Professional Documents
Culture Documents
Rural
Rural
In India we find that the states of Maharashtra and Gujarat are well
developed. Whereas the states of Andhra Pradesh, Rajasthan and
Karnataka have shown remarkable progress in the co-operative
movement and there is a vast potential for the development of co-
operative in the remaining states.
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collaborator in drawing up schemes of development with the
government of India and the State Governments, and the provider of
finance, first to the State Governments for contribution to the share
capital of co-operative credit institutions at various levels.
2
CO-OPERATIVE MOVEMENT IN THE WORLD
3
In Great Britain Robert Owen (1771-1858) conceived and set up
self-contained semi-agricultural, semi-industrial communities.
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CO-OPERATIVE MOVEMENT IN INDIA
Agricultural Credit
Agricultural Marketing
Agricultural Processing
Industrial co-operatives
Urban credit Co-operatives
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looked upon the co-operation movement as the balancing sector
between public sector and the private sector.
In India we find that the states of Maharashtra and Gujarat are well
developed. Whereas the states of Andhra Pradesh, Rajasthan and
Karnataka have shown remarkable progress in the co-operative
movement and there is a vast potential for the development of co-
operative in the remaining states.
6
INTRODUCTION OF RURAL CO-OPERATIVE
BANKS
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The distinct point between the co-operative banking sector and
commercial banking sector is the focus. First, co-operative banks
focus on the local population and micro banking among middle and
low income state of the society. As compare to nearly 300scheduled
commercial banks, inclusive of regional banks, there were more than
90000 primary agricultural credit societies in rural sector as at the
end of 2002.
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PRINCIPLES FOLLOWED BY CO-OP BANKS
There have been also other principles like the principles of political
neutrality, correct weight and measures, purity of goods and thrift
which were also taken into consideration.
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organizations, including governments or raise capital from external
sources they do so on terms that ensure democratic control by their
members and maintain their co-operative autonomy.
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STRUCTURE OF CO-OPERATIVE BANKS
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central bank makes its credit available to the co-operative banking
system. Further, the RBI also extends credit to state Government (in
the form of long-term loans for contribution to the share capital of
co-operative credit institutions) and through NABARD.
There are also reserve flow o funds from the primary credit societies
to CCBs and from them to SCBs. This is affected by way of
contribution to the share capital of the higher financing agencies and
by way of deposits. The loan extended by the higher financing
agencies to their affiliates is linked with the share capital holdings
by this affiliate of the lending agencies. Thus, normally a primary
credit society can borrow from a CCB at most upto 10 times its
contribution to the share capital of the CCB. A similar condition
governs the borrowing limits of CCBs from their SCBs.
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CREDIT STRUCTURE OF CO-OPERATIVE BANKS
The PACSs
The Primary Agricultural Credit Societies (PACS) constitute the
`hub’ of the Indian co-op movement. Every fourth co-operative in
India is a primary credit society. The main objectives of a PACS are:
Indicators Value
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The DCCBs
The PACS are affiliated to the District Central Co-operative Banks
(DCCBs) who perform the following functions.
Indicators Value
The SCBs
The DCCBs in turn are affiliated to State Co-operative Banks
(SCBs), which perform the following functions.
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Indicators Value
No. of Banks 28
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OBJECTIVES OF CO-OPERATIVE BANKS
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8) To act as a catalyst element and thereby accelerate the economic
growth in the particular region.
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1) Cooperative banks are organized and managed on the principal
of co-operation, self help, and mutual help. They function with the
rule of “one member, one vote”. Function on “no profit, no loss”
basis. Co-operative banks, as a principle, do not pursue the goal o
profit maximization.
2) Co-operative banks perform all the main banking functions of
deposit mobilization, supply of credit and provision of remittance
facilities.
3) Co-operative banks provide limited banking products and are
functionally specialist in agriculture related products. However, co-
operative banks now provide housing loans also.
4) Primary Agricultural credit societies provide short term and
medium term loans
5) Co-operative banks do banking business mainly in the
agriculture rural sector. However, UCBs, SCBs, CCBs operate in
semi urban, urban and metropolitan areas also.
6) The SCBs, CCBs and UCBs can normally extend housing loans
upto Rs. 1 lakh to an individual.
CATEGORIES:
There are two categories of the co-operative banks.
a. Short term lending oriented co-operative banks – within this
category there are three sub categories of banks viz. State co-
operative Banks, DCBs, PACs.
b. Long term lending oriented co-operative banks – within the
second category there are land development banks at three levels
state level, district level and village level.
