Cooperative Dilemma
District Central Cooperative Banks are supported by the government but the regulator still doesn't trust them.


- Mar 4, 2017,
- Updated Mar 8, 2017 11:56 AM IST
Some five months after assuming office in May 2014, the BJP-led NDA government cleared a cabinet proposal for the revival of close to two dozen unlicensed District Central Cooperative Banks (DCCBs). In the Union Budget 2017-18, Finance Minister Arun Jaitley further reposed trust in DCCBs. Jaitley talked about supporting NABARD (National Bank for Agriculture & Rural Development), also the regulator for cooperative banks, for computerisation and integration of all the Primary Agricultural Credit Societies (PACs) with the core banking system of DCCBs. The government's positive moves however are at odds with the banking regulator, the Reserve Bank of India's (RBI) lack of trust in the cooperative banking sector. In the recent demonetisation exercise, the RBI had prohibited DCCBs from exchanging old notes with new ones. The RBI had feared that the presence of politicians on the boards of DCCBs could inject black money back into the banking system.
The above two conflicting approaches begs the question: Why is the government supporting DCCBs when the regulator doesn't trust them? The cooperative banking structure is as old as commercial banking with a deep rooted presence in remote areas where the banks took a long time to create an outpost. In a three-tier structure, the 370 odd DCCBs are a crucial link between the 32 State Cooperative Banks (SCBs) and 92,000 PACs. The DCCBs depend on SCBs for borrowing funds while the PACs rely on DCCBs for their fund requirements. "We provide a crucial link for flow of credit to the agri-related sectors and also to cooperative societies. We have a strong relationship with farmers," says P.B. Chavan, CEO of Kolhapur District Central Cooperative Bank Ltd. "It would be politically suicidal for any government to let the century old system collapse," says another head of a DCCB on condition of anonymity.
Some five months after assuming office in May 2014, the BJP-led NDA government cleared a cabinet proposal for the revival of close to two dozen unlicensed District Central Cooperative Banks (DCCBs). In the Union Budget 2017-18, Finance Minister Arun Jaitley further reposed trust in DCCBs. Jaitley talked about supporting NABARD (National Bank for Agriculture & Rural Development), also the regulator for cooperative banks, for computerisation and integration of all the Primary Agricultural Credit Societies (PACs) with the core banking system of DCCBs. The government's positive moves however are at odds with the banking regulator, the Reserve Bank of India's (RBI) lack of trust in the cooperative banking sector. In the recent demonetisation exercise, the RBI had prohibited DCCBs from exchanging old notes with new ones. The RBI had feared that the presence of politicians on the boards of DCCBs could inject black money back into the banking system.
The above two conflicting approaches begs the question: Why is the government supporting DCCBs when the regulator doesn't trust them? The cooperative banking structure is as old as commercial banking with a deep rooted presence in remote areas where the banks took a long time to create an outpost. In a three-tier structure, the 370 odd DCCBs are a crucial link between the 32 State Cooperative Banks (SCBs) and 92,000 PACs. The DCCBs depend on SCBs for borrowing funds while the PACs rely on DCCBs for their fund requirements. "We provide a crucial link for flow of credit to the agri-related sectors and also to cooperative societies. We have a strong relationship with farmers," says P.B. Chavan, CEO of Kolhapur District Central Cooperative Bank Ltd. "It would be politically suicidal for any government to let the century old system collapse," says another head of a DCCB on condition of anonymity.