NATIONAL FEDERATION OF STATE COOPERATIVE BANKS LTD.
Published on: Mar 3, 2016
Transcripts - NATIONAL FEDERATION OF STATE COOPERATIVE BANKS LTD.
NATIONAL FEDERATION OF STATE COOPERATIVE BANKS LTD.
Vashi, Navi Mumbai
1. HIGHLIGHTS OF THE UNION BUDGET FOR THE YEAR 2008-09 -
ANALYSIS FROM THE POINT OF VIEW OF NAFSCOB
A. HIGHLIGHTS OF BUDGET
Union Budget for the year 2008-09 was presented by Shri P. Chidambaram,
Union Finance Minister on 29-02-2008. The highlights of the Union Budget for the year
2008-09 pertaining to North-Eastern Region, agriculture, cooperative credit structure,
debt waiver & debt relief, Rural Infrastructure Development Fund (IRDF), Financial
Sector, NABARD, Direct Taxes etc, are as follows:
North Eastern Region
The North Eastern Region (NER) will continue to receive special attention and
enhanced allocations. It is proposed to provide Rs.1,455 crore to the Ministry of
Development of North Eastern Region (DONER). Including that amount, the total
Budget allocation for NER, spread over different ministries/departments, will increase
from Rs.14,365 crore in 2007-08 to Rs.16,447 crore in 2008-09.
The North Eastern Region and, especially, Arunachal Pradesh and the border
areas face special problems that cannot be tackled in the usual course or through normal
schemes. Hence, Government proposes to identify the urgent needs of these areas and
address them through a special mechanism. In order to jumpstart the process, the Union
Finance Minister proposed to set apart a sum of Rs.500 crore in a fund dedicated for the
Notwithstanding some shortcomings, the growth of agricultural credit has been
impressive and for this Union Finance Minister thanked scheduled commercial banks and
Regional Rural Banks. Between them, they account for about 75-79 per cent of
agricultural credit disbursed during any year. It exceeded the target set for 2007-08. For
2008-09, it is proposed to set a target of Rs.280,000 crore.
Short-term crop loans will continue to be disbursed at 7 per cent per annum and
the Union Finance Minister has made an initial provision of Rs.1,600 crore for interest
subvention in 2008-09.
Investment in Agriculture
What ails agriculture, among other things, is the fall in investment. However,
there seems to be a turnaround. Gross Capital Formation (GCF) in agriculture as a
proportion of GDP in the agriculture sector has improved from a low of 10.2 per cent in
2003-04 to 12.5 per cent in 2006-07. This, however, needs to be raised to 16 per cent
during the Eleventh Plan to achieve the target growth rate of 4 per cent.
Pending a decision on an alternative crop insurance scheme that is acceptable to
the farmers as well as viable to the insurer, the National Agriculture Insurance Scheme
(NAIS) will be continued in its present form for Kharif and Rabi 2008-09. It is proposed
to provide Rs.644 crore for the scheme.
In addition, the Weather Based Crop Insurance Scheme that is being implemented
as a pilot scheme in selected areas of five States will be continued. Union Finance
Minister intended to provide Rs.50 crore for this purpose in 2008-09.
Government will continue to provide fertilisers to farmers at subsidized prices.
Government is examining proposals to move to a nutrient based subsidy regime and
alternative methods of delivering the subsidy.
Cooperative Credit Structure
The Prof. Vaidyanathan Committee's report on reviving the short-term
cooperative credit structure is under implementation in 17 States. So far, a sum of
Rs.1,185 crore has been released by the Central Government to four States. Union
Finance Minister was happy to report that the Central Government and the State
Governments have reached an agreement on the content of the package to implement the
Prof. Vaidyanathan Committee's report on reviving the long-term cooperative credit
structure. The cost of the package is estimated at Rs.3,074 crore, of which the Central
Government's share will be Rs.2,642 crore or 86 per cent of the total burden.
Debt Waiver and Debt Relief
While the Union Finance Minister was confident that the schemes and measures
that he has listed above will give a boost to the agriculture sector, the question that still
looms large is what should be done about the indebtedness of farmers. Government had
appointed a Committee under Dr. R. Radhakrishna to examine all aspects of agricultural
indebtedness. The Committee has since submitted its report and it is in the public domain.
