Department of Cooperative Revival and Reforms (DCRR)

Rural cooperative credit institutions have played a large role in providing institutional credit to the agricultural and rural sectors in the past. Typically, these credit institutions have been part of two distinct structures, commonly known as the short term cooperative credit structure (ST. CCS) and the long term cooperative credit structure (LT CCS). The ST CCS, comprising primary agricultural credit societies (PACS) at the village level, district central cooperative banks (DCCBs) at the intermediate level, and the state cooperative bank (SCB) at the apex level, primarily provides short term crop loans and other working capital loans to farmers and rural artisans, although over the last few years, it has also been providing longer duration loans for investments in the rural sector. The LT CCS, comprising state cooperative agriculture and rural development bank (SCARDB) at the state level and primary (P) CARDBs or branches of SCARDB at the decentralized district or block level, has been providing typically medium and long tem loans for making investments in agriculture, rural industries, and lately housing.

Over the past 10 years, however, not only has the share of the CCS in agricultural credit fallen from 62% in 1992-93 to 34% in 2002-03, its financial health has also seen a downturn. Accumulated losses in the ST CCS have been estimated at almost Rs. 10,000 crore, and those in the LT CCS at about Rs. 4,000 crore.

Various committees had been set up in the past to enquire into the problems faced by the CCS institutions, and to make recommendations for their revival. No concrete action was however taken on these recommendations due to various reasons.

The Government of India (Gol) appointed a Task Force under the Chairmanship of Prof. A Vaidyanathan in 2004 to analyse the problems faced by the CCS institutions and to suggest an action plan for their revival. The draft report of the Task Force on ST CCS was put in the public domain for comments in January 2005, and after considering the responses on the draft report, the finalised Report of Task Force on Revival of Rural Cooperative Credit Institutions (in the ST CCS) was submitted to the Gol in February 2005. The draft report of the Task Force on LT CCS was put in the public domain for comments in January 2006, and after considering the responses on the draft report, the finalized Report of the Task Force on Revival of Rural Cooperative Credit Institutions (in the LT CCS) along with the Annexures was submitted-to the Gol in August 2006.

During 2005, the Gol had extensive discussions with the state governments on the recommendations of the Task Force on ST CCS, and a consensus was achieved on the Revival. Package that could be implemented across the country. This Revival Package was I communicated to the state governments in January 2006.

The Revival Package focuses on introducing legal and institutional reforms which will enable the cooperatives to function as autonomous member centric and member governed institutions. These reforms will enable wider access to financial resources and investment opportunities, remove geographical restrictions in operations as well as mandated affiliations to federal structures, and provide administrative autonomy to cooperatives at all levels. Suitable amendments in the BR Act and certain provisions in the NABARD Act are also contemplated.

In addition to providing resources for covering the accumulated losses in the ST CCS, the Package also provides for taking cooperatives to a minimum level of CRAR of 7%, and meet the costs of computerisation and human resource development at all the levels of the ST CCS. The sharing of the accumulated losses between Gol, state govt., and the CCS is based on the concept of origin of losses rather than any arbitrary proportions.

NABARD has been designated the Implementing Agency for implementing the Revival Package in all the states. The Department for Cooperative Revival and Reforms (DCRR) has been constituted in NABARD for this purpose. NABARD is providing dedicated manpower at the national, state and district levels for implementing the Package.

The implementation of the Revival Package is guided and monitored by the National Implementing and Monitoring Committee (NIMC) chaired by Dr. Y V Reddy, Governor, RBI. Two meetings of the NIMC have taken place on 30th May 2006 and 07 September 2006. Similar state and district level committees are also being constituted for the purpose.

Nine States and one Union Territorv, viz., Andhra Pradesh, Gujarat, Maharashtra, Madhya Pradesh, Orissa, Punjab, Rajasthan, Sikkim, Tamilnadu and Dadra 8: Nager Haveli, have communicated their in principle acceptance of the Revival Package to the Gol. Steps have been initiated in these states for the implementation of the Revival Package.

The process of implementing the Revival Package in any state begins with the signing of the Memorandum of Understandinl;! (MoU) between the Gol, the participating State government and NABARD. The draft of the MoU finalised by the NIMC has been sent to the states. State specific issues which are not common to other states could form part of a side letter in addition to the common MoU.

