Nabard red alert to cooperatives on capital adequacy norm

Strident opposition of cooperatives in the State to abiding by capital adequacy norm by the June-30 deadline is likely to land them in big trouble.

National Bank for Agriculture and Rural Development (Nabard) has sounded out a red alert on this front, asking them to shape up or risk being disconnected with the banking mainstream.

MAINTAINING CAPITAL

Capital adequacy norm prescribed by the Reserve Bank of India, the banking regulator, requires them to maintain capital at the level or Rs 4 for every Rs 100 lent.

R. Amalorpavanathan, chief regional manager, Nabard Kerala office, told newspersons here that it was high time stakeholders and the State Government sat together to find a way out.

June 30 is the deadline for meeting the first milestone of four per cent in the capital adequacy roadmap, he said.

Full adequacy would involve achieving progressive milestones of seven per cent by March, 2014, and nine per cent by 2015.

It would be foolhardy to expect that the regulator would make any exception from these rules for a single State.

ROOT PROBLEM

Failure to achieve these would mean that cooperatives would not be allowed to participate in the payment clearance system and not able to transact business.

There won’t be access to claims on the network anymore, Amalorpavanathan said.

“Capital adequacy is a stipulation of the regulator. Nabard cannot do anything with it; it’s just a supervisor of the sector.”

The objective was to ensure safe, secure and stable means for transacting financial business.

Amalorpavanathan traced the root of the problem to the State’s continued opposition to implementing the Vaidyanathan committee package addressed to cooperatives.

As part of the package, the Centre was willing to provide adequate funds to cooperatives to initiate essential reforms and clean up finances.

PERIODIC INFUSION

This would not be a one-shot affair; in fact, there would be periodic infusion to ensure that the cooperatives did not fall back on their old ways.

It was also meant to be a starting point on the long road to joining the banking mainstream. Unfortunately, Kerala had decided not to accept the recommendations.

It was only frontline State to reject the idea. The result is that State’s cooperatives find themselves at the receiving end, Amalorpavanathan said.

The problem had cropped up at the worst time, coinciding as it did with launch of direct benefit transfer scheme, in which entitlements are being made available through beneficiary accounts in banks.

Nabard was willing to sit with representatives of the State Government and stakeholders to hold continuous discussions to settle the matter.

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