Redesigning the cooperative ediﬁce of India
The previous chapters have studied the evolution of the three-tier rural credit cooperatives, factors governing their performance, interdependence across the tiers and also their importance in inﬂuencing agricultural output in the states. The problem of the cooperatives is most acute at the base level. Base level PACS are plagued with problems of inadequate resources, poor recovery and government interference. They neither have adequate resources of their own, nor are they able to manage the funds borrowed from the upper tiers eﬀectively. Very large member size of the cooperatives has also weakened peer pressure, which is essential to the success of cooperatives. The poor recovery performance of PACS also adversely aﬀects the ﬁnancial position of the central cooperative banks placed in the middle level. Government involvement also aﬀects the performance of CCBs adversely. The CCBs are unable to mobilize enough low-cost deposits, despite their branch presence. The upper-tier SCBs also faces the problem of a very high share of ﬁxed deposits, which involve relatively higher cost. Further, the SCBs do not seem to be making the best investment decisions compared to their cost of funds. In addition, application of prudential norms on one hand and administered interests on the other also cripples their proﬁtability. When we consider the interdependence across the tiers, the upper tiers act as a drag on the performance of the lowest tier. Synergy in operations exists only in the case of the CCBs and SCBs. In view of the problems faced by the credit cooperatives on the one hand and the relative success of alternate micro-ﬁnance interventions, especially the SHG-bank linkage programme and credit by MFIs, on the other, doubts arise on the relevance of reviving them. Against this backdrop this chapter analyses the utility of rural credit cooperatives in the foreseeable future, in section 8.1. We also discuss the possible strategies for reviving the credit cooperatives so that they can play a more meaningful role in the
nation’s development, in section 8.2. Concluding observations are set out in section 8.3.