RBI panel for reducing govt control over coops

Mumbai, August 2: A Reserve Bank of India RBI task force set up to study the cooperative credit system has suggested the need for reduci...

Mumbai, August 2: A Reserve Bank of India RBI task force set up to study the cooperative credit system has suggested the need for reducing government control over cooperatives, giving maximum autonomy to these institutions and recommended that the cooperatives should be regulated under the Banking Regulation Act.

The task force headed by RBI deputy governor Jagdish Capoor also recommended structural changes for the cooperatives which included an exit route for unviable units and merger of long-term and short-term cooperative credit structures. In case a merger is not possible, both type of institutions be allowed to handle long-term as well as short-term credit, the four-member taks force said.

Emphasising the need to strengthen the base level institutions, the task force recommended rehabilitation of potentially viable units through a package of measures which encompasses financial, operational, organisation and systemic aspects. The rehabilitation should be unit-specific and not across the board. 8220;It should be taken up after studying the viability and possibility of turnaround in five to seven years,8221; it said.

The financial burden of rehabilitation would be shared by members contributing 20 per cent of the costs by mobilising additional share capital. The balance amount would be provided by the Union and state governments by way of interest bearing bonds to be redeemed in a phased manner. The task force report did not recommend share capital contribution from the governments.

In this contest, the task force suggested setting up a cooperative rehabilitation and development fund at NABARD by contribution from the Union government and another mutual fund assistance fund at state level by contribution from cooperative institutions in the state concerned.

The report was submitted to the Union Finance Minister Yashwant Sinha on July 24.

The report exhorted state governments to adopt model cooperative societies act or dovetail the essential features of the model act in their respective state cooperatives with least interference from state government and leaving banking functions clearly under the governance of Banking Regulation Act.

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It has called for effective supervision of lower tiers of the cooperative credit system by the higher tiers and introduction of audit of cooperatives by chartered accountants. It also recommended that societies should be run professionally on business principles and that interest rate spread available to them should be adequate to meet costs, leaving some surplus. Cooperative banks should have freedom to take investment decisions without the prior clearance from registrar of cooperative societies.

It has further recommended that government should provide support to the cooperative banks in their recovery effort and should desist from providing across the board interest subsidy or making loan waiver announcements. A committee approach to write off what is clearly not recoverable and compromise settlements is suggested.

It has suggested that the provisions of the existing debt recovery tribunals may be made applicable to cooperative banks also where loan size is more than Rs one lakh so as to expedite recovery of chronic overdues.