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The co-operative banking structure in India is divided into following
main 5 categories
1) Primary Urban Co-operative banks
2) Primary Agricultural Credit Societies
3) District Central Co-operative banks
4) State Co-operative Banks
5) Land Development Banks
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3) Status: The co-operative banks do not become scheduled banks
automatically, whereas RRBs are scheduled commercial banks. The
scheduled status given automatically.
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8) Resources: The RRBs have owned funds which include share
capital and reserve funds as well as procured funds which include
deposits and borrowings/ refinance. But the co-operative banks
depend on the RBI and deposits from members.
10) Monitoring and control: the RRBs are controlled by the Central
Government, RBI, State Government and Sponsor Banks, whereas
the co-operative banks are controlled by RBI and Registrar of co-
operatives.
11) Staff: the co-operative banks get talented staff. Whereas RRBs
attract less talented staff
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FUNCTION OF CO-OPERATIVE BANK
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6) It assists the State Government to enable them to contribute to
the share capital of eligible institutions
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4) Member of various district level standing committees and other
committees related to agriculture and rural development
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Scheme 3: National Agricultural Credit Stabilization Fund (Centrally
Sponsored Scheme)
In drought conditions the members of Agricultural Credit Societies
may not be able to repay the crop loans. This scheme helps to
convert their short-term loans into medium term loans and fresh crop
loans are made available to the members.
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by the Central Government on 100 % basis to the newly formed co-
operative societies by the women as well as existing women’s co-
operatives. The financial assistance is as under
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IMPLEMENTATION OF DEVELOPMENT ACTION
PLAN (DAP)/MEMORANDUM OF
UNDERSTANDING (MOU)
27
been introduced to planning process. They are required to prepare
DAP and enter into an understanding with the branch of DCCB.
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RBI’S POLICIES IN RELATION TO CO-OPERATIVE
CREDIT
The RBI since its inception has been concerned with the problems of
agriculture credit. It has been conducting studies to identify the
problems of agricultural credit. It was found in the studies conducted
in 1930’s that almost entire finance required by agriculturists in
India was supplied by money lenders the part played by co-operative
and other agencies being negligible. In 1951, the RBI appointed an
All-India Rural credit survey committee to conduct a
comprehensive rural credit survey. It was found that only 3.1 per
cent (of Rs.750 crores worth of borrowings of the cultivators) was
owed to co- operative societies.
It was found that co-operative credit fell short of the right quantity
was not of the right type ,did not serve the right purpose and often
Failed to go to the right people . The committee concluded that
thought co-operation has failed but it must succeed. It was realized
that only the co-operative credit system can play the prime role in
the provision of rural finance. This was rightly thought so since
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there is the existence of vast network of village level primary credit
societies through- out the country. further , these societies have
intimate knowledge of local problems .A require structure was
already available for an effective credit delivery system for rural
areas, therefore, RBI has made all possible efforts to strengthen and
improve the co-operative credit structure.
The RBIs role in the building of the co-operative credit structure was
that of an active collaborator in drawing up schemes of development
with the government of India and the State Governments, and the
provider of finance, first to the State Governments for contribution
to the share capital of co-operative credit institutions at various
levels, and secondly, to the co-operative credit structure it self to
meet its requirements of short- term, and long-term, finance. The
details are given as below:
PROVISION OF FINANCE
The RBI extends finance under two
a) Agriculture finance: the RBI extends finance to agriculturists
indirectly through co-operative sector. The credit extended is of
three types i.e. short term, medium term and long term.
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To meet its aforementioned financial obligation, the RBI had
established in 1956 two national funds
1) The national a Agriculture credit fund (long term operations)
2) The national Agriculture credit (Stabilization) fund, the first und
is used for:
a. Advancing to state co-operative banks- medium term loans for
agriculture and allied purposes,
b. Making loans to state land development banks etc,
c. Purchasing the debentures of state land development banks, and
d. Making loans and advances to NABARD, started with an initial
contribution of Rs. 10 crores in 1956, the total outstanding under this
fund had grown to Rs. 3,315 crores by the and of June 1990 through
annual subscription from the profits of the RBI. The second fund,
viz. NAC (stabilization) fund, is used for converting the RBI’s short
term loans and advances to state co-operative banks into medium
term loans whenever they are enable to pay their dues in time owing
to drought. Famine or other natural calamities. This fund was set up
in 1956 with an initial contribution o Rs. 1 crore. The total
outstanding under this fund stood at Rs. 660 crore at June end 1990.
