ROLE OF CO-OPERATIVE BANKS IN AGRICULTURE CREDIT: ORGANIZATION, GROWTH AND CHALLENGES

Transcription

1 20 ROLE OF CO-OPERATIVE BANKS IN AGRICULTURE CREDIT: ORGANIZATION, GROWTH AND CHALLENGES ABSTRACT RAJESH BHARDWAJ*; PRIYANKA**; REKHA RAHEJA*** *Research Scholar, Department of Commerce, M.D. University, Rohtak, Haryana. **Assistant Professor, Department of Business Administration, Hindu college, Sonepat. ***Assistant Professor, Department of Commerce, Hindu College, Sonepat. In this study we have analysed the role of Co-operative banks in agriculture credit in India from 2001/2002 to 2006/2007 with the help of ACGR. The study reveals that the aggregate amount of agriculture credit has increased, while, the share in total institutional agriculture credit has been decreased from in 2001/2002 to in 2006/07 and further, found that the level of NPAs in Co-operative banks is very high as compare to other financial institutions in India. So, co-operatives banks should control their NPAs level for surviving in credit market of India in future. KEYWORDS: Co-operatives, Agriculture credit, NPAs. INTRODUCTION Agriculture is the mainstay of the Indian economy. According to NSSO round 2001, 54.3 per cent workforce has been depends on agriculture, out of these, 50.3 percent depends on crop production and left 4 percent on livestock production for their livelihood. Agriculture and allied sectors contribute nearly 22 per cent in Gross Domestic Product (GDP) of India and further 9.93 per cent contribution in total export of India (Economic Survey of India: 2006). Agriculture sector plays a vital role in Indian economy through providing livelihood opportunity and export earnings. Agriculture is the most important sector of the Indian economy from the perspective of poverty alleviation, and employment generation. When any change in the agriculture sector- Positive or Negative - has multiplier effect on the entire economy. At presently agriculture are facing much difficulties such as irrigation, HYVs, marketing of agriculture products, advanced technique of farming, fertilizer, credit and other capital equipment etc. Credit is the major factor all of them that affecting the agriculture development. The low productivity of land, heavy dependence on usurious money lender and high level of indebtedness were seem as the main causes of rural poverty and distress (Vidyanathan: 2010). There are two source of agriculture credit first is non-institutional i.e., Professional miner lenders, friends, relatives etc. and second is institutional source i.e., Cooperative banks, Regional Rural and Commercial. The institutional source of agriculture credit aim is providing high quality loans with low cost. But at present the aim of different institutions is not fulfils. The Economic survey (GoI), 2010, showed that out of 27 public sector banks, only 14 public sector banks achieved the agriculture credit target of 18 per cent agriculture credit, in case of private sector banks, only 8 achieved the target of 18 percent for lending to agriculture in 2009, further, National Sample Survey Organization (2003) in his situation assessment survey found that the only 48.6 percent farmer

2 21 households were indebted, of which only 57.7 percent were indebted to institutional agencies. In other words, only percent of farmer households were indebted to institutional agencies. And further found that the after nearly 37 years of nationalization and over 15 years of credit targeting for agriculture, in AP and Rajasthan the total debt of the farmer households from all institutional sources put together was less than that from the moneylenders. Further, in Punjab, Assam and Bihar, the total debt of the farmer households from institutional agencies was less than from non-institutional agencies. Thus, evolution of institutional credit to agriculture has assumed critical importance. In this study, we have examined the role of Co-operative banks in agriculture credit from 2000/2001 to 2006/07 in India. Thus, this study examined the organisation, trend and pattern of agriculture credit and challenges facing by Co-operative banking institution in India. RESEARCH METHODOLOGY The nature of present study is analytical. The study is based on secondary data. The necessary data were collected from Report trend and progress of banking in India, RBI Annual report. The results have obtained from different statistical tools such as Mean, ACGR, S.D. etc. the period of study is 2001 to AVERAGE COMPOUND GROWTH RATE (ACGR) The average compound growth rate was computed by employing following formula: Y = ab By using logarithm, it may be written as: Log y = log a + t log b Y* = a* + t.b* (where log y = y*, log a = a* and log b = b*) The value of b* is computed by using ordinary least square (OLS) Method. Further, the value of ACGR can be calculated by followed method: ACGR = (Antilog b* -1) x 100 PROGRESS OF CO-OPERATIVE BANKING - A BIRD EYE-VIEW The first step was taken by the British Government in context of organized/institutional loan for agriculture in India. To make the provision of organized loan under (i) Land improvement Loans Act of 1883 and (ii) Agriculture Loan Act of Under these Laws, indirect loan know as Taccavi loan were given to the farmers for understanding land improvement measure like embankment, tanks, water-source and the like with a maximum repayment, period of 35years. Under the later stage, direct loans where provided for the purchase of seeds, cattle, manure and implements. Taccavi loans played an important role during times of famines, floods and drought. These loans were routed through the revenue department of the State Government up to The second step was taken

