To rejuvenate the financially weak primary agricultural credit societies (PACS), the Central Government gave financial assistance aggregating Rs 8,661 crore to recapitalise 53,380 societies across the country through the National Bank for Agriculture and Rural Development (Nabard) in FY2011.

PACS are ground-level institutions which deliver short-term credit to farmers and serve as outlets for distribution of agriculture inputs, food and other essential items to the villagers.

In FY2010, the Government released financial assistance aggregating Rs 7,972 crore through Nabard to 49,764 PACS, the apex development bank said in a statement. So far, 66.61 per cent of the total PACS have been covered under institutional development support.

As per Reserve Bank of India data, there were 95,633 PACS in the country with outstanding loans of Rs 64,044 crore and outstanding deposits of Rs 26,245 crore as of March-end 2009.

The sorry state of affairs that PACS have landed themselves in is underscored by the fact that non-performing assets, at Rs 37,937 crore, accounted for 59 per cent of their outstanding loans as of March-end 2009. Further, 48 per cent of the PACS are loss-making; 39 per cent, profit-making; and 13 per cent, ‘no-profit, no-loss' entities.

“When first conceived, PACS were expected to be rural thrift and credit cooperatives, dependent primarily on member savings for meeting the agricultural credit needs of their members.

“However, subsequently, members stopped seeing these cooperatives as their own, and saw them as channels through which to access credit. They stopped saving with PACS,” said Dr K. C. Chakrabarty, Deputy Governor, RBI, in a recent speech.

Nabard has identified declining borrowing membership, low volume of business, high cost of management, lack of professionalism, low interest margins and involvement in non/less profitable public distribution system business as the reasons for the problems plaguing the PACS.

“PACS are well-placed to meet the farmers' credit needs. They are ideal as vehicles to further the cause of financial inclusion. However, over time imbalances in their balance-sheets, arising from high cost of funding and low return on advances, coupled with non-conducive recovery environment, spawned by loan waivers, has spelt doom for the societies,” said Mr B Subrahmanyam, Managing Director, National Federation of State Cooperative Banks.

Nabard's performance

The aggregate assets of Nabard increased by 17 per cent (or by Rs 22,855 crore) in FY2011 to Rs 1,59,147 crore as of March-end 2011 from Rs 1,36,292 crore as of March-end 2010.

Nabard sanctioned rural infrastructure loans aggregating Rs 18,315 crore to State governments in 2010-11, against Rs 15,630 crore in 2009-10. However, utilisation of funds by State governments under the Rural Infrastructure Development Fund was lower at Rs 12,060 crore in 2010-11, as against Rs 12,388 crore in 2009-10.

The development bank disbursed Rs 9,184 crore as production credit (or crop loans) to cooperative banks and regional rural banks (RRBs). Its production credit portfolio stood at Rs 33,400 crore as of March-end 2011, against Rs 24,216 crore as of March-end 2010.

Investment credit given by Nabard to commercial banks, RRBs and cooperative banks for capital formation in agriculture and allied sectors, non-farm sector activities and services sector grew by Rs 1,464 crore in FY2011 to Rs 13,500 crore.

Related Topics