Co-op sector to get a facelift

CREDIT FLOW TO RURAL INDIA/Rural Infrastructure Development Fund revived

The Union Budget has sought to rejuvenate regional rural banks (RRBs) and co-operative banks to ensure improved credit flow to rural India.

It has also revived the Rural Infrastructure Development Fund (RIDF), which was dismantled by the previous government. A task force has been set up to look into the recast of cooperative banks.

Restoring the health of these banks and reviving the RIDF are aimed at helping them achieve the ambitious target of doubling the flow of agricultural credit in three years.

While proposing to hold each sponsor public sector bank squarely accountable for the performance of the RRB under its control, the finance minister asked the 196 RRBs to adopt new governance standards and abide by the prudential regulations if they want to receive funds from the government for their restructuring.

Pointing out that the third arm for delivering farm credit is the co-operative banking system, Chidambaram observed that unless co-operative banks are healthy and creditworthy, it would not be possible to reach credit to every farmer in need of credit.

"The situation is grave. In order to find a durable solution, I propose to appoint a task force to examine the reforms required in the co-operative banking system including the appropriate regulatory regime," he said.

The Task Force will be requested to submit its report by October 31, 2004.

Regarding the RIDF, which was established by the National Bank for Agriculture and Rural Development (Nabard) in 1994-95, the finance minister said, "Many state governments and many honourable Members have opposed the closure of RIDF. In deference to their wishes, and in tune with my own thinking, I have decided to revive the RIDF." A corpus of Rs 8,000 crore will be provided for RIDF during 2004-05.

Five months ago, a decision was taken to close the RIDF and establish, in its place, another fund (the Lok Nayak Jay Prakash Narayan Fund) with slightly different objectives.

The finance minister pointed out that boosting agricultural growth through diversification and development of agro-processing is one of the objectives of the Common Minimum Programme.

Referring to the Prime Minister's address, which promised a "new deal" for rural India, to the nation on June 24, 2004, Chidambaram said, "This new deal is not only essential for rural development and welfare, but also essential for achieving sustained overall annual growth of 7-8 per cent and generating employment. The agriculture sector requires massive investments. Such investments have to be through credit-enabled private investment and enhanced public investment. I also intend to use fiscal instruments to boost investment in agriculture," he said.