part V, which consists of Section 56. Section56 of the principle Act, added as above, provides to the effect that the provisions of the Act as in force for the time being shall apply to, or in relation to, co-operative societies as they apply to banking companies, but subject to the modifications laid down in the section and that all references to a banking company or the company or such company in the Act shall be construed as references to such co-operative banks to which the Act applies, as specified in the preceding paragraphs. Section 56 then proceeds to specify the modifications in several sections of the Act to make them applicable to co-operative banks. Thus, when the Act is to be applied to those co-operative banks to which it is made applicable, its sections are to be read a modified by Section 56. The second amending Act 58 of 1968 while imposing social control over banks, introduced some amendments to Section 56 of the Act, Section 56 has also been amended by the National Bank for Agriculture and Rural Development Act, 1981(Act 61 of 1981) and the Act 1 of 1984. The following is the summary of some of the main provisions of Section 56:

RESTRICTION ON LOANS AND ADVANCES

Section 20 of the Act as applicable to co-operative banks and as amended by Act 23 of 1956 and Act 58 of 1968 reads as under:
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1) No co-operative bank shalla) Make any loans or advances on the security of its own shares b) Grant unsecured loans or advancesi) to any of its director ii) to firm or private companies in which any of its directors is interested as partner or managing agent or guarantor 2) Every co-operative banks shall, before the close of the month succeeding that to which the return relates; submit to the reserve bank a return in the prescribed form and manner showing all unsecured loans and advance granted by it to companies in cases (other than those in which the co-operative bank in prohibited under sub- section 1) to make unsecured loans and advances) in which any of its directors is interested as director or managing agent or guarantor It will be observed that section 20 as now applicable to co-operative banks is practically similar section 20 as was applicable to banking companies before the social control. All the restriction now imposed after 1-2-1969 on loans and advances by banking companies are not applicable to co-operative banks.

BANKING PRODUCTS & SERVICES: For Service, Security & Prosperity

Current Account
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Savings Bank Account Recurring Deposit Scheme Fixed Deposit Scheme Fixed Deposits linked with Recurring Deposits Scheme Monthly Income Deposits Scheme Loan Linked Housing Deposits Scheme Loan Linked Children Education Deposits Scheme

1. CROP LOANS Short terms loans are provided for Seasonal Agricultural operation to Farmers, (cash & kind) through Service Co-operative Societies spread all over Meghalaya as per approved scales of finance, time schedule both under NCL, Cash Credit Systems & Kisan Credit Cards. 2. TERM LOANS Medium & Long Term Loans are extended to the Farmers through the affiliated Service Co-operative Societies direct for allied agricultural activities like land development, minor irrigation, purchase of farm machinery, poultry, goat rearing, pisciculture, diary, horticulture, plantation & Horticulture schemes.

3. CASH CREDIT ACCOMMODATION Cash Credit accommodations are provided to Co-operative Societies

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for procurement, marketing of agriculture and minor forest produces and also for dealing in consumer goods, etc. 4. HOUSING LOANS Salaried persons are extended Housing Loan facilities for construction of their residential houses in CD Block Head Quarters and other selection areas against adequate securities. 5. TRANSPORT VEHICLE LOANS The Bank provides M.T. Loans to Transport Societies and educated unemployed youths for creation of self-employment generation & extension of easy mobility to the people of the State. 6. CONSUMER DURABLES LOANS Salaried persons are provided consumer durables loans for purchase of T.V. Set, Radio, Refrigerator, Two-Wheelers, Musical Instruments, Cooking Gas, Furniture and various other approved items. 7. CASH CREDIT FACILITIES Govt. appointed whole sellers are extended Cash Credit/Loan facilities for dealing in controlled commodities against adequate securities. 8. TERM LOANS FOR TOURISM DEVELOPMENT Term Loans are provided for encouraging young & enterprising entrepreneurs and unemployed persons for creating self-employment opportunities through Tourism Development.