The Committee had made a number of recommendations but stopped short of
recommending waiver of agricultural loans. However, Government is conscious of the
dimensions of the problem and is sensitive to the difficulties of the farming community,
especially the small and marginal farmers. Having carefully weighed the pros and cons of
debt waiver and having taken into account the resource position, Union Finance
Minister placed before the House a scheme of debt waiver and debt relief for farmers:
(i) All agricultural loans disbursed by scheduled commercial banks, regional rural
banks and cooperative credit institutions up to March 31, 2007 and overdue as on
December 31, 2007 will be covered under the scheme.
(ii) For marginal farmers (i.e., holding upto 1 hectare) and small farmers (1-2
hectare), there will be a complete waiver of all loans that were overdue on
December 31, 2007 and which remained unpaid until February 29, 2008. In
respect of other farmers, there will be a one time settlement (OTS) scheme for all
loans that were overdue on December 31, 2007 and which remained unpaid until
February 29, 2008. Under the OTS, a rebate of 25 per cent will be given against
payment of the balance of 75 per cent.
(iii) Agricultural loans were restructured and rescheduled by banks in 2004 and 2006
through special packages. These rescheduled loans, and other loans rescheduled in
the normal course as per RBI guidelines, will also be eligible either for a waiver
or an OTS on the same pattern.
(iv) The implementation of the debt waiver and debt relief scheme will be completed
by June 30, 2008. Upon being granted debt waiver or signing an agreement for
debt relief under the OTS, the farmer would be entitled to fresh agricultural loans
from the banks in accordance with normal rules.
(v) Government estimates that about three crore small and marginal farmers and
about one crore other farmers will benefit from the scheme. The total value of
overdue loans being waived is estimated at Rs.50,000 crore and the OTS relief on
the overdue loans is estimated at Rs.10,000 crore.
Rural Infrastructure Development Fund
The Rural Infrastructure Development Fund (RIDF) is the main instrument to
channelize bank funds for financing rural infrastructure, and it is quite popular among
State Governments. Therefore, It is proposed to raise the corpus of RIDF-XIV in 2008-09
to Rs.14,000 crore. Union Finance Minister also proposed to operate a separate window
under RIDF-XIV for rural roads with a corpus of Rs.4,000 crore.
Government's policy of a careful and calibrated opening of the financial sector has
proved successful and shall continue to take measured steps.
The final report of the Committee on Financial Inclusion has been received. To
begin with, it is proposed to accept two recommendations:
• to advise commercial banks, including RRBs, to add at least 250 rural household
accounts every year at each of their rural and semi-urban branches; and
• to allow individuals such as retired bank officers, ex-servicemen etc to be
appointed as business facilitator or business correspondent or credit counsellor.
Banks will be encouraged to embrace the concept of Total Financial Inclusion.
Government will request all scheduled commercial banks to follow the example set by
some public sector banks and meet the entire credit requirements of SHG members,
namely, (a) income generation activities, (b) social needs like housing, education,
marriage etc and (c) debt swapping.
NABARD, SIDBI and NHB
Financial inclusion can be taken forward by expanding the reach of NABARD,
SIDBI and NHB. Hence, in order to increase the resource base of these three banks, it is
proposed to tap into the resources of scheduled commercial banks to the extent that they
fall short of their obligation to lend to the priority sector. Accordingly, it is proposed to
create the following funds:
(i) a fund of Rs.5,000 crore in NABARD to enhance its refinance operations to
short term cooperative credit institutions;
(ii) two funds of Rs.2,000 crore each in SIDBI - one for risk capital financing and the
other for enhancing refinance capability to the MSME sector; and
(iii) a fund of Rs.1,200 crore in NHB to enhance its refinance operations in the rural
Each of these funds will be governed by the general guidelines that are now applicable to
RIDF with some modifications.
