Module Vii Trainers Guide BDP Pacs

Business Development Programme
for Secretaries of PACS
Trainers Guide
National Bank for Agriculture and Rural

Development
Business Development Programme for Secretaries of PACS

INDEX
Sl No
1
2
3
4
Particulars
11
12
Day-to-day schedule
Introduction to the programme
Know your society and environment (Session-1)
Profit Planning and BDP- Need and Strategies (Session-2 &
3)
Resource Mobilisation- Augmentation of share capital
(Session-4)
Deposit Mobilisation and Borrowings (Session-5)
Opportunities for Deployment of Resources- Short Term
Loans (Session-6)
Opportunities for Deployment of Resources- Term Loans
(Session-7)
Non-Credit and Non-Fund Business (Session-8)
Prudential Norms and their Implications on Profitability
(Session-9)
NPA and Recovery Management (Session-10)
Preparation and Presentation of BDP (Session-11 & 12)
13
Caselets
5
6
7
8
9
10
Page No.
i
ii
1-8
9-24
25-32
33-45
46-65
66-73
74-87
88-112
113-122
123-144
145-157
Business Development Programme for Secretaries of PACS

Day to day schedule
Day
Session
Day 1
I
II-III
IV
Day 2
I
II
III
Day 3
IV
I
II
III-IV
Topic
Session
No
Know your Society and the environment 1
Profit Planning and BDP- Need and 2-3
Strategies
Resource Mobilisation- augmentation of 4
share capital
Deposit Mobilisation and borrowings
5
Opportunities for Deployment of 6
Resources- Short Term Loans
Opportunities for Deployment of 7
Resources- Term Loans
Non credit and non fund business
8
Prudential Norms and their Implications 9
on Profitability
Recovery and NPA Management
10
Preparation and presentation of BDP
11-12
Introduction
The objective of the module is to enable the secretaries of Primary Agricultural Cooperative
Societies (PACS) to diversify their lending business, take up new non credit and non fund
business activities and attain sustainable viability. The training programme will equip them
with required knowledge and skill to make their societies function as business entities.
Business development being the central theme of the module, inputs on different aspects of
business of PACS have been built into the programme. The duration of the training
programme is of 3 days. The trainees attending the programme are required to study the
financial statements of their societies before attending the programme. They should be
advised to attend the programme with their balance sheets and trading and profit and loss
account for the last three years.
On the first day of the programme, the trainees should be supplied with the blank formats for
preparation of Business Development Plan (BDP). They should be asked to fill up the
required details in the format on a daily basis using the data of their own societies and the
BDP should be ready by the third day. The trainer should guide them in the task. Inputs on
business development are to be given in 10 sessions and two sessions have been
earmarked for presentation of BDP. It must be understood by the trainer that the intention is
not only to enable the participants to prepare a BDP but also to enable the participants to
undertake business in a profitable manner.
The trainers should carefully read the reading material as also the trainers guide. They must
have clear understanding of the programme contents. Detailed instructions have been given
in the trainers guide on the conduct of the sessions. The module contains case exercises
and case studies to be administered during the programme. The trainers should equip
themselves with requisite skills to run these instruments. Apart from the case studies in the
relevant sessions, some more case studies have been given at the end of the trainers
guide. These case studies may be distributed as handouts. If the trainers can develop
suitable case studies locally, it would be desirable to use such case studies as well.
Session 1 (Day 1)
Session : Know your Society and the environment
A. Objectives:
By the end of the session, participants would be able to:
List the components of business (existing and potential) of their Society
Narrate the external environment
Identify the areas of Strengths, Weaknesses, Opportunities and Threats for their
Society
B. Time:
90 minutes
C. Materials/Aids:
Black or white Board, chalk pieces or white board marker pens, Duster, Meta Plan Cards
OHP with transparencies or PC with LCD Projector or Flip Chart
D. Conduct of the session:

Sl.no.
Duration
in minutes
Session Objectives
15
Analysis of existing business of Societies
15
25
Listing of SWOT
25
Preparation of SWOT of society
Exercise
Summing up
Lecture
Topic
Environmental scanning
Methodology
-Discussion
Discussion
Lecture cum
Discussion
E. Session Guide
i.
Introduce yourself and pose a question so as to find out whether the participants are
aware of the objectives of the session. Explain that the objective of the session is to
list the various component of business and the elements of STEP and SWOT and
SLIDE- BDPS- 1.1
ii.
Elicit information from the participants about the activities and services
being
provided in their PACS. List out the various components of business and flash the
SLIDEs- BDPS- 1.2& 3
iii.
Ask the participants what they think are the causes which lead to an adverse
performance of PACS.
List out the responses and explain to them the general
features of PACS with reference to their functioning. Flash SLIDES BDPS- 1. 4
iv. Pose a question to the participants as to what is the revival package for cooperatives.
Allow a couple of minutes for responses and explain in brief the recommendations of
Vaidyanathan Committee and the revival package. Flash SLIDE BDPS- 1.5.
v. Explain in detail the various environmental factors that affect an organization including
PACS. Flash SLIDE BDPS- 1.6. and describe STEP. Continuing the discussions, now
dwell on the concept of SWOT and explain how strategies have to be evolved for the
society based on SWOT analysis. Flash SLIDES BDPS- 1. 7 to 11.
vi. Ask the participants to prepare SWOT for their respective societies.
vii. Summarise the discussion briefly and Flash SLIDES BDPS- 1.17.
BDPS-1.1
Objectives
List the components of business (existing
and potential) of their Society
Narrate the external environment
Identify the areas of Strengths,
Weaknesses, Opportunities and Threats
for their Society
Components of Business of
PACS
BDPS-1.2
To provide loans to its members in cash and

kind
To provide input supply to members who are
agriculturists
To procure the agricultural produce from the
members and arranging for their grading,
storage and marketing
Supply of consumer items from the retail outlet
To take up agricultural extension services
Component of Business of PACS

Contd..
BDPS-1.3
Take up processing activities

To provide transport services
Taking up area development schemes
Acting as intermediary between
development agencies and the members
Accepting deposits from members
Providing fee based services
Analysis of PACS functioning

in General
BDPS-1.4
Poor recovery performance,

High incidence of NPAs,
High transaction costs,
Poor deposit mobilisation and
Lack of diversification,
Inappropriate systems and procedures,
Low motivation among the staff.
Recommendations of Vaidyanathan
Committee in brief
BDPS-1.5
Financial assistance for recapitalisation

& capacity building
Legal and Institutional Reforms to
transform PACs into self governing
vibrant institution:For this purpose PACS
have to sign an MOU with DCCB.
Environmental Factors (STEP)
BDPS-1.6
The word environment means the outside factors

namely,
Social factors could be the customs, beliefs and
traditions of the communities.
Technological factors could be introduction of new
technology.
Economic factors could be those which would
have bearing on the income and employment status
of people living in the area.
Political factors could be those which bring a
change in the political system or a policy of a
Government interference in the functionig.
BDPS-1.7
SWOT
SWOT analysis- measures a business
unit, a proposition or idea.
SWOT analysis - Strengths, Weaknesses,
Opportunities, Threats - is based broadly
on half internal and half external factors
Completing a STEP analysis is helpful
prior to completing a SWOT analysis
BDPS-1.8
Strengths
Good local knowledge of people
and their needs
Customers are owners
Service at door step /
neighbourhood
BDPS-1.9
Weaknesses
Inadequate resources
Dependency on DCCB for
funds and guidance
Restricted knowledge and
limited operations
BDPS-1.10
Opportunities
Revitalisation opportunity
provided by VCR.
Scope to diversify operations.
Large number of customers yet
not having access to formal
banking system.
BDPS-1.11
Threats
Commercial Banks taking away good
customers, offering them better
facilities.
Vitiated business environment.
To sum up,
BDPS-1.12
PACS are to be transformed into self

governing vibrant institutions by :
Analysing environment in which they are
working through STEP & SWOT
Identifying & Providing financial & other
services of the members
Session 2 and 3 (Day 1)

Session: Profit Planning and BDP- Need and Strategies
Objectives:
Explain the importance of profit planning
List the components of costs and yields
Calculate the cost and margins
Calculate the break even level of business
Identify the components of Business Development Plan
B. Time:
180 minutes
C. Materials/Aids:
Black or white Board, chalk pieces or white board marker pens, Duster, Case
Exercise
Calculators

Sl.no.
Duration
in minutes
Session Objectives
20
Profit Planning Need and Importance
Lecture/Discussion
30
Concepts of cost, yield, margin and

break even level of business
Lecture/Discussion
45
45
30
Topic
Cost of funds, Yield on Assets,

Transaction Cost, Risk Cost, Misc.
income and Margins (Financial and Net),
Break Even Level of Business
Calculation of Break Even Level of
Business of respective societies
Business Development Plan- concept,
objectives and preparation
Summing up
Methodology
--
Case exercise
Case exercise
Lecture/
discussion
Lecture
E. Session Guide
i.
Introduce yourself and do a preliminary scanning of the participants as to what the

session is about and what are its objectives. Explain to them that objective of the
session is to emphasize that cooperative societies have to function as viable business
entity and earn profit to serve their members in a meaningful manner and to survive in
the long run. Flash SLIDE -BDPS 02-01. Read out the objectives indicated therein to
give them an idea of Business Development Plan (BDP).Sensitize them about the
concept of profit. Flash SLIDE -BDPS 02-02. Tell them that unless societies are in
profit, neither they will be in position to have sufficient resources to help their
members nor will their customers / members have faith in them as guardians of their
money.
Also, that the profit does not come automatically; it has to be earned and for
that proper planning has to be made. Flash SLIDE -BDPS 02-03.
ii.
Initiate the discussion on the topic by asking the participants as to what are the major
factors for generation of profit in their societies. After giving a minutes time to get their
response, sources of income may be listed using SLIDE -BDPS 02-04. Here, inputs
about maintaining a proper balance between advances, investments and idle cash
need to be imparted. Importance of various business activities resulting into non-fund
based income has to be highlighted.
iii.
Continue the discussion for various items of expenditure. Flash SLIDE- BDPS-2-5
and explain that costs include not only the interest paid on deposits and the
establishment expenditure, but also the risk costs including various provisions to be
made. Ask the participants as to how these expenditures can be curtailed to increase
profits for the society? Ask them to list out the controllable items of expenditure.
Sensitise them to make concerted efforts to prevent losses through frauds and plug
wrong assessment of NPAs. Wrong assessments lead to incorrect provisioning that
affect quantum of profits. Explain that ultimately it is the profit, which will increase
societys kitty every year for expanding business.
iv.
Ask the participants how the profit of their society can be increased? After eliciting
their response, flash SLIDE -BDPS 02-06 and explain how profit can be obtained
through interventions in various areas in both income and expenditure sides. Elicit
from them if they have any idea about the various non-interest income in the business
and if their society was into them.
v.
After sensitising the Secretaries about the importance of profits, ask them as to how
the business of society could be increased to such a level where income exceeds the
expenditure. Can any kind of strategic planning be thought before hand without
knowledge of current working?
10
vi.
Participants may be introduced to the concepts of cost and margin with the help of
SLIDE -BDPS 02-7 to 13 & the concept of breakeven level through the help of the
SLIDE -BDPS 02-14
vii.
After allowing a free discussion for a couple of minutes on their understanding about
DAP, the concept of BDP may be explained by flashing SLIDE-BDPS 0215.Thereafter, the current and sustainable viability concept may be described by
flashing SLIDE -BDPS 02-16. The stages in preparation of BDP may be explained
with the help of SLIDE -BDPS 02-17 as under:
viii.
Goal Setting
SWOT Analysis
Strategy formulation and plan preparation
Monitoring & Implementation
Participants may be informed that keeping in view the multiplicity of control, NABARD
has come out with an idea of binding all the stakeholders in writing in the form of MoU
for the BDP prepared by the society itself.
ix.
The BDP formulation and calculation of cost and margins as also the Break-Even
Level of business can be best understood by making all the participants practicing for
calculation with the help of a simple mathematical case exercise. Accordingly the
handout No.BDPH-02.01 containing the Balance Sheet and Profit & Loss Account of a
Society may be given to the trainees and they may be asked to first calculate the
various costs and margin of the Society and thereafter the break-even level of
business. The solution to the case exercise is given in Handout No.BDPH-02-02. The
exercise at BDPH-02.01 is a case where the Society had incurred loss in trading
activity. One more case has been given at handout No.BDPH-02.03 where the
Society had earned profit in trading activity. The solution to this case has been given
at handout No.BDPH-02.04. Both the cases are similar except for the trading loss/
profit. After the trainees have learnt how to calculate the various costs and margins
and also the break-even level of business, they may be asked to undertake the same
mathematical exercise by using the Balance Sheet and Profit and Loss Account of
their respective Society.
11
BDPS-2.1
Session objectives
Explain the importance of profit planning

List the components of costs and yields
Calculate the cost and margins
Calculate the break even level of business
Identify the components of Business
Development Plan
BDPS-2.2
Why should a Society earn profit?

