Challenges Before Co-Operative Banks

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    CHALLENGESBEFORE

    CO-OPERATIVEBANKS

    By:-

    Mr B. SinghVice Principal,

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    CHALLENGES BEFORECOOPERATIVES

    Identity.

    Competition from CBs and also UCBs.

    Technological advancements.

    Professionalism and core area of competence. Business diversification.

    Resource mobilization.

    Government support and control.

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    PROBLEMS BEING FACED BYCOOPERATIVES

    FINANCIAL IMPAIRMENT Mounting NPAs.

    Accumulated losses.

    Non compliance with section 11 of BR Act. Erosion of deposits.lar

    Dwindling market share.

    HUMAN RESOURCES No regular recruitments- ageing staff.

    Inadequate qualification as compared to their peers.

    Lack of capacity building of staff.

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    PROBLEM BEING FACEDBY COOPERATIVES

    GOVERNANCE IMPAIRMENTS Non conduct of elections for long time. Delay in audit. Intrusion of the state in to the financial and

    managerial matters of STCCS.

    MANAGERIAL IMPAIRMENTS Deputation of govt. officials in managerial

    position.

    Common cadre No relation between staffing pattern and business. Interference in operational decision making. Poor housekeeping.

    Weak MIS.

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    REVIVAL PACKAGE: OBJECTIVE

    Provide financial assistance to bring thesystem to an acceptable level of health.

    Introduce legal and institution reformsnecessary for their democratic, self-reliant andefficient functioning; and

    Take measures to improve the quality ofmanagement.

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    REVIVAL PACKAGE:APPROACH

    Financial assistance-one timemeasure only.

    Conditional- legal andinstitutional reforms.

    States had an option to

    participate-MoU.States given 2 years to take adecision.

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    REVIVAL PACKAGE:LEGALREFORMS

    Reforms in cooperative society Act

    Full voting rights to all users incl.depositors.

    Ensure periodic election and audit,introduce criteria for eligibility tocontest, and limit powers to supersedeBoards.

    Remove administrative interventionsof State Govt. in the financial affairs ofthe cooperatives. Withdraw any otherrestrictive orders.

    Prohibit Govt. share capital in CCS.

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    Prohibit Govt. participation in boards.

    Define and distinguish roles of Boards andExecutive clearly.

    Permit wider access for borrowing and investment.

    Delimit geographical restriction and permit widerchoice for affiliation to upper tiers.

    Cede full financial regulatory powers to RBI forcooperative banks.

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    REVIVAL PACKAGE: LEGAL REFORMS

    Major recommendation for RBI & GoI

    BR Act to be amended to bring coop. banks onpar with comm. Banks while protecting theirdemocratic character.

    Amendments to encompass:-

    Fit and proper criteria for eligibility ofindividual to contest election to the boards ofcoop banks+cooption of professional withvoting rights if not so elected.

    Minimum qualifications for CEOs and approvalof their names

    Introduction of CRAR norms in a phasedmanner.

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    Prohibiting any cooperative other than acooperative bank as approved by RBI fromusing the words bank, banking cooperativeor banking society.

    Prohibiting acceptance of public deposits byany cooperative other than a cooperativebank as approved by RBI.

    Empower NABARD suitably to further improve

    effectiveness of its supervision.

    REVIVAL PACKAGE: LEGALREFORMS

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    VAIDYANATHAN COMMITTEERECOMMENDATION

    MEETING THE ACCUMULATED LOSSES

    PACS Accumulated losses due to all credit business to

    be fully covered by GoI grant.

    Losses due to non-credit business like PDS, tradingetc. to be fully met by state govt State govt. may avail soft loan form GoI if needed

    DCCBs Balance accumulated losses due to credit business

    (to PACS+ other member societies)to be shared bystate govt. and GoI (sharing pattern indicated inthe report)

    Losses due DCCBs to be borne by DCCB itself DCCB may avail soft loan form GoI if needed.

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    MEETING THE ACCUMULATED LOSSES (Cont.)

    The central Government will bear 100% of thelosses arising out of direct credit business of PACS.

    100% losses out of the agricultural credit businessof DCCBs and SCBs and a potion of their losses out

    of non agricultural credit business, 50% of the losses due to PDS and 8input

    distribution undertaken in pursuance of nationalpolicy,

    The requirement of resources to raise CRAR to 7%, Full cost of technical assistance for human

    resources development, computerisation andimproving accounting system.