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have constituted a small property (less than %) of the total RBI
short-term finance to co-operatives. The bulk of it goes to
agricultural co-operatives
Rural People
Closure
Reclassification of the Area due to population growth
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In earlier decades, In spite of re-classification, number of Rural
Branches increased
Rural Branches Growth and Decline
They have to play a lead role in Rural financing and expanding the
Rural customer base
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Commercial Bank can select the route of financing through
agencies
Training Needs
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Document management
People identification
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For trouble shooting / up gradation / maintenance technicians
have to come from nearby towns - Time consuming and
expensive
Alternative Delivery Channels could not be extended to Rural
areas
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Migration towards existing Urban Centres will be reduced and
the population pressure on Urban centres will reduce
IT related Infrastructure hubs to be developed in such centres
similar to development of IT parks in Urban Centres where
from all types of technical services will be made available to
surrounding villages within a specific radius
Hardware and software services, Communication towers and
Communication services should be made available in those
centres
Low Profitability
Large Number of accounts
Low Value Transactions
Less Number of Transactions
Few activities and less opportunities for services other than
deposit and Credit
Huge Staff Cost
Difficult to implement Technology
Large area of Operation – Difficult Reach
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TASK FORCE ON REVIVAL OF RURAL
COOPERATIVE CREDIT INSTITUTIONS
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up which not only recommended state partnership in terms of equity
but also partnership in terms of governance and management. The
Fourth Phase from 1990s’ onwards saw an increasing realization of
the disruptive effects of intrusive state patronage and politicization
of the co-operatives, especially financial cooperatives, which
resulted in poor governance and management and the consequent
impairment of their financial health. A number of committees were
therefore set up to suggest reforms in the sector.
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agriculture, while currently their share has fallen to about one-third.
This situation gives cause for serious concern.
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8) Since cooperatives do not have a standardized accounting system,
and PACS in many states do not make adequate provisions against
non-repaid loans, and also because of delays in auditing, as well as
lack of uniform standards, their latest audited balance sheets may not
provide a true picture. The Task Force has therefore recommended
special audit of accounts as of 31st March 2004 be undertaken for
this purpose, and the cost of these special audits (Rs. 46 crore) will
also be borne by the revival package.
10) The accumulated losses of SCBs aggregate Rs. 281 crore. Most
of these losses are expected to get wiped out after the package is
implemented and losses of PACS and DCCBs are covered. The
residual losses will however, be covered.
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Minimum Capital requirement in cooperatives
11) All commercial banks and RRBs are now required to maintain a
capital to risk weighted assets ratio (CRAR) of a minimum of 9%
and are expected to increase it further. This norm has so far been not
applied to cooperatives. However, as cooperatives work in smaller
areas and also primarily with one major activity – agriculture – they
in fact need a higher CRAR than others. The Task Force has
recommended that assistance necessary to bring all cooperatives,
Including PACS, to a minimum CRAR of 7% may be provided and
cooperatives then may be asked to increase it to 12% within five
years from their internal resources.
Technical assistance
15. Cooperatives will need assistance to computerize them and
install sound accounting and monitoring systems to remain
competitive. They will also need to train their staff and board
members in a large way. The costs for all these activities will be met
through grant assistance. The total technical assistance of Rs. 670
crore under the package therefore includes Rs. 46 crore for special
audits, Rs. 516 crore for accounting systems and computerization
and Rs. 108 crore for training and capacity building.
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i. Ensuring full voting membership rights on all users of financial
services including depositors
ii. Removing state intervention in administrative and financial
matters in cooperatives
iii. Withdrawing restrictive orders on financial matters
17. The Task Force had also suggested a model Cooperative Law
that can be enacted by the state governments. It also recommends
that in states where there are already two laws, the old cooperative
societies Act and the new Act on the lines of the model Act, it would
be better to gradually converge and have only one Act so as to
reduce confusion and legal problems. In respect of states which do
not pass the model Act, the Task Force has recommended for
inclusion of a separate chapter for Agricultural and Rural Credit
Societies incorporating the
Provisions salient in the model Act in the extant Cooperative
Societies Acts.
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WEAKNESS OF CO-OPERATIVES IN RURAL
CREDIT
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In India the co-operative credit structure is also victim of the
problem of organizational weaknesses. Lack of organizational skills
in the co-operative credit structure was also responsible for the
fragmented approach of the co-operative towards finding solutions
to rural problems without trying to meet all the wants of activities. It
was found that in many cases co-ordination between the central co-
operative banks and primary agricultural societies as also between
credit and non-credit societies was lacking. The necessity or the re-
organization o large number of societies has not been denied in
government reports.