A society is like any other business entity.
Society should earn profit due to the
following reasons:
To serve its members in the best possible
manner.
To survive in the long run.
Profit is an index of efficiency and
competitiveness
12
BDPS-2.3
Profit & its planning

Profit = Total Income - Total
Expenditure
Profit comes through careful planning and
strategy
Profit is not an accident
Profit planning involves planning for both
increasing income and reducing/
minimising expenditure
BDPS-2.4
Sources of income
Income in Cooperative Societies comes
from following three sources:
Interest earned on advances
Interest earned from bank balances/
investments with DCCB, if any
Miscellaneous income is the income from
non-credit/non-fund business including
PDS, Agricultural inputs and non-PDS
(Consumer items), etc., if any.
13
Expenditure or costs in
Cooperative Societies
BDPS-2.5
A. Financial costs
Interest on deposits
Interest on borrowings
B. Transaction costs
Salary and payments to staff known as wage
bill or cost of management
Other operating expenditure
C. Risk costs
Incremental Provisions for Non Performing
Assets (NPAs) during a year
Components of profit planning

B
De usin
ve es
lop s
me
nt
ng
n ni t
a
l
ep
en
urc lopm
o
s
e
Re dev
an d
Profit
Cost control
And management
Inc Contr
o
om
e le l of
aka
ge
BDPS-2.6
Funds
Management
d
un
F
s
n
No sines
Bu
14
BDPS-2.7
Profit Plan-Ingredients
BDP route
Financial
Cost
Financial Margin
Financial
Returns
Profitability
Transaction
Cost
Risk Cost
Misc.
income
BDPS-2.8
Working Fund
Total Assets- Accumulated Losses- Fixed
Assets- Contra items
15
BDPS-2.9
Yield on Asset
Yield on asset
during the year
(per Rs. 100)
Interest income earned

during the year
X 100
=
Average
Fund
Working
BDPS-2.10
Cost of Funds
Interest paid during
the year
Cost of
funds
per Rs.
100
X 100
=
Average Working Fund
16
BDPS-2.11
Transaction Cost
Total Transaction
Transaction Cost =------------------------------*100
BDPS-2.12
Risk Cost
Risk
Incremental Prov.on
NPAs & Standard
Assets
X 100
Cost =
17
BDPS-2.13
Margin Definations
Financial Margin= Average Yield on
Assets (-) Average cost of Funds
Net Financial Margin = Financial Margin +
Misc. Income (as a % to Working Fund)
Risk Cost (as a % to Working Fund)
Net Margin =Net Financial Margin (-)
Transaction Cost (as a % to Working
Fund)
BDPS-2.14
Breakeven level of business

Current Viablity
BE = (TC+RC)* Misc Income* x100
Financial Margin
Sustainable Viability
BE = (TC+RC)* Misc Income+Accumulated Loss* x100
Financial Margin
* This will be in absolute amount
18
Business Development Plan:

Concept
BDPS-2.15
Three stages of BDP

Identification of problem areas and present
status of viability,
Planning for the future, and
Targeted implementation
OBJECTIVES OF BDP
BDPS-2.16
CURRENT VIABILITY
ABILITY TO MEET COM AND RISK COST OUT OF
GROSS FM, EARNING A REASONABLE PROFIT FOR
THE YEAR.
SUSTAINABLE VIABILITY
ABILITY TO COMPLETELY WIPE OUT THE
ACCUMULATED
LOSSES,
IMBALANCES;
AND
PROVIDE ADEQUATELY FOR LOAN LOSSES AND
IMPAIRED ASSETS.
19
PROCESS OF BDP
PREPARATION
BDPS-2.17
Goal Setting
SWOT Analysis
Strategy formulation and plan preparation
Monitoring & Implementation
20
Handout No.BDPH02.01
PROFIT AND LOSS ACCOUNT OF XXX SOCIETY
(Rs. In thousands)
Expenditure
Loss in trading activity
Amount
Income
36 Interest on Loans
Interest on Deposit
480 Interest on Investments
Interest on Borrowings
240
Transaction Cost
(Cost of Management)
270
Provision for NPAs
Amount
800
280
45
Net Profit
9
Total
1080
Total
1080
BALANCE SHEET OF XXX SOCIETY

(Rs. In thousands)
Liabilities
Share Capital
Amount
Assets
100 Cash & bank Balances
Amount
50
Deposits
6000 Investments
1950
Borrowings
3000 Loans & Advances
7000
Other Liabilities
900 Fixed Assets

Accumulated Losses
Total
10000
Total
409
591
10000
TASK: From the above financial statements calculate the various costs and margins and
calculate the Break-Even level of business of the society (both the current viability and
sustainable viability)
21
Solution
Calculation of Working Funds
Asset side total
Less: Fixed Assets
Accumulated Losses
= 10,000
= 409
= 591
= 1,000
------------= 9,000
-------------
Working Funds
Calculation of Costs & Margins

Yield on assets
= 1080*100/9000
12%
Cost of Funds
= 720*100/9000
8%
Transaction Cost
= 270*100/9000
3%
Risk Cost
= 45*100/9000
0.5%
Miscellaneous Income as a
% to Working Funds
= (-) 36*100/9000
(-) 0.4%
4%
Financial Margin = Yield on Asset (-) Cost of Funds
Net Financial Margin = Financial Margin + Misc. Income Risk Cost

= 4% + (-)0.4% - 0.5%
= 3.1%
Net Margin
= Net Financial Margin Transaction Cost

= 3.1% - 3%
= 0.1%
Calculation of Break-Even Level of Business

TC + RC Miscellaneous Income
Break-Even Level for achieving Current Viability= -------------------------------------------------- x 100
Financial Margin
270 + 45 (-36)
= ------------------------------ x 100
4
= 8775
TC + RC Miscellaneous Income + Accumulated Loss

Break-Even Level for
achieving Sustainable Viability = ------------------------------------------------------------------------ x 100
Financial Margin
270 + 45 (-36) + 591

= ----------------------------------- x 100
4
= 23550
22
PROFIT AND LOSS ACCOUNT OF XXX SOCIETY
(Rs. In thousands)
Expenditure
Amount
Income
Amount
Interest on Deposit
480 Profit in trading activity
Interest on Borrowings
240 Interest on Loans
800
Transaction Cost
270 Interest on Investments
280
Provision for NPAs
45
Net Profit
81
Total
1116
Total
36
1116
BALANCE SHEET OF XXX SOCIETY

(Rs. In thousands)
Liabilities
Share Capital
Amount
Assets
100 Cash & bank Balances
Amount
50
Deposits
6000 Investments
1950
Borrowings
3000 Loans & Advances
7000
Other Liabilities
900 Fixed Assets

Accumulated Losses
Total
10000
Total
481
519
10000
TASK: From the above financial statements calculate the various costs and margins and
calculate the Break-Even level of business of the society (both the current viability and
sustainable viability)
23
Solution
Calculation of Working Funds
Asset side total
Less: Fixed Assets
Accumulated Losses
= 10,000
= 481
= 519
= 1,000
------------= 9,000
-------------
Working Funds
Calculation of Costs & Margins

Yield on assets
= 1080*100/9000
12%
Cost of Funds
= 720*100/9000
8%
Transaction Cost
= 270*100/9000
3%
Risk Cost
= 45*100/9000
0.5%
Miscellaneous Income as a
% to Working Funds
= 36*100/9000
0.4%
4%
Financial Margin = Yield on Asset (-) Cost of Funds
Net Financial Margin = Financial Margin + Misc. Income Risk Cost

= 4% + 0.4% - 0.5%
= 3.9%
Net Margin
= Net Financial Margin Transaction Cost

= 3.9% - 3%
= 0.9%
Calculation of Break-Even Level of Business

TC + RC Miscellaneous Income
Break-Even Level for achieving Current Viability = ---------------------------------- x 100
Financial Margin
270 + 45 36
= ------------------------------ x 100
4
= 6975
TC + RC Miscellaneous Income + Accumulated Loss

Break-Even Level for
achieving Sustainable Viability = ---------------------------------------------------------- x 100
Financial Margin
270 + 45 36 + 519
= ----------------------------------- x 100
4
= 19950
24
Session No. 4 (Day 1)

Session title: Resource Mobilisation augmentation of share capital
A.
Session Objectives: At the end of the session, the participants will be able to:
Narrate the sources of funds for PACS
Identify the need for mobilizing resources
State the desirable resource mix
State the need for increasing the outreach of the society
Explain the strategy for enlisting new members
B.
Duration of the session: 90 minutes
C.
Materials/Aids:
Black or white Board, chalk pieces or white board marker pens, Duster, Case Study

Sl.no.
Duration
in minutes
Session Objectives
20
Sources of funds for PACS- Need for

augmentaton
Discussion
20
Resource mix strategy
Discussion
10
Increasing the outreach- enlisting new

members
30
Discussions on success stories of

Societies
Summing up
E.
Topic
Methodology
--
Lecture
Discussion
Lecture
Session guide
i.
Introduce yourself and explain the objectives of the session Flash slide No. BDPS4.1.
ii.
Ask the participants - to identify the items of resources of PACS and who provide
those resources? Write down the responses of the participants on the white board /
black board. The participants will almost give identical responses. Summarise the
responses and explain the items of resources which appear on the Liability side of the
Balance Sheet. Also explain the sources from which these resources do come and
how. Then flash the slide Nos. BDPS-4.2 & 4.3.
iii.
Ask the participants How do the PACS mobilize resources at present? What are the
difficulties? Why should PACS mobilize resources? Write down the responses of the
25
participants on the board and keep on asking supplementaries to get adequate

number of responses. Summarise the responses and flash the slide Nos. BDPS-4.4 &
4.5.
iv.
Ask the participants questions one after another and write down the responses after
every question Which funds are cost free? Which funds are low cost funds?
Whether deposits or borrowing is cheaper? What should be the composition of
resources to keep the cost of funds as low as possible? Summarise the responses
and give your observations - flash slide Nos. BDPS-4.6, 4.7 & 4.8.
v.
Ask the participants What is the need for increasing the outreach of the Society and
what strategy should be adopted to increase membership / borrowing members?
Write down the responses and summarise them. Give your observations and flash
slide Nos. BDPS-4.9, 4.10, 4.11 & 4.12.
F.
Learnings from the session:

i.
PACS can increase internal resources through share capital collection & deposit
mobilization from its members and generate resources by earning net profits
ii.
Dependence on borrowings limits business growth and affects profitability.
iii.
Internal resource mobilisation, reduces dependence on external funding and helps

becoming self dependent.
iv.
Internal resource mobilisation not only reduces dependence level but enables to
get better spread & more profit
v.
Desirable mix of resources is higher proportion of low cost funds

proportion of high cost funds
26
and lower
BDPS-4.1
SESSION OBJECTIVES
At the end of the session, participants would

be able to:
Narrate the sources of funds for PACS
Identify the need for mobilizing resources
State the desirable resource mix
State the need for increasing the outreach of
the Society
Explain the strategy for enlisting new
members
BDPS-4.2
Introduction
PACS is member driven organisation
by the members
for the members
of the members
Thus members are central to the
growth and success of the society
27
Resources of PACS
BDPS-4.3
SHARE
CAPITAL
OTHER
LIABILITIES &
UNDISBURSED
PROFITS
RESERVE
FUND &
OTHER
RESERVES
RESOURCES
OF
PACS
BORROWINGS
DEPOSITS
Existing route to resources
BDPS-4.4
PACS generally raise resources through

share capital collection - linked to loan amount.
some cases accept deposits
borrowings mostly from DCCB/SCB
Thus solely dependent on external funding

