• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Vinson Kurian

THIRUVANANTHAPURAM, May 6

KERALA State Co-operative Agricultural and Rural Development Bank Ltd (KSCARDB), the apex co-operative for agriculture and rural development in the State, has approached the Reserve Bank of India (RBI) for permission to reorganise itself into a "unitary structure".

This would enable it to wield better control of the wayward behaviour of the 44 primary co-operatives reporting to it, according to Mr K. Sivadasan Nair, President, KSCARDB.

Speaking to Business Line, Mr Nair said that the bank is among the three State-level apex bodies selected (the others in Punjab and UP) by the Mumbai-based National Federation of Co-operative Agricultural and Rural Development Banks for applying for a special licence to change over from the existing "federal structure''.

KSCARDB has also got the concurrence of the National Bank for Agriculture and Rural Development (Nabard), the apex agri-rural bank at the national level, Mr Nair said.

Switching over to the new structure would necessitate an amendment in the Banking Regulation Act, though.

This move is being necessitated by the "irresponsible conduct" of the 44 primary co-operatives which has "virtually undone'' the excellent performance by the bank at the apex level, according to Mr Nair.

For instance, the NPAs have been brought down to as low as 0.5 per cent, while the acceptable threshold limit is five per cent.

At the primary level, however, NPAs are as high as 15.5 per cent as on March 31, 2001.

Mr Nair said that under the federal structure, the bank functions at two levels, viz., the apex institution and the 44 primaries. The primaries are represented in the general body by delegates.

In the existing system, the bank has hardly any control over the functioning of the primaries, which have their own style of management. They take all the important decisions, including recruitment, by themselves and this has led to many problems.

An inspection team of Nabard had noted that sufficient warning signals were available on the quality of assets as reflected in the poor performance of a significant number of large loan accounts disbursed during the past two years at the primary level.

KSCARDB has to lay greater emphasis on review of the asset performance at the primary level so that the quality of credit facilities is maintained.

The Nabard team also observed that several deficiencies in classification of NPAs had come to light, particularly in the case of multiple credit facilities to the same member.

The bank will have to scrutinise the asset classification done by the primaries to ensure that the Income Recognition and Asset Classification (IRAC) norms are scrupulously followed.

This would go a long way in establishing sustainable quality level in the assets of the primaries on a long-term basis.

Mr Nair said that this level of monitoring is not possible with the federal structure in vogue.

Under the unitary structure system, however, the primaries will cease to function as separate entities and will instead become "branches'' of the KSCARDB.

On whether the bloated NPAs of the primaries would not get reflected in the consolidated balance sheet, Mr Nair said that he did not care as long as this fetched him better control over the primaries in the bargain.

`Drastic changes need of the hour'

ACCORDING to Mr Sivadasan Nair, drastic changes need to be effected in the way banks conduct themselves if they wanted to survive tough competition.

A Nabard inspection team to KSCARDB had noted: "As a well-established apex institution that is financially sound and enjoying the benefit of a motivated staff and responsible leadership, it is the right time and situational position for KSCARDB to set itself on a reform course and transform itself from a co-operative society to co-operative corporate."

He added: "The management may initiate a dialogue with leading practitioners engaged in successful co-operative systems in the country.''

But, Mr Nair stopped short of endorsing the "co-operative company'' or the "producer company'' model being pursued by multi-State co-operative megaliths such as Gujarat State Co-operative Milk Marketing Federation (GSMMF) of Anand fame and Kribhco/Iffco.

Under this model, the co-operative character of the institution would be lost and profit motive would alone be the driving force.

"The institution ceases to become a co-operative body altogether, which works at cross-purposes with established principles," he said.

Send this article to Friends by E-Mail

Stories in this Section
Re stays strong; gilts gain

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line