July - September 2015

Cooperative Banking Comes of Age

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With a view to give an impetus to cooperative banking in the State, the Government of Maharashtra constitutes a task force to monitor their functioning, which will in turn help the farmers in a big way, writes Sneha Mejari

Cooperative-BankA number of states have experimented with cooperative bodies, but few have achieved the kind of success the State of Maharashtra has tasted. And, why not? After all, it is the only State to have successfully implemented the cooperative module over the decades, leading to building of a vibrant cooperative sector that contributes significantly to the economy of the State.

Moving ahead, the State Government, along with various stakeholders in the cooperative sector, continues to make whole ­hearted efforts towards retaining that hard ­earned pride.

As against six villages covered by each society in the country, Maharashtra has one society for every two villages, and more than 10 million farmers are members of the primary societies. The cooperative credit system in the State accounts for 65 per cent of the credit disbursements for agriculture as compared to 35 per cent at the national level.

Rising concerns

However, notwithstanding the conscientious efforts on the part of the Government, of late, the cooperative banking sector has been raising certain concerns. Over the years, there has been some slackness in the working of some of these societies. This slackness can be attributed to several factors, but lack of appropriate incentive system is one of the key reasons for it.

Also, creeping in of mismanagement and unfair practices in their operation are the other reasons for the rising concerns. It was for these reasons that the Chief Minister, Devendra Fadnavis, recently had a meeting with the Chairman of NABARD, Harsh Kumar Bhanwada, where he discussed the possibility of having a nodal bank to strengthen cooperative banking in the State. It was also decided at the meeting to form a task force to help the cooperative banks.

A major problem being faced by the District Central Cooperative Banks (DCCBs), the financing body of the Primary Agricultural Cooperative Societies (PACS), is lack of a smooth source of funding to the farmers as crop loans.

Three-­tier machinery

The cooperative movement in the State is nourished by a three­tier cooperative credit structure, at the helm of which is the Maharashtra State Cooperative Bank Limited (MSCB). At the middle level are 31 District Central Cooperative Banks (DCCBs) and at the bottom level, over 21,269 PACS are in operation. A problem in any one of the levels disturbs the entire system, which ultimately reflects on the day­to­day life of the farmers.

The suggestions made by the task force, formed by the government to look into financial, administrative, legal and technical aspects, seem to be well thought out. With regard to competition, the independence of concerned institution also needs to be re­visited, as they are required to be given environment for operating freely and in a democratic manner, in line with the demand of the competitive atmosphere. The recommendation to provide wider choice on borrowings and investing in cooperatives could galvanise the entire rural credit system.

Technology option

In this scenario, technology looks like a solution that could help the cooperative banks get out of the mire and make a cut above the rest. But here, given the traditional mindset of the chairmen of most of the cooperative banks, acceptance of technology in the sector is low. At times, technology is also an expensive solution for these small banks, but the government and IDRBT have drawn plans to help them out in this regard.

Despite these cooperative banks playing a vital role in the growth and development of rural areas, they are faced with a number of problems. The suggestion of the Khusro Committee that cooperative banks should work as a total system and develop self ­reliance, seem far-­fetched in the present context. The higher authorities of the larger banking system need to provide authority, leadership, guidance, supervision and control these banks.

Profit mobilisation

The deposit mobilisation profit and reserves also need to be commonly shared. In fact, self­reliance is the main theme of progress of cooperative deposit mobilisation. The mobilisation of small savings from large number of people is the desired strategy for deposit mobilisation, which is the key to success of cooperative banks. The modern practices should be co­aided with some institutions for staying alive in the present times. Computerisation should be promoted and improper leadership eliminated, and the principles of cooperation should rule above everything else.

The drivers of performance for cooperative banks, as for any organisation, includes indicators such as increased employee satisfaction, increased customer satisfaction, financial stability, lower average time for resolution of grievances, and innovations in information and communications technology (ICT). They are also naturally suited to serve the national need of financial inclusion. In order to accomplish these goals, UCBs need to have sound processes, professional management and a leadership whose incentives and motivation are beyond doubt. If these important areas are addressed, there is no doubt that cooperative banks will prove to be an effective tool in the mission of financial inclusion.

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