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Issues of Sustainability of Indian Rural Credit Co-operatives:

A study in Kerala State, India

Jose A. MATHAI1

Introduction
The ultimate objective of the National Policy on co-operatives in India (Government of
India, 2002) is to provide support for the promotion and development of co-operatives
as autonomous, independent and democratic organizations, so that they can play their
due role in the socio-economic development of the country. It recognizes the distinct
identity of co-operatives and supports their values and principles by persuading states
to provide them an appropriate administrative and legislative environment in which to
operate. With the changes in the Indian economy since 1991, the co-operative sector
has needed to focus on cost effectiveness of its operations and ensure returns from
investments made in various economic activities in order to withstand competition.
The co-operative credit structure in India can be broadly classified into two segments.
While the urban areas are served by Urban Co-operative Banks (UCBs), rural co-
operatives operate in the rural parts of the country. The rural Co-operative Credit
Structure (CCS) in India consists of two wings namely; Short-term and Long-term credit
structures. The Short-term co-operative credit structure is federal in character, and deals
with short- and medium-term credit for agricultural purposes. It is mostly based on a
three tier pattern with the State Co-operative Banks (SCB) at the Apex level, District
Central Co-operative Banks (DCCB) at the Intermediary level and Primary Agricultural
Credit Societies (PACS) at the village level. All types of primary societies are federated
into DCCB at the district level which, in turn, are federated into the SCBs at the state
level (i.e. Apex level).
As per the RBI (Reserve Bank of India, 2011) report at the end of March 2010, there was
a total 95,765 rural co-operative institutions operating in the country. Out of the total
number of rural co-operatives, short-term co-operatives constituted a majority while
only one per cent of the total co-operatives operating in the country were long-term in
nature. Within the short-term structure, the ground level institutions PACS incurred huge
losses. This has severely affected their ability to provide credit in full and in time to the

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rural clientele. This led to a drop in the market share of short-term credit distributed,
from 77% in 1973-74 to 27% in 2008-09, while that of long-term credit by co-
operatives dropped from 65% to 16% during the same period (Table 1).
The performance of short-term CCS had a different story in the State of Kerala, where
they showed a noticeable difference in their performance; for instance, Kerala had a
membership of 14,000 per PACS while at national level, it was 1,336. The Kerala co-
operatives are outperforming Indian averages on indicators like owned funds, deposits
and loans outstanding. This paper provides an analysis on the current state of affairs of
the PACS in Kerala.

Statement of the problem and objective of the study

Liberalization of the co-operative movement in India sought to create commercially
autonomous member-based co-operatives that would be democratically and
professionally managed business ventures. The government in India viewed co-operatives
as an instrument of rural development, which led to its partnership in co-operative
development. In the contemporary environment of free market forces, and the vigorous
decentralization of governance in India, the importance of co-operatives is increasingly
recognized. On both counts, co-operatives can play a major role in bringing equity and
mobilizing the collective consciousness of the people. Kerala is one of the few states in
the country where the credit co-operative sector has gained considerable momentum,
and has made a considerable impact on its economy. However, PACS in Kerala has shown
signs that question the co-operative character as well as its sustainability. Therefore,
with the objective of exposing the performance and sustainability issues of PACS in the
state of Kerala, India, the following study was conducted.

Materials and methods

The data used in this analysis is mainly secondary data that was collected from the websites
of the following organizations: the National Federation of State Co-operative Banks Ltd.
(NAFSCOB, www.nafscob.org); the National Bank for Agriculture and Rural Development
(NABARD, www.nabard.org); the Reserve Bank of India (RBI, www.rbi.org.in); the Department
of Co-operation, Government of Kerala (www.cooperation.kerala.gov.in); Kerala State
Planning Board (www.spb.kerala.gov.in); Annual Reports of Kerala SCB; and the Annual
Reports of Vellanikkara Service Co-operative Bank Ltd. The reference period for data
collected generally falls between 2003 and 2011, but due to non-availability of data in
some cases, the analysis did not strictly follow the reference years stated.
The primary data collected was used to support the secondary data. Two PACS – Vellanikkara
Service Co-operative Bank Ltd (VSCB) and Adat Farmers Service Co-operative Bank (AFSCB)

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– were studied in order to elicit local/ground level realities. Focus group discussions were
held with members, non-members, employees of the PACS and officials of Thrissur DCB and
KSCB. Meetings were also held with some co-operative leaders and government officials,
such as the Assistant Registrar, in order to get their views about the working of co-operatives
in the State of Kerala. Simple statistical tools such as percentages, rations and compound
annual growth rates are used to analyze the data collected.

