Report of the Expert Committee (Chairman: Dr. Prakash Bakshi, Chairman, NABARD) on Streamlining of Short Term Co-operative Credit Structure (STCCS)

Date : 24 Jan 2013

The Reserve Bank of India released on its website today, the report of the Expert Committee (Chairman: Dr. Prakash Bakshi, Chairman, NABARD) constituted to review the existing Short Term Cooperative Credit Structure (STCCS) focusing on structural constraints in rural credit delivery system and explore various ways to strengthen the rural cooperative credit architecture with appropriate institutions and instruments of credit to fulfill credit needs. The Committee made an in-depth analysis of the STCCS and examined various alternatives with a view to reducing the cost of credit, including feasibility of setting up of a two-tier STCCS as against the existing three-tier structure.

Major Recommendations of the Committee

By adopting a wide and exhaustive consultation process, the Committee identified key issues facing diverse segments and sections of cooperative credit structure; examined them thoroughly. Some of the important observations/ recommendations made by the committee include;

i. For providing safety of deposits and efficient loan services to farmers, the Committee has recommended that PACS should work only as business correspondents (BCs) on behalf of banks and should not themselves act as financial intermediaries. In addition, PACS should provide a range of other fee based financial and non-financial products. The immediate consequence of such a change would be that all depositors and borrowers in villages would become direct member clients of the CCBs.

ii. The Committee observed that 238 of the 370 CCBs in the country already have CRAR of 7% or above, and about two thirds of them would be able to internally generate enough capital to maintain a sustainable CRAR of at least 9% by 2016-17. About 209 of the 370 CCBs would require additional capital aggregating Rs 6,500 crore in four years to attain 9% CRAR by 2016-17. It is estimated that despite these measures, about 60 CCBs will not become sustainable and would need to be merged with other CCBs. The Committee has suggested a roadmap for such an exercise.

iii. Some of the CCBs do not have adequate capital to meet even the relaxed licensing norm of 4% CRAR. The Committee recommends that 31 March 2013 may be set as the deadline for these banks to mobilise the required capital either internally or from any other external source so as to achieve 4% CRAR, failing which RBI should take the necessary regulatory action.

iv. The Committee has also estimated that about 58 CCBs would generally not be able to mobilise the required capital, or their business sizes are so small that they would not be sustainable in the long run and would have to be therefore consolidated with other CCB(s).

v. Most of the CCBs and StCBs will also have to take concrete steps to improve their internal systems, human resources, and technology adoption. The Committee has also recommended various steps for improving the governance and management in StCBs and CCBs on the lines of recommendations of the Vaidyanathan Task Force.

vi. RBI to modify banking licence of any CCB to include additional operational area from which a PACS could work as BC of a CCB.

vii. 30 September 2013 to be set as deadline for all StCBs and CCBs to be fully operational on CBS and providing RTGS, NEFT, ATM and POS device based services.

viii. StCBs and CCBs to be fully included in the financial inclusion and EBT drive. Deposits of governments and government agencies to be also made in StCBs and CCBs which have achieved 7% CRAR and are on CBS.

ix. CCBs and StCBs to be covered by the banking Ombudsman or a similar mechanism that may be developed by RBI with NABARD.

x. A working group to be set up to make recommendations on the human resources requirements following the transition of StCBs and CCBs on CBS and other ICT platforms.

The recommendations of the Committee are expected to have significant impact in addressing issues related to cooperative credit structure.

Ajit Prasad

Assistant General Manager

Press Release : 2012-2013/1253

Short-term cooperative credit structure reform: PACS as BCs, CRAR targets, mergers and CBS deadlines, capital mobilization and governance changes. The Committee requires CCBs and StCBs to attain phased CRAR targets (7% by 2014 15, 9% by 2016 17), estimates additional capital needs for 209 CCBs (aggregate about Rs.4,000-6,500 crore under scenarios) and identifies about 58 CCBs likely unsustainable without consolidation. It mandates PACS to function as business correspondents of banks (with village depositors/borrowers becoming direct CCB clients), prescribes capital mobilisation instruments (interest bearing capital deposits, perpetual bonds, enhanced loan linked shares, temporary Tier II recognition), sets deadlines (31 March 2013 for sub 4% CRAR remediation; 30 September 2013 for CBS/RTGS/NEFT/ATM/POS), and proposes governance and statutory changes to strengthen regulation, elections, auditor panels and grievance redressal.