Too much dependency has hindered their growth and
viability for the following :
a. limit sanctioned less than adequate
b. funds flow - not adequate & timely due to liquidity problem of
lending bank
c. inadequate drawing power of PACS
d. margin available is very thin
e. rate of interest very high borrowing is very costly
f. lack of operational freedom in business
28
Need for Resource mobilisation
BDPS-4.5
to meet credit requirements of members

adequately and timely an Obligation
to reduce dependence on external funding
to become self dependent
to reduce fund cost for better spread & more
profit
to get operational freedom in resource
deployment
to increase business volume
to provide deposit services and to promote
thrift habit
to increase outreach
Desirable resource mix
BDPS-4.6
Resources of PACS are of two types :

cost free resources share capital, reserves,
surplus profits & other liabilities
cost bearing resources deposits & borrowings
Deposits are :
low cost deposits SB deposits
high cost deposits Term deposits
Borrowings are :
low cost borrowings
high cost borrowings
29
Desirable resource mix contd
BDPS-4.7
Deposits are cheaper than borrowings

Cost free funds & low cost funds - higher
the share, lower is the average cost
Lower the cost - better is the margin and
profit
Desirable mix of resources :
higher proportion of low cost funds
lower proportion of high cost funds
BDPS-4.8
RESOURCES MIX- 1
m
e
T e r os it
Cost fre
p
+
e
D
funds
st
o
c
+
igh wings
H
t
s
ro
Low co
bor
s
Deposit
+
st
Low co
ings
w
o
rr
o
b
Average cost of
Resources / funds
is LOW
RESOURCES MIX- 2
ree
st f
Co s
d
+
fun
t
s
co
Low osits
+
De p
ost w .
c
Low Borro
m
Ter sit
o
+
Dep
st
o
hc
Hig wings
ro
bor
Average cost of
Resources/funds HIGH
30
Need for increasing outreach
BDPS-4.9
Increasing outreach has twin objectives :

resource mobilisation
&
business development
Strategy should be :
Increase membership more deposits and
more business
Increase borrowing members - more share
capital & more business
Issue more loans -more share capital & more
business
BDPS-4.10
Strategy to increase membership
Conduct house hold survey

Identify uncovered families
Form sub-committees
Motivate uncovered families through
village level meetings
personal contact
create awareness through publicity
Observe membership drive
week/month
31
BDPS-4.11
How to increase membership
Promote Farmers Clubs and taking their

help
Promote SHGs & enroll them as members
Promote TFG & JLG to cover landless,
tenant farmers, agricultural labourers etc.
Take the help of Board Members
Improve quality of service to instill
confidence
Provide all types of services & products
How to increase Borrowing

Members
BDPS-4.12
Ensure quick disposal of loan

applications
Ensure disbursement of loan on time
Issue KCC to all members covering all
their credit requirements
Introduce new loan products
Provide adequate credit
Cover more and more new members
32
Session 5 (Day 2)
Session : Deposit Mobilisation and borrowings
Objectives:
List the deposit products
State the desirable deposit mix
Prepare the strategy for deposit mobilisation
Work out the cost of borrowings from different sources
Compare the cost of borrowings with deposits
B. Time:
90 minutes
C. Materials/Aids:
Black or white Board, chalk pieces or white board marker pens, Duster, Case
Exercise

Sl.no.
Duration
in minutes
Session Objectives
20
Scope for deposit mobilization & Types of

deposit products
Discussion
20
Pricing of deposit products and deposit

mix strategy
Discussion
10
Borrowing- sources and cost
Lecture/
discussion
30
Deposit mobilisation
Case Study
Summing up
E.
Topic
Methodology
--
Lecture
Session guide
i.
Introduce yourself and explain the objectives of the session Flash slide No.BDPS5.1
ii.
Ask the participants - What is profit? Whether borrowing or deposit is costlier? How
the profit can be maximised? Write down the responses on the board. Summarise the
responses and flash slide No.BDPS-5.2
33
iii.
Ask the participants Which type of resource is costlier? Which resource gives better
margin? Which type of resource the PACS should mobilize and why? What are the
types of deposit they can mobilize? Write down the responses of the participants on
the board. Summarise the responses and give your own observation and flash slide
Nos. BDPS-5.3,4, 5, & 6. Highlight that deposits are cheaper as well as crucial for the
society.
iv.
Ask the participants What should be the ideal deposit mix to the keep the cost of
deposits low? Write down the responses of the participants on the board. Summarise
the responses and flash slide Nos.BDPS-5.7,8, & 9. Explain that higher proportion of
low cost deposits improves spread dramatically.
v.
Ask the participants What is the real cost of deposit? How to fix interest rate on
deposits to attract depositors? Write down the responses and give your observations
after summarizing the responses. Flash slide No. BDPS-5.10
vi.
Ask the participants - What strategy the PACS should adopt to mobilize more
deposits? Write down the responses and summarise them. Flash slide Nos. BDPS5.11,12 and 13 and explain in detail the strategies needed to be adopted for deposit
mobilization.
vii.
Ask the participants When the PACS should borrow and what aspects to be
considered before borrowing? What should be ideal borrowing mix? Write down the
responses and summarise them. Flash slide Nos. BDPS-5.13 & 14 and explain that
the borrowings should be need based and on prudent lines.
viii.
Distribute handout No.BDPH-5.1 and give 10 minutes time to the participants to go

through the case. Ask the participants to discuss the case and come out with their
views on measures that can be taken for mobilization of deposit. After the discussions
are over, inform the participants that the Society had indeed earned a profit after
taking those measures for deposit mobilization. Tell the participants that before taking
any promotional measure for business growth it was necessary to do an analysis of
costs and benefits.
F.

y
Spread and profit will increase with reduction in cost of resources
Deposits are cheaper than borrowings
PACS can mobilize Savings and Term deposits.
Savings deposits are low cost deposit and term deposits are high cost deposits.
34
Ideal deposit mix is high proportion of low cost deposit and low proportion of high
cost deposit.
Offering 0.5 to 1.00 % higher interest on deposit products than other banks is still
cheaper.
Borrowings should be made only when it is absolutely necessary.
Indiscriminate borrowings affect profitability.
35
BDPS-5.1
Deposit Mobilisation
By the end of the session, participants would be
able to:
List the deposit products
State the desirable deposit mix
Prepare the strategy for deposit mobilisation
Work out the cost of borrowings from different
sources
Compare the cost of borrowings with deposits
BDPS-5.2
Profit = Total income Total expenditure
Profit maximisation depends on

increased return of assets (loans)
Reducd cost of funds/resources
Cost of fund dependent on composition of
resources
Higher the proportion of low cost funds, lower
is the cost
Deposits are low cost funds for PACS
Deposit mobilisation holds the key to
reduction in cost and improvement in margin
36
Deposit resources vis-a- vis Spread/

Margin
Type of
deposit
SB
deposit
Term
deposit
Interest
paid
3.5 %
to
4.0%
7.0%
to
9.0%
Average
cost
Assuming
share of
SB & TD
at 50%
each
average
cost of
deposit
would
be 6.5%
Type of
Loans
PACS to
members
Margin /
Spread
Crop- Loan
no subv.
12.0%
5.5%
Crop- Loan
with subv.
7.0%
Agril. Term
Loan
12.0%
5.5%
NFS-TL
12.0%
5.5%
SHG loan
11.0%
4.5%
Cash Credit
13.0%
6.5%
4.0%
(incl.sub)
Borrowing resources vis--vis Spread/

Margin
Type of
Loans
BDPS-5.3
BDPS-5.4
Rate of interest charged by

DCCB to
PACS
PACS to
members
Margin /
Spread
to PACS
Crop- Loan No
subvention
9.0%
12.0%
3.0%
Crop- Loan with intt.

subvention
5.5 %
7.0%
1.5%
Agricultural Term Loan
11.0%
12.0%
1.0%
Non-Agricultural Term
Loan
11.0%
12.0%
1.0%
SHG loan
9.5%
11.0%
1.5%
Cash Credit
13.5%
37
BDPS-5.5
Need for deposit mobilisation
Deposits provide stable & long term resources

Enables PACS to stand on their own
Reduces dependency level on external funding
Enables PACS operational freedom in business
operation
Deposits are low cost funds & offer better spread
and more profit
Deposit service offered by PACS promotes thrift
habit among members
Deposit acceptance increases outreach
BDPS-5.6
Types of Deposits
accepted by PACS
Savings Deposit
Carry lower interest

Low cost deposit
Term Deposits
(FD, RD, Reinvestment
Deposit)
Carry higher interest

High cost deposit
38
BDPS-5.7
Desirable Deposit Mix

Higher the proportion of low cost deposit
(SB deposits) lower is the average cost
Higher the proportion of high cost deposit
(Term Deposits) higher is the average
cost
Thus the desirable deposit mix should be
proportion of low cost deposit to be high
Deposit Mix
COMPOSITION OF
DEPOSITS - 1
COMPOSITION OF
DEPOSITS - 2
Term
Deposit
Savings
Deposit
Average cost of
deposit is LOW
BDPS-5.8
Savings
Deposit
Term
Deposit
Average cost of
deposit is HIGH
39
Deposit Mix & average cost
BDPS-5.9
Rupees in lakhs
Society A
Society B
Type of
Deposit
Amount
Share in
total
deposit
%
Rate of
Interest
%
Weighted
average
cost
%
Type of
Deposit
Amount
Share
in total
deposit
%
Rate of
Interest
%
Weighted
average
cost
%
S. B.
Dep
60
30
4.0
1.20
S. B.
Dep
140
70
4.0
2.80
Term
Dep
140
70
8..0
5.60
Term
Dep
60
30
8.0
2.40
Total
200
100
6.80
Total
200
100
5.20
Mark the difference - how higher proportion of low cost deposits reduces cost
and enhances spread by1.60%
BDPS-5.10
Pricing of Deposits
Real cost of deposit
rate of interest paid

staff time cost,
stationery cost,
insurance premium cost,
cash management cost
How to fix the interest rate for deposits ?

Compare the interest rates offered by other banks in
the area on different types of deposit
Fix the rate of interest at 0.5 1.0% higher than the
rates offered by other banks depending on the need
Paying this additional interest would still be cheaper
than the borrowing cost
40
BDPS-5.11
Deposit mobilisation- basics

Frame Rules for deposit mobilisation
Create infrastructure like counter, safe,
strong room etc.
Have tie up with insurance companies
Deposit mobilisation strategy
BDPS-5.12
Introduction of attractive new deposit

product.
Creating awareness among the members
holding meetings
display on boards
distributing leaflets
printing various deposit schemes on loan or deposit
pass books etc.
approaching every household in the area
Opening no frill accounts

Organising more and more SHGs
41
Deposit mobilisation strategy..Contd
BDPS-5.13
Taking help of Farmers Clubs