Indian co-operatives - a brief history

The growth of the co-operative movement in India to its present size and operating levels
is broken into different phases. The first phase takes place between 1900 and 1930. In
1904, the Co-operative Societies Act was passed and “co-operation” became a provincial
subject by 1919. The second phase from 1930 to 1950 was marked by the major
development of the pioneering role played by RBI in guiding and supporting the co-
operatives. However, even during this phase, signs of sickness in the Indian rural
co-operative movement were becoming evident. Nevertheless, the third phase, between
1950 and 1990, marked a continuation of co-operative credit society growth. The All
India Rural Credit Survey committee (1954) not only recommended state partnership in
terms of equity but also partnership in terms of governance and management. The
preoccupation of the government with the co-operative sector and its potential for
bringing about development, right up to the ’90s, resulted in an increase in the number
of co-operatives and their contribution, making the Indian co-operative movement one
of the largest movements of its kind in the world.
The fourth phase, which takes place from the early 1990s to the present, culminates
with the process of economic reforms that were initiated in 1991 in response to changes
in the external and internal economic environment. The major objectives of the
economic reforms included: market orientation of the economy, increasing private sector
initiatives, improving efficiency in government spending, enhancing export compe-
titiveness, foreign capital inflows, stabilizing balance of payments and revamping many
sectors of the economy such as industry, trade, finance, infrastructure, etc. By this time,
co-operatives had a much deeper reach, with nearly four times the number of accounts
than commercial (public sector) banks (Government of India, 2009). The Fourth Phase
saw an increasing realization of the disruptive effects of intrusive state patronage and
politicisation of the co-operatives, especially financial co-operatives, which resulted in
poor governance and management and the consequent impairment of their financial
health. A number of committees were set up to suggest reforms in the sector.
Some of the key committees that significantly contributed to the development of the
movement in India were: the All India Rural Credit Survey Committee (1954); the Mirdha

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Committee on co-operatives (1965); the All India Rural Credit Review Committee (1969);
the Committee to Review Arrangements for Institutional Agriculture and Rural
Development (1981); the Agricultural Credit Review Committee (1989); the Expert
Committee on Rural Credit (2001); the Committee on Model Co-operative Act (1991);
the task force to Study the Functions of the Co-operative Credit System and to Suggest
Measures for its Strengthening (1999); the Expert Committees on Short and Long Term
Credit Structures (2004 and 2006); and the High Powered Committee on Co-operatives
(2009).

The expert committees had identified the following as the underlying factors responsible
for the present state of affairs of PACS: Low motivation or involvement of members;
ineffective supervision, including audits by state registrars or the co-operative department,
leaving frauds or embezzlements either undetected or, if detected, not followed up. Most
PACS have run into losses due to overstaffing, high cost of transactions and the high interest
they pay. PACS were also forced to undertake un-remunerative non-credit functions like
public distribution systems, purchasing and sale of fertilizers to members, procurement of
food grains and running consumer stores, etc. The co-operative credit system also suffers
from impaired governance, management and financing. Some of the other critical problems
faced by the PACS in India as identified by the expert committees were: failure to inculcate
essential co-operative values, increasing incidence of non-viability, politicization and
excessive government intervention, lack of cost competitiveness, deficiency of efforts in
capital formation, non-recognition of co-operatives as economic institutions, inability to
attract and retain competent professionals and a dearth of skilled staff.

In India, there are many studies on the co-operative credit movement by eminent scholars.
The studies of Baviskar (1968), Satyasai and Badatya (2000), Shivamaggi (1996),
Puhazhendhi and Jayaraman (1999), Desai and Namboodiri (1993) and Urs and
Chitambaram (2000) have all influenced the intellectual thinking in India’s approach to co-
operatives.

These studies have revealed that sustainability of co-operative credit means that the co-
operatives need to increase their capital base in order to maintain further expansion of the
lending business on a long-term basis. In order to be sustainable, co-operative credit
institutions are required to have sufficient margin between lending rates and the cost of
funds raised for lending to cover non-financial transaction costs. Despite the impressive
gains made by the rural credit delivery system in Kerala, there has been deterioration in
the financial health of the co-operative credit institutions. It is argued that the revival of
PACS in India is in the hands of involved members, committed leaders and motivated
employees. Together they can revive co-operative glory by making it a professional,
member-centric and member-driven institution.

