Centre for equity, venture capital funds to strengthen cooperatives

The government favours setting up of a national equity fund to help co-operatives raise resources, Agriculture Minister Sharad Pawar said Tuesday.

He also mooted a credit guarantee fund for the sector. The cooperative credit system should be "nursed back to health" and the credit flow doubled in three years' time, Pawar said.

"Given that state governments are today fraught with budgetary constraints, some serious thought needs to be given to create a national equity fund for the co-operative sector," Pawar said addressing a co-operative centenary function.

"To enable co-operatives to be funded, a credit guarantee fund with contributions from the National Cooperative Development Corp. and the government should be considered," he said.

Pawar also favoured extending a concessional line-of-credit to NCDC so that it could give cheaper loans to co-operatives.

He said the government was considering converting NCDC into an equity-based organisation to enable it to leverage resources.

The minister also proposed the setting up of a venture capital fund for the sector as small-sized co-operatives had problems raising funds from institutional lenders.

Pawar said co-operative banks had accumulated losses of over 150 billion rupees. The cost of raising capital for cooperative banks was also higher than that for commercial banks. These factors affected their lending, he said.

Pawar said these factors diverted cooperative banks' good borrowers towards commercial ones. Textile and sugar sectors were also affected, he said.

The textile and sugar sectors have to borrow working capital requirements at higher interest rates from cooperative banks as other lending agencies are reluctant considering the risks involved.

However, Pawar said cooperative banks will have to find ways and means to cut costs to be competitive in the long run.

He said the cooperative credit system should be "nursed back to health" and the credit flow be doubled over the next three years to ensure that coverage of small farmers by institutional lending was expanded substantially.

The minister also favoured linking financial assistance from the Centre to the states on steps taken by them to undertake cooperative reforms.