Public Distribution System
A sum of Rs.32,667 crore is being provided next year for food subsidy under the
Public Distribution System (PDS) and other welfare programmes. Strengthening the PDS
would mean adequate supplies, reasonable subsidies and efficient delivery of the
subsidized food. An idea that has been growing is to deliver subsidies to the target group
through smart cards. Finally, Union Finance Minister found two willing partners - the
State of Haryana and the Union Territory of Chandigarh. They will introduce, on a pilot
basis, a smart card based delivery system to deliver food grains under the PDS in
Haryana and Chandigarh, respectively. Union Finance Minister thanked the Chief
Minister of Haryana and the Administrator of Chandigarh and promised them full support
and cooperation in making a success of the pilot scheme.
Fringe Benefit Tax (FBT)
It is proposed to make some changes in the provisions of law pertaining to Fringe
Benefit Tax (FBT) that will give some relief to corporates and firms. Crèche facilities,
sponsorship of an employee-sportsperson, organising sports events for employees, and
guest houses will be excluded from the purview of FBT.
Banking Cash Transaction Tax (BCTT)
The Banking Cash Transaction Tax (BCTT) has served a very useful purpose in
enlarging the information system of the Income Tax Department. Since the information is
also being gathered through other instruments introduced in the last few years, it is
proposed to withdraw this tax with effect from April 1, 2009.
B. HIGHLIGHTS OF MEMORANDUM SUBMITTED TO
UNION FINANCE MINISTER
A very good precedent was set up by Union Finance Minister in the form of
organizing Pre-Budget consultations with NAFSCOB till the year 2004. The
consultation process, however, has been abruptly stopped. In the absence of the Pre-
Budget consultation, the pre-budget memorandum has been sent by Chairman,
NAFSCOB on regular basis to Union Finance Minister since then. The issues for
consideration in the Union Budget for the year 2008-09 have been sent in the form of
Memorandum by Chairman, NAFSCOB on 31-01-2008. The issues are as follows:
1. Need for enhanced budgetary provision for adequate interest subvention to enable
rural cooperative banks to provide Short Term Farm Credit to Farmers at 7 per
cent per annum.
2. Need for New Organisational Device for Cooperatives
3. Need for restoration of exemptions allowed under Section 80P of Income Tax
Act, 1961 for State Cooperative Banks (SCBs) & District Central Cooperative
4. Need for reverting to maintenance of minimum statutory requirement of CRR at
3% by scheduled State Cooperative Banks
5. Need for Formulation of Institutional Protection System to Cooperatives at the
level of NAFSCOB
6. Need for Creation of Fund at the level of NAFSCOB on behalf of Government of
India to provide financial support to rural cooperative banks to ensure (a) Core
Banking Solutions, (b) Set up Disaster Recovery System at place, (c) Ensure
Financial Inclusion through Information Technology, (d) Real Time Gross
Settlement (RTGS) and (e) to participate in the National Electronic Fund Transfer
The above issues have not been addressed. However, two of six issues have been
indirectly addressed. Firstly, Interest Subvention has been continued for the year
2008-09 with a budgetary provision of Rs.1600 crores. But upward revision from 2 to
4.5 per cent to cooperatives is not announced. Secondly, Union Finance Minister hinted
the need for lowering the CRR to ensure liquidity.
Let us now analyse the budget proposals pertaining to agriculture, cooperative
credit, debt waiver & debt relief etc.
C. BUDGET ANALYSIS : A Budget without appropriate Budgetary
Provisions Means Nothing to Rural Cooperative Credit Institutions (CCIs)
1. We welcome the proposal to disburse agricultural credit to the tune of a targeted
amount of Rs.2,80,000 crores during the year. It is disappointing to note that
Union Finance Minister do not acknowledge the ‘possible’ contributions of
cooperatives towards flow of credit, while he thanked scheduled commercial
banks & RRBs for their impressive contributions. However, it is observed that
there do not appear to be any specific strategy to ensure agricultural credit to a
large number of small and marginal members. The amount of agricultural credit
disbursed so far appears to have gone to big farmers/others only.