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Unique features of Kerala State and scope for intervention

by co-operatives
The Kerala State has an area of 38, 863 sq. kms with a population of 33.4 million, one
of the highest population densities (859/sq.km) among the less developed countries of
the world. The “Kerala model of development” has been under much discussion in
development literature as it has the highest Human Development Index in India, but with
much lower per-capita income (Government of Kerala, 2012a). Kerala reduced the
percentage of people living below the poverty line from approximately 60% to less than
15% during the last three and half decades (1973/74 to 2004/05; Reserve Bank of India,
2012: Table 162). Now the task at hand is addressing the remaining 15% of people in
need and below the poverty line, in addition to assuring better services to people in all
occupations. Co-operatives do have scope as the harbingers in helping the government
to achieve its development goals in the state. The Approach to Agriculture in the
12th Five Year Plan (2012-17) from the Government of Kerala focuses on raising incomes
for farmers through increasing productivity, subsidiary occupations, better marketing
and thorough promotion of value added products (Government of Kerala, 2012b). No
doubt, these are the projects that the PACS can do for the farmers of Kerala who were
prone to vagaries of the market mechanism.

Profile of credit co-operatives in Kerala

There are 13,478 co-operatives under the control of Registrar of Co-operative Societies
and another 12,000 co-operatives under the control of Industries Department. Out of
the 25,478 co-operatives in the state, credit co-operatives have a share of 13% (KSCB,
2012).
As of March 31, 2012, there were 1,607 PACS in Kerala with 12.74 million members.
About 51.3% of them were making a profit while 45.1% were operating at a loss and
1.5% were dormant and the remaining 2.1% were defunct (KSCB, 2012). The
comparative performance of PACS in Kerala with respect to their counterparts in the rest
of the country is remarkable. Kerala had the highest rank with regard to membership,
population coverage, borrowing members, loans and advances, deposits mobilisation
and share capital contribution. With respect to short-term co-operative credit structures,
the state has around 4,807 co-operative bank branches/outlets. This elaborate network
of branches/outlets made Kerala credit co-operatives quite distinct from that of rest of
Indian credit co-operatives.
The operational details of PACS as presented by the Economic Review of the Kerala State
Planning Board, during the period from 2004 to 2011, have been quite impressive
(Government of Kerala, 2012a). For the last seven years, the societies in Kerala are

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performing well according to indicators such as average membership, average share

capital and deposits per society. The CAGR – compound annual growth rate – for these
indicators was 12.01%, 11.95%, and 19.58% respectively. Per member deposits
increased by 6.76% per annum – while that of per society was 19.58%, as seen above
– which shows that non-members also deposit at PACS in Kerala. It should be noted that,
in Kerala, the percentage of borrowing membership is 151.3% of the total membership
of 19.26 million (NAFSCOB, 2011) meaning that even non-members get loans from co-
operatives. The percentage of over-dues to demand was 19.18 % in 2009-10, which
was less than the national average of 21.93% (NAFSCOB, 2012c: Table XIV).
Kerala’s PACS are unique in many ways as is evident from operational details shown. In
spite of all these strong points, some issues need urgent attention.

Issues of sustainability of PACS in Kerala State

Despite the phenomenal outreach and volume of operation, the health of a very large
proportion of Kerala’s PACS has deteriorated significantly. Let us see these issues in its
detail:
Membership of co-operatives
The Indian co-operative movement has many co-operative principles that the ICA
propagates; the core principles of user-owner, user-benefit and user-managed have been
subdued by the Kerala model of the credit co-operative movement. Essentially, a member
organisation like PACS could work for the betterment of members in many ways. Each
PACS has to decide – based on its members’ needs and its own opportunities and
resources – on the services that could be provided by it to the members. Unfortunately,
this is not happening as depositors and borrowers of the PACS are not necessarily
members. Even non-members do more business with co-operatives than the members;
as demonstrated above, the borrower percentage against membership is as high as 150%
in Kerala; also the major depositors of co-operatives are non-members in Kerala.
Co-operatives lost their ‘voluntary and open membership’ principle and became
instruments in the hands of the local politicians for maintaining their hold on institutions
that can provide a sojourn to a multitude of party cadres who aspire to obtain positions
in public institutions to enhance their popularity as a leader. Those who get onto the
Board of Directors need not be actual users of the service because the co-operatives in
Kerala are the bedrocks of party politics.
As far as co-operative membership is concerned, it has become a situation where the
fundamental philosophy of the co-operative – organisation of the weak – is being
questioned as seen from Table-2. During the period between 2003 and 2011, the share
of weaker sections of the society was getting reduced in India as well as in Kerala. In