Setting targets for opening of new deposit a/cs
Providing better & timely customer service
Approaching retail business units in the area
Approaching service holders, school teachers etc.
Retaining the existing depositors by extending
good and satisfactory service,
timely payment of deposits,
timely renewal of deposits,
issuing loans against deposits etc.
Launching daily deposit scheme
Borrowings
Borrowings are resorted to :
BDPS-5.14
meet customers demands - loans & deposit

withdrawal
meet resource gap/crunch
make profitable investment
thus, decisions should be taken prudently
Prudent borrowing means

a.
b.
c.
d.
e.
Strictly need based

Cost effective
Advantageous
On favourable terms & conditions
Cheaper or similar than/to cost of deposit.
42
Borrowing Mix
COMPOSITION OF
Borrowings - 1
Low
interest
bearing
High
interest
bearing
borrowings
borrowings
Average cost of
borrowing is LOW
BDPS-5.15
COMPOSITION OF
Borrowings - 2
High
interest
bearing
borrowings
Low
interest
bearing
borrowings
Average cost of
borroing is HIGH
43
Handout No.BDPH-5.1
Self sufficiency
Ramalingeswar Large Sized Cooperative Societies is situated in a remote corner of Andhra
Pradesh. It operates in 9 villages and has 4775 borrowing members. The society used to
depend heavily on the District Central Cooperative Bank for its resources. The routine
business activities used to be bound by the terms and conditions stipulated by the the
financing bank. Shri Satya Prasad, the Secretary of the Society had to put hard work for
mobilization of resources from the bank. It was not that the bank was unwilling to lend but
heavy dependence on the bank had its own disadvantage.
He was sipping a cup of tea in a road side tea stall when he saw his friend Suresh Kumar
approaching on a bike. After usual pleasantries he asked his friend about the destination of
his journey. I am going to Rajajipuram to deposit some money which I have received from
sale of paddy in my account with India Bank. I must hurry as the bank counter will close by
2.00 p.m. said Suresh Kumar and started his bike. Rajajipuram, the nearest town was
situated 15 km away from the village. Satya Prasad also set out for his office.
He was flipping through the Annual Accounts of the Society which was just finalized. He was
very happy that during the tenure of his working in the Society, he had been able to build up
a modest reserve of Rs.31.31 lakh. The Society had share capital contribution aggregating
Rs.49.41 lakh. It had mobilized deposit of Rs.37.84 lakh and borrowed Rs.273.47 lakh from
the bank. The figures of deposits and borrowings started bothering Satya Prasad. He
thought why should people travel 15 km spending time and enregy to deposit money in bank
accounts? Why can not the Society provide the service to the people of the village? After all
the Society had been mobilizing deposits. Only the efforts were required to be stepped up.
The society had a good building and there was no staff constraint. Shri Satya Prasad
prepared the following plan for mobilization of deposits.
There will be a banking counter which will remain open from 0900 hrs to 1800 hrs
Door service will be provided for delivering the maturity proceeds of the deposits, if
the members so desired.
44
The employees of the Society would visit the depositors/ prospective depositors on
two wheelers on the basis of fixed schedule so that all the 9 villages can be covered
at least once in a week.
A strong room will be established with locker facility. Locker users will have to
maintain some amount as deposit.
The deposit so mobilized will be used for lending to farmers for the existing purposes
including lending against pledge of gold.
As hitherto, 40% of the deposit mobilized will be deposited with the DCCB for
securing the interest of the depositors.
The plan appealed to the members of the Management Committee of the Society and they
approved the plan for immediate implementation. At the end of the year the deposits of the
Society had increased from Rs.37.84 lakh to Rs.417.06 lakh.
Shri Satya Prasad had, however, some doubts in his mind. He was worried about the cost of
fund. Traditionally, the Society had a large share of fixed deposits. The financial cost of
resources was likely to be high. Operating the banking counter for 9 hours a day and
providing door delivery of services also meant additional cost. The transaction cost of
deposits was likely to be higher compared to the borrowings. He heaved a sigh of relief
when the annual accounts were finalized. The Society had actually earned additional profit.
Self-sufficiency was beneficial. However, he resolved to keep a track of cost and return
continuously instead of remaining in suspense.
45
Session -6 (Day 2)
Session : Opportunities for Deployment of Resources- Short Term Loans
A. Objectives:
Explain the importance of short term loans
Identify the short term credit needs for different segments of members
Describe the aspects to be considered for sanctioning ST loans
List the steps required for scouting new ST loan business
B. Time:
90 minutes
C. Materials/Aids:

Sl.no.
Duration
in minutes
Session Objectives
10
Importance of ST loans
Lecture
30
ST credit requirements- KCC and its

variants
Lecture
30
Loans to SHGs, JLGs/ TFGs, Loans

against deposit, Gold and other pledge
loans, Consumption loans, Cash Credit,
Loans to activity based Groups like
Handloom Weavers Group, Fisheries
Group, Artisans Group
Lecture
10
Strategies for increasing ST credit

business
Lecture
Summing up
Lecture
E.
Topic
Methodology
--
Session guide
i.
46
ii.
Ask the participants - to identify the importance of Short Term Loans. Write down the
responses of the participants on the white board / black board. The participants will
almost give identical responses. Summarise the responses and explain the
importance of Short Term Loans. Then flash the slide Nos. BDPS-6.2 &3.
iii.
Ask the participants what are the types of ST credit ? Write down the responses of
the participants on the board and keep on asking supplementaries to get adequate
number of responses. Summarise the responses and flash the slide Nos. BDPS-6.4.
iv.
Ask the participants as to whether they have heard anything about cash credit ? Write
down the responses after every question What are the salient features of Pledge,
Hypothecation? Summarise the responses and give your observations - flash slide
Nos. BDPS-6.5, 6.6 & 6.7.
v.
Ask the participants What are the different purposes ST loan can be sanctioned ?
Write down the responses and summarise them. Give your observations and flash
slide Nos. BDPS-6.8
vi.
Ask the participants about the salient features of Kisan Credit Card. Summarise the
responses and flash slide No. 6.9.
vii.
Then ask the participants about financing a tenant farmers. The participants would
say that since the tenant farmer is not having land in his name, the society would not
be able to finance him. Then ask them is there any way out ? If no response comes
from the participants then explain the concept of JLG by flashing slides Nos. 6.10 to
6.15.
viii.
Ask the participants about loan against pledge of agricultural produce. Summarise the
responses and flash slide No. 6.16 & 17.
ix.
Ask the participants about financing of weaver members and artisan member.
Summarise the responses and flash slide Nos. 6.18 & 19.
x.
Then ask them as to whether they have heard about Handloom Weaver Group.
Suimmarise the responses and explain the salient features of financing of HWGs by
showing slide Nos. 6.20 to 6.25.
xi.
Then ask them about Master Weavers and whether it is possible to finance them.
Summarise the responses and flash slide Nos. 6.26 to 6.30.
xii.
Then ask the participants about financing against pledge of gold loan and for
consumption purposes. Summarise the responses and flash the slide Nos. 6.31 & 32.
xiii.
Finally, ask them to list out the strategy to increase the ST Loan portfolio. Gie them a
small case study on how a society has increased the ST loan portfolio. Summarise
the responses and flash slide No. 6.33.
F.

vi.
PACS have to deploy their short term resources in short term loans instead of
keeping them in fixed deposits with DCCBs.
47
vii.
This strategy would help the society to meet the ST credit requirements of their
members, meet the working capital requirements of weavers, artisans, traders and
small business
viii.
The income from ST Loan Portfolio would help them to meet their interest
payments, transaction cost, risk cost and leave a surplus.
ix.
The society has to design a variety of loan products to cater to the need of the
different segment of the members
x.
The society has to prepare different strategy to increase its ST Loan Portfolio.
48
Session Objectives
BDPS-6.1
By the end of the session, participants would

be able to:
Explain the importance of short term loans
Identify the short term credit needs for
different segments of members
Describe the aspects to be considered for
sanctioning ST loans
List the steps required for scouting new ST
loan business
Importance of Short Term Loans
BDPS-6.2
Societies mobilise ST resources S B deposits

and term deposits for < a year.
To be repaid as and when they mature or as and
when the members come for drawal.
To be deployed in liquid assets for meeting the
obligations to the depositors
Society has to earn adequate interest income for
meeting interest payments, transaction cost and
have some surplus.
49
Importance of Short Term Loans
BDPS-6.3
If deployed in ST- fixed deposits with DCCB, the society

may get a margin of 0.5% or 1.0 %
Not sufficient to meet its transaction cost.
If deployed in ST loans, better return - sufficient enough
to cover interest obligations, transaction cost, risk cost
and leave a surplus.
Repayment of ST loans used for honouring the
withdrawals from SB A/c and the repayment of matured
short term deposits
ST loans would help the members to meet their working
capital requirements.
Types of Short Term Credit
BDPS-6.4
Two Types
Short Term loans and cash credit /
overdraft
If the credit is sanctioned as a loan, then
the loan amount would be disbursed in
one or two instalments and repaid in
instalments or one lump sum
50
Salient features of cash credit
BDPS-6.5
Sanctioned to meet working capital

requirements of units.
Frequent drawals from as well as repayments

into the account allowed
Temporary cash surplus can be parked
Interest on the outstanding balance
Convenient for trading / manufacturing units
Types of Cash Credit
BDPS-6.6
Pledge Ownership with the borrower,

possession with the lender
Hypothecation ownership & possession
with the borrower
Margin
Hypothecation 40%
Pledge 25%
51
Other features
BDPS-6.7
Issue of sanction letter

Submission of stock statements
Calculation of Drawing Power based on
value of stock
Insurance
Renewal in case of successful operation
Types of Short Term Loans
BDPS-6.8
Crop loans
Financing of JLG of Tenant Farmers
ST Loan for marketing of crop (Plege Loan)
Working Capital Loan for Pisciculture, Dairy activities
Working Capital Limit to Rural Artisans & Weavers
Working Capital Limit to traders & small business
General Credit Card
Financing of Handloom Weaver Group & Activity Based Groups
Financing of Master Weavers
Cash Credit to SHGs
ST Loan against pledge of gold ornaments
ST Loan for Consumption Purposes
52
Salient Features of KCC
BDPS-6.9
Limit for a period of five years.

Aggregate limit to the member covering production
component, investment credit component and a
consumption component
With in this limit, sub-limits are prescribed.
Minimum documentation resulting in less paper work
Renewal based on satisfactory performance
Multiple drawals based on the need of the farmer
Enables the farmer to save interest by repaying even
small sums as and when surplus is available
Coverage under Personal Accident Insurance Scheme
Financing of JLGs
A Joint Liability Group (JLG) is
an informal group
comprising of 4 to 10 individuals
who have come together
for the purposes of availing bank loan
either singly or
through the group mechanism
against mutual guarantee.
53
BDPS-6.10
Selection of JLG members
BDPS-6.11
Members should be of similar socio economic status and

background and who agree to function as a joint liability group.
Members should be residing in the same village/ area and should
know and trust each other well.
Engaged in agricultural activity for a continuous period of not less
than 1 year.
Should not be a defaulter to any other formal financial institution.
JLG should not be formed with members of the same family.
More than one person from the same family should not be
included in the JLG.
A very active member of the group to take leadership role.
Selection of a good /able/active leader for the JLG is an essential
need
Other Features
BDPS-6.12
Size of the JLG = 4 to 10 members

The JLG is primarily a credit group.
Savings by the JLG members is voluntary.
JLG members to open an individual "no
frills" account.
Credit is not linked to savings
54
JLG Models
BDPS-6.13
Model A Financing Individuals in the Group

Each member eligible for separate individual loans from
the society.
All members would jointly execute one inter-se
document (making each one jointly and severally liable
for repayment of all loans taken by all individuals in the
group).
Society to assess the credit requirement, depending on
the crops to be cultivated, available cultivable land and
credit absorption capacity of the individual.
Model B Financing the Group
BDPS-6.14
Function as one borrowing unit.

