Cooperative Reforms – The Road Ahead

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 57.2

8.7 60.3

9.9 65.0

8.4 69.7

10.1 RRB 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