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Kerala, the situation is quite serious as the percentages of the weaker sections
– Scheduled Caste (SC), Scheduled Tribe (ST), Rural Artisans (RA) and Small Farmers (SF) –
in the co-operative membership were as low as 6.94%, 1.56%, 4.81% and 34.18%
respectively.
It is also noted that the percentage of borrowing SF members among members is 20.80%
in 2010-11, down from 22.28% in 2002-03. The percentage of SC borrowing members
in total among total borrowing members was just 5.55% and among ST, it was 2.21%.
All weaker sections’ share in borrowing membership declined during 2002-03 and
2010-11 (see Table-2). It is to be noted that the percentage of other weaker sections
that utilise the service of the co-operative is less than proportionate to their size in the
membership of co-operative. This is an area of concern as the percentage of the weaker
sections who make use of cooperative services is less and it is, in fact, an aberration
from the original idea of the co-operative movement, which is meant to empower
downtrodden sections of society. This shows that co-operatives in Kerala became not
necessarily the institutions that serve the interest of poor.
Another issue of membership is related to member participation in management of the
co-operatives. Though Kerala co-operatives did succeed in mobilizing deposits, the
depositors were not given a hand in the management of the co-operatives. The
observation from the membership data of the VSCB (Vellanikkara Service Co-operative
Bank) showed that during the period from 2001-02 to 2010-11, the annual growth rate
of the PACS membership was just 2.65% while deposits of the co-operative increased
at the rate of 11.65%. Most of the depositors – in spite of their major share in the
business of the co-operative – are not members of the co-operative and do not have
roles in the management of the institution. The committee headed by Professor
Vaidyanathan has observed the same at the all-India level and has made suggestions to
give representation to depositors in the management of the co-operatives in India.
High cost of borrowed funds
It is well established that the rise in the average interest cost on deposits is due to the
presence of a higher portion of fixed deposits in the aggregate deposits. In addition, the
increase in interest income from advances has not been commensurate with the rise in
the interest cost. The PACS are unable to make new investments that would maximize
the interest spread and contribute to their viability. In fact, this has another dimension;
the government’s insistence that PACS should deploy their funds as deposits at DCBs did
contribute to their financial ill health. This is because the PACS savings deposits at the
DCBs yield much less than what they pay to the fixed deposits account holders.
The field data from the VSCB showed that the fixed deposits of the bank, which
constitutes 71% of the total deposits, have increased at a rate of 28.05% per annum

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during 2001-02 to 2010-11 and total deposits at the rate of 11.59% per annum (see
Table-3). The borrowings grew at 64.03% per annum during the same period. There was
12.31% growth in borrowed funds at VSCB during the same period. As a result of the
high cost of borrowed funds, the VSCB could not make a significant dent on accumulated
loss as it declined only at -0.25% per annum during the same period. This is mainly
because of the low interest margin that the co-operatives receive from their operations.
It has been noticed that there was a continuous decline in the share of owned funds in the
total resources of the PACS. Both at the national level as well at Kerala level, the percentage
of owned funds to working capital have declined during 2001-02 and 2010-11. In Kerala,
the percentage was 7.26% in 2010-11 while it was 10.09% in 2001/02 (NAFSCOB, 2004
and 2012: Table I and Table IV).
From the differential growth in the funds of different tiers - DCBs and SCBs - it appears
that higher-level tiers are thriving at the cost of lower-level institutions but without
taking any positive responsibility for the growth of the primary units. For instance, the
deposits mobilized by higher tiers (see Table-4) in the short-term structure are mobilized
by way of statutory deposits from lower tiers, rather than deposits mobilized through
their own efforts. In Kerala, about 55.22% of the deposits at DCB are from PACS, while
95.75% of the deposits at SCB are from DCBs. It is further observed that SCBs are not
lending to DCCBs in net terms other than passing on the refinance amount, as shown by
the decline in the ratio of involvement of SCBs to the DCCB deposits kept with SCB over
time. There is a serious imbalance in the growth of resources vis-à-vis lending among
different tiers.
Internal resources of PACS in Kerala are relatively less – 6.84% compared with the
national average of 9.23% (NAFSCOB, 2012c). Government contributions in share capital
of PACS (13.7%) are very high compared to the national average of 9.2%. The share of
borrowings, 10.7%, and deposits, 80.6%, to working capital of PACS in Kerala indicates
the higher cost of funds that the Kerala PACS have in their operations – the percentages
for these variables at the national level were 38.3% and 26.1% respectively (NAFSCOB
2012c). The VSCB data show that among deposits, fixed deposits, which are very costly
for the society as the rate of interest paid was around 10%, constituted about 72% of
the deposits.
Mounting losses of PACS and poor loan recovery
The mounting losses of PACS are threatening their very existence. As NAFSCOB data
indicate, 692 societies (44%) are incurring losses (see Table-5) and another 92 societies
were dormant in Kerala in 2011. The loss totalling Rs. 2,030 million had a growth index
of 191 over 2003. There was no change in the percentage loss in Kerala in 2011, as it
was the same 44% even eight years before. The fact is that nearly half of the PACS,