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    IMPLEMENTATION MECHANISMAt national level

    A national steering Committee reporting to thefinance Minister every quarter.

    With representatives of GoI (MoF- FS), GoI(MoA),NABARD,RBI , two representative of stategovts. Which are under review, two eminent cooperators

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    At state level

    A state level Implementation and Monitoring

    Committee (SLIC) comprising Secretary Finance(chairman), Secretary (Cooperation), RCS,MD(SCB),ED NABARD , and a CA as members

    At District level (for PACS & DCCBs) A district level implementation committee (DLIC)

    comprising representatives of NABARD (chairman),and RCS,DCCB and a CA as member

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    Lack of adequate quantities of risk

    capital

    Lack of long-term finance to pay for

    creation of the necessary

    infrastructure and pre-operative

    expense

    Lack of well trained staff in adequate

    numbers at all levels

    LIMITATIONS TO GROWTH

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    LIMITATIONS TO GROWTH

    Globalization

    Lack of innovation

    Technology

    MIS

    Cash handling

    Data capture and subsequent management

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    CO-OPERATIVE BANKSSWOT ANALYSIS (1 OF 2)

    WeaknessWeakness

    Lack of professionalism: The

    members lack right training and

    educations that is necessary for

    customer satisfaction

    Lack of infrastructure: The banks

    lack in implementation of latest

    technology such as ATMs and

    computers

    Lack of technical knowledge: The

    members generally lack domaincertification i.e. financial degrees etc.

    Small area of operation: The bank

    operates only in a limited area

    Lack of professionalism: The

    members lack right training and

    educations that is necessary for

    customer satisfaction

    Lack of infrastructure: The banks

    lack in implementation of latest

    technology such as ATMs and

    computers

    Lack of technical knowledge: The

    members generally lack domaincertification i.e. financial degrees etc.

    Small area of operation: The bank

    operates only in a limited area

    StrengthsStrengths

    Ownership: Members are the owners

    and customers of the banks

    Business among members: The

    bank focuses on the development of

    their members

    Trust within the members: Trust is

    the key factor for effective functioning

    of a cooperative bank

    Affordable interest rates: The

    bank offers Loans at reasonable

    interest rates to their members

    Ownership: Members are the owners

    and customers of the banks

    Business among members: The

    bank focuses on the development of

    their members

    Trust within the members: Trust is

    the key factor for effective functioning

    of a cooperative bank

    Affordable interest rates: The

    bank offers Loans at reasonable

    interest rates to their members

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    ThreatsThreats

    Competition: Increasing focus of

    commercial banks towards untapped

    rural sector

    Increasing interest rates:

    Increasing inflation and liquidity

    fluctuation results in rise in interest

    rate by the RBI

    Small network for operation:

    Unlike commercial banks, the

    cooperative banks operates in alimited area

    Changes in Technology: Unable to

    adapt to rapid changes in

    technological environment

    Competition: Increasing focus of

    commercial banks towards untapped

    rural sector

    Increasing interest rates:

    Increasing inflation and liquidity

    fluctuation results in rise in interest

    rate by the RBI

    Small network for operation:

    Unlike commercial banks, the

    cooperative banks operates in alimited area

    Changes in Technology: Unable to

    adapt to rapid changes in

    technological environment

    OpportunityOpportunityLarge untapped area for

    Expansion: As in India, the major

    part of the population lives in villages

    Trust in Cooperatives: Better

    understanding among the memberand the rural customer

    Linkage of Cooperatives: Direct

    connection with RBI and other

    cooperatives

    Government Support: The

    government offers subsidies to the

    cooperative banks that is in turn

    transferred to the customers

    Large untapped area for

    Expansion: As in India, the major

    part of the population lives in villages

    Trust in Cooperatives: Better

    understanding among the memberand the rural customer

    Linkage of Cooperatives: Direct

    connection with RBI and other

    cooperatives

    Government Support: The

    government offers subsidies to the

    cooperative banks that is in turn

    transferred to the customers

    CO-OPERATIVE BANKSSWOT ANALYSIS (2 OF 2)

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    THANK YOU