2. We welcome the continuation of interest subvention to provide short term credit
at 7 per cent. However, the meager amount of Rs.1600 crores towards interest
subvention to be provided to NABARD, commercial banks, RRBs & cooperatives
in 2008-09 more particularly in the absence of announcement of upward revision
of interest subvention for cooperatives from 2 per cent to required 4.5 per cent, do
not ensure the disbursement of agricultural credit at 7 per cent to small and
marginal farmers. It only helps the commercial banks to disburse the agricultural
credit to big farmers who borrow large sums and it helps to adding to the targeted
amount. Commercial Banks have huge cost free resources and they can afford to
lend @ 7 per cent. It is observed that the resource crunch is not at all the reason
coming in the way in raising the level of interest subvention from 2 per cent to 4.5
per cent to cooperatives.
3. Out of the approved financial package of Rs.13,592 crores, a sum of Rs.1,185
crores – a meager 8.7 per cent has been released to cooperatives under the
Revised Revival Package for the short term cooperative credit institutions. This
itself is a clear indication that the process of implementation of revised revival
package which includes recapitalisation support is being deliberated delayed. The
progress during the last three years is tardy. No steps have been announced to
expedite the process of implementation of the revised revival package. The poor,
and tardy progress coupled with absence of other measures to strengthen the
cooperative credit institutions is an indication to weaken the existing cooperative
credit institutions and work towards identification of alternative credit delivery
mechanism/system. Further, the budget proposals for the year 2008-09 pertaining
to agricultural credit, cooperative credit structure and Debt Waiver & Debt relief
clearly violate the MOUs executed as a part of the revival package for CCS.
These are in terms of directions on interest rates during the deregulated policy
environment, interference in the state subject without consulting State
Governments on waivers, etc. It is now beyond any doubt that the
recommendations of Task Force on Revival of Rural Cooperative Credit Institutions
under the Chairmanship of Prof. A. Vaidyanathan can never be implemented during the
present policy environment (forget about the time frame) with positive impact on CCS.
There may be a need to revive & constitute Task Force – 2 with the same composition of
members to work out a positive implementation strategy.
4. The generous measure to introduce a scheme of debt waiver and debt relief to an
estimated three crore small and marginal farmers and one crore other farmers with
a estimated amount of Rs.60,000 crores vitiates the loan recovery environment.
The scheme involves all agricultural loans disbursed by scheduled commercial
banks, regional rural banks and credit institutions, all types of loans taken by
small & marginal farmers and one time settlement scheme for all loans in respect
of other farmers. (This scheme is not in tune with the accepted recommendations
of relevant committees, viz. (1) Task Force on Revival of Rural Cooperative Credit
Institutions under the Chairmanship of Prof. A. Vaidyanathan and (2) Expert Group on
Agricultural Indebtedness set up by Government of India under the Chairmanship
of Prof. R. Radhakrishna and (3) National Commission for Enterprises in the
Unorganised Sector under the Chairmanship of Prof. Arjun Sengupta. Should we
make a remark that these committees are not conscious of the dimensions of the
problems involved in agricultural sector and are not sensitive to the difficulties of
the farming community especially small and marginal farmers? The Task Force
headed by Prof. A. Vaidyanathan has strongly opposed our suggestion to include
the outstanding amount (accumulated losses of non-agricultural loans) as eligible
amount for recapitalization support. (It is necessary to seek his reaction on this
scheme of waiver.) This measure, infact, is simply an announcement without
budgetary provision and an announcement made without any appropriate
consultation. Union Finance Minister admits that he is yet to undertake the
exercise in terms of exact idea & exact number involved in the scheme and also
the issue of how to provide equivalent liquidity to the banks. He assured to find
the resources, non-tax revenues and other ways to provide the liquidity. The short
term cooperative credit structure apprehends that the Government of India may
raise the issue of “ownership” at the time of releasing the share of the estimated
amount either in cash or Bond or both towards debt waiver & debt relief to
farmers disbursed by rural cooperative credit institutions. It is (outside sources)
estimated that the rural cooperative credit institutions account for a sum of
Rs.37,000 crores followed by scheduled commercial banks with Rs.12,000 crores
and RRBs with Rs.11,000 crores. It may be recalled NDA Government in the
year 2004 also announced a scheme for recapitalization to cooperative credit
institutions with an outlay of Rs.15,000 crores without a budgetary provision.