3 in context of institutional loans for agriculture as a Co-operative movement. The Cooperative movement owns its origin to England, where a great philosopher, Robert Owen ( ), has given the idea of Self-Help through Mutual Help to mitigate the suffering of the exploited class of the society. The Co-operative movement was introduced in India in the early year of 20 th century with the main object relieving the peasantry s burden of debt and for providing credit through a local agency on the principles of thrift, self-help and mutual aid. The Co-operative Societies Act, 1904, was introduced on the recommendation of the Law Committee appointed by the Government of India under the chairmanship of Edward Law. Indian Co-operative Movement picked up momentum especially after the world war. By 1950 the Co-operative credit movement had emerged as a developed, sound satisfactory banking system in most of the Indian Union. The Co-operative are organised and managed on the principal of co-operation, self-help, and mutual help. They function with the rule of "one member, one vote". Function on "no profit, no loss" basis. Cooperative banks, as a principle, do not pursue the goal of profit maximisation. Co-operative bank performs all the main banking functions of deposit mobilisation, supply of credit and provision of remittance facilities. Co-operative provide limited banking products and are functionally specialists in agriculture related products.

4 23 FIGURE 1 ORGANIZATION STRUCTURE OF CO-OPERATIVE BANKING IN INDIA Structure of Co-operative Banking Direct Cooperatives Indirect Cooperatives State Cooperative State Agriculture & Rural Development District Central Co-operative Primary Agriculture Credit Co-operative Societies Primary Agriculture & Rural Development

5 24 Source of Capital and Working fund 1 of Co-operative banking in India are given below: There are five sources of funding of Co-operative banks in India. (a) Central and state government, (b) The Reserve Bank of India and NABARD, (c) Other Co-operative institutions, (d) Ownership funds and, (e) Deposits. PRIMARY CO-OPERATIVE AGRICULTURAL CREDIT SOCIETIES (PACSS) A Co-operative agricultural credit society can be started with 10 or more persons normally belonging to a village or a group of villages. The value of each share is generally nominal so as to enable even the poorest farmer to become a member. The members have unlimited liability, that is each member is fully responsible for the entire loss of the society, in the event of failure. Loans are given for short periods, normally for the harvest season, for carrying on agricultural operation, and the rate of interest is fixed. There are now over 92,000 primary agricultural credit societies in the country with a membership of over 100 million. The primary agricultural credit society was expected to attract deposits from among the well to-do members and non-members of the village and thus promote thrift and self-help. It should give loans and advances to needy members mainly out of these deposits. CENTRAL CO-OPERATIVE BANKS (CCBS) The central Co-operative banks located at the district headquarters or some prominent town of the district. The central Co-operative banks have three sources of funds. The sources of funds of central Co-operative banks are given below: 1) Their own share capital and reserves 2) Deposits from the public and 3) Loans from the state Co-operative banks 1 To manage the appropriate funds for development is biggest challenge for Co - operative in India as they cannot go for public issue of share and nor can they issue shares and or debentures at par or premium to fulfil the requirement of funds. According to SEBI Act, 1992 and Security Contract Act, 1956 (SCRA), for a financial instrument to be eligible to be listed in the Stock Exchange, it should be issued by a body corporate as defined under the Companies Act, A Co-operative Society is a body corporate as per the Co-operative Societies Act, but not as per the Companies Act. As such, the financial instruments issued by Co-operative cannot be listed in a stock exchange.

