Financial woes of the Maharashtra State Cooperative (MSC) Bank have prompted the State Government to ask commercial banks, especially from the public sector, to step up credit to the agriculture sector in the State in FY 2012.

As financial health of entities in the three-tiered rural cooperative credit structure is not up to the mark, commercial banks will double the amount they disburse as agriculture credit in the State, which means they will disburse Rs 10,000 crore in FY 2012 (Rs 5,000 crore in FY 2011).

Co-op banks' role

The cooperative sector, including MSC Bank, District Central Cooperative (DCC) Banks, and Primary Agricultural Cooperative Societies (PACS), will disburse Rs 12,000 crore (Rs 8,000 crore in FY2011), said Mr Anup Sankar Bhattacharya, Chairman and Managing Director, Bank of Maharashtra.

BoM is the convenor of the Sate Level Bankers Committee in Maharashtra. State Cooperative Bank, DCC Banks, and PACS are the three-tiers of the rural cooperative credit structure.

Unlike in the rest of the country, where nationalised banks dominate agriculture credit, cooperative banks account for a chunk of agriculture credit in Maharashtra. However, because of the weak financial position of the apex bank (MSC Bank) in the State and a host of DCC Banks, the credit disbursed by these banks is expected to come down.

Commercial bank advances

Incrementally, commercial banks will increase their advances to the agriculture sector in Maharashtra, said Mr M.D. Mallya, Chairman, Indian Banks' Association, and Chairman & Managing Director, Bank of Baroda.

A special meeting of the State Level Bankers Committee was convened to ensure adequate agriculture credit during the kharif season, said the Chief Minister, Mr Prithviraj Chavan.

Mainline banks should to disburse agriculture credit through a network of Primary Agriculture Credit Society (PACS) and Business Correspondents, he added

Maharashtra's Minister for Cooperation, Mr Harshavardhan Patil, said the State government wants nationalised banks to give more agriculture credit. In those areas where the DCC Banks have been served ‘Chapter 11' notices (as they have negative networth) their credit disbursal targets should be reduced and the targets of nationalised banks should be increased.

MSC Bank's 44 member jumbo board was superseded by the State government last month on the RBI's directive. The 100-year-old bank has been placed under administration. The action has been taken as the National Bank for Agriculture and Rural Development (Nabard), in its annual inspection, found deficiencies in the bank's key financial parameters.

As of March-end 2011, the bank had a negative networth of Rs 144 crore, high level of bad assets (net non-performing assets of 7.5 per cent), high exposure to sugar cooperatives (42 per cent of total loans), and unsatisfactory capital adequacy ratio (the number was not disclosed by the bank).

Refinance plea

Meanwhile, Mr P.R. Karnad, In-Charge Managing Director, MSC Bank, said the bank has moved Nabard for refinance amounting to about Rs 5,000 crore. The apex State cooperative bank had received Rs 2,180 crore as refinance in FY2011.

According to Mr Karnad, MSC Bank has already given refinance amounting to Rs 450 crore from its own funds to a few DCC Banks at 8 per cent interest. If Nabard extends refinance then MSC Bank could give refinance to DCC Banks at 6 per cent.

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