Similarly, this is a measure without any budgetary provision.
5. The resource position of the cooperative credit institutions with the present level
of accumulated losses and in the absence of budgetary provision to meet the
amount of waiver will further be deteriorated and atleast a significant number of
cooperative credit institutions will have no option but to discontinue their credit
business. The Common Minimum Programme on ‘rural cooperative credit
delivery system’ to nurse them back to health could not be fulfilled during the last
four and half years.
6. The budget provision to further raise the corpus of RIDF –XIV in 2008-09 to
Rs.14,000 crores and a separate window under RIDF-XIV for roads with a corpus
of Rs.4000 crores reinforces the suggestion of National Federation of State
Cooperative Banks (NAFSCOB) to rename NABARD as “National Bank for
Rural Infrastructural Development Fund”.
7. There was no specific proposal in the budget for cooperative banks as a part of
8. We welcome excluding certain provisions from the purview of Fringe Benefit Tax
(FBT). However, there is still scope to exclude many other provisions under the
exemption list of FBT, which includes exempting the promotional organizations
such as NAFSCOB from the purview of FBT.
9. We welcome the measure to provide a fund of Rs.5,000 crores to NABARD to
enhance its refinance operations to short term cooperative credit institutions. This
certainly adds to the cost free resources of NABARD. Hence there is a need to
reduce the rate of interest on ST SAO operations. Further, there is a need to
amend the NABARD Act to allow them to provide refinance to ST SAO
operations from out of their own resources instead of raising the resources from
the market and/or continue to depending upon the resources of Government of
India to meet the ST SAO requirements of the cooperatives. Otherwise,
Government may consider setting up of a separate statutory organization to
address the issues pertaining to rural cooperative credit institutions.
10. We welcome the proposal to withdraw the Banking Cash Transaction Tax
(BCTT) with effect from April 01, 2009.
11. It is very unfortunate that the entire cooperative credit and banking sector failed to
impress upon the Finance Minister to restore the exemptions available to the
cooperative banks under Section 80P of Income Tax Act. This issue appears to
have been closed and, however, this may not be allowed.
UNION BUDGET FOR THE YEAR 2008-09 MEANS NOTHING TO CCIs.
2. DEBT WAIVER & DEBT RELIEF AND ONE TIME SETTLEMENT (OTS)
- IMPLICATIONS AND SUGGESTIONS
The generous measure to introduce a scheme of debt waiver and debt relief to an
estimated three crore small and marginal farmers and one crore other farmers with an
estimated amount of Rs.60,000 crores vitiates the loan recovery environment. The
scheme involves all agricultural loans disbursed by scheduled commercial banks,
regional rural banks and credit institutions, all types of loans taken by small & marginal
farmers and one time settlement scheme for all loans in respect of other farmers. (This
scheme is not in tune with the accepted recommendations of relevant committees, viz. (1)
Task Force on Revival of Rural Cooperative Credit Institutions under the Chairmanship of Prof.
A. Vaidyanathan and (2) Expert Group on Agricultural Indebtedness set up by Government
of India under the Chairmanship of Prof. R. Radhakrishna and (3) National Commission
for Enterprises in the Unorganised Sector under the Chairmanship of Prof. Arjun
Sengupta. Should we make a remark that these committees are not conscious of the
dimensions of the problems involved in agricultural sector and are not sensitive to the
difficulties of the farming community especially small and marginal farmers? The Task
Force headed by Prof. A. Vaidyanathan has strongly opposed our suggestion to include
the outstanding amount (accumulated losses of non-agricultural loans) as eligible amount
for recapitalization support. (It is necessary to seek his reaction on this scheme of
waiver.) This measure, infact, is simply an announcement without budgetary provision
and an announcement made without any appropriate consultation. Union Finance
Minister admits that he is yet to undertake the exercise in terms of exact idea & exact
number involved in the scheme and also the issue of how to provide equivalent liquidity
to the banks. He assured to find the resources, non-tax revenues and other ways to
provide the liquidity. The short term cooperative credit structure apprehends that the
Government of India may raise the issue of “ownership” at the time of releasing the share
of the estimated amount either in cash or Bond or both towards debt waiver & debt relief
to farmers disbursed by rural cooperative credit institutions. It is (outside sources)
estimated that the rural cooperative credit institutions account for a sum of Rs.37,000
crores followed by scheduled commercial banks with Rs.12,000 crores and RRBs with
The resource position of the cooperative credit institutions with the present level
of accumulated losses and in the absence of budgetary provision to meet the amount of
waiver will further be deteriorated and atleast a significant number of cooperative credit
institutions will have no option but to discontinue their credit business. The Common
Minimum Programme on ‘rural cooperative credit delivery system’ to nurse them back to
health could not be fulfilled during the last four and half years.
