State intervention, politicisation affecting their health

The declining share of co-operatives in agriculture credit is a cause for concern, RBI Governor D. Subbarao has said.

“Until the early 1990s, cooperatives provided almost 62 per cent of the agriculture credit in the country. But over the years, their share has declined, going down to 16 per cent by 2009-10,” Subbarao said at a conference on co-operatives in Pune.

Co-operatives are institutional set-ups where people come together and pool their resources to attain mutually profitable outcomes.

He said that land holding patterns, which have become fragmented to a large extent over the decades, have left a number of small and marginal farmers out of the ambit of institutional credit.

“The declining share of cooperatives in rural credit is worrisome especially since they are often the only source of support for small and marginal farmers.

“The market share of rural cooperative banks in India has been continually receding — from 7.2 per cent in 2001 to 3.7 per cent in 2010. If the share of cooperatives declines further, they may lose their role as an important player in rural credit,” he cautioned.

Subbarao said that too much state intervention and politicisation of co-operatives have adversely affected their health.

Co-operatives and Financial Inclusion

Subbarao said that the “substantial” reach and knowledge of co-operatives can be leveraged to further the aim of financial inclusion.

However, he said that co-operatives must focus on upgrading their technology and improving the quality of member participation if they are to be used to provide financial inclusion.

There is a need to treat depositors and borrowers equally, he said, referring to the overwhelming bias of co-operatives towards borrowers. “Only borrowers can become members of the cooperative. Depositors are either non-members or ‘nominal’ members with no voting rights,” he said.

There is also a need to professionalise both the governance structure and the functioning of these institutions, he added.

PTI reports: Amidst demand for easing of interest rate, the RBI Governor said inflation is “quite high” at 7.45 per cent even as the bank is conscious about economic growth.

His remarks come as headline inflation fell to an eight-month low of 7.45 per cent in October from 7.81 per cent in the previous month.

“At 7.45 per cent inflation is certainly quite high,” Subbarao told reporters on the sidelines of a function here, adding the central bank is always on “high alert” on the inflation front.

Subbarao said the RBI was also concerned about economic growth.

“We’re always on high alert, high alert about growth, about inflation certainly,” Subbarao said.

Bank licences

On the Finance Minister P. Chidambaram asking the Reserve Bank to speed up the process of issuing new bank licences, the Governor said it would be not possible without fulfilling the enabling conditions for the same.

“We have been preparing for launching this process (of issuing new bank licences) but all the ground work, all the enabling conditions for launching this work have to be fulfilled,” he told reporters.

(This article was published on November 16, 2012)
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