6 25 Per Cent Their main function is to lend to primary credit society apart from that, central Co-operative banks have been undertaking normal commercial banking business also, such as attracting deposits from the general public and lending to the needy against proper securities. There are now 367 central Co-operative banks. STATE CO-OPERATIVE BANKS (SCBS) The state Co-operative (29: 2009 in number), they finance, co-ordinate and control the working of the central Co-operative in each state. They serve as the link between the Reserve bank and the general money market on the one side and the central Cooperative and primary societies on the other. They obtain their funds mainly from the general public by way of deposits, loans and advances from the Reserve Bank and they are own share capital and reserves. FIGURE 1 TREND IN GROWTH OF AGRICULTURE CREDIT BY CO-OPERATIVE BANKS IN INDIA / / / / / /07 Years

7 26 TABLE 1 TREND IN GROWTH AND PATTERN OF ADVANCES BY CO-OPERATIVE BANKING IN INDIA Years. Total Credit By Cooperative. Total Institutional Agriculture Credit in India. Total Direct Credit By Cooperative Bank Total Direct Institutional Agriculture Credit in India Total indirect Credit By Cooperative Total indirect Institutional Agriculture Credit in India 2001/ (37.91) (46.37) (19.30) 2002/ (33.97) (43.14) (16.55) 2003/ (30.89) (41.18) (13.23) 2004/ (24.92) (37.79) (7.62) 2005/ (21.83) (33.17) (5.94) 2006/ (18.51) (29.34) (5.38) Average (24.82) (35.96) (9.02) S.D ACGR

8 27 Source: 1. Reserve Bank of India. 2. National Bank for Agriculture and Rural Development. Table 1 reveals the agriculture credit provided by Co-operative banks from 2001/02 to 2006/07 in India. The table also depict the direct credit as well as indirect credit provided by Co-operatives banks. Total agriculture credit by Co-operatives has grown from Rs crore from in 2001/2002 to Rs crore in 2006/2007; direct agriculture credit has grown from Rs to Rs in same period while, indirect agriculture has decrease from Rs crore in 2001/02 to Rs crore in 2006/07. The average share of Co-operative in total agriculture credit has per cent at national level, while, direct agriculture credit per cent and indirect agriculture credit 9.02 percent during the period under study. The ACGR of agriculture credit by Co-operative banks has 10.5 percent in total agriculture credit, while, ACGR of institutional agriculture credit in India has percent in same period. In case of direct and indirect agriculture credits ACGR of Co-operative banks has and per cent respectively, while the ACGR of institutional direct and indirect institutional agriculture credit in India has and per cent. The ACGR of Co-operative banks has always less as comparison to aggregate institutional agriculture credit India during the period under study. It is a matter of concern because; the percentage share of Co-operative banks in total institutional agriculture credit has percent in and it has decreased at still percent in 2006/2007. Besides, there are many resins are responsible such high level of NPAs 2, traditional services 3 providing by Co-operatives credit societies, limited area 4 of operation etc. Table 2 reveals the non performing assets of Co-operative banking in India from 2001/2002 to 2007/2008. Maximum non-performing assets are consisting in Primary Cooperative Agriculture and Rural Development and minimum in District Central Cooperative. It means say that the fund management practise by DCCBs is batter out of all and poor practise by Primary Co-operative Agriculture and Rural Development. The ACGR of all Co-operative institutions has negative except State Co-operative Agriculture and Rural Development and Primary Co-operative Agriculture and Rural Development during the period under consideration. The ACGR of NPAs in State Cooperative has per cent, District Central Co-operative 0.88 per cent, Primary Agricultural Credit Societies per cent, State Co-operative Agriculture and Rural Development 6.44 per cent and Primary Co-operative Agriculture and Rural Development 0.05 per cent. On the base of ACGR of NPAs, we conclude that the fund 2 NPA s: A Non-Performing Asset can be defined as a credit facility in respect of which the interest or the instalment of principal has remained overdue for a specified period of time (90days). The specified period of time was reduced in a phased manner over the years. An asset is classified as non-performing if the borrower does not pay dues in the form of principal and interest for a period of 180 days. However, which effect from March 2004, default-status will be given to a borrower account if dues are not paid for 90 days. 3 Like Deposits and Advances, no internet banking, Electronic Fund Transfer, ATM, etc 4 Since the Co-operative Act, is a state matter, therefore, opening the extension counters and operate them in other states is an important challenge for the development of Cooperative movement in India.