A special audit of all PACS, DCCBs and SCB in every participating state would be undertaken to arrive at a true and fair assessment of the amount of accumulated losses as on 31 March 2004 as also a fair and acceptable proportion of such losses on the basis of the origin of such losses, i.e., losses due to credit business, PDS business, or other trading business etc. Special formats, manual and Frequently Asked Questions (FAQs) have been designed by NABARD to facilitate this exercise. These special audits would be conducted either by the personnel from the cooperative audit department of the state or by selected outsourced auditors. In either case, the exercise will be test checked by a set of independent Chartered Accountants who will report to the district level implementation and monitoring committee (DUe) constituted for guiding and overseeing the implementation in each district. NABARD has however decided to create a pool of trainers for special audits in all the states which have conveyed at least an in principle acceptance of the Revival Package to the Gol even if the state is yet to sign the MoU with the Gol and NABARD.

The State would also promulgate an Ordinance as per para 9 of the MoU (bookmark: Ordinance 9) to amend the State Cooperative Societies Act to give effect to the institutional and legal reforms envisaged in the Revival Package and would enact the necessary legislation in due course.

Certain provisions are also being made within the NABARD. Act to enable availability of NABARD refinance to a cooperative in any tier either directly or through any regulated FI.

The RBI is prescribing fit and proper criteria for election to the Boards of the cooperative banks along with criterion for professionalisation of the boards of these banks. RBI is also prescribing the minimum qualifications for the CEOs of DCCBs and SCBs.

A common accounting system is being designed for the ST CCS which will ensure transparency and prudent accounting methods. The system would be computerised as part of the Revival Package and would generate necessary MIS for internal control and management decisions as well as meeting the needs of other associated agencies.

Training modules for training of the member's. elected directors and staff of the CCS are being. designed. A dedicated working group is being set up in the National Bank Staff College, Lucknow for this purpose.

NABARD has requested the Gol to release an amount of Rs. 400 crore as the first installment for the implementation of the Revival Package. The Gol is also discussing with bilateral and multilateral agencies for funding of the Package.

State-wise status of Implementation

Andhra Pradesh
The State government has signed the MoU with Gol and NABARD on 29 August 2006. Training of master trainers for special audits completed in August and September 2006. Sample audit conducted by each master trainer.

Gujarat
Letter of acceptance in principle communicated to GOI. The State will be executing the MoU shortly. Training of master trainers for special audits completed in August 2006. Sample audit conducted by each master trainer.

Maharashtra
The State Government has signed the MoU with GoI and NABARD on 13 November 2006. Training of master trainers for special audits completed in July 2006. SLIC has been constituted. Sample audit conducted by each master trainer.

Madhya Pradesh
The State government has signed the MoU with GoI and NABARD on 7 November 2006. Training of master trainers fro special audits completed in August 2006.

Orissa
The State government has signed the MoU with GoI and NABARD on 16 November 2006. Training of master trainers for special audits completed in August 2006.

Punjab
Letter of acceptance in principle of communicated to GoI.

Rajasthan
The State government has signed the MoU with GoI and NABARD on 14 November 2006. Training of master trainers for special audits completed in July 2006. Sample audit conducted by each master trainer.

Skkim
Letter of acceptance in principle communicated to GoI. The GoS has already cleaned the balance sheets of MPCs in the State and have asked for intensive HRD and computerization initiatives. These are being planned.

Tamilnadu
Letter of acceptance in principle communicated to GoI.

Union Territory
Letter of acceptance in principle communicated to GoI.

National Implementing and Monitoring Committee

Access to NABARD refinance

The post-reform and revival scenario in any state would include primary cooperatives registered under the amended Cooperative Societies Act or a parallel Act which mayor may not be affiliated to a higher tier federal structure (DCCB or SCB). A key agenda of the reform process includes wider access to resources and investment opportunities to such primary cooperatives. This includes access to refinance from NABARD either directly or indirectly through any upper tier federal structure or any regulated financial institution. While this may require an amendment to the NABARD Act for giving permanency to such an arrangemej;lt, the RBI has been, in the meanwhile, requested to make necessary provisions within the scope of the present Act.