Banking Finance 2021, Banking Finance May 2021


B asic challenge to the present century-old co-operative financial institutions in our country, as rightly indicated in one of the study reports, is to strike a balance between attaining profitability by running their business on commercial lines on one hand and carrying out their service-oriented activities under the well-conceived principles of coveted ‘co-operative movement’, on the other. Probably, this inherent conflict in their functions puts pressure on their efficiency and profitability. There lies the prudence on the part of the management to draw a line of equilibrium and take up such activities which are beneficial to members and profitable to the Societies at the same time. There are good number of good working Societies despite so many odds in their credit and other spheres of their activities. It has been time and again emphasized in many a forum as also in many study reports that co-operatives should play a pivotal role in rural agricultural scenario and should be part of rural development process. Contrary to this fond hope, most of these ground-level Societies are casting shadows about their financial


viability in the long run. Major weaknesses and financial debilities are still persisting, which need to be addressed particularly, in the backdrop of present scenario where the entire banking industry is running through hard times, in the backdrop heavy overdue.


Key summary statistics on PACS1


(for three years as on 31 March 2019)


(Amount in Rs. crores)
2016-17 2017-18 2018-19
1 Number of PACS 95595 95238 95995
2 Paid-up capital 142156 14142 22817
3 Total Reserves 18860 16800 19379
4 Deposits 115884 119632 133010
5 Borrowings 124831 128333 138922
6 Loans outstanding 170460 169630 170048
7 Societies in profit 46586 46405 46930
8 Amount of profit 6473 4134 5949
9 Societies in loss 38036 37838 37331
10 Amount of loss 3210 7316 7666
  • S Satyanaryana, Faculty Member, TSCAB-CTI, Hyderabad.


PACS must be rejuvenated


With the advent of the recent technological developments in banking industry, many innovations in services and products are witnessed. It would be stupendous task for PACS to cope with the present trend unless there is a sea change in their approach and mindset. A few remedial measures, though not new and which were already suggested in various committees in the past are furnished in the following paragraphs, though repetitive in nature.


Reorganisation of PACS


One more exercise of reorganization of PACS needs to be carried out by redefining the viability norms. Only viable Societies may be allowed to function while potentially viable Societies be merged with the viable Societies. Defunct and heavy loss-making PACS need to be shelved and their villages are tagged to the nearby potential Societies. State Governments should provide necessary infrastructural support to the reorganized Societies and in turn, NABARD may provide long term loans to the State Governments under the provisions of Sec.27 of the NABARD Act, 1981 for capital support to PACS.


Business diversification in PACS


As PACS are inherited with a unique advantage of performing both banking and business activities unlike any other bank, PACS may augment their resources through deposits and deploy them in various non-credit activities. Financial support may be provided by higher financing agencies if need be. Success stories document-ed by our CTI on good working Societies, functioning in Telangana revealed that PACS with a major portion of non-credit activities with their traditional agricultural lending coupled with a few social activities were posting profits and it is heartening that a few Societies have been paying dividends to the members continuously.




1Source: NAFSCOB’s quarterly magazine July – Sep 2020. 1


Following are some of the activities, being undertaken by a few societies in Telangana.


  • Owning godowns and providing storage facilities to their members and also produce loans against pledge of warehouse receipts.
  • Sale of fertilizers and pesticides.
  • Supplying quality seeds through their own Seed processing plants.
  • Owning Rice mills and para-boiled rice mills.
  • Selling quality  rice  at  reasonable price through their own Rice depots.
  • Providing locker facilities.
  • Running petrol & diesel retail outlets.
  • Running ‘function halls’ and letting out on commercial lines.
  • Supplying safe water to the villagers by installing a water purifying plant in their premises.
  • Operating weigh bridges.
  • Extending group insurance coverage for all members.
  • Providing financial assistance for funeral expenses.
  • Institution of meritorious awards to members’ wards of higher classes.
  • Lastly, paying dividends to their members out of the profits earned every year. (One society was paying 20% continuously for many years)


There are umpteen number of other non-credit activities that may be taken up by the Societies. NABARD also envisioned that the Societies should transform into vibrant business organisations by offering multiple products and services to their members under a single roof. Best practices followed by good working Societies need to be emanated by other societies.


Need for augmenting resources


As per the data published by NAFSCOB in its websites, as on 31 March 2019 (latest available), owned funds (capital plus reserves) of PACS in four States alone, viz.,


Kerala (28%), Maharashtra (12%), Karnataka (9%) and Tamil Nadu (9%) constituted 58% of the total owned funds of PACS in the country. It is deplorable that in respect of 18 States, such percentage was less than one.

