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Unit 14: Rural Credit and Marketing

District Central Co-operative Banks (DCCBs) : These are now at the end of March 2006 369 District Notes
Central Cooperative Banks. The loans outstanding came to ` 79,200 crores. These are federations of
primary credit societies in specified areas normally extending to a whole district (hence they are
some-times known as district co-operative banks). These banks have a few private individuals as
shareholders who provide both finance and management. Their main task is to lend to village primary
societies, but they are expected to attract deposits from the general public also (volume of deposits).
But the expectation has not been fulfilled and many of the co-operative central banks act as
intermediaries between the State Co-operative Bank on the one hand and the village primary credit
societies on the other. The Reserve Bank — now NABARD has formulated a scheme for the
rehabilitation of weak central co-operative banks. NABARD is providing liberal assistance to the
State Governments for contributing to the share capital of the weak central co-operative banks selected
for the purpose.
State Co-operative Banks (StCBs) : There are now 31 State Co-operative Banks (StCBs) in the country.
They form the apex of the co-operative credit structure in each State. The StCB finances and controls
the working of the District central co-operative banks in the State. It serves as a link between NABARD
(formerly RBI) from which it borrows and the co-operative central banks and village primary societies.
The State Co-operative Bank obtains its working funds from its own share capital and reserves, deposits
from the general public and loans and advances from NABARD (formerly from RBI). The last
mentioned source is quite important, as it constitutes between 50 and 90 per cent of the working
capital of State Co-operative Banks in the country. The State Co-operative Bank are not only interested
in helping the rural co-operative credit movement but also in promoting other co-operative ventures
and in extending the principles of co-operation. During 2005-06 the 31 state cooperative banks had
lent about ` 48,260 crores to District central co-operative banks.
The Problem of Overdues
A highly distressing fact of rural co-operative credit is the heavy overdues estimated around ` 15,500
crores at the end of March 2006. According to RBI “Study Team on Overdues of Co-operative Credit
Institutions”. “Lack of will and discipline among the cultivators to repay loans was the principal
factor responsible for the prevalence of overdues of co-operatives. Defective lending policy pursued
by co-operatives, the apathy of management in taking quick action against recalcitrant members and
absence of favourable climate were other contributory factors.”
Apart from these common factors normally responsible for a high level of overdues, intervention of
external forces such as loan waivers, concessions in various forms towards repayment of principal
and payment of interest had also affected the recovery performances of credit institutions to a
significant extent. The problem is further accentuated on account of the State Governments’ inability
to meet the financial commitments to cooperative banks emanating from waiver of loans, interest
subsidy, etc.
Loans overdue, it is disquieting to note, represent 45 per cent of loans outstanding in all-India; the
percentage ranges from 23 in the case of Tamil Nadu to 77 in the case of Bihar.
In recent years, the farmers are getting organised and one of the chief demands of the farmers’ union
is the cancellation of their debts to co-operative societies and banks. States have meekly surrendered
to such demands to write off these debts. This tendency of States to write off the debts is a matter of
extreme concern, as it hampers recovery of dues from the farmers. The National Front Government
wrote off farmers’ debts upto the value of ` 10,000.
The problem of loan overdues is a matter of serious concern, as it affects the recycling of funds and
credit expansion on the one hand, and economic viability of the lending institutions, specially the
cooperatives and the RRBs, on the other.
Other Weaknesses of Co-operative Credit Movement

Another weakness of rural credit co-operation is that in the case of tenants, share-croppers, landless
agricultural labourers and rural artisans who are the poorest and, therefore, the most needy, the flow
of co-operative credit in terms of percentage share continues to range around 3 to 5 per cent over the

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