The group is eligible for a consolidated loan credit requirement of all its members.
Credit assessment of the group is based on the
available cultivable area by each member of JLG.
All members would jointly execute the document
and own the debt liability jointly and severally.
55
Other Terms & Conditions
BDPS-6.15
Purposes of credit - Crop production, consumption,

marketing and other productive purposes.
Type of loan - Cash credit, short-term loan or term loan
depending upon the purpose
Loan limit - Upto a maximum of Rs. 50,000 per
individual under both models.
Rate of interest:
For short term crop production loans: @ 7.0% per annum
For income generating activities under allied activities / non-farm
sector: As per extant guidelines.
Short Term Loans for

Marketing of Crops
BDPS-6.16
Objectives
To provide affording reasonable opportunities
for a remunerative price to the growers for their
produce by enabling them to hold on to their
produce for the time being.
To facilitate recovery of production loans out of

the loans provided for marketing of crops.
56
Quantum of credit
BDPS-6.17
Not exceeding 75% of value of actual produce pledged
Value of actual produce pledged may be determined on the basis

of prevailing market rate or the Govt announced procurement
price, whichever is less.
Production credit and other dues recoverable should be deducted

from the loans granted for marketing of crops
The amount so recovered should be adjusted against the crop

loan sanctioned by the concerned PACS promptly.
Margin = 25%
Financing Rural Artisans &

weaver members
BDPS-6.18
ST Loan or Cash Credit to rural artisans or

weaver members for financing their production
and marketing or servicing activities.
Loan to be secured by hypothecation of

implements, stocks, raw material and finished
goods with the artisans and against surety by
two members of the society.
57
Quantum of Credit Limit
BDPS-6.19
Quantum of Credit Limit :

40% of anticipated production (viz. previous
years production or average of last three years
production, whichever is more plus 20 percent)
Margin requirement
Margin of 40 percent may be prescribed for
hypothecation advances
25 percent for pledge advances
Financing of
Handloom Weaver Groups
BDPS-6.20
A Handloom Weavers Group (HWG) is an

informal group of
5 10 weavers
Residing in the same village & know each
other
coming together for the purposes of availing
bank loan either singly or
through the group mechanism against mutual
guarantee.
58
Criteria for selection of members
Members should be those carrying on weaving and other allied

activities relating to handloom sector and who agree to function as
a group.
The members should be residing in the same village/ area/ cluster
and should know and trust each other to take up joint liability for
group/ individual loans.
The members should be engaged in handloom activity for a
continuous period of not less than 1 year within the area of
operations of the bank branch.
The group member should not be a defaulter to any other formal
financial institution.
More than one person from the same family should not be
included in the group.
There is a need for selection of an active member of the
group as leader to conduct the activities of the group
Selection criteria
BDPS-6.21
BDPS-6.22
Size of the group 5 to 10 weavers

The HWG is intended primarily to be a credit
group. Therefore, savings by the members is
voluntary.
If the group chooses to undertake savings as
well as credit operations through group
mechanism, such groups should open a
savings account in the name of the group with
at least 2 members being authorised to
operate the a/c on behalf of the group.
59
Credit facilities
BDPS-6.23
Model A Financing individuals of a Group

Credit requirement based on the needs of the
weaver, his repaying capacity, his family cash
flow, etc.
However, there has to be mutual agreement and
consensus among all members about the
amount of individual debt liability
Model B Financing the Group
BDPS-6.24
Group will be eligible to access bank loan as

one borrowing unit.
Combined credit requirement of all its members.
Credit assessment of the group based on the
project proposed, already existing loan if any in
the name of members and other requirement of
each member of the group.
All members would jointly execute the document
and own the debt liability jointly and severally
60
Other Terms & Conditions
BDPS-6.25
Purposes of credit
The credit package includes all credit needs such as production,
investment and consumption needs of members.
Type of loan
Cash credit, short-term loan or term loan
Loan limit
Maximum amount of loan may be restricted to Rs.50,000/- per
individual initially under Model A and
Rs. 2 lakh for group of 5 members and Rs. 5 lakh for groups of 10 in
Model B.
BDPS-6.26
Financing of Master Weavers (MWs)

Criteria for selection of Master Weavers
He should be employing weavers on wage basis on own/hired
looms and guiding/providing them various support services in terms
of inputs (yarn/dyes/chemicals) supply, designing and other services
like cash advance for meeting weavers' urgent needs.
The weavers engaged by him should be mainly from unorganised

sector, i.e. outside the cooperative fold.
Members of non-viable and defunct PWCSs and weavers in areas of

weak cooperative credit structure could also be covered under the
scheme.
The MW should be engaged in production and marketing of cloth

and he should not be functioning only as a trader who merely
procures finished goods and sells them.
61
BDPS-6.27
Financing of Master Weavers (MWs)

Criteria for selection of Master Weavers
He should not in any way be directly associated as
functionary of PWCS.
He should not be a defaulter to any other formal financial
institution.
The weavers employed by MW should preferably be
residing and operating in the same village/compact area.
They should have been engaged in weaving and other
related activities for not less than one year.
Purpose / type of loan
BDPS-6.28
The credit package for MW will be flexible.
All credit needs such as production, investment, marketing and

consumption needs may be taken into account.
The consumption component in the package is exclusively to help

MW in meeting consumption needs of weavers on his rolls.
Support by way of cash credit, short-term or term loans (MT/LT.)

depending upon the purpose (or)
an enterprise loan covering different purposes and with

appropriate repayment period.
62
Loan limit
BDPS-6.29
The loan limit for a MW would depend upon project

proposed and other factors i.e.,
No. of weavers engaged/to be engaged by him,
No. of looms employed/to be employed, type and quality of cloth
produced,
connected support services rendered by him including marketing
infrastructure, etc.
The working capital may be assessed with reference to

either Per Loom Scales of Finance (SoF) for various
cloth varieties fixed by the State Level Standing
Committee (SLSC) or
Anticipated Value of Production (AP) for the year
AP may be worked out assuming a reasonable increase at not
exceeding 20% over previous years production or average of
last 3 years production, whichever is higher
Loan limit
BDPS-6.30
The loan limit for a MW would depend upon project

proposed and other factors
The term loan needs may be assessed based on the
technology of weaving (pit loom, frame loom, jacquard
etc. or any upgraded and proven variety), pre-loom/postloom accessories to be purchased / made, workshed
and marketing infrastructure such as sales outlets,
delivery vehicles, storage facilities, etc.
The consumption needs of a weaver should not be more
than 15 to 20% of the working capital.
63
Short Term Loan against

pledge of gold ornaments
BDPS-6.31
Society should have a safe to keep the gold ornaments pledged.

The safe should be insured for the full value of gold ornaments kept
in the safe.
The safe should be under dual custody.
The staff should be trained in appraisal of the gold ornaments.
Alternatively, the society can engage the services of gold appraiser
who would certify the purity of the gold content and the value of the
gold ornaments proposed to be pledged.
The society has to prescribe adequate margin. Alternatively, the
society may prescribe the per gram loan which may change with the
change in the gold price.
It has to maintain Gold Loan Ledger which would serve the purpose
of loan account as well as gold pledged ledger.
Short Term Loans for

Consumption purposes
BDPS-6.32
Short term consumption loans to members especially to those who

belong to weaker sections like small and marginal farmers, landless
labourers etc.
The management of the society to fix the maximum ceiling that can
be sanctioned for different purposes like general consumption,
medical expenses, marriage ceremonies, educational needs, funeral
expenses, religious festivals etc.
Loans to be sanctioned against the security of two sureties.
Loan outstanding together with interest to be recovered at the time

of harvest or in monthly instalments.
Rate of interest, repayment period, loan documents, security etc.,

may be decided by the Board of Directors.
64
Strategy for
increasing ST Loans
Mapping of credit requirement of various segments of the

members
Mapping of seasonal requirement
BDPS-6.33
Survey of the economic situation of its area of operation
Assessing the working capital needs of artisans, weavers, petty

traders, small business functioning in its area
Designing member friendly loan products
Educating the members the need for availing the loans from the
society and repaying the loans within the stipulated repayment
period
Promotion of SHGs, JLGs, HWGs, Artisan Groups and other

activity based groups.
65
Session 7 (Day 2)
Session : Opportunities for Deployment of Resources- Term Loans
A. Objectives:
State the features of term loans
Identify the term credit needs for different segments of members
Describe the aspects to be considered for sanctioning term loans for Farm and
Non Farm Sector
List the steps required for scouting new term loan business
B. Time:
90 minutes
C. Materials/Aids:

Sl.no.
Duration
in minutes
Session Objectives
20
Features of term loans
Lecture
30
Aspects to be seen for processing of term

loans
Lecture
30
Steps required to increase term loan

business
Summing up
Topic
Methodology
--
Case Study
Lecture
E. Session Guide:
i.
Introduce yourself and brief the objectives of the session flashing slide No.BDPS-7.1.
Ask the participants, what type of credit needs your members have? in order to
assess different types of credit requirements of members of the Society. The
expected response from participants can be crop loans and the term loans for
agriculture and allied activities like minor irrigation, tractor, dairy animals, sheep &
66
goat, horticulture crops, etc. Explain to them that these are the activities traditionally
the members need credit for.
ii.
Ask the participants whether there are any non-traditional activities for which their
members need credit. The expected responses can be credit for handloom,
handicraft, small trade/business and other economic activities.
Explain that in
addition, there are some new activities of members which need credit like, SHGs,
housing and personal loans, Flash BDPS-7.2 and introduce the major categories of
loans.
iii.
Pose the question Can PACS extend all types of loans?. The expected response
can be no. In that case, explain to them that the PACS can mobilise resources and
extend all these types of loans to their members. Further, clarify that the society has
to develop capabilities to meet the entire credit requirements of members for
production, investment and consumption purposes.
iv.
What about the credit need assessment for term loans? The participants may not be
aware, as they do not have the system of assessment of credit needs for the
investment credit and consumption credit. Here flash BDPS-7.3 and introduce the
concept of unit costs (UC) for the term loans. Tell them that the unit costs fixed by
their financing banks may be followed by the PACS Also indicate that term loans can
be included in KCC limit sanctioned. Explain the concept of capital formation due to
creation of assets.
v.
Pose a question as to how term loan business of the PACS can be expanded. Wait
for responses and then explain the measures like credit deepening and credit
widening. Flash BDPS -7.4.
vi.
Ask the participants, what type of term loans are required by PACS members. The
responses may indicate that PACS are not allowed to give term loan or they may
indicate certain types of term loans both from farm sector and non-farm sector. The
trainer may clarify that, PACS are eligible to do term lending. Also emphasize the
requirement of term loan for agriculture and allied activities like tractor, power tiller,
goatry, pump set, dugwell, drip irrigation, fishery etc., as also NFS activities to
enhance the business volume and profitability of PACS.
vii.
Ask the participants, how the society will identify the borrowers genuineness, viability
of the potential activities and credit estimate for each activity to ensure good asset
quality? The expected responses may be that they know their borrowers well. The
67
trainer may still discuss about the benefits of the proper identification of borrowers for
ensuring better recovery. Tell them that at the time of borrowers identification, the
potential activity, and its viability, the genuine credit requirements, credit worthiness,
reputation, capability, repaying capacity of borrower etc. should be borne in mind by
the society.
viii.
Ask the participants as to how does the society undertake the appraisal of loan
proposal and monitoring of loan. Explain project cycle concept (Flash BDPS-7.5) and
appraisal of projects right from identification of the borrower, technical feasibility,
financial viability and bankability.
Details of cash flow statement preparation and
repayment schedule to be fixed may be discussed. Flash BDPS-7.6 and conclude that
in order to maintain quality of assets, PACS should make proper borrower
identification and advise borrowers to take up potential activities and do the things on
scientific basis.
ix.
Ask the participants, how documentation for term loans is done. Explain that the
documentation for the LT loans involves valuation of land offered as security and
securing the loan by a security value more than the amount of loan, by creation of
mortgage of that land. The system of mortgage and the related documentation has to
be adopted as the procedure for disbursement of the loans advanced. For Non farm
activities, hypothecation of assets created can be obtained as security.
x.Distribute the case given at handout No.BDPH-7.1 and give 10 minutes to read the
same. Lead the discussion on diversification of loan portfolio. Ask the participants to
list the learning points and suggest measures to improve the lending business through
diversification.
68
BDPS-7.1
Session Objectives
State the features of term loans
Identify the term credit needs for different
segments of members
Describe the aspects to be considered for
sanctioning term loans for Farm and Non
Farm Sector
List the steps required for scouting new
term loan business
BDPS-7.2
Credit Needs of Members
Crop Loans
Term loans for agri and allied activities
Production loans for NFS activities
Term loans for NFS activities
Produce pledge loans
Consumption loans
Personal loans
69
BDPS-7.3
Assessment of credit needs of

members
Crop Loans- Scale of finance
Term Loans for agri and allied activitiesUnit Costs
Consumption component- Certain
percentage of loan amount
Expansion of credit business

of PACS
BDPS-7.4
Credit deepening- more loan to existing members

Credit widening=> Financing new activities- Term loans for agri and allied activities.
Term Loans for NFS activities.
=> New Members- small/marginal farmers
- Lessee farmers/Share croppers
- Agricultural Labourers
- Artisans/Craftsmen
- Small Trade and Business men
- Women
- Weaker section persons
- SHGs/JLGs
70
BDPS-7.5
Project cycle
Identification
Formulation
Evaluation
Appraisal
Monotiring
Implementation
BDPS7.6
Creation of good quality assets
Proper identification of borrowers.