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9. DEPOSIT LINKED HOUSING LOANS AND SCHEMES The scheme is intended for regular constituents of the Bank for construction of their residential houses with financial assistance from the Bank. 10. INTEGRATED VILLAGE DEVELOPMENT SCHEME (IVDS) The scheme is intended to help formation of homogeneous groups with 5 to 20 members in the rural areas in the co-operative sector and extend loan assistance to them for improving their socioeconomic conditions by undertaking various economic activities which are socially useful and economically viable. 11. PERSONAL LOAN Salaried persons are provided Personal Loans for any bonafide need of unspeculative nature in the shape of overdraft facilities against adequate securities. 12. EDUCATIONAL LOAN Educational Loans are provided to parents/deserving students for higher studies in India/abroad adequate securities.

13. LOAN FOR PROFESSIONAL & TECHNOCRATS Credit facilities are extended to Doctors, Lawyers, Technocrats and other Professionals to set up Clinic, Consultancy firms etc. against adequate securities.

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OTHER SCHEMES AND SERVICES

Financial Assistance to Urban Banks, Weavers Co-ops, Conversion of short term (Agri) Loans affected by Natural Implementation of comprehensive Crop Insurance Scheme for Godown Loans to Service Co-operative Societies. Overdraft facilities to regular constituents of the Bank. Kisan Credit Card Scheme for Farmers

Industrial Co-ops, Joint Farming Societies, etc.

Calamities into Medium Term Loans.

the benefit of the farmers.

NEW POLICY IN THE RURAL CREDIT FOR BANKS: As indicated earlier, after 1969, there was a rapid spread of branches of commercial banks in the rural areas. As a result, there was duplication of efforts and scattered lending over wider areas. In
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order to avoid this, a new policy was adopted in 1988 which is known as the Service Area Approach". Under this policy, each semi-urban and rural branch of commercial bank is assigned a specific area comprising of a cluster of villages within which it will operate. Thus, the compactness in the area of operation will make it easy for the clientele to approach the bank for credit. It will also help the bank in credit planning and monitoring of the Funds. The banks are supposed to prepare annual credit plans for all the adopted villages.

AGRICULTURAL CO-OPERATIVE AND NABARD: REFINANCING

While it is fact that outreach of the primary co-operative banks extends to almost every corner, the fact remains that their disbursement of Rs. 12,500 million is much higher than the total deposits and share capital (including the government share).

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Moreover, Kerala alone accounts for nearly 50 per cent of the total mobilization by PACS which reflects rather poor credit mobilization by PACS in the rest of the country. The objectives of the PACS when they were set up were primarily mobilization of local resource and disbursement of credit. Most primary societies in the country, with the exception of Kerala, have failed miserably in these tasks. In fact, if refinance from higher structure were not available, these cooperative societies would soon have to close shop. The availability of easy finance from NABARD is therefore preventing growth and development potential of the primary agricultural co-operative societies. Likewise in the case of district Central Co-operative Banks, we see that the borrowings from SCB/NABARD account for 88.7% of the total borrowings. Similarly, the sate Co-operative Banks borrowings from NABARD are to the extent of 78.8%. The message is quite clear without the support of NABARD, the entire structure would become unviable.

SUPERVISION OF BANKS 9
The National Bank is vested with the powers of inspecting State Cooperative Banks (SCBs), District Central Co- operative Banks (DCCBs) and Regional Rural Banks (RRBs) under the Banking Regulation Act, 1949. In addition to the statutory inspections, the National Bank also conducts voluntary inspection of State Co55