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including the dormant ones, are in trouble as they have to pay back the huge deposits
collected from the public. Since PACS do not come under the Banking Regulation Act,
non-performance of the PACS add to the risk of the depositors.
Compared to the national scenario, Kerala co-operatives are doing better as the share
of profit increased from 38.35% to 50.16% during 2003-2011. At the all India level,
there was a decline in the percentage of profit making societies from 60.85% to 47.70%
during 2003-2011.
Further, the PACS are poor in loan recovery – the overdue loans among Kerala PACS were
25.09% for agricultural loans, 25.95% for non-agricultural loans and 19.18% for others
(NAFSCOB, 2012c). The poor loan recovery rate is a concern in Kerala as a fourth of the
loans issued are not available for the societies to recycle. There are many reasons behind
these overdue loans, but the major one is due to political interference in banking business
by way of writing-off of loans in the name of agricultural debt relief. In Kerala, the
scapegoat of political populism has been the co-operative movement and it bears this
burden by way of borrower apathy to repay the loan on time. This has been happening
for many years and it has created a negative psychological feeling regarding timely loan
repayments, as the people who repay the loan in a timely manner are deemed foolish.
Unwillingness to make agricultural loans
The share of agricultural credit in the total credit disbursed by co-operatives in Kerala
declined considerably between 1981-82 and 2010-11 from 53% to 17.45%. It should
be noted that the percentage of loans issued to agriculture by PACS at the all-India level
was 50.90% in 2010-11 (NFSCOB, 2012c). These percentages are inflated as there are
usually adjustments in which non-agricultural loans are also reckoned as farm loans
(generally done to avail interest subsidies as well as for the banks to attain priority sector
lending targets). The fact is that the Kerala PACS are not financing agriculture as in other
states. This is a serious issue in the background of agricultural stagnation in the state
and they are not justifying their name as ‘agricultural’ co-operatives.
Failure to diversify
Over the years, the number of PACS that have undertaken non-credit business activity
has not increased significantly. The percentage of agricultural produce marketed through
PACS was just 1.35% of its total working capital during the period 2005-07. In addition,
the value of fertilizers sold through PACS remained very low at 2.28% of its working
capital (Government of Kerala, 2012a). Limited operations and mounting over-dues have
contributed to their financial non-viability. For various reasons, particularly poor
governance and management, members of PACS have disowned the institution even
though they have an equity stake in it. The affairs of PACS have not improved to the
desired extent, despite recommendations by various committees. On the other hand, the