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DIFFICULTIES FACED BY CO-OPERATIVE BANKS
IN RURAL AREA
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conditions of rural areas. Lack of training facility concerning these
areas also affects the growth of co-operative banks.
47
8) Poor development of rural areas: in spite of several efforts made
during the course o development plans to promote the development
of rural areas, it has not taken place in a significant way. The areas,
at present lack economic infrastructures like; facilities of marketing
storage and distribution of inputs. Besides, social infrastructure like;
schools, medical facilities. As a result, co-operative banks find it
extremely difficult to operate in such areas.
The Amending Act has added to the principle Act a new Part-Part V,
which consists of Section 56.
48
The second amending Act 58 of 1968 while imposing social control
over banks, introduced some amendments to Section 56 of the Act,
Section 56 has also been amended by the National Bank for
Agriculture and Rural Development Act, 1981(Act 61 of 1981) and
the Act 1 of 1984. The following is the summary of some of the
main provisions of Section 56:
49
It will be observed that section 20 as now applicable to co-operative
banks is practically similar section 20 as was applicable to banking
companies before the social control. All the restriction now imposed
after 1-2-1969 on loans and advances by banking companies are not
applicable to co-operative banks.
Current Account
Savings Bank Account
Recurring Deposit Scheme
Fixed Deposit Scheme
Fixed Deposits linked with Recurring Deposits Scheme
Monthly Income Deposit’s Scheme
Loan Linked Housing Deposit’s Scheme
Loan Linked Children Education Deposits Scheme
1. CROP LOANS
Short terms loans are provided for Seasonal Agricultural operation to
Farmers, (cash & kind) through Service Co-operative Societies
spread all over Meghalaya as per approved scales of finance, time
schedule both under NCL, Cash Credit Systems & Kisan Credit
Cards.
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2. TERM LOANS
Medium & Long Term Loans are extended to the Farmers through
the affiliated Service Co-operative Societies direct for allied
agricultural activities like land development, minor irrigation,
purchase of farm machinery, poultry, goat rearing, pisciculture,
diary, horticulture, plantation & Horticulture schemes.
4. HOUSING LOANS
Salaried persons are extended Housing Loan facilities for
construction of their residential houses in CD Block Head Quarters
and other selection areas against adequate securities.
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Instruments, Cooking Gas, Furniture and various other approved
items.
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12. EDUCATIONAL LOAN
Educational Loans are provided to parents/deserving students for
higher studies in India/abroad adequate securities.
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NEW POLICY IN THE RURAL CREDIT FOR BANKS:
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AGRICULTURAL CO-OPERATIVE AND NABARD:
REFINANCING
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Banks borrowings from NABARD are to the extent of 78.8%. The
message is quite clear – without the support of NABARD, the entire
structure would become unviable.
SUPERVISION OF BANKS
9
The National Bank is vested with the powers of inspecting State Co-
operative Banks (SCBs), District Central Co- operative Banks
(DCCBs) and Regional Rural Banks (RRBs) under the Banking
Regulation Act, 1949. In addition to the statutory inspections, the
National Bank also conducts voluntary inspection of State Co-
operative Agriculture and Rural Development Banks (SCARDBs),
Apex Weavers’ Co-operative Societies, State Co-operative
Marketing Federations, etc. The basic objective of inspection is to
assess the financial soundness and managerial efficiency of these
banks and their compliance with banking rules and regulations, etc.,
in order to protect the interests of the depositors.
Supervisory Concerns
Against the backdrop of financial sector reforms, the supervision of
financial institutions has assumed greater importance. The Basle
Committee recommendations on Income Recognition, Asset
Classification and Provisioning were adopted internationally. To
keep pace with the internationally accepted standards/practices, the
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National Bank re-engineered its supervision strategy and adopted
CAMELSC approach with emphasis on core areas like Capital
adequacy, Asset quality, Management, Earnings, Liquidity,
Systems/Procedures and Compliance. In the changed scenario, the
inspection process has gone beyond fault finding/’catch-all-
approach’ to the broader concept of supervision which encompasses
on-site inspection, off-site surveillance and supplementary
appraisals. Of the above, Off-Site Surveillance System (OSS) which
was introduced in 1998-99, has gained importance as a means of
ensuring continuous supervision. OSS is a mechanism for on-desk
evaluation for continuous and closer monitoring of client institutions
through various statutory and special returns. A computer-based
system has been developed in-house to scrutinise/analyse the off-site
returns and to issue warning signals to the banks wherever
warranted. During the year, bank officials as also officials of the
National Bank dealing with OSS, were sensitized through
workshops on OSS, operational problems, etc. The Fifth
‘Conference of Chief Co-operative Audit officers’ of various states
was also convened during the year. The conference has provided a
forum for useful interaction/discussions with ‘State Audit
Departments’ on issues of common interest. With a view to
developing the necessary skills to effectively perform in the
changing scenario, the inspecting officers of the National Bank were
deputed for various domestic/overseas training in different areas
relating to supervision.
