Financial Daily from THE HINDU group of publications
Sunday, Jan 08, 2006
Financial Daily from THE HINDU group of publications Sunday, Jan 08, 2006 |
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Money & Banking
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Co-operatives Government - Policy Co-operative credit revival package — Govt gives `in-principle' nod for Vaidyanathan panel report Our Bureau
New Delhi , Jan. 7 THE Government has given an "in-principle" nod for the implementation of the report of the Task Force on the `Revival of short-term rural co-operative credit structure' that was chaired by Prof. A. Vaidyanathan. This has been disclosed in a letter sent by the Union Finance Minister, Mr P. Chidambaram, to the Chief Ministers of States and heads of Union Territory Governments here on Saturday. Mr Chidambaram has in the letter expressed hope that the States and the Union Territories would implement the package and also confirm the same to the Union Government at the earliest. The Finance Minister said that a draft Memorandum of Understanding (MoU) would shortly be sent to the States for consideration and implementation. The revival package seeks to (a) provide financial assistance to an acceptable level of health; (b) introduce legal and institutional reforms necessary for their democratic, self-reliant and efficient functioning; and (c) take measures to improve the quality of management. It has been emphasised that all three components are equally important and should be treated and implemented as an integrated package. As per the financial package, the proposed financial assistance is a one-time measure only. States would have the option to participate or not to participate in the package. Those opting to participate would be entitled for financial package if they agree, through the mechanism of a formal MoU or exchange of letters with the Union Government, to implement (in a phased manner and within a period of three years) legal and institutional reforms envisaged. The liability for funding the financial package would be shared by the Union Government, State governments and the co-operative credit structure on the basis of the origin of loss and existing commitments. While the Centre will provide its share as grants, the States are expected to meet their share from their budget or by open market borrowing. The Centre will also consider assistance on more liberal terms for special category States and for specified scheduled areas and tribal areas to meet their liability under the package. Financial restructuring would first start with the Primary Agriculture Cooperative Societies (PACS) by bringing them to an acceptable level of financial health through cleansing of their balance sheets and strengthening their capital base, and then move on to upper tiers. This move would enable these societies to clear their dues to the upper tiers, and, thereby, reduce the accumulated losses of district central cooperative banks (DCCBs). These banks will thereafter be provided assistance to clear the balance of accumulated losses, if any, and to reach a minimum norm of capital adequacy. The same process will apply to the State Cooperative Banks (SCBs). The magnitude of the accumulated losses will be determined by special audits of all the societies in the co-operative credit structure using uniform criteria and standards. The Centre will bear 100 per cent of the losses arising out of direct credit business of PACS, 100 per cent of the losses arising out of the agricultural credit business of DCCBs and SCBs. It will also bear a portion of the losses out of non-agricultural credit business, 50 per cent of the losses due to public distribution system (PDS) and input distribution undertaken in pursuance of national policy, the requirement of resources to raise capital to risk weighted assets ratio to 7 per cent, and the full cost of human resource development, computerisation and improving accounting systems. State governments will bear 50 per cent of the losses on account of PDS and input distribution, all dues pertaining to invoked and un-invoked guarantees and other receivables, and a portion of losses out of non-agricultural business of DCCBs and SCBs.
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