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It is both strength and opportunity for cooperative banks to further financial inclusion in the country.
In one of the recent speeches, Mr Anand Sinha, Deputy Governor of Reserve Bank of India (RBI), said that many artisans, migrant labours, small businessmen, retailers etc in semi-urban and rural areas of a number of un-banked and under-banked districts in the country find it difficult to join the formal financial sector and make use of various opportunities.
He had suggested that urban cooperative banks (UCBs) take a lead in bringing them to banking network on social and economic grounds.
The client profile of UCBs today predominantly consists of priority sector segments such as small business establishments, small-scale industries, retail traders and self-employed people among others. This segment would not, normally, find it easy to access commercial banks.
The RBI’s ‘Report on Trend and Progress of Banking in India 2010-11’ put the total number of cooperative banks in the country at 97,410. Of them, 1,645 were UCBs as at the end of March 2011.
The Y.H. Malegam Committee report on licensing of new UCBs, which was submitted to RBI in August 2011, said there is need for a greater presence of UCBs in un-banked districts and in centers with population less than five lakh.
To encourage more cooperative banks in north-eastern states, the committee had suggested a minimum capital of Rs 50 lakh for those UCBs ready to operate in the northeast states.
Mr Sinha had suggested that UCBs look at 271 districts that do not have their presence. Apart from increasing UCBs spread in the country, this will give them an opportunity to participate in financial inclusion. UCBs should design their business model to be self-supporting initially, and profitable in the long run, he said. They should integrate their financial inclusion plan into their annual business plans. Adoption of appropriate and effective technology could be the key for financial inclusion efforts to succeed.
RURAL CO-OPS
But it is not all so rosy in rural cooperative banks. The country had a network 95,765 rural cooperative banks at the end of March 2010. A majority of them, around 94,647, were primary agricultural credit societies (PACS). PACS are the grassroots level rural cooperative banks.
The regional concentration of rural cooperative banks and the poor financial health of PACS limited their role in financial inclusion.
The ‘Report on Trend and Progress of Banking in India 2010-11’ mentioned that banking penetration of cooperatives remained very low in the north-eastern part of the country.
It stated that a majority of PACS are concentrated in western and eastern parts of the country. The percentage share of loss-making PACS in total number of PACS operating was highest in southern region of the country.
The report had stressed the need to further expand the base of cooperatives in the north-eastern region, and urged the need to take more efforts to improve the financial health of grassroots level rural cooperatives such as PACS in order to enhance financial inclusion.
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