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increase in overdues has choked the available credit lines to PACS, bringing down their
liquidity and lending ability. The share of co-operatives at grassroot level credit for
agriculture declined from 2/3 to less than 1/5 of ground level credit over the last decade.
Poor service
The social objective assigned to co-operative banks also brought in uncongenial factors
such as bureaucracy, high non-performing assets, capital inadequacy, dependence on
government and resistance to automation. All these held back the PACS while financial
sector reforms initiated in 1991 paved the way for transformation of the banking
industry. The cornerstone of reform was increased competition, thus accelerating
product innovations and enriching the quality of customer service, which co-operatives
have failed to achieve thus far. This may be the reason why credit co-operatives lost
their market share in India. Only 55% of the societies had computer facilities in 2007,
and weak MIS added to the worries of the sector. The limitations of the co-operative
system have to be overcome. These include their restricted area of operation and
activities; their inability to cater to credit needs for all purposes from a single outlet;
their low level of professionalism and their inability to offer all types of financial services
that commercial banks/RRBs offer (money transfer through drafts/MT, etc.). Real success
comes when co-operatives take full advantage of their ability to operate at a close
interface with their clientele. This ability almost matches similar ability of non-
institutional rural lenders and can possibly never be acquired by other institutional
agencies.
Commitment of management and workforce
Staff skills are still very low, as there is lack of professionalism as can be seen from the
NAFSCOB data (2012). In Kerala, about 6% of societies are without a paid secretary. The
percentage of untrained staff at Kerala as well as at the national level is very high – 39%
and 55% respectively. All these facts indicate that there is lack of professionalism in the
credit co-operative sector, which naturally affects the efficiency of operations of co-
operatives. Another issue that has surfaced is that too many staff are at lower levels of
the organisation but at the top level, very few were available, implying that professionals
are not interested in co-operative sector jobs in India. In Kerala, persons who got
deputation from the IAS (Indian Administrative Service) cadre of the government
bureaucracy head most of the apex co-operatives, as the government stake is higher in
those co-operatives.
Cost cutting by co-operatives
The co-operatives urgently need organizational reforms to cut the cost of operations –
like the 3-tier structure of the credit co-operatives which adds to the cost of funds that
were available to primaries; separate ST and LT structures which tend to increase the

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cost of management; and merging of the primary-level non-viable co-operative banks;

and winding up of defunct institutions. The state co-operative federations need to
assume more responsibilities including promotion, guidance, information sharing and so
on, instead of competing with their affiliate members. The co-operative structure should
try to look as an integrated whole, ensuring timely conduct of elections, general
meetings and audits (currently the audit is delayed on average by seven years, as
observed in the field).

Conclusions and policy implications

As 2012 is the International Year of Co-operatives, this should make co-operative
enterprises a key to transforming small-holder agriculture into a profitable business by
enhancing market-oriented farm practices. As the clout of agri-business grows, food
inflation rises and informal work becomes the norm, challenging dominant structures
of ownership and power is the central challenge of the co-operative movement. In India,
no amount of tinkering can make growth ‘inclusive,’ unless people have a say in how
that growth is driven.
Mounting losses, high cost of deposits and deteriorating margins, increasing overhead
costs, declining financial discipline, lack of professional management, poor service,
fading member centrality and ignoring weaker sections of society are some of the urgent
concerns of the PACS in Kerala. Co-operatives in Kerala should function as economic
enterprises and not as an extended arm of the state. They require an entrepreneurial
approach and competitive edge through a suitable enterprise focus and strategic
alliances with private and public sector units. Appropriate mechanisms would be put in
place so that farmers have greater control of the market channels and improve profit
opportunities through co-operatives and SHGs. The management of the co-operatives
needs to be made professionally competent, with clear demarcation of functions of the
elected members and the managers. The audit and accounting systems would be
improved and made transparent so as to give greater confidence to all the members of
co-operatives. Good governance of co-operatives requires well-organized performance
reporting, powerful internal control mechanisms backed up with good external
supervision, along with training for the boards of directors and elected representatives.
There is a need to inculcate the values of self-help and member centrality in Kerala co-
operative organisations so that they can function as ‘co-operative enterprises.’ If the
philosophy of co-operation is an important parameter to measure the success of co-
operative development, there is lot more for Kerala to achieve. The co-operative principle
enables the most marginalised people to mobilise their most abundant resource: their
productive power and their solidarity. The choice is between two different worlds: one
driven by hyper-profit and mass distress, the other holding out the promise of shared

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prosperity and well-being. As observed by Shivajirao G. Patil, the Chairman of the High
powered Committee on Co-operatives, “it cannot be ignored that while the co-operative
route is a dignified way of growth for all, it is particularly so for the marginalized
segments of the country, offering the small man as it does the chance to enter a ‘world
of bigness’” (Government of India, 2009: ii).

