Bankers see gaps in 'grand' plan

INTERIM BUDGET & THE ECONOMY/CO-OPERATIVE BANKING

The co-operative banking sector is sceptical of the 'grand' Rs 15,000 crore scheme announced by Finance Minister Jaswant Singh for revitalising the co-operative credit structure.

Dubbing it a 'paper scheme', co-op bankers pointed out that the Rs 100 crore scheme, which was announced by former Finance Minister Yashwant Sinha a couple of years ago for the revitalisation of district central co-operative banks (DCCBs), remained a non-starter.

The earlier scheme was a damp squib as it required states to pitch in with 40 per cent of the initial corpus of Rs 100 crore.

The Centre was to come up with the balance 60 per cent. This time too Singh has said states and the Centre will share the burden in an appropriate ratio.

"State governments do not have any stake in district cooperative banks (DCCBs). Moreover, the fiscal situation of most states is not good. Under the circumstances, I wonder how states will afford to fork out their contribution for the revival of the banks," Vinayak Y Tarale, chief executive, the Maharashtra State Co-operative Banks' Association, told Business Standard.

There are 369 DCCBs in the country and more than half of them are sick with their networth eroded.

The DCCBs were floated to offer loans to farmers but they have ventured in a big way into funding sugar factories and spinning mills. This is the main reason for the growing non-performing assets.

The finance minister said, "The scheme will be initiated as soon as the revised regulatory framework is put in place."

Cooperative bankers interpret this statement as the finance ministry's intention to offer full regulatory and supervisory control of the sector to the Reserve Bank of India (RBI).

Incidentally, the proposed amendment to the Banking Regulation Act has sought to treat cooperative banks on a par with commercial banks.

However, faced with stiff resistance from the cooperative sector, the proposed amendment has been referred to the Standing Committee on Finance.