Global lenders line up $1.8 billion rural credit

Funds for capital recast of rural credit societies

World Bank, Asian Development Bank (ADB) and Kfw of Germany propose to provide a loan of around $1.8 billion to fund the government's planned capital restructuring of rural cooperative credit societies.

According to sources close to the negotiations, the loan would be the largest-ever restructuring package offered for reviving rural co-operative credit sector globally.

It will also be the first ever instance where the Indian co-operative sector would get funded by foreign multilateral agencies. While the proposal has been finalised in principle, the government and the agencies are working out the final modalities.

ADB would provide $1 billion, World Bank $600 million and Kfw $200 million. World Bank may scale up its loan amount to take the total assistance to a little over $2 billion. In rupee terms at the current exchange rate, the amount works out to about Rs 10,000 crore.

The foreign exchange risk on the loan would be borne by the government. The loan would be distributed to various rural credit cooperatives in the form of grants, the source said.

Rural credit co-operatives, include primary agricultural credit societies, district central co-operative banks and state co-operative banks.

The lending agencies have, however, stressed for greater monitoring of the recommendations made by the Vaidyanathan committee for rural co-operative credit societies.

Based on the implementation of the recommendations, the funds would be disbursed in four tranches and made available to those states which have signed memorandum of understanding for revamping their rural co-operative credit sector.

The committee has recommended a financial assistance of around Rs 14,839 crore to rural cooperative credit sector. The assistance would be available for wiping out accumulated losses, covering invoked but unpaid guarantee given by state government, increasing the capital base, retiring government share and technical assistance.

As per the suggestion of the committee, special audits are being under taken for better disclosures of the balance sheets of these co-operatives and adoption of standardised accounting norms.

Some legal amendments suggested for the sector include ensuring full voting membership rights on all users of financial services including depositors, removing provision for government equity and participation in boards of co-operatives and permitting co-operatives freedom to take loans and place deposits with any financial institution.