PM assures easy terms for coop banks

The UPA regime will take a decision on providing interest subvention to cooperative banks, on the lines of those being provided to commercial banks and RRBs, in two weeks, Prime Minister Manmohan Singh told a delegation of Congress leaders today.

He also assured the ruling party leaders that the government would discuss their demand to withdraw the recent imposition of income tax on cooperative banks and would take a decision before the next Union Budget.

Emerging from half-hour meeting with the PM, All India Congress Committee General Secretary Digvijay Singh said that the PM was very positive about the other two demands also "" recapitalisation of rural cooperative banks and a review of the RBI policy not to permit the existing cooperative banks to open branches and not to allow any new cooperative banks to come up anywhere in the country.

The PM also agreed to attend the All India Cooperative Congress to be held in New Delhi in January.

Besides Digvijay Singh, who had raised these issues at the Congress chief ministers' conclave in Nainital last month, the Congress delegation consisted of AICC Treasurer Motilal Vora, Political Secretary to the Congress President, Ahmad Patel, and National Cooperative Union of India President SS Sisodia, among others.

In their memorandum to the PM, the Congress pointed out that the UPA regime decided to provide interest subvention at 2 per cent per annum to public sector banks and RRBs on the crop loans provided by them out of their own funds. But, no such subvention was provided for cooperative credit institutions (CCIs).

The memorandum said that 40 per cent of the cooperative banks do not meet the conditions stipulated by the NABARD to be eligible for refinance and therefore, they provide entire loans to farmers from their own resources.

The cost of funds of these banks are higher than the rate of interest charged by NABARD. The minimum margin required for covering the management cost of cooperative credit structures comes to 5 to 6 per cent without which it will be unviable for them to provide crop loans at 7 per cent. Cooperative banks should, therefore, be provided full subvention, said the memorandum.

Congress leaders demanded a review and withdrawal of the decision to scale down the margin of 4.5 per cent per annum in 2006-07 to 3 per cent per annum in 2009-10 to the CCIs on the refinance provided by NABARD.

Instead, full subvention to cover the entire cost of credit and dispensation may be provided by the government as state governments are reluctant to share the financial responsibility.

Making a case for withdrawal of income tax imposed on these banks, the memorandum said that cooperative banks are not comparable with commercial banks on account of their size, geographical spread, client profile and lower technological adoption.

Taxing surplus at this stage would derail the entire process of revitalisation of the cooperative banks.