Identification of potential activities.
Appraisal and Documentation.
Loan monitoring and Follow-up.
71
Handout No.BDPH-7.1
A Friend in Need is a Friend Indeed!
Kalaskurd PACS operating in Ahmednagar district of Maharashtra State was
established in the year 1990. The society has been issuing loans for all traditional
activities of PACS such as loans for crop production, tractors, pump sets, pipelines,
pump etc. The recovery of the society was generally satisfactory for a long time
hovering around 90-92 percent.
The society has been making marginal profits
during last three years and it was happy with its operations upto the year 2003-04.
But the happiness of the society was being challenged by a peculiar situation in the
village. In the year 2005-06, the society observed that its recovery percentage has
slipped drastically from 92 percent to 79 percent in just two years. Many hitherto
good borrowers started defaulting in repayment of loan. The PACS analysed the
reasons for poor recovery position by undertaking quick studies in its area of
operation.
The studies revealed that the payments of many members to the State Electricity
Board (EB) towards electricity charges for the electric pump sets used by them for
agricultural purposes were in arrears. Many cases, arrears was high ranging from
Rs.15000 to 36000. The electric supply to quite a few of the farmers was severed
and they were not able to use their pump sets, which in turn, brought down their
income level and repaying capacity. Some of them were initially shy to reveal their
plight to the society.
The society was not aware of any PACS giving any kind of assistance to tackle such
a situation.
The Board of Directors of the society discussed the issue in detail
debating whether it could introduce a new loan scheme to enable the members pay
their electricity bill arrears to the EB and get their connection restored.
As no bank has been giving loans for clearing electricity dues though this was one of
the most pressing needs of the farmers. The PACS initially had its own fears and
reservations about the idea. However, after seeing the plight of the farmer members,
it decided to crack the problem come what may and announced the loan scheme. It
was driven by the thought If we do not empathise with the farmer members, who
will?
72
The loan assistance provided by the PACS for clearing electricity dues was by way
of a MT loan with a repayment period of five years. The amount of loan granted
ranged from Rs.10000 to Rs.35000 depending upon the amount to be paid to EB.
In a year, on an average, 75 to 125 members availed themselves of the loan. Soon

payment of electricity bill became a normal lending activity for the PACS, which in
turn facilitated continuous farming operations without power cut and thereby
continuous flow of income to the farmer. This resulted in improvement in loan
repayment and recovery rate increased by 7 to 10 percent. This also brought back
the smiles on the faces of the society and the members!
73
Session 8 (Day 2)
Session : Non credit and non fund business
B. Objectives:
State the significance of non credit/non fund/ agency business
Identify possible activities under non credit/non fund/ agency business
Describe the strategy required for development of non credit/non fund/ agency
business
B. Time:
90 minutes
C. Materials/Aids:
Black or white Board, chalk pieces or white board marker pens, Duster

Sl.no.
Duration
in minutes
Session Objectives
20
Importance of non credit/non fund/ agency

business
Lecture
20
Assessment of potential for different non

credit/non fund/ agency business
Lecture
40
Strategies for increasing non credit/non

fund/ agency business
Case Study
Summing up
Topic
Methodology
--
Lecture
E. Session Guide:
i.
Initiate discussion by asking what activities are taken up by PACS at present? This
may be asked, in order to elicit the participants response about the various types of
activities the PACS are undertaking at present. Expected response from participants
may be only credit activity, if they are from PACS operating in dry land areas. If the
same question is asked to participants of PACS from irrigated areas or resource
endowed areas, the expected response may include, besides the credit activity, input
supply, PDS/ consumer stores, custom hiring activities etc. Here, introduce the
74
concept of credit and non- credit activities and emphasise that apart from loaning
(credit activity) taking up non-credit activities by PACS in the long run leads to
economic development of the village.
ii.
Ask the representatives of such PACS, why these activities are being handled by their
societies, in order to understand, under what circumstances these activities were
started. The participants may indicate that, Majority of members being farmers, the
agriculture inputs to the farmers are being supplied by the PACS. Hence the input
supply business. The Government is asking PACS to do the PDS business as a
social responsibility. Hence, PDS business.
iii.
For daily consumable items, villagers have to purchase from private shops/ traders at
high prices and have to face malpractices while purchasing. Otherwise, they have to
purchase once in a week from weekly Bazars from nearby town/ big villages. So
PACS is helping the villagers by starting consumer store in the village it self.
iv.
This brings out clearly that there was scanning of the environment in which the PACS
were working, to find out business opportunities.
Participants may
have
to be
impressed upon to do the environment scanning exercise before deciding to take up

any new activity by PACS. This is necessary because, it is not only opportunities for
doing business, but also the economic viability of each activity that has to be taken in
to consideration, while deciding the activity to be taken up by PACS. Explain to them,
that the board may ask the secretary/ staff to do door to door survey of the villages
under their jurisdiction and list out all the felt needs of the member households. Also
assess the likely business quantum and the likely revenue for each activity. The cost:
benefit analysis for each activity (the likely quantum of business and revenue) is to be
undertaken to decide whether an activity can be selected or not.
v.
Ask the participants to list out non-credit activities that can be under taken by their
PACS, in the new environment. The expected responses from participants are input
supply, agril produce processing activities, custom hiring, storage facilities, etc. (Flash
BDPS-8.1). Select 2-3 major non- credit activities suggested by the participants and
explain as follows:
vi.
Input supply: under this activity, the society takes up input supply to ensure supply of
good quality inputs (like seeds, fertilizers, pesticides etc.) at reasonable prices to its
members, at their door step. The society, based on need assessment survey,
identifies the inputs, quantifies their demand and negotiates with the manufacturer for
75
delivery at whole sale prices. Some times the price is further brought down through
purchase price negotiation of the bulk purchase by the society.
vii.
Agricultural Processing /Storage activities: Under this activity, the PACS may consider
starting the processing activities to ensure value addition and better price, providing
cold storage facilities for storage of perishable products for better value realisation
etc. The various agri-produce processing activities that can be taken up are shown in
BDPS-8.2.
Activities like storage facility will help members to store & sell their
produce at remunerative price and PACS, in turn, will earn rent from this activity.
Pledge Loan to members, on produce stored with PACS, will also be possible (say up
to 75% of market value of the produce).
viii.
Custom Hiring:
During the harvest season, the farmers face major problem of
shortage of labours, so PACS may purchase threshing machine & provide to farmers
on hire. By this PACS may earn income/ profit from this business & also resolve the
labour shortage problem of farmers. Similarly, immediately after harvest farmers can
cultivate their land and prepare it for next crop. Because of the limited period of soil
moisture availability, the tillage, operations have to be done in short period. Therefore,
there may be need for tractors / power tillers, but small and marginal farmers may not
be able to afford it. In such cases, the PACS may purchase tractor and power tillers
on their own and give for custom hiring by charging hourly rent. The sprayers,
dusters, power sprayers/ power dusters or any other farm equipment which has scope
for custom hiring may also be owned by the PACS & given for custom hiring.
ix.
Participants may appreciate from this the opportunities for various viable non credit
activities for benefit of members and PACS.
x.
At this point, introduce new business opportunities that are emerging in rural areas
that can be taken up by some of the societies based on their members needs e.g.
selling insurance products, mutual funds, cheque collection, working as facilitator for
provision of personal loans to members from new generation private sector banks,
etc. These services, could be classified as non-fund based activities, as the funds of
these PACS are not involved in the conduct of these activities.
Rather, they earn
fees for the society and therefore, they are also called fee based activities. The non
fund based/ fee based activities of the society provide an opportunity to the PACS to
compete with other rural financial institutions. Explain them by projecting BDPS-8.3.
xi.
Insurance - Selling of insurance products (both life and non-life insurance to rural
people) as an agent of insurance company is possible now. For this, the PACS have
76
to take the agency of an insurance company like IFFCO-TOKIO, LIC, New India
Assurance, Oriental Insurance Company, Bajaj Allianz, TATA AIG, ICICI Lombard etc.
For more details present slide BDPS-8.4.
Similarly, the PACS can also sell the
mutual fund products of different companies / banks.
xii.
Agent of private bank - Some of the private sector banks are willing to give personal
loans to the members of the society to meet such of their personal needs, which the
society is not able to meet on account of limited financial resources. In such case, the
society, in tie-up arrangement with the private bank, could collect application from its
members, submit it to the bank for sanction, complete documentation on behalf of the
bank, hand over loan proceeds to members, collect recoveries and pass on the same
to the bank. From this agency activity, PACS can earn their commission/ fee for
canvassing and monitoring business for the bank, as its agent.
xiii.
With this explanation the participants may understand the importance of fee based
activities and how they help the members and the PACS for its economic viability.
xiv.
Ask the participants what type of trading activities are being under taken by the
PACS? Only some participants may mention purchase and sale of agri produce, PDS
and consumer business. Ask the participants to consider starting viable trading
activities like purchasing agriculture produce from members on agency basis (as an
agent of FCI, Co-operative Marketing Society, APMCs, State Marketing Board) or
directly take up trading activity for providing better prices to members. This ensures
that the members get
a remunerative price for their produce, besides savings on
transportation costs, marketing expenses, etc. This also ensures that the sale
proceeds are received by members in full, at the earliest, without any hassles. This
may also be shown by flashing on the screen BDPS-8.5.
Some PACS also work as
commission agent in APMC markets and earn commission by facilitating marketing of

agriculture produce of farmers brought to the regulated market.
xv.
PDS and consumer business are also trading activities and they may be taken up only
when the loss is made good by Govt (in the case of PDS) or adequate margins are
there to ensure profitability.
xvi.
Ask the participants what other diversification options are there for the PACS for
enhancing its profits as well as providing service to the village community? The
participants may answer in the negative. Tell the participants that there are various
other options for diversification made possible by the availability of new technology
77
and its application in rural communication and development. Project BDPS-8.6 on the
screen and explain.
xvii.
This makes the participants to understand the other emerging options that are
available to PACS for business diversification.
xviii.
Ask the participants, whether PACS handling trading & consumer business are doing
stock verification, to understand the control system prevalent now. The participants
may answer in the negative or there could be sporadic replies in the affirmative.
Explain to the participants about inventory management, which involves the process
of maintaining, recording & verifying stock position, so as to ensure control over stock,
understanding stock movements, understanding fast moving and slow moving goods,
etc. Also explain to the participants how idle stock quite often eats away profits. The
trainer may emphasise the importance of stock verification as a control mechanism to
participants.
xix.
This brings the participants to understand the importance of stock verification and its
usefulness in cost management & as control mechanism.
xx.
At the end, summarise the learnings as per BDPS-8.7. While summarising,

emphasise that diversification in to viable activities brings benefits to the members
and also contributes to the profitability & viability of the society. Tell participants that
profitability of the PACS improves by doing existing things better and adding new
viable activities. Improved performance results in greater satisfaction to members &
more profit to the society. Diversified activities enhance member contact with the
society.
xxi.
Distribute the case given at handout No.BDPH-8.1. Give them 10 minutes time to
read. Initiate the discussion on the possible business activities for the society. Ask the
participants to summerise the learnings.
78
BDPS-8.1
Session Objectives
State the significance of non credit/non
fund/ agency business
Identify possible activities under non
credit/non fund/ agency business
Describe the strategy required for
development of non credit/non fund/
agency business
BDPS-8.2
Major non- credit activities

Input supply (seeds, fertilizers, pesticides,
etc.)
Agro-processing and storage activities
(rice mill, ginning unit, seed processing
unit, godown services, etc.)
Custom Hiring (tractor, power tiller,
dusters/ sprayers, threshers, etc.)
79
BDPS-8.3
Need processing activities

Primary produce without processing
fetches low prices
Processing adds to the value of the
produce
Processing by individual members may
not be economical
Society can do processing or provide
processing facility
Scope for Agro-processing

Activities
BDPS-8.4
Flour mill activity - Purchase wheat/ jower from

membersprocess, pack and sell
Paddy processing- Purchase paddy from
members- mill and sell
Processing may also be done by charging a fee.
Oil mill- Purchase oil seeds from membersprocess and sell
Jaggery making- Charge fees for processing
sugarcane and making jaggery
80
BDPS-8.5
Non-fund based activities