9 28 management practices by Primary Agricultural Credit Societies has been batter all of them in context of NPAs management. TABLE 2 NON-PERFORMING ASSETS OF CO-OPERATIVE BANKING Years State Cooperative District Central Cooperative Primary Agricultural Credit Societies State Cooperative Agriculture and Rural Development Primary Cooperative Agriculture and Rural Development 2001/ / / / / / / **** 43 Average Minimum Maximum S.D ACGR Source: Reserve Bank for UCBs and NABARD for Rural Co-operative (excluding PACS for which the source is NAFSCOB)

10 29 Per Cent FIGURE 2 TREND OF NON-PERFORMING ASSETS IN INDIAN CO-OPERATIVE BANKING Years I II III IV V Note: I: State Co-operative, II: District Central Co-operative, III: Primary Agricultural Credit Societies, IV: State Co-operative Agriculture and Rural Development, and V: Primary Co-operative Agriculture and Rural Development CONCLUSION There are now over 92,000 primary agricultural credit societies, 367 central Cooperative banks and 29 state Co-operative operating in India (RBI: 2009). It is a remarkable achievement of Co-operative credit movement in India. Total agriculture credit by Co-operatives has grown from Rs crore from 2001/2002 to Rs crore in 2006/2007; direct agriculture credit has grown from Rs crore to crore in same period while, indirect agriculture has decreased from Rs crore in 2001/02 to Rs crore in 2006/07.The ACGR of total agriculture credit by co-operatives has 10.5 per cent, direct agriculture credit ACGR per cent and indirect ACGR per cent during period under study while, the ACGR of aggregate institutional agriculture credit in India has been per cent, 21.7 per cent and per cent respectively in same period. The ACGR of NPAs has per cent in State Co-operative, per cent in District Central Cooperative, per cent in Primary Agricultural Credit Societies, 6.44 per cent in State Co-operative Agriculture and Rural Development and 0.05 per cent in Primary Co-operative Agriculture and Rural Development. In nut sell the ACGR of agriculture credit by Co-operative banks always less as comparison to ACGR of all India institutional agriculture credit during the period under consideration and the level of NPAs in Cooperative banking system is very high as compare to other financial institutions. Therefore, co-operatives banks should control their NPAs level for surviving in credit market of India in future.

11 30 REFERENCES Kodan, Singh Anand, Malhan, Sanjay and Malik, Surjit (2010) Role of Scheduled Commercial in Agriculture Credit in India: A Comparative Study of Public and Private Sector Bank Groups. Journal of Economic and International Finance, Vol. 2(12), November (2010) Published By Academic Journals Kodan, Singh Anand, Mehra, Shalinder and Kaidyann Narander (Forthcoming) Deposit Mobilized by Districts Co-operative : A Case Study of Baroda Districts Central Co-operative Bank Indian Journal of Finance, New Delhi Kodan, Singh Anand and Deswal, Jasbir (2010) Role of RRB s for agriculturists Southern Economist, Banglore Vol. 48 Issue No.17 January Datta S.K. & S. Kapoor, (1996), Collectivetive Action, Leadership and Success in Agricultural Co-operatives A Study of Gujarat and West Bengal, Oxford & IBH Publishing Co. Pvt. Ltd., New Delhi. Indian Co-operative Movement: A Profile, (1998), National Resource Centre of NCUI, New Delhi, India. Mishra S.N,(1997), Agricultural Liberalisation and Development Strategy in 9 th Plan, Economic and Political Weekly, March 29 April 4, 1997, Vol. 32, No. 13. Rakesh A.R., (1997), Institutional Arrangement for Rural Credit in India, YOJANA, Government of India. Rama Rao P.V.A, (1998), Co-operative at the Cross Roads, Delivering Rural Credit through Co-operatives An Indian Experience, Co-operatives: Policy Issues for the SAARC Region, edited by Sanjeev Chopra, Centre for Co-operatives & Rural Development, LBSNAA, Mussoorie, India. Taimni K.K., (1998), Meeting the Capital Needs of Co-ops: International Experience, Creating the Space: Financial Disengagement of Government from Co-operatives, edited by Sanjeev Chopra, Centre for Co-operatives & Rural Development, LBSNAA, Mussoorie, India. Reserve Bank of India Annual Report Report Trend and Progress of Banking in India (RBI Publication) Bilamge, Pandit C et al (2010) Financial Analysis of Co-operative. Third Concept, Feb. Kumar, Mallika (2010) Co-operatives in India. Third Concept, Feb.