Abstract
This paper analyses the factors governing loan recovery performance of the primary agricultural credit societies in 19 states of India during 1997–2005. The paper's main finding is that the government's contribution to equity capital of credit societies is detrimental to their recovery. Increase in member size and rising proportion of non-borrowing depositors also adversely affect their recovery.
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Notes
Indian cooperatives also fare poorly in terms of revenue or contribution to GDP among the countries in the Global 300 Project of the International Cooperative Alliance (ICA).
As a number of PACS are affiliated to one DCCB, the latter absorb funds of those PACS that have surplus funds and lend to those PACSs that are in need of funds. In this way, the DCCBs were supposed to act as a balancing centre of funds for the primary credit societies.
India is made up of administrative units known as ‘states’. Geographical contiguity is the basis for classification of regions, which comprise of a number of states. Each state has its own political system and a democratically elected government. The village level PACS in the states are under dual control. They are governed by the legal prescriptions of the concerned state in matters relating to their constitution and governance and also by some statutory financial regulator for their banking activities.
The multi-agency framework in India consists of commercial banks, regional rural banks (RRBs) and cooperative banks.
The All India Rural Credit Survey committee (AIRCS) was appointed to take stock of rural finances in 1951. The committee submitted its report in the year 1954.
These states are Bihar, Chhattisgarh, Jammu and Kashmir, Jharkhand, Karnataka, Madhya Pradesh, Orissa and Uttaranchal.
The Vaidyanathan Committee had the mandate to recommend an implementable action plan for reviving rural cooperative banking institutions.
There has been certain amount of dilution in the stipulations laid down by the Vaidyanathan Committee in the Memorandum of Understandings (MoUs) that are signed by the cooperative banks with National Bank of Agriculture and Rural Development (NABARD), the state government and the central government. The states are eligible for financial assistance only after they sign the MoUs.
The cooperative sectors’ loans are around 3.5% of those of commercial banks in India. To get a comparative perspective, the Italian cooperative banking sector account for about 30% of both the loans and deposits of the Italian banking system (Gutiérrez, 2008).
Unorganised and informal sources include village moneylenders, friends and relatives.
A self-help group (SHG) is a registered or unregistered group of micro entrepreneurs having homogenous social and economic backgrounds. They voluntarily contribute small amounts regularly to build a common fund and meet their emergency needs on mutual help basis. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and its timely repayment. http://www.rbi.org.in/scripts/FAQView.aspx?Id=7
Out of 290 reporting banks, 73% of banks had more than 80% recovery rate on loans given to SHGs as on 31 March 2007.
This was suggested by the Lord MacLagan Committee on Cooperation in the year 1915.
In India, the government defines a composite category of activities as the priority sector. It is obligatory for the financial institutions to allocate a specific percentage of their total loan portfolio to the priority sector. Loans to agriculture, small, medium and micro enterprises, rural housing and so on are considered as part of lending to the priority sector.
This in a way testifies the appropriateness of employing the extended dynamic model for estimation.
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Acknowledgements
The author is grateful to Shri Tushar Kanti Panda, Chief General Manager, Orissa State Cooperative Bank for very useful discussion and thought provoking comments on the paper.
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Misra, B. What Ails Primary Credit Cooperatives in India?: A State Level Analysis. Comp Econ Stud 51, 384–400 (2009). https://doi.org/10.1057/ces.2009.6
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DOI: https://doi.org/10.1057/ces.2009.6