Andhra, Nabard to sign MoU today

The Andhra Pradesh government will be reducing its role in the affairs of rural cooperative credit institutions in a bid to revive the ailing co-operative credit system and make them run on professional lines.

The government is signing a memorandum of understanding with the National Bank for Agriculture and Rural Development (Nabard) tomorrow.

Nabard is the implementation agency of a comprehensive package formulated on the basis of Vaidyanathan Committee recommendations by the Government of India for the revival of rural cooperative credit sector.

The revival scheme will begin by auditing accounts of the rural cooperative credit bodies at all levels followed by cleansing of balance sheets of the primary agriculture co-operative societies (PACS) through recapitalisation by the Government of India.

To avail of the Centre's assistance, the state government will have to implement a set of measures, including the modification of the existing co-operative Act.

By entering into the MoU, Andhra Pradesh becomes the first state to facilitate a shift in the existing framework under which the rural cooperative credit sector has been consistently failing to perform.

The MoU envisages restriction of the state government's equity share capital in these institutions to 25 per cent, besides the removal of the overriding powers of the Registrar of Cooperative Societies (RCS).

This means, the state government will have a single representative on the boards of District Co-operative Central Banks (DCCBs) as well as the apex bank at the state level. The RCS will have to follow the instructions issued by the Reserve Bank of India with regard to these rural co-operative banks.

This apart, the RBI will prescribe the qualifications for persons to be appointed as CEOs of both DCCBs and the Andhra Pradesh Cooperative Bank (APCOB) besides clearing the names for these posts.

In effect, all these measures are aimed at running these rural co-operative credit bodies as per the Banking Regulation Act.

Under the MoU, the state government will have to convert around Rs 570 crore, which are in the form of guarantees and extra share capital over and above 25 per cent given to APCOB, into grants while the Government of India will give Rs 1,450 crore assistance to the state's rural-cooperative institutions to make up for their accumulated losses, according to officials in the state finance department.

"These funds will be given to PACS', which will, in turn, pay the dues to DCCBs. APCOB gets its dues from DCCBs. This way, the rural credit disbursement machinery will again start functioning without waiting for the recoveries from the accumulated losses. Loan recovery will be undertaken separately," an official said.

The officials, however, pointed out that the additional financial commitment arising out of the MoU for the state government will be only close to Rs 100 crore.

As a first step, Nabard will undertake a massive auditing of the accounts of all the co-operative banks and primary agriculture cooperative credit societies up to March 31, 2004.