Cooperative reforms – the

road ahead
N.Srinivasan
Consultant, Development finance
CAB – 15 April 2008
 Objectives of reform
• Making banking co-operatives
democratic, member driven,
autonomous institutions.
• Reduced state control and unified
banking regulation
• Professionalisation of banking and
qualitative improvement of human
resources
 Why reform
• Raise the status cooperative banks
• Improve financial strength
• Enhance competitive ability
• Streamline the operations
• Raise customer service quality
• Provide rural areas with comprehensive
banking solutions
 What reform
• Legal changes
– Unify regulation
– Ensure fit and proper boards
– Autonomy to banks
– Greater member involvement
– All stakeholder participation in governance
– Introduction of prudential norms for
PACS
– Ensuring timely elections and audits.
 What reform
• Financial Measures

Wiping out past losses, erosion in assets

Releasing pending payments by
governments (under guarantees,
schemes,etc.)
Infusion of capital to a level of 7% of risk
weighted assets, ensuring adequate
Regulatory Capital
Facilitating retirement of Government
equity.
 What reform
• Regulatory framework
– RBI to be the sole regulator
– Prudential norms to apply on par with
other banks
– PACS also to adopt prudential norms
– Improved accounting and reporting
systems
– State to facilitate regulatory action
through its machinery
 What reform
• Structural measures
– De-layering wherever warranted
– No compulsion to deal with higher tier
institution
– Freedom to invest with or borrow from
any regulated financial institution
– Rationalizing primaries on the basis of
viability and sustainability
 What reform
• Human Resources
– RBI norms for CEO’s appointment
– Training and professionalizing staff
– Computerization of accounting and MIS
– training of staff
– Review of cadre system of Primary
secretaries
– Staff of primaries to be accountable to
the society membership
 Challenges
• Loss of market share
• Intense competition
• Limited product portfolio
• Erosion of quality client base
• Government expectations of low interest
• Waiver induced deterioration in recoveries
 % share of agri loans disbursed
02-03 03-04 04-05 05-06 06-07
34.1 31.0 25.1 21.8 21.0 Coop
8.7 8.7 9.9 8.4 10.1 RRB
57.2 60.3 65.0 69.7 69.4 Com Bk

Share of KCCs issued till Nov 2007

Coops 48.2%
RRBs 13.2%
Com Bks 38.6%

Microfinance
13.8% of SHGs, 9 % of disbursements, 6.5% of live a/cs
Per SHG loan o/s of Rs 29500 against Rs 42700 for all
institutions
 Future agenda
• Good governance
• Customer service
• New products and services
• Streamlining systems and procedures
• Investment in IT
• HR capacity building
• Development of primaries
• Member education
 Opportunities
• Meaningful financial inclusion
• Banking correspondent network
• Microfinance
• Value chain finance
• Development of primaries