Co-operatives against plan to convert Primary Agricultural Cooperative Societies (PACS) into banking correspondents

The members of co-operative societies are opposed to the ideo of converting Primary Agricultural Cooperative Societies (PACS) into business correspondents for District Credit Cooperative Banks as recommended by the Prakash Bakshi committee.

What are Primary Agricultural Cooperative Societies (PACS) ?

The Primary Agricultural Cooperative Societies (PACS) are the bottom-tier of three- tier Cooperative credit structure operating in the country.  These are Short Term Cooperative Credit Structure functioning at the grassroots (Gram Panchayat) level. These are Primary Societies owned by farmers, rural artisans etc. and intended to promote thrift and mutual help among the members; cater to their credit requirements and provide credit-linked services like input supply, storage and marketing of agricultural produce etc. These Cooperative Credit Institutions with their deep reach in the rural areas and accessibility to the small and marginal farmers and the other marginalized populations have been playing a vital role in dispensation of agricultural credit.

What are the Objectives of Primary Agricultural Cooperative Societies (PACS)
  • To cater to the credit need, mostly, farm credit and income generation activities of farmers, artisans and other members.
  • To extend selected banking services to members.
  • To implement Kissan Credit Card Scheme for providing timely and adequate farm credit to members.
  • To take up marketing of agricultural produce of member farmers.
  • To cater to the consumer needs, mostly, essential commodities of members.
  • To create awareness among farmers to adopt improved farming practices.
  • To reach upto the unprivileged section of the community through SHGs, JLGs and TFGs. 
Primary Agricultural Cooperative Societies (PACS) and Recommendations of Prakash Bakshi Committee:

The RBI constituted an Expert Committee chaired by NABARD Chairman Prakash Bakshi to review the existing Short Term Cooperative Credit Structure (STCCS) focusing on structural constraints in rural credit delivery system and explore various ways to strengthen the rural cooperative credit architecture with appropriate institutions and instruments of credit to fulfill credit needs.

In one of its recommendations, the panel recommended that PACS should work only as Business Correspondents (BCs) on behalf of banks and should not themselves act as financial intermediaries. In addition, PACS should provide a range of other fee based financial and non-financial products. The immediate consequence of such a change would be that all depositors and borrowers in villages would become direct member clients of the Central Cooperative Banks (CCBs) or District Cooperative Banks (DCBs).

Those opposed to the move suggest that such a transition would kill the PACS rather than saving them.

What is the current status of Primary Agricultural Cooperative Societies (PACS)?

PACS are important structures that have been provding credit facilities mainly to the farmers in vallges of India.  It has the deepest penetration amongst all the other credit providing institutions. Currently, India has 93,000 PACS — one for every seven villages. In contrast, commercial and Regional Rural Bank (RRBs) have just 50,000 branches across rural and semi-urban India. During 2011-12, PACS lent to 3.09 crore farmers. The comparable numbers for commercial banks and RRBs are 2.55 crore and 82 lakh. During 2011-12, for instance, PACS financed 67 lakh new farmers compared to 21 lakh for commercial banks and 9 lakh by RRBs. Further, PACS have a reputation for lending to small and marginal farmers — as co-operatives, they are owned and run by farmers.

Why Primary Agricultural Cooperative Societies (PACS) model is in trouble?

Despite all the above mentioned positive points, PACS are in trouble. The deposits of PACS are continuously falling and has already declined far behind their lending obligations. As per Bakshi Committee report, only about 10% of the agricultural loans issued by the PACS were supported through deposits mobilised by PACS and the rest 90% had to be provided by CCBs. As on 31 March, 2011, PACS in 25 states had mobilized deposits of Rs 37,238 crore. However, of this, Rs 28,210 crore came from PACS of just three states — Kerala, Karnataka, and Tamil Nadu. Excluding these three states PACS in the rest of the country had mobilised only about Rs 7,000 crore as deposits whereas they had provided loans aggregating Rs 47,000 crore. It is also a low margin yielding business which yields around 0.25% net margin. Besides, the agrecultural risk add to the worries. Between the high agricultural risk (compounded by working in a small geography) and the low margin, PACS are not earning enough to hedge against the bad years.
Other problems like politicisation, across the three tiers are also prevalent. Then, PACS’ share in agricultural credit is slipping. It has declined from 50% in the mid nineties to 17% now – with the rest moving to commercial banks and RRBs.

As per Bakshi Committee report, this trend of marginalisation is going to continue. It cites the ongoing financial inclusion drive as one of the reasons behind this. With financial inclusion programmes all households will soon have savings bank accounts where deposits are protected by DICGC (Deposit Insurance and Credit Guarentee Corporation). On the contrary, there is no such deposit insurance for PACS.

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