Table 1: Direct Institutional Credit for Agriculture and Allied activities in India –Short-term
and Long-term

Source: RBI. 2012. Handbook of Statistics on the Indian Economy RBI: Mumbai, worked out from Tables 55 and 56.
Note: In parentheses percentages are given
CAGR: Compound Annual Growth Rate

Table 2: Total and Borrowing Membership of Primary Agricultural Credit Societies in Kerala and
India during 2002/03 and 2010/11 (in %)

Source: NFSCOB. 2012. Accessed from www.nafscob.org/pacs_f.htm on 31-06-2012

Note: Figures in parentheses are borrowing membership.

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Table 3: Details of borrowed funds, owned fund and accumulated loss of VSCB during
2001/02–2010/11 (Rs. in Millions)

Source: VSCB. Annual Reports 2002 and 2012.

Table 4: SCB and DCB deposits source wise during 2010/11

Source: from Table III for DCBs of NAFSCOB. 2012. Basic data on performance of district central co-operative banks and Table V
(A) for SCBs of NAFSCOB. 2012. Basic data on performance of state co-operative banks.
Accessed from: www.nafscob.org on 02-07-2012

Table 5: Number of societies in profit and loss during 2002/03 and 2010/11

Source: worked out from Table XV of NAFSCOB of 2004 and 2012.

Accessed from: www.nafscob.org on 2-07-2012.

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Note
1
Associate Professor, College of Co-operation, Banking and Management,
Kerala Agricultural University (KAU), Thrissur-680656, Kerala State, India, E-mail: jose.am@kau.in,
phone: +9194 9588 4527

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Summary
Liberalization of the co-operative movement in India sought to create commercially autonomous
member-based co-operatives that would be democratically and professionally managed business
ventures. Rural credit co-operative movement in India was successful in some States. Kerala is one of
the Indian states wherein co-operative credit movement did make an impact in its socio-economic
life, however shown signs that question the co-operative character as well as its sustainability. This
paper analyses the performance and sustainability issues of short-term credit co-operatives in Kerala
State, India. The issues identified are with respect to: membership of co-operatives, borrowed funds,
loan recovery, loan to agricultural sector, diversification of business, quality of service, commitment
of management and workforce, cost of operations etc. There is need to inculcate values of self-help
and member centrality in Kerala co-operative organisations to make them true ‘enterprises’.

Resumen
La liberalización del cooperativismo en India intentó crear cooperativas comercialmente autónomas
basadas en sus asociados, las que funcionarían como empresas comerciales administradas de manera
democrática y profesional. Las cooperativas de crédito rural tuvieron éxito en algunos estados de la
India; por ejemplo, en Kerala, uno de los estados indios cuya vida socioeconómica se vio modificada
por las cooperativas de crédito, a pesar de que se cuestionó el carácter cooperativo del movimiento
así como su sustentabilidad. Este texto aborda la temática relacionada con el desempeño y la
sustentabilidad de las cooperativas de crédito a corto plazo en el estado de Kerala, India. Entre los
temas identificados se encuentran: afiliación a las cooperativas, préstamo de fondos, recuperación
de préstamos, préstamos al sector agrícola, diversificación de la empresa, calidad del servicio,
compromiso de los gerentes y de los empleados, costo de las operaciones, etc. Es necesario inculcar
valores de ayuda mutua y de centralidad de los socios en las organizaciones cooperativas de Kerala
a fin de convertirlas en verdaderas ‘empresas’.

Résumé
La libéralisation du mouvement coopératif en Inde visait à créer des coopératives autonomes qui
étaient, en fait, des entreprises gérées démocratiquement et avec professionnalisme. Le mouvement
coopératif de crédit rural a connu du succès dans certains États indiens. Au Kerala, par exemple, le
mouvement de coopératives de crédit rural a eu une incidence positive sur la vie socio-économique,
malgré des signes permettant de mettre en doute le caractère coopératif et la durabilité de ses
activités. Ce texte analyse les problèmes de performance et de durabilité qu'éprouvent les
coopératives de crédit à court terme au Kerala. Voici quelques-unes des questions soulevées  : les
membres, les fonds empruntés, la récupération des prêts, les prêts au secteur agricole, la
diversification des activités, la qualité du service, l'engagement de la direction et des employés et le
coût d'exploitation. Il est important d'instaurer les valeurs d'entraide et de prépondérance des
membres dans les coopératives du Kerala afin d'en faire de véritables «  entreprises  ».

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