Selling insurance products
Selling Mutual funds
Working as facilitator for provision of
personal loans to members from banks
Insurance Business by PACS

as an Agent
Life Insurance Products
9
9
Insurance Plans
Children policy
Plans for handicapped dependents
Endowment assurance plans
Money back policy
Special money back policy for women
Whole life plans
Term assurance plans
Joint life plans
Pension Plans
Unit Plans
Special Plans
Group Scheme
General Insurance
(Non-life in Rural Areas) Proeucts
Health Insurance
Home Insurance
Tractor Insurance
Weather Insurance
Shop Insurance
Cattle/ Live Stock Insurance
Sheep and Goat Insurance
Brackish Water Prawn Insurance
Silkworm (sericulture) Insurance
Kisan Agriculture Pumpset Insurance
Poultry Insurance
Hut Insurance
Honeybee Insurance
Janta Personal Accident Insurance
Horticulture/ Plantation Insurance
Burglary/ House Fire Insurance
Trade Protector Plan
Travel Protector Plan
Vehicle Insurance (both two wheelers and three wheelers)
Gobar Gas Insurance
81
BDPS-8.6
BDPS-8.7
Starting viable trading activities

Purchase and sale of agriculture produce from
members on agency basis (as an agent of FCI,
Co-operative Marketing Society, APMCs, State
Marketing Board) or
Directly take up trading activity for providing
better prices to members.
Consumer stores business.
Public Distribution System (PDS)
Sale of processed output (rice, flour, jaggery, oil)
BDPS-8.8
New Diversification options

Supplying the mid day meal to schools/
anganwadis.
Providing computer services in the villages
including internet service and computer training.
Providing artificial insemination service for
livestock development.
Establishing milk chilling unit.
Starting telephone booths etc.
Transport services - starting small transport
services between villages & near by towns
82
BDPS-8.9
Summary of Learnings
PACS can take up non credit, non fund based
activities for business diversification.
Emphasise that each business diversification in
to viable activity brings benefit to the members
and also contributes to the profitability & viability
of the society.
Profitability of the PACS improves by doing
existing things better and adding new viable
activities.
Improved performance results in greater
satisfaction to members & brings member loyalty
and more profit to the society.
83
HandoutNo.BDPH-8.1
Discovering the Undiscovered
Mahil Gaila village is situated about 15 kms from Nawanshahr town. It is situated in the
fertile part of the state which is called as Doaba which means between two rivers. The
land is fertile due to perennial irrigation facilities. Major crops cultivated in the area are
paddy, sugarcane and wheat. The farmers are progressive and mechanisation of agriculture
is a common phenomenon. There are about 86 tractors in the village. Some of the people of
the village are working in U S, UK or Canada. Hence a lot of money flows to the village.
Palatial houses with good architecture, two wheelers and four wheelers are a common sight
in this village. The CCB and Punjab National Bank have their branches in the village to tap
the resources of the people. Since a majority of the village population belong to the affluent
group, credit off-take is very low. Only small farmers and agricultural labourers depend on
the financial institution for credit. The society has to compete with the CCB and the
commercial bank to get its share of credit portfolio.
About the Society
The Mahil Gaila Multi Purpose Cooperative Credit Society was established in the year 1936.
Shri S Madho Singh was its founder President who led the society for years together. The
subsequent Presidents / Committee Members were equally committed to the welfare of the
members and development of the society. The Secretary of the society was also from the
village and retired on 30 September 2007 after 27 years of service. The present secretary
was promoted from the society staff. There are about 28 members working in the society.
Resources Mobilisation
Deposits
The society is having a mini bank with banking counters and the entire operation of the mini
bank is computerised. It is accepting savings bank deposit and fixed deposit from members
and non-members. The details are given below:
Savings Deposit from members as on 31 March 2007 =
Rs. 190.51 lakh
Savings Deposit from non-members
Rs. 257.88 lakh
Total Deposit (all kinds) as on 31 March 2007
Rs. 1008.13 lakh
Average cost of deposit for the year 2006-07
4.39 %
Borrowing from DCCB

The society has not borrowed any money from the DCCB.
84
Owned Funds
Share Capital
Rs. 14.98 lakh
Reserves
Rs. 162.51 lakh
Accumulated profit
Rs. 81.56 lakh
Profit for 2006-07
Rs. 31.56 lakh
Total (owned Funds)
Rs. 290.61 lakh
Dividend declaration
20 %
Credit portfolio
The following types of loans are issued by the society.
Crop loans to agriculturists
Consumption loan of Rs. 10,000/- to non-members
Revolving cash credit limit to farmers for meeting their consumption needs
Loans to salary earners for purchase of consumer durables
Personal Loans
Medium Term Loans
No. of borrowing members

non-agriculturists
= 1782 of which 166 are agriculturists and 1616 are
Recovery of loans and advances
85 % (average)
Investment
Fixed Deposit with CCB / other banks as on 31 March 2007
= Rs. 1047.47 lakh
Average yield on investment
6.85 %
Non-credit Activities
Supply of inputs
The society acts as the Nodal Point for supply of fertilisers to other PACS for which it is
getting a commission of Re.1/- per bag. During 2006-07, it earned a commission of Rs.
14,850/-.
It has its own retail sales depot for sale of seeds, fertilisers, pesticides etc. Stock of
fertilisers are purchased directly from IFFCO & KRIBHCO. The average sales in this
depot is Rs. 26 lakh. During 2006-07, it earned a profit of Rs. 75,000/-
Custom hire
The society has purchased a Rotavator at a cost of Rs. 78,000/- with subsidy from the
Department of Agriculture for providing custom hire services to farmers. The charges are
Rs. 300/- per hour without tractor. The farmer has to arrange for the tractor).
85
It has purchased a Zero Drill machine at a cost of Rs. 22,000/- with subsidy and gives it
on hire basis - charges Rs. 100/- per hour.
Recently, it has purchased Potato Planter at a cost of Rs. 18,000/-
It is also having 2 Generators - charges Rs. 150/- for 4 hours.
The hire charges collected during 2006-07 = Rs. 1,600/-.
Procurement of paddy & wheat
The society is procuring rice and wheat on behalf of state government. The society
makes payment to the farmers on the next day while it gets the payment from the state
government within a week.
The society gets a commission of 2.5 % on the value of grains procured.
The salesman looking after the fertiliser sales depot looks after the procurement
business since the same is seasonal. Lifting of stocks and transportation charges are
borne by the Government.
During the year 2006-07, 2865 quintals of wheat having value of Rs. 18.62 lakh and
2680 quintals of rice having a value of Rs. 17.18 lakh were procured. Commission
earned was Rs.46,000/-.
Provision Store
The society is having a provision store where quality items / branded items of day-to-day
use are stored and sold to the people on cash basis. It makes bulk purchases of the
items directly from the wholesale dealers on cash basis. No purchase is made from
MARKFED (Cooperative Marketing Society). The items are sold at 2 or 3 rupees less
than the M R P. People from the nearby villages come to the society and make their
purchases. During festival seasons and marriage seasons, people buy in bulk on
account of competitive prices and quality of the items. The society gets a margin of 5 %
(average). Average sales per day is Rs. 65,000/-. During 2006-07 the turnover in this
store was Rs. 191.51 lakh.
Cloth Store
The society is also having a cloth store in its premises where branded suiting, shirting,
pillows, bed sheets, saris etc., are stocked and sold. All the purchases are made from
the wholesale dealers on cash basis. The society provides 2 % discount on cut pieces to
reduce the old & unsold stock. Average margin available is 10 %. Turnover during 200607 was Rs. 23.04 lakh.
Kerosene Depot
The society is having a kerosene depot where the kerosene is sold to the BPL families at
a subsidised price. The society gets a margin of 10 paise per litre of kerosene sold. On
an average, the society sells 1000 litres in a month.
Other services provided by the society
The society has undertaken State Governments programme of providing subsidised

wheat and dal to BPL families. The society does not get any commission from this
activity since the purchase price and the sale price are the same
86
The society is providing training to rural women on tailoring. So far about 50 women
have been trained. It is proposed to form SHGs of those who have undergone training.
The premises of the building is used by Department of Agriculture / IFFCO for convening
Farmers Meet for technology transfer / sharing of information.
Systems
For efficient functioning, the society has created different sections like Accounts Section,
Banking Counter, Cloth Store, Fertiliser Depot & Kerosene Depot, Procurement Section,
Provision Store etc.
The Secretary is the overall incharge of the society.
There is a clear cut demarcation of duties and responsibilities among the various
sections of the society.
The society follows Double Entry System of Book Keeping. It is maintaining all the
required books and register including Cash Book, Day Book, General Ledger and Stock
Register.
The job of voucher preparation, authentication, cash receipts and payments, voucher
booking and accounting, verification of entries in the books, stock taking etc., are
entrusted with different levels of staff (clerk, cashier, section-in-charges & Secretary).
Even small expenses like tea / coffee expenses to visitors are accounted.
Each Section is maintaining its own cash book. All sales are against cash. The daily
cash collections are deposited in the Banking Counter which is accounted by the
Accounts Section.
Surplus cash is deposited in the Current / Savings Bank / Fixed Deposit Account with the
CCB.
Each Section is maintaining Bills Register, Cash Book, Stock Register etc., in which the
entries have been made up-to-date. Consolidation of all books are done at Account
Section
Code number is given for each item / article for easy identification, accounting and stock
taking. Stock account of each item is maintained in the stock register.
The Banking Section is fully computerised and different MIS like Trading Accounts of
different sales depots, consolidated Trading A/c, Profit & Loss A/c, Balance Sheet,
Deposits with Banks etc., are prepared every month, compared and analysed.
TASK:
1) Suggest the non fund business that can be taken up by the society keeping the existing
resources.
2) Enumerate the best practices being followed by the society
3) Identify the activities which can be replicated by other societies.
87
Session 9 (Day 3)
Session : Prudential Norms and their Implications on Profitability
Objectives:
Define prudential norms
State the norms for income recognition
State the norms for Classification of assets
Describe the provisioning norms
Calculate the CRAR
Determine the impact of NPA on profitability
B. Time:
90 minutes
C. Materials/Aids:
Calculators

Sl.no.
Duration
in minutes
Session Objectives
20
Components of Prudential Norms
20
Income recognition, asset classification

and provisioning
20
Calculation of CRAR
20
Impact of NPA on profitability
Summing up
E.
Topic
Methodology
-Lecture
Interactive
lecture
Case exercise
Interactive
lecture
Lecture
Session guide
i.
88
ii.
Ask the participants as to whether they have heard about the term prudential
Norms. Some would say NPA, Provisioning, etc. Summarise the responses and
explain the background of introduction of Prudential Norms, the components and the
basis for the norms by flashing slide Nos. BDPS 9.2 to 9.5.
iii.
Ask the participants How do you define the term NPA ? What are the norms for
considering a loan account as NPA? How do you define NPA in agricultural advances
? What is out of ourder status?. Go on asking supplementaries to get adequate
number of responses. Summarise the responses and flash the slide Nos. BDPS-9.6 to
9.9.
iv.
Ask the participants What do they mean by Income Recognition? Summarise the
responses and give your observations - flash slide Nos. BDPS-9.10.
v.
Then ask the participants How the assets are classified based on their performance
/ overdues? What are norms for classification of assets? Write down the responses
and summarise them. Give your observations and flash slide Nos. BDPS-9.11 to 9.20.
vi.
Ask the participants about provisioning norms, rationale and the quantum of
provisions to be made in respect of NPAs. List out the responses and flash slide Nos.
BDPS 9.21 to 26.
vii.
Ask the participants about the provisioning norms for non-credit business. List out the
responses and explain the norms by flashing slides Nos. BDPS 9.27 to 9.29.
viii.
Then ask the participants about the effect of NPA on the profitability of the society.
Summarise the responses and flash slide No. BDPS-9.30 & 9.31.
ix.
Ask the participants about capital adequacy norms, rationale behind introducing them,
recommendations of Prof Vaidyanathan Committee on Capital Adequacy etc. one
after another. Summarise the responses and explain the concept by flashing slides
Nos. BDPS 9.32 to 9.37.
x.
Then administer the following case exercise on calculation of CRAR.
Case Exercise on Calculation of Capital Adequacy Ratio.

