The Hindu Business Line : Nabard renews call to trace big loans by State Co-op Bank

Thiruvananthapuram April 16 The State Government has been advised to expedite the inquiry recommended by the Chairman of the National Bank for Agriculture and Rural Development (Nabard) to investigate all big loans issued by the Kerala State Cooperative Bank (KSCB) over the past few years.

In a communication addressed to the State Cooperative Minister, the outgoing Chief General Manager of the Nabard Regional Office, Mr B.S. Shekhawat, also demanded scrapping of powers enjoyed by the executive committee to sanction such large loans.

Non-performing assets

These loans were taken without banking safeguards and sometimes against recommendations of the loan department.

Mr Shekhawat also expressed serious concern over the mounting non-performing assets on the books of the KSCB, which touched Rs 440 crore (or 26 per cent) as on March 31, 2006.

The NPAs were still rising, and worse, these NPAs had not resulted from crop loans to farmers, but pertained to high-value advances to other sectors and high-profile borrowers.

As a follow-up of the Centre's decision to ensure crop loans to farmers at a rate not exceeding 7 per cent, Nabard had issued policy guidelines to the KSCB in June 2006. The apex bank later decided to allocate higher amount and doubled the refinance to Rs 650 crore during 2006-07 at 2.5 per cent.

Seeking to settle the controversy over drawals, Mr Shekhawat clarified that no application was received from KSCB until September 2006, despite constant follow-up. Neither did it approach Nabard for any additional limit during 2006-07.

Interest rates

Faulting the State Government's policy of tweaking interest rates, he said the Centre compensates cooperatives through interest subvention of 2 per cent on the amount involved from their own resources.

It has been left to the cooperatives in the State to cross-subsidise the loss by other business, where in fact they actually incur NPAs thanks to limited banking experience and inadequate competence in financial management.

Nabard no longer gets subsidised funds from the Reserve Bank for financing crop loans to co-operatives. It mobilises resources from the market at commercial rates of interest and lends to co-operatives at concessional rates of interest, thanks to the interest subvention provided by the Centre.

It is, therefore, of utmost important to watch the proper end use of the money. Nabard brings all its resources from outside Kerala to deploy them in its farm sector. Unlike banks, it does not mobilise deposits from within the State.

revival package

The KSCB and a majority of the district co-operative banks need professional and competent management at the top to run a bank worth Rs 3,500 crore. The implementation of the Centre's revival package is relevant in this regard.

Nabard's role and its mandate is not only restricted to financially assisting co-operatives by funding them but also includes constantly monitoring their performance and operational efficiency. As a policy, the flow of funds is directly linked to the functioning of co-operative banks.

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Nabard renews call to trace big loans by State Co-op Bank