The new banking protocol prescribed by the Reserve Bank of India for the cooperative sector is feared to bring agriculture lending to a complete halt and render the 1,602 primary cooperative banks in the State redundant from July 1. Banking sector sources told The Hindu that the regulator bank had not yet given a specific direction that the National Bank for Agriculture and Rural Development (Nabard) should stop refinancing cooperative banks which refused to comply with the new protocol but the onus had squarely been placed on the latter to ensure strict compliance from July 1.
No serious discussions had been held so far for finding an alternative to the crisis set to loom large over the agriculture sector.
The cooperative banks had been told to abide by the regulations, starting with four per cent capital adequacy by June 30 and raising it to nine per cent by 2015.
The banks would then have to maintain a capital of Rs.4 for every Rs.100 lent. In due course, the banks would also have to be part of the special business process for retail payments set up by the National Payments Corporation of India and Real Time Gross Settlement system by September 30. These were meant to set the ground for introducing direct cash transfer to beneficiaries and ensuring that farm loans were given only to those having Kisan Credit cards.
A joint study by the RBI and the Centre for Socio-Economic and Environmental Studies, Kochi, on ‘How the poor manage their finances’ had revealed that the cooperative banks continued to hold sway over commercial banks in rural areas.
The commercial banks seemed to suffer from a perception problem. They were not considered as a friendly neighbourhood institution on which the rural poor could rely for their financial requirements.
The cooperative societies had done much better possibly because of the borrowers’ familiarity with the functionaries of the society living in the same village.
Overlooking the significance of the cooperative sector, if a decision was made for routing all payments, including loans, through the commercial banks which continued to be an unfamiliar terrain for the small and marginal farmers, the farmers may not be able to continue their banking operations at ease. The proposed regime is feared to keep off marginal farmers who have not yet familiarised themselves with the new system and thus upset the entire farm sector.