NABARD pays tribute to its founder Chairman in a novel fashion. It
issued directives to SCBs and through them to the DCCBs on the 22nd
July to let the PACS remain in the rural cooperative credit structure only as
their Business Correspondents. Those that are not, can function as PACS, only
if they have own resources.NABARD decided to abandon the recommendations of all
the Expert Committees at one go: the recent RBI Expert committee of which the
present Chairman, NABARD ironically is the Chairman, Vaidyanathan Committee and
its predecessor Vyas Committee.
The main contents of the latest circular instruction of NABARD
circulated by NAFSCOB once and for all gave a go-by to the age old untiring
repetition of ‘Cooperative have failed but must succeed.’.
The SCBs/DCCBs have been instructed now:
1. To transfer assets and liabilities of PACS to DCCBs/SCBs
2. The assets of PACS arising out of all lending operations will
stand transferred to the books of DCCBs /SCBs along with the related
liabilities.
3. All deposits collected by the PACS would also be transferred
to the DCCBs/SCBs.
4. PACS will not accept deposits on its account and will not do
lending operation of any kind on its behalf henceforth under the arrangement.
5. However, they will carry out the services both in respect of
lending operations and collection of deposits on behalf of DCCBs on pre-decided
commission or fee basis.
6. PACS would, however, do other businesses as an independent
entity out of its own fund and earn income.
7. The share capital mobilised by the PACS from its members by
way of share linked capital of the loans provided will now stand transferred to
the books of DCCBs/SCBs and form part of share capital of DCCBs.
8. The borrowing members and the depositors will have to become
the members of DCCBs/SCBs.
9. DCCBs/SCBs will make arrangements to ensure transfer of
relevant securities /documents executed in the name of PACS on its name.
10. Necessary arrangements be entered into between the PACS and
DCCBs/SCBs to ensure implementation of the above directives.
These do not form part of the recommendations of the RBI Expert
Committee.
NABARD’s ostensible intention to separate the core from non-core
business of PACS has been pushed with these instructions without equipping the
system to handle them.
Second, it has failed to implement business development plans in
PACS for three decades of its supervision and now it wants to drive them to a
corner.
Third, it tolerated indiscipline in accounting standards and
State audits of the PACS, DCCBs and even SCBs to a large degree until
Vaidyanathan Committee designed the relief package conditioned by the
introduction of proper accounting, audit, professional management and
technology as also appropriate legal amendments to the State Cooperative laws. Under
its supervision, none of the DCCBs have the history of closing the books of
accounts at the end of the year on the 31st March.
Even after the relief package has been handed down NABARD has
not been able to monitor these changes systematically and systemically
resulting in misuse and even abuse of the relief package.
The compromises led the RBI to re-examine the structural
weaknesses of the Short Term Rural Cooperative Credit Structure (RCCS) through
the constitution of an Expert Committee just an year back under the
Chairmanship of Dr Prakash Bakshi and he is also the Chairman of NABARD, a
point to be noted.
The Expert Committee was unequivocal in its recommendation that
PACS are the foundation of the RCCS and but for them credit to small and
marginal farmers would have been a severe casualty as the commercial banks and
the reformed RRBs are interested in commercially viable medium and large
farmers and not the economically weak and socially desirable clientele, the
small and marginal farmers. This would mean that PACS as lending institutions
for agriculture have a distinct place and needs to be preserved.
In Cooperatives of all hues, credit access is available only for
members while deposits can be placed at the depositors’ own risk. Members while
taking credit also contribute to the share capital in certain agreed
proportion. States are conveniently barred from providing capital to the RCCS
beyond 25% and have been granted autonomy.
In the meantime, following the recommendations of the first
Financial Stability Report (Dr Rakesh Mohan), the DCCBs have all been licensed
under liberal capital adequacy norms by April 2013, just a year off the
scheduled date and have been brought into mainstream banking, with some of them
adopting even core banking solutions.
Deposits can be secured by the PACS but without the Deposit
Insurance Credit Guarantee Corporation of India cover. Therefore, even for
doing non-core business capital cannot be accessed by them. Once the DCCBs
seize all the assets of PACS, the later would not have any collateral to raise
the resources from other lending institutions.
The latest instruction that the Societies shall do their
non-core business only with their own capital and their core lending business
for farm and non-farm activities can be done only for and on behalf of the
DCCBs/SCBs cuts at the root of PACS on one hand, and negates the financial
inclusion agenda of the government on the other.
In the absence of PACS, the DCCBs/SCBs have to go in for
restructuring. The States have to amend
their regulations to permit the DCCBs to do direct lending to farmers by taking
them as members and shareholders simultaneously. Elections to the Boards of
DCCBs have to be held from this larger constituency and representative General
Body has to be defined in the Amended Cooperative Acts.
Depositors cannot be members as of now.
PACS today serve at best as political platform thanks to the
willful neglect of NABARD for decades to bring about financial discipline and to
protect equity among them. The States and Centre are too busy at the moment
carving out strategies for 2014 General Elections. Legal remedies also seem to
be at distance with the annulment of 97th Constitution Amendment Act
2011 except for Article 19 Section 4 (C) that only gives the fundamental right
for formation of cooperative society and the definition of such society.
Therefore, NABARD chose this time with gay abandon to dump the PACS into economic
garbage.
*The Author is Member, RBI Expert Committee on STCCS.