As regards deposit base in PACS, it will be interesting to note that deposits mobilized by PACS operating in Kerala alone constituted 70% of total deposits mobilized in the country, followed by a wide gap by Tamil Nadu (7%), Karnataka (6%) and Himachal Pradesh (4%). In the backdrop of increasingly sophisticated and technologically developed banking scenario, it may not be prudent to expect that many societies with very poor infrastructure and un-professional staff would be able to attract more deposits. Nevertheless, every DCCB should identify the potential and deserving Societies and necessary financial assistance may be provided to them for acquiring counters and other infrastructural facilities. Following measures may also help in this direction.

  • Increase the membership by identifying non-members in their area of operation by conducting membership drives on a periodical basis.
  • More concentration in lending to new and non-defaulting members.
  • Formation of SHGs and JLGs and en-courage group lending for enhanced recovery climate.
  • Identify viable activities to supplement the income of farmers such as dairy, farmyard poultry and lend through individual and JLG modes.



Regulatory powers and supervision over PACS


Of late, in view of many reasons, SCBs or DCCBs lost control over the affairs of the PACS and their staff members. No proper supervision is exercised over the affairs of the Societies through Co-operative Societies Acts in some States provide for inspection of the Societies by DCCBs in the capacity of financiers. It is felt that the State Co-operative Bank of the State concerned should act as the regulatory authority for the Societies (like RBI as in the case of banks coming under the gamut of B R Act) and the respective DCCB shall be vested with the role of supervision over the Societies. It should also be made mandatory to send certain control returns to DCCBs as in the case of OSC returns being submitted by SCBs and DCCBs.





CAS in computerized environment and audit of PACS


Common Accounting system introduced in PACS or computerisation in PACS may have yet to bring the desired change in the working of the Societies as gathered from the feedback from the staff members of PACS, participating in various programs conducted in CTIs. Auditing of PACS is done in a very routine manner. A serious thought should be given to this aspect by all concerned. A high-level committee constituting senior Officers from NABARD, Department of Co-operation, DCCBs and SCB should be constituted and necessary corrective steps to be suggested.


Revision in the date of calculation of imbalances


One of the problems frequently discussed in co-operative credit structure is imbalances in loan outstandings at DCCBs and PACS levels. Generally, it is calculated as on 31 March every year. It is felt that this may not give the correct picture. If recoveries are affected at the PACS level on 31 March, the amount so recovered may not be passed on to the respective DCCBs on the same day. As a result, the outstanding at DCCB level will not get reduced. As such, any other date after 30 June may be ideal. In view of the prudent accounting procedure of adjusting the recoveries towards interest first and principal thereafter, imbalances are bound to persist. A tolerance limit may be fixed for the purpose and draw conclusions accordingly.


Lending activities


Societies, which are not complying with a revised viability norm (by linking to net profits made each year, net NPA ratio, minimum level of CRAR, Return on As-sets, etc.) should be closely monitored. Viable Societies may be encouraged towards non-credit activities, such as consumer stores, procurement activities, hiring farm inputs, transport facilities to farmers, establishment of seed processing units, establishment of petrol bunks, etc. Necessary financial assistance may be provided by DCCBs and NABARD may contemplate to provide refinance to such activities from their CDF.




Though many training programs are being conducted by CTIs at present with requisite financial support from NABARD, it is noticed that attendance / participation in such programs is not upto the mark. The very modes of training arrangements need to be changed. More practical / field level exposures / case studies should replace the present age-old teacher-taught mode. C-PEC, BIRD may look into this aspect and bring about the much-needed change in imparting necessary inputs for capacity building in the Societies.


Low morale


Morale of the staff of PACS is very low. A feeling of uncertainty in their minds is a mental block for their wholehearted involvement in the development activities of their own organization. There is a need to make all out efforts to address these problems by creating a common fund as in the past. They should be assured of their rightful emoluments and other benefits. If employees of any organization do not love their own organization, who else will love?




Traditional bank model is disappearing. Technology, social and business digital communities are taking customers and potential customers out of banks’ networks. They are also yielding to the customer’s expectations about personalization and convenience. If this is the scenario in the entire banking industry, only ‘non-credit activities’ with service motto coupled with business principles is only the panacea to the PACS. Still, there is potential for those activities in rural areas. Many Societies proved it. Apex level institutions may also reorient their refinance arrangements for such activities in a big way by amending their act provisions, if need be.


Lastly, as quoted by Hon’ble Franklin D. Roosevelt –


“Competition has been shown to be useful upto a certain point and no further, but cooperation, which is the thing we must strive for today, begins where competition leaves off”.

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