operative Agriculture and Rural Development Banks (SCARDBs), Apex Weavers Co-operative Societies, State Co-operative Marketing Federations, etc. The basic objective of inspection is to assess the financial soundness and managerial efficiency of these banks and their compliance with banking rules and regulations, etc., in order to protect the interests of the depositors. Supervisory Concerns Against the backdrop of financial sector reforms, the supervision of financial institutions has assumed greater importance. The Basle Committee recommendations on Income Recognition, Asset Classification and Provisioning were adopted internationally. To keep pace with the internationally accepted standards/practices, the National Bank re-engineered its supervision strategy and adopted CAMELSC approach with emphasis on core areas like Capital adequacy, Asset quality, Management, Earnings, Liquidity, Systems/Procedures and Compliance. In the changed scenario, the inspection process has gone beyond fault finding/catch-allapproach to the broader concept of supervision which encompasses on-site inspection, off-site surveillance and supplementary appraisals. Of the above, Off-Site Surveillance System (OSS) which was introduced in 1998-99, has gained importance as a means of ensuring continuous supervision. OSS is a mechanism for on-desk evaluation for continuous and closer monitoring of client institutions through various statutory and special returns. A computer-based system has been developed in-house to scrutinise/analyse the off-site returns and to issue warning signals to the banks wherever
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warranted. During the year, bank officials as also officials of the National Bank dealing with OSS, were sensitized through workshops on OSS, operational problems, etc. The Fifth Conference of Chief Co-operative Audit officers of various states was also convened during the year. The conference has provided a forum for useful interaction/discussions with State Audit Departments on issues of common interest. With a view to developing the necessary skills to effectively perform in the changing scenario, the inspecting officers of the National Bank were deputed for various domestic/overseas training in different areas relating to supervision.

THE CHALLENGE TO THE CO-OP SECTOR

The biggest challenge to the co-op sector, especially in the area of agri-credit co-ops is one of sustainability and relevance. As mentioned earlier, in the absence of any transaction cost advantages to the primary co-operative, the village level branch of a CB/RRB may find it easier to access funds from its own headquarters than the PACS. There are no easy solutions to this dilemma of easy credit

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adversely affecting the relationships of primary societies with their members and their federal structures. The process of change has already begun in India with the ILO COOPNET/CO-OPREFORM Programme supporting the change in the macro-policy environment for co-ops. As co-ops become member centered, and mobilizes their own resources, the quality of capital and management is bound to improve. They will then be able to function as true member organizations, with supplemental /incremental support from state agencies, but not critically dependent as the scenario is today. This will require that the co-op credit structure at all three levels make a comprehensive effort to manage the funds and resources internally. There are several examples within the country to show that primary co-op societies can manage and finance the entire credit requirements of agricultural operations in a village. The fact that rural lending can be run on commercially sound principles has been vindicated by the success of several thrift and credit societies in different regions of the country. The GRAMEEN Bank in Bangladesh, the SEWA in Ahmedabad and CDF supported groups in AP (although operating on different principles) are instances which show that a proper design, management and governance structure with involvement of stakeholders holds the key to succession fact, NABARD is now encouraging the CBs to set up SHGs for group loaning in the rural areas- both in the farm and the non-farm sector.

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CO-OPERATIVES AND CREDIT

Cooperatives all over the world have become an effective and potential Instrument of economic development. There are 4510 Primary Agricultural Co-operative banks at the village level, providing short term and medium term credit facilities to the agriculturists. The

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Primary Agricultural Co-operative banks have covered 85.96 per cent of the agricultural families in the State and 79.57 per cent of the agricultural families of weaker section in terms of their operational holdings. ACHIEVEMENTS DURING THE NINTH AND TENTH FIVE YEAR PLAN PERIOD AND THE PROGRAMME FOR 2005-2006 1. Credit Cooperatives i) Issue of short term and Medium Term loans: The quantum of short term and medium term loans issued by the Primary Agriculture Co-operative Bank It has been programmed to issue loans to the extent of Rs.1097.50 Crores under short term and Rs.59.80 Crores under Medium term loans during the year 20052006. (ii) Issue of Long Term loans: The long term credit needs of the agriculturists are met by 181 Primary Agriculture and Rural Development Banks. The details of long term loans issued by the Primary Agricultural and Rural Development Banks during IX and X Five Year It has been programmed to issue long term loans to the extent of Rs.220.00 Crores during 2005-2006. (iii) Issue of Jewel Loans:

