Role of the RBI in Developing the Cooperative Banking System in India

Role of the RBI in Developing the Cooperative Banking System in India

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The Reserve Bank has made a number of actions to build a cooperative banking system and to advance cooperative finance throughout the nation, including the following:

1. The Reserve Bank maintains a separate agricultural credit department with the following responsibilities:

(i) To keep a knowledgeable staff on hand to research all issues pertaining to agricultural credit and to offer assistance to the federal and state governments, state cooperative banks, and other financial institutions

(ii) To coordinate the Reserve Bank's activities in relation to agricultural credit, as well as its interactions with state cooperative banks and other organisations that provide agricultural credit.

2. Survey on Rural Credit in India - The All-India Rural Credit Survey Committee's establishment in 1951 marked the beginning of the Reserve Bank's actual involvement in the cooperative credit movement. This committee's goal was to research the issues with rural finance and look at ways to increase agricultural credit through a cooperative credit system. The committee's report, which was presented in December 1954, emphasised the critical significance of cooperative rural financing. The Committee discovered that cooperative organisations only contributed 3% of the entire borrowed amount, while private credit agencies, or money lenders and traders, account for 70% of rural credit. The Committee found that rural loans in India was insufficient in terms of quantity, type, and use, and frequently did not reach the intended recipients. The committee stated that "cooperation has failed, but cooperation must succeed" with regards to the drive toward cooperative credit in the future.

3. Integrated Scheme of Rural Credit - The Survey Committee proposed an integrated scheme of rural credit based on the following fundamental principles: (a) state partnership in cooperative credit institutions; (b) full coordination between credit and other agricultural activities, particularly marketing and processing; and (c) administration through appropriately skilled and effective personnel, sensitive to the requirements of the organisation.

4. Financial Support - The Reserve Bank has actively assisted the cooperative system in growing rural credit in accordance with the Survey Committee's recommendations as well as those of following committees like the Committee on Cooperative Credit (1960). The Reserve Bank only offers financing through the cooperative sector, not directly to farmers. The Reserve Bank offers financial support to address rural requirements in the short-, mid - term, and long-term. The needs are described as follows:

(i) Short-Term Finance: The Reserve Bank offers short-term financing to the state cooperative banks in two different ways: (a) via loans and advances; and (b) via a rediscounting facility. Financial aid is provided for crop marketing and seasonal agricultural operations. The Reserve Bank approved Rs. 7.6 crore in short-term loan in 1950–1951 In 1960–1961 and 1981–1982, respectively, this sum climbed to Rs. 147 crore and Rs. 1090 crore

(ii) Medium-Term Finance: The Reserve Bank offers state cooperative banks medium-term loans, typically with terms of three to five years. These loans can be used to: (a) build farm buildings and cow barns; (b) repair wells and other irrigational systems; (c) buy livestock, equipment, and machinery; and (d) enhance the land by bundling it and digging wells and water channels. In locations where there is a lack of resources, the Reserve Bank also offers medium-term loans. The Reserve Bank has significantly raised the amount of medium-term loans it has approved over time, from Rs. 27 lakh in 1954–1955, to Rs. 24 crore in 1970–1971 to Rs. 110 crore in 1981–1982.

(iii) Long-Term Finance: The Reserve Bank offers agriculture long-term financial support for up to 20 years in one of the following ways: (a) It purchases a share of the debt securities issued by the land development banks. It also provides long-term loans to these banks and loans to state governments so they can purchase stock in cooperative credit institutions. In 1981–1982, the Reserve Bank approved long-term loans of Rs. 212 crore.

5. Establishment of Funds - In 1956, the Reserve Bank established the National Agricultural Credit (Long-Term Operations) Funds and the National Agricultural Credit (Stabilization) Fund in order to meet its financial obligations. The Long-Term Operations Funds were created with the following goals in mind: (a) to provide long-term loans to state governments so they could purchase shares of cooperative credit institutions; (b) to provide medium-term loans to state cooperative banks for agricultural purposes; (c) to provide long-term loans to central land mortgage banks against the guarantee of the state government; and (d) to buy debentures of central land mortgage banks against the guarantee of the state government. In times of drought, famine, or other disasters, the Stabilization Fund assists the state cooperative banks in converting their short-term loans into medium-term loans.

6. Strengthening of Cooperative Banking Structure - The Reserve Bank takes the following actions to support cooperative credit and strengthen cooperative banking structure:

(i) It gives the weaker cooperative units particular focus in terms of rehabilitation and revitalization.

(ii) It arranges for the primary agricultural societies to be financed by commercial banks in order to preserve the flow of cooperative credit.

(iii) It works to make cooperative credit institutions' lending practises and operational effectiveness better.

(iv) It offers cooperative credit institutions financial accomodation

(v) For the staff of state, central, and urban banks, it offers specialised training courses at the cooperative bankers' training colleges.