Rescuing co-op credit

Cooperative sector bankers have rejected the Vaidyanathan task force's recommendations for rehabilitation of the troubled cooperative credit infrastructure.

Indeed, all that the Vaidyanathan task force has done in its draft final report, circulated for public debate, is to broadly uphold and fine-tune the suggestions made by previous committees (headed by Jagdish Capoor, Vikhe Patil and V S Vyas) that had gone into this issue.

As such, besides endorsing the Rs 14,839-crore revival package for this sector, the task force has mooted institutional restructuring and professional management to make the cooperatives democratic, member-driven, autonomous and self-reliant credit institutions.

Moreover, it has stipulated radical changes in the legal framework to empower the Reserve Bank of India (RBI) to take action directly in matters of the prudential financial management of the cooperative banks, as in the case of commercial banks.

While some of the lacunae pointed out by cooperative leaders seem valid and need to be looked at afresh, other objections are untenable as they appear to stem from this sector's reluctance to come under RBI scrutiny.

What has irked the cooperatives most is the suggestion for a phased implementation of the rehabilitation package, and confining it to those states that amend their cooperative laws to introduce reforms.

The problem here is that these stipulations will render a large number of cooperatives ineligible for receiving rehabilitation assistance, for no fault of theirs.

The states' past record on cooperative sector reforms through statute amendments does not inspire much confidence about a positive response now.

So far, only nine states have enacted new legislation and, notably, none of them has repealed their old laws, leaving cooperatives with the option to remain under the old laws.

Under the circumstances, the suggestion made by cooperative sector bankers that the Centre should introduce reforms through Constitutional amendment merits consideration.

Otherwise, states may continue to evade the dilution of their own powers for interfering in the functioning of the cooperatives through acts like appointment of officials or politicians to top positions, determination of staffing patterns and influencing operational decisions.

However, the cooperatives' disquiet over the Vaidyanathan panel's plea that the Reserve Bank be empowered to directly control the district and state cooperative banks and supersede their boards does not seem to be well founded, though it is true that supersession of boards is against cooperative principles.

The real issue is whether there is need for so many tiers in the cooperative banking sector. It is also important to recognise the inherent weaknesses of the cooperative system, since they are overly borrower-driven and lack avenues for diversification of business and for dealing with non-member clients.

Throughout the world, cooperatives are thrift and credit organisations where the members, being depositors, have a stake in ensuring economic viability.

This is not so in India. Addressing such issues can only enhance the cooperative sector's business canvas and, hence, economic health.

Cooperatives should be viewed as socially responsible business organisations and not as appendages of the government for undertaking social responsibilities on its behalf.