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The Jewel loan provided by the credit Cooperatives during the year 2004-2005 is Rs.4849.32 Crores. The programme for issue of jewel loans for the year 2005-2006 will be Rs.5800.00 Crores. iv) Crop Loan: The State Government set a target of Rs.1037 crores to be given as crop loan to the farmers by the Co-operative banks during the year 2004-05 as against the provision of Rs.616.59 crores during the last year. So far an amount of Rs.955.31 crores has been provided as crop loans benefiting 4.76 lakh farmers. The State Government have over the last four years, provided various concessions to the farmers who have been affected by natural calamities. The concessions given on the credit front are as given below:- (Rs. in Crores) 1 Relief to farmers on interest and Penal Interest scheme 2001 310.51 2 Waiver of interest to Small and Marginal farmers who got annavari certificates in 2002 kharif 2002 61.05 % 20.00 % 3 15% State Government share in the conversion of the crop loans of

2. Consumer Cooperatives The Consumer Co-operative through their network in the State, distribute consumer goods at reasonable prices to the public both in urban and rural areas.

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The value of retail sales affected during 2004 -2005 was Rs.2348.18 crores. The programme for 2005-2006 is 2780.00 crores. NEW SCHEMES 2005-06 1) Interest free loans to Women members of Primary Agricultural Co-operative Banks for enhancing their borrowing power: The Women in the rural areas belonging to weaker sections are finding it Difficult even to contribute the share capital for availing the loan facility extended by the Primary Agricultural Co-operative Banks. The borrowing power of a member is linked to share capital subscriptions. The sanction of share capital loan at Rs.500/- per women member will enable them to raise loans for agricultural purposes which will generate employment opportunities for women members. It is proposed to assist 2000 women members of respective primary Agricultural Co-operative banks at the rate of Rs.500/- per member and the outlay will be Rs.10 lakhs during 2005-06. This will help to improve the standard of living. 2) Interest free loans to Women members of Urban Co-operative Banks for Enhancing their borrowing power: The Urban Co-operative Banks provide credit facilities to urban and Semi-Urban population for various purposes like carrying out repairs or additions to Houses, carrying on petty trades, small scale cottage industries etc., and the sanction of loans by these banks are linked to the share capital subscription by the members. Considering
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the hardships experienced by women members of these banks in remitting the required level of share capital for availing loan facilities. A provision of Rs.5 lakhs has been made for the benefit of 1000 women members at the rate of Rs.500/- each during 2005-06. 3) Interest free loans to Women members of Primary co-operative Agricultural and rural Development Banks for enhancing their borrowing Power: In the case of Primary co-operative Agriculture and rural Development Banks (PCARDB) the borrowers have to contribute 5% of the loan amount towards the share capital. These banks cater to the long-term credit needs of the rural people. As the Rural women folk are mostly unemployed and economically weak, they find it difficult to invest the required share capital for availing credit from the banks. A sum of Rs.5 lakhs has been provided for the year 2005-06 towards sanction of loan to 500 women members at the rate of Rs.1000/ per member. 4) Interest free loan to physically handicapped women for availing credit From co-operative Bank. The Government is keen on promoting economic rehabilitation of persons with disabilities through loan assistance by the co-operative Banks. Further the economic conditions of the physically handicapped women are far from satisfactory as most of them are below poverty line. This scheme envisages in interest free loan to physically handicapped women to facilitate them to invest a share
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capital to avail loan assistance from Co-operative banks so as to improve their standard of living. Under this scheme, 1000 physically handicapped women will be benefited at the rate of Rs.500/- per member. An amount of Rs.5 lakhs is provided for 2005-06.

PRIMARY DATA
1) What are the act prevailing in co-operative Societies? The co-operative societies Act was passed in 1904 & a new cooperative societies Act was passed in 1912.

