The task force has observed that any financial restructuring without addressing the root causes of the weaknesses of the cooperatives would not result in a sustained revival of the system. It has recommended that the approach for financial restructuring should be contingent on commitment to and implementation of legal and institutional reforms.
The consultative committee in its background note, which has been circulated to its members, has said that the Reserve Bank of India (RBI) has broadly concurred with the recommendations of the task force regarding the financial package, institutional restructuring and qualitative improvement in personnel at all tiers and at all levels. RBI has suggested several options in respect of the regulatory framework which it recommends to be explored carefully before taking a final decision.
According to the background note, the financial position of the cooperative system is weak and deteriorating. The accumulated losses of primary agricultural cooperative societies (PACS) is estimated at Rs 4,595 crore as on March 31, 2003.
The position of district central cooperative banks (DCCBs) is also equally unsatisfactory with accumulated losses aggregating Rs 4,401 crore and erosion in deposits being Rs 3,100 crore.
In view of such financial impairment, cooperative have been steadily losing their capacity to meet the rapidly growing credit needs of agriculture. In the early 1990s, they accounted for over 60% of the total institutional credit to agriculture, while currently their share has fallen to about one third.
The accumulated losses of state cooperative banks (SCBs) aggregate Rs 281 crore. Most of these losses are expected to get wiped out after the financial package is implemented and losses of PACs and DCCBs are covered. The residual losses will be, however, covered. The task force has recommended a contingency fund of Rs 4,000 crore to take care of this issue.
The task force has recommended that the state-run National Bank for Agriculture and Rural Development (Nabard) be designated as the implementing agency for the scheme. However, for monitoring the implementation of the scheme at all levels, implementing and monitoring committee be constituted.