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Nabard panel moots takeover of district co-ops by SCBs

BS Banking Bureau

An expert committee appointed by the National Bank for Agriculture & Rural Development has recommended that district central co-operative banks be taken over by state-level co-operative banks.

The committee, chaired by V S Vyas, was set up in August 2000 to review the totality of rural credit systems and recommend strategies and approaches to meet future challenges.

The committee, in its report, made a strong pitch for selective delayering of tiers in the co-operative credit system.

"Since delayering has some positive features, it should be selectively attempted in the short-term structure. SCBs should voluntarily take over weak DCCBs after an independent professional valuation of their assets and liabilities," the report said.

However, takeover of the DCCBs should be preceded by some preparatory steps. An independent professional valuation of assets and liabilities of DCCBs should also be done.

If any DCCB has a negative net worth, it should be fully funded, out of the rehabilitation assistance package, the report suggested.

DCCB employees, who are not found suitable by the SCB, or are in excess of its requirement, may have to be retrenched, the report said.

The committee has also recommended that instead of creating new SCBs in the smaller and newly created states, existing DCCBs there should be merged to form an SCB.

However, this should be done only after a professional valuation of their assets and liabilities and funding of negative net worth.

The report has also recommended the early liquidation of DCCBs. "Some patently non-viable DCCBs may be too weak to be taken over. They do not serve any useful development role and sap the strength and energies of the higher tiers. There is, therefore, no rationale for their existence. We recommend their quick and early liquidation," the report said.

"Co-operatives are supposed to embody the democratic ethos, while financial prudence and accountability are the governing principles of banking. Yet, there are distortions. They do not try hard enough to mobilise funds. Instead, they act more as channels of disbursement of funds from various sources. Strict state controls compromise their democratic character severely," it said.

A collapse of the co-operative credit system will leave an unbreachable gap in credit availability in rural areas.

Co-operatives need to be revitalised at the earliest, as delays could be detrimental to the interests of the rural population, the committee warned.

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