1. It is essential to provide the estimated amount of Rs.37,000 crores to cooperatives
to ensure implementation of the scheme of Debt Waiver & Debt Relief to the
small, marginal and other farmers. Assisting the cooperatives by releasing the
share of the estimated amount in the form of bonds do not help the cooperatives to
carry out the credit business. The share of the estimated amount towards debt
waiver & debt relief provided by cooperatives shall have to be released in cash on
or before June 2008.
2. There will be a sudden and enhanced demand for fresh requirement of agricultural
loans by all the farmers who have been covered under the scheme of debt waiver
& debt relief and also OTS. Even if the entire share of the cooperatives is made
by the Government of India (or by State Governments) to implement the scheme,
it is apprehended that the cooperatives may not be in a position to meet the
enhanced requirement of agricultural credit. Therefore, a separate scheme of
assistance to meet this enhanced requirement of agricultural loans will have to be
formulated. If this kind of scheme of assistance is not formulated either by
Government of India or State Governments, one may be constrained to view the
failure as part of the total game plan to weaken the existing rural cooperative
credit delivery system and find out the alternative credit delivery mechanism.
Further, Government of India and State Governments need to appreciate the
urgency to provide liquidity to the cooperatives not only to meet implementation
of the scheme of debt waiver & debt relief but also to meet the enhanced
requirements of agricultural credit.
3. It is essential to formulate a scheme of compensation/incentives to the marginal
farmers holding upto One hectare and small farmers holding between 1 and 2
hectares who have repaid their loans and remained always as non-defaulters. If
this is not done, this category/segment of farmers tend to conclude that the
scheme is discriminatory, aimed at favouring certain selective farmers and also an
attempt to weaken the rural cooperative credit delivery system. Therefore, this
should not be allowed to happen. Hence, urgency for formulation of a scheme of
compensation/incentives to non-defaulter farmers.
4. The thrust of NABARD as usual may not be towards strengthening the
cooperative credit delivery system and/or addressing the issues of farmers. It will
continue to evolve strategies to strengthen financially itself and ensure recovery
of their loans issued to SCBs on behalf of DCCBs towards ST SAO operations.
Hence it is quite possible that the guidelines to be implemented by cooperatives
towards the scheme of debt waiver & debt relief and OTS will be full of
conditionalities which will ensure the recovery of their loans. Therefore,
NABARD will have to be directed to freeze the recovery of their loans (not
charging of interest or penal interest) extended to SCBs on behalf of DCCBs
towards ST SAO operations. Secondly, NABARD should continue to sanction
credit limits and allow the withdrawals by SCBs on behalf of DCCBs without
resorting any conditionalities. Since NABARD have the cost free resources
received from Government of India and a sum of Rs.5000 crores have already
allocated by Government of India to meet the requirements of cooperatives,
NABARD may be directed not to charge any interest on refinance till the
successful efforts are made to cleanse the balance sheets of the cooperatives.
Keeping in view of the sudden policy announcement in the case of debt waiver &
debt relief and likely adverse implications, NABARD will have to be directed to
formulate ST SAO policy for the year 2008-09 in consultation with the
cooperative credit structure.
5. Since the scheme of debt waiver & debt relief and OTS has been announced
without a proper consultation and in the absence of the guidelines available for
implementation of the same, it does not appear to be easier to make some more
concrete suggestions. However, it becomes necessary to set up a Task Force – 2
on revival of cooperative credit institutions again with the similar composition of
Task Force No.1 for the short term cooperative credit structure.