NAFCARD Chairman Dollar Kotecha met NABARD Chairman Shaji KV at NABARD’s Mumbai headquarters last week to discuss concerns over the NABARD Consultancy Services (NABCONS) report on restructuring Agricultural and Rural Development Banks (ARDBs).
The report recommends merging unviable State Cooperative Agriculture and Rural Development Banks (SCARDBs) with State Cooperative Banks and integrating Primary Cooperative Agriculture and Rural Development Banks (PCARDBs) with District Cooperative Banks.
During the meeting, Kotecha raised critical concerns about the feasibility and impact of these proposed mergers, emphasizing the need for a more inclusive approach that ensures financial sustainability across the cooperative banking sector. The discussion also addressed regulatory challenges, operational risks, and stakeholder concerns in implementing the restructuring plan.
The Federation Board has suggested that the Ministry of Cooperation (MOC) take steps to implement reforms outlined in Chapter 16 of the report, which aim to provide SCARDBs and PCARDBs with a supportive legal and policy framework. These reforms, combined with ongoing computerization efforts, are expected to help the institutions achieve financial sustainability over three to five years.
Nafcard expects that the implementation of reforms suggested by NABCONS will help weak units become viable and recommends experimenting with restructuring options after giving them at least three years to achieve a turnaround.
The restructuring proposal includes the liquidation of 324 PCARDBs across seven states, which collectively had outstanding loans of Rs 11,000 crore in 2022-23. If these PCARDBs are liquidated, the respective SCARDBs would need to make full provisions for these loans as lost assets, pushing them into heavy financial losses and making their merger with State Cooperative Banks (SCBs) challenging.
The report highlights that merger or liquidation decisions based solely on accumulated losses are impractical.
Out of 13 SCARDBs, Gujarat, Uttar Pradesh, Puducherry, Tripura, and Jammu & Kashmir follow a unitary long-term credit structure, while six states—Haryana, Karnataka, Kerala, Punjab, Rajasthan, and Tamil Nadu—have a federal structure.
Himachal Pradesh and West Bengal have a mixed system. The report suggests liquidating SCARDBs and PCARDBs in Haryana and Himachal Pradesh due to financial unsustainability, while Jammu & Kashmir SCARDB could also face liquidation, with its branches being attached to the State Cooperative Bank.
Puducherry and Tripura SCARDBs may be merged with the Short-Term Cooperative Credit Structure (STCCS), with financial support to clear losses.
The report also recognizes Gujarat and Uttar Pradesh SCARDBs as financially sustainable and suggests they may be considered for banking licenses.
The future of SCARDBs remains uncertain, with states like Kerala, Tamil Nadu, and West Bengal opposing mergers and advocating for revival, while others like Punjab and Karnataka seek government support. A balanced approach is necessary to ensure financial sustainability while protecting cooperative banking institutions and their stakeholders.
The circumstances under which SCARDBs and PCARDBs were established have changed now. On the lines of RRBs one state one Agriculture Cooperative Bank policy may be adopted. This system may be granted as full fledged banks adopting technology with licenses. These banks can also participate in eNAM, NeML, and NeRL operations.
Bad loans, political interference, slack oversight by superior authorities, quota recruitment, casual attitude of staff, delaying judiciary, etc., are the reasons for the crumbling of credit institutions. Money like other elements has to treated firmly and with respect. Today, these two factors are serious absent.
Merging these failed institutions with not so strong ones wud cause the latter also, to fail.
Too much of politics will lead to failure as Admin comes to a standstill.
Ramu, Bangaluru. 13mar24