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THE CHALLENGE TO THE CO-OP SECTOR
The process of change has already begun in India with the ILO CO-
OPNET/CO-OPREFORM Programme supporting the change in the
macro-policy environment for co-ops. As co-ops become member
centered, and mobilizes their own resources, the quality of capital
and management is bound to improve. They will then be able to
function as true member organizations, with supplemental
/incremental support from state agencies, but not critically
dependent as the scenario is today. This will require that the co-op
credit structure at all three levels make a comprehensive effort to
manage the funds and resources internally. There are several
examples within the country to show that primary co-op societies
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can manage and finance the entire credit requirements of agricultural
operations in a village.
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CO-OPERATIVES AND CREDIT
1. Credit Cooperatives
i) Issue of short term and Medium Term loans:
The quantum of short term and medium term loans issued by the
Primary Agriculture Co-operative Bank It has been programmed to
issue loans to the extent of Rs.1097.50 Crores under short term and
Rs.59.80 Crores under Medium term loans during the year 2005-
2006.
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(ii) Issue of Long Term loans:
The long term credit needs of the agriculturists are met by 181
Primary Agriculture and Rural Development Banks. The details of
long term loans issued by the Primary Agricultural and Rural
Development Banks during IX and X Five Year It has been
programmed to issue long term loans to the extent of Rs.220.00
Crores during 2005-2006.
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2 Waiver of interest to Small and Marginal farmers who got annavari
certificates in 2002 61.05 %
3 15% State Government share in the conversion of the crop loans of
kharif 2002 20.00 %
2. Consumer Cooperatives
The Consumer Co-operative through their network in the State,
distribute consumer goods at reasonable prices to the public both in
urban and rural areas.
The value of retail sales affected during 2004 -2005 was Rs.2348.18
crores. The programme for 2005-2006 is 2780.00 crores.
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Rs.500/- per member and the outlay will be Rs.10 lakhs during
2005-06. This will help to improve the standard of living.
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2005-06 towards sanction of loan to 500 women members at the rate
of Rs.1000/ per member.
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PRIMARY DATA
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4) What about the interest schemes offered to the customer?
The interest rate that is changed in respective schemes. Interest rate
is flexible. But normally interest rate is 7% on loan taken by
farmers. It depends on loan.
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provide tailor made schemes to the farmers. Because the main aim
of co-operative banks is to help the farmers.
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NABARD
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10) Credit structure of the co-operative banks?
Credit Structure
NABARD not involved in the direct credit helps to any rural
development activities, since NABARD is apex institution it has
three tire systems for refinancing rural development activities: which
is explained following
Primary Agriculture Credit Society (PACS)
Primary Agriculture Credit Societies are the bottom payer in the
Credit these societies are directly in contact with the local farmers.
They have all necessary information, such as land occupied by him,
his requirement etc of the farmers. They give loans to the farmers at
decided rate of interest.
District Central Co-operative Banks (DCCB)
These banks provide refinance to PACS to meet their credit needs
for granting loans to farmers. District level Co- Operative bank have
many PACS under in it so not all loan granted by the PACS are
refinance by DCCB. Only 80% to 90% are refinanced by the DCCB.
State Level Co-Operative Banks (SCB)
All the DCCB are the member of the SCB. And these DCCBs
depend upon the SCB for the credit requirement as DCCB have
many PACS under in it. Like not all Credit to farmers by PACS is
refinanced by the DCCBs, SCB also not refinanced by the SCB.
Apex level institution (NABARD)
NABARD plays very vital role in the credit distribution channel. It
provides refinance facility to all SCB against loan sanctioned to
DCCBs.
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BIBLIOGRAPHY
BOOKS REFERRED:
Indian banking.
Newspaper referred:
Times of India
Economic times
WEBSITES REFFERED
www.nabard.org
www.google.com
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