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2) What is the Objective of co-operative banks when it started in India? Co-operative banking in India was started with the objective of providing finance to the agriculturist and thus relieving him from the clutches of the village money lenders, i.e., to solve the problem of rural people. 3) What type of loan provided by co-operative banks in rural area? The Co-operative banks provide two types of loan i.e. a. b. Short term loans Long term loans

The short term finance is purely for seasonal basis like Crop Loan. It is generally for 12 months. But can be increased by 6 months if the farmers face some problems. When loans are repayable by farmers then again farmer can able to take loans. 4) What about the interest schemes offered to the customer? The interest rate that is changed in respective schemes. Interest rate is flexible. But normally interest rate is 7% on loan taken by farmers. It depends on loan. 5) What are the problems faced by co-operative banks in rural area? The co-operative banks faced lots of problem in the rural area i.e. the main problem of co-operative banks is recovery of loans from the farmers. The recovery performance of the co-operative banks is not up to the mark. the reason for poor recovery of loans and mounting
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overdues are; inadequate supervision and follow up action to assess the end use of credit by co-operative banks due to inadequate staff in banks, poor identification of beneficiaries, inadequate generation of output and income by the beneficiaries, poor marketing facilities The progress of co-operative banks is not upto the expectation and is slow when comparing other type of banks because of many restrictions on their operations. The co-operative banks directly or indirectly by various agencies i.e., NABARD, RBI. Thus it takes long time to take decision on some important issues. 6) Why rural co-operative bank widely preferred in rural area? Rural co-operative banks are preferred in rural areas because it gives loans at a relatively low interest rate & they try to help the farmers while repayment by increasing their time duration & provide tailor made schemes to the farmers. Because the main aim of co-operative banks is to help the farmers. 7) How C-operative banking help in development of rural area? Co-operative banks play vary important role in development of rural area by providing short term and long term loans to the farmers. The short term finance is purely for seasonal basis. And co operative banks provide various schemes to the farmers like KISHAN CREDIT CARD. Also help in repayment of loan by extending duration.

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8)In order to make rural population aware of the banking facility what step bank should be taken? 1) Demonstration 2) Road shows 3) Person to Person Co-operative banks more prefer third option. Direct communication is better than any other communication. As rural people or farmers are illiterate so face to face communication is better through this bank can able to solve the difficulties of the farmers. So Cooperative banks more prefer third option for explaining their benefits of the banking facility like various schemes & product of the bank. 9) What is the three tire structure of co-operative banks? The rural co-operative banking follows the three tire structure for provide adequate finance to the rural people. The three tie structure is as follows; NABARD State Level Co-Operative Banks (SCB)

District Central Co-operative Banks (DCCB)

Primary Agriculture Credit Society (PACS)

Farmers & small Entrepreneur 67

The NABARD is Apex institution NABARRD not provide direct loans to the farmers. It provides finance to the State Level CoOperative Banks (SCB).NABARD provides state wise finance for rural development. Then (SCB) gives finance to the (DCCB) this bank not directly deals with the farmers. This bank gives finance to the Primary Agriculture Credit Society (PACS). And this bank gives direct finance to the farmers. PACS provide different types of loan to the farmers with less interest rate. Also provide different schemes for rural development.

10) Credit structure of the co-operative banks? Credit Structure NABARD not involved in the direct credit helps to any rural development activities, since NABARD is apex institution it has three tire systems for refinancing rural development activities: which is explained following Primary Agriculture Credit Society (PACS) Primary Agriculture Credit Societies are the bottom payer in the Credit these societies are directly in contact with the local farmers. They have all necessary information, such as land occupied by him,
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his requirement etc of the farmers. They give loans to the farmers at decided rate of interest. District Central Co-operative Banks (DCCB) These banks provide refinance to PACS to meet their credit needs for granting loans to farmers. District level Co- Operative bank have many PACS under in it so not all loan granted by the PACS are refinance by DCCB. Only 80% to 90% are refinanced by the DCCB. State Level Co-Operative Banks (SCB) All the DCCB are the member of the SCB. And these DCCBs depend upon the SCB for the credit requirement as DCCB have many PACS under in it. Like not all Credit to farmers by PACS is refinanced by the DCCBs, SCB also not refinanced by the SCB. Apex level institution (NABARD) NABARD plays very vital role in the credit distribution channel. It provides refinance facility to all SCB against loan sanctioned to DCCBs.

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BIBLIOGRAPHY
BOOKS REFERRED: Indian banking.

Newspaper referred:

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 Times of India Economic times

WEBSITES REFFERED

www.nabard.org www.google.com

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