From the Balance Sheet of XYZ PACS Limited as on 31 March 2009 given below, calculate
the Capital to Risk Weighted Assets Ratio of the society.
Balance Sheet of XYZ PACS Limited as on 31 March 2009

Amount
Assets
Liabilities
(Rs.)
Capital
Paid up - Individuals
Paid up - Government
Cash on Hand
3,000
1,085,000 Balances with DCCB

225,000 Savings Account
Reserves & Funds

Reserve Fund
Amount
(Rs.)
325,000
Investments
37,000 Term Deposits with
89
13,707,000
Grants and other Funds

Subsidy meant for society
DCCB
Term Deposits with
DCCB R F deposits
Shares in Cooperative
34,000
institutions
Deposits
81,000
762,000
Loans & Advances

KCC Loans - Rs.
12176000
Loan against Deposits 6,553,000
Rs. 610,000
Less: Provision for NPAs
1,540,000
-Rs. 902,000
Loans & Advances net of
provisions
Savings Deposits
6,263,000
Recurring Deposits
Term Deposits
Borrowings
KCC Credit Limit
11,655,000 Closing Stock
11,884,000
47,000
Fixed Assets net of

Depreciation
Other Liabilities
Interest Accrued on Deposits
Interest Accrued on
Borrowings
2,076,000 Land & Buildings
204,500
306,000 Furniture & Fixtures
Sundry Creditors
41,400
87,000 Other Assets
Other Liabilities
Interest Accrued but not

due
Interest Receivable on
Investments
Sundry Debtors
100,000
Rs.180,000/Less: Provision for
2,000 Sundry Debtors Rs.
169000
406,000
Provisions
Provision for Standard
Assets
Provision for Outstanding
Expenses
Net Sundry Debtors

Prepaid Insurance
Profit & Loss A/c
(Accumulated Loss)
Total
30,369,000
Total
414,000
2,740,000
11,000
2,000
147,100
30,369,000
Worksheet for Calculation of Risk Weighted Assets

Sl.
No.
Assets
Amount
(Rs.)
(1)
(2)
(3)
Cash on Hand
90
Risk
Weight
(%)
(4)
Risk Weighted
Assets
(3 X 4) / 100
(5)
Balances with DCCB
In Current Account
In Savings Bank Account
Balances with Other Banks
In Current Account
Others
Investments
Government Securities
B
C
D
E
F
Shares in other Cooperative

Institutions
Fixed Deposits with DCCB / Other
Banks
NSC / KVP
Staff P F balance with P F Trust / as
Deposits with Banks
Others - Deposit with Marketing
Societies
Loans & Advances
ST / MT / LT Loans to Members
Loans to staff covered by mortgage /

superannuation benefits
Other Loans (Specify)
Closing Stock
Fixed Assets
Land & Buildings, Godown
Furniture, Fixtures, Banking Counter,

Computers & Electrical Installations
Vehicles
Agriculture Machinery
Other Assets
91
Interest Accrued but not overdue
Overdue Interest
Interest Receivable on Investments
Sundry Debtors
Other Receivable
Amount involved in Frauds
Prepaid Expenses
Total Risk Weighted Assets
Solution
Calculation of Risk Weighted Assets

Sl.
No.
Assets
Amount
(Rs.)
(1)
(2)
(3)
Risk
Weight
(%)
(4)
Risk Weighted
Assets
(3 X 4) / 100
(5)
3,000
0%
20%
Cash on Hand
Balances with DCCB
In Current Account
Balances with Other Banks
In Current Account
20%
22.5%
Others
22.5%
Investments
Government Securities
Shares in other Cooperative
Institutions
Fixed Deposits with DCCB / Other
Banks
2.5%
B
C
D
E
F
325,000
NSC / KVP
Staff P F balance with P F Trust / as
Deposits with Banks
Others - Deposit with Marketing
Societies
92
22.5%
73,125
762,000
102.5%
781,050
13,788,000
22.5%
3,102,300
2.5%
22.5%
102.5%
Loans & Advances
ST / MT / LT Loans to Members
11,884,000
100%
11,884,000
Loans to staff covered by mortgage /

superannuation benefits
20%
Other Loans (Specify)
100%
Closing Stock
47,000
100%
47,000
Fixed Assets
Land & Buildings, Godown
204,500
100%
204,500
Furniture, Fixtures, Banking Counter,

Computers & Electrical Installations
41,400
100%
41,400
Vehicles
100%
Agriculture Machinery
100%
Other Assets
Interest Accrued but not overdue
3,154,000
100%
3,154,000
Overdue Interest
100%
Interest Receivable on Investments
100%
Sundry Debtors
11,000
100%
11,000
Other Receivable
100%
Amount involved in Frauds
100%
Prepaid Expenses
2,000
100%
2,000
Total Risk Weighted Assets
30,221,900
Capital Adequacy Ratio
Capital Adequacy Ratio
Capital Funds
= ------------------------------------------- X 100
Risk Weighted Assets
12,99,900
= ------------------------ X 100
193,00,375
= 6.74%
F.
i.
Balance sheet should reflect societys actual financial position
ii.
An asset becomes NPA when it ceases to generate income
iii.
Income recognition should be based on record of recovery
93
19,300,375
iv.
Overdue interest not to be treated as income. If taken as income, matching

provision has to be made
v.
If a borrower has more than one loan account, if one account becomes NPA,
all the other loans will also become NPA.
vi.
Advances against term loans, NSCs, IVPs, KVPs and life insurance policies
are not covered by NPA norms
vii.
Adequate provision has to be made for each category of assets
viii.
Capital Adequacy Norms have been introduced to strengthen the financial

position of PACS
94
95
96
What is NPA?
BDPS-9.6
NPA is defined as a credit facility in r/o

which interest and / or instalment of
principal remained overdue for more than
90 days in respect of a term-loan.
If the account remains `out of order' for 90

days, in respect of overdraft/ cash credit
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
Session 10 (Day 3)
Session : Recovery and NPA Management
Objectives:
State the reasons for default in repayment
Describe the preventive measures in NPA management
List informal and formal measures for recovery
Identify the innovative measures for recovery
B. Time:
90 minutes
C. Materials/Aids:
Calculators

Sl.no.
Duration
in minutes
Session Objectives
10
Need for recycling of funds- Factors

affecting repayment
20
20
Formal and informal mechanisms for NPA

management
30
Innovations in NPA Management
Summing up
Topic
Preventive and remedial measure for NPA

management
Methodology
-Lecture
Lecture
Lecture
Case Study/
Experience
sharing
Lecture
E. Session Guide
i.
Introduce yourself and pose a question so as to find out whether the participants are
aware of the objectives of the session
113
ii.
Explain that the objective of the session is to identify various causes that lead to an
advance becoming NPA and various actions that can be initiated to prevent
occurrence of NPA. At this juncture, flash the SLIDE- BDPS-10-1. Explain to them the
importance of Recovery & NPA Management, the concept of income recognition
based on the same and the provisioning norms.
iii.
Elicit from the participants that from their experience what they think are the causes
for poor recovery which lead to an advance becoming NPA. Explain to them the
various external factors and also the internal factors (both borrower and PACs
related) for causing NPA. Flash SLIDES BDPS- 10.2, 10.3, 10.4 and 10.5.
iv.
Gather information from the participants about the NPA management practices being
followed in their societies. Elicit from them the possible signals that indicate to them
that an advance is going to be sticky in future and the measures they can undertake
to control the position. Pose a question as to what are the methods of managing the
NPAs. Flash SLIDE BDPS- 10.6 and explain the different methods.
v.
Explain in detail the actions that could be initiated to prevent NPAs flashing SLIDE
BDPS- 10.7. Continuing the discussion, now dwell on remedial action for NPA
management. Flash SLIDE BDPS- 10.8 and some of the successful strategic and
operational measures for reducing NPAs.
vi.
Introduce the concept of Credit Risk management. Explain the formal and informal
tools for NPA Management with the help of SLIDES BDPS- 10.9 to 11 and discuss in
detail the formal and informal tools that can be adopted for NPA management.
vii.
Summarise the discussion briefly and Flash SLIDES BDPS- 10 .12
viii.
Distribute the case study given at handout No.BDPH-10.1. Give 10 minutes to read
the case study. Initiate discussion on the case and elicit the response of the
participants on the innovative approach for effecting recovery. Exhort the participants
to come out with possible innovative solutions.
114
BDPS-10.1
O bjectives
By the end of the session, participants would be
able to:
State the reasons for default in repayment
Describe the preventive measures in NPA
management
List informal and formal measures for recovery
Identify the innovative measures for recovery
R eas ons forP oorR ec overy

G eneral
BDPS-10.2
R uralborrowers havelowec onomic

s ec urity
B enefic iaries ofG S P perc eiving the
c reditas adolefromG overnmentthan
as alifelinefortheirec onomic
upliftment
L ac kofs ens itivityofP AC S tothe
importanc eofrec yc ling offunds
115

externalfac tors
BDPS-10.3
Naturalcalamities beyondthecopingcapability
oftheborrower
P oliticalinterferenceinrecoveryproces s
F ailureofactivityduetoeconomicand
managerialreas ons
C hanges inpolicyenvironment
C hanges inT echnology
C hanges inE conomicC onditions
Non availabilityofris kcover

Internalfac tors B orrowerrelated
BDPS-10.4
F ailureofec onomic ac tivity

pers onalac c ident;death
s hifting ofbus ines s /res idenc e
lac koftec hnic al/manag erials kill
poormaintenanc eofas s ets
Divers ion/mis utilis ation offunds
Willfuldefault
116

Internalfac tors P AC S related
Improperidentific ation
Inadequateapprais al
delayinloans anc tion
under/overfinanc ing
unrealis tic repayment
s c hedule
Inadequate
unders tanding ofthe
c lient
inadequateinformation
onduedates ,amount
etc
BDPS-10.5
Nopos tdis burs ement

followup
noborrowercontact
Norecoveryeffort
Inefficientinternal
controls ys tems
lowmotivation
BDPS-10.6
MA NA G E ME NT O F NP A
P R E VE NT IVE A C T IO N
R E ME DIA L A C T IO N
117
BDPS-10.7
P R E VE NT IVE A C T IO N
H AVE AG O ODP OL IC Y F O R
IDE NT IF IC AT IO NOF B O R R OWE R S &
A P P R AIS AL S
H AVE C HE C K S A NDB AL ANC E S IN
P L AC E
H AVE DIVE R S IF IE DP OR T F OL IO
R E G UL AR MONIT OR ING OF L O A NS
R AP P O R T WIT HT HE B OR R O WE R
BDPS-10.8
R E ME DIA L A C T IO N
H AVE C AS E B Y C AS E
A NAL Y S IS
O P E NF AR ME R S
C L UB S
INC E NT IVE S F O R
R E C O VE R Y
WO R K ING WIT H
B O R R O WE R S
R AP P O R T WIT HG OVT
O F F IC IAL S
P R E S S UR E O N
G UAR A NT O R S
C OMP R OMIS E
ME C HANIS M
118
BDPS-10.9
NP AMA NA G E ME NT F O R MA L T O O L S
F ormalR ec overyT ools

C ompromis e
DebtR es truc turing
S haring ofC reditInformationwith
otherbanks /financ ialins titutions
R evenueR ec overyas permis s ible
underC ooperativeS oc ieties Ac t
NP AMANAG E ME NT INF OR MAL

TOOL S
BDPS-10.10
B uildrelations hipwithvillag ers

P romoteF armers c lubs
Us eS HG s forrec overy
F ollowthevillag eec onomy vis it
mandi;haat;
T rac kthec as handbring ittoP AC S
119
BDPS-10.11
R E C O VE R Y S T R A T E G Y
Willing To Pay
Able To Pay
(Recovery Pot)
Willing To Pay
Unable To Pay
(Compromise Pot)
Unwilling To Pay
Able To Pay
(Legal Action Pot)
Unwilling To Pay
Unable To Pay
(Write Off Pot)
BDPS-10.12
S UMMA R Y
NP AMANA G E ME NT S T A R T S
F R OMT HE T IME Y OUINT E NDT O
G IVE AL O A N
A ND E NDS WH E N
T HE E NT IR E L O A NIS R E C OVE R E D
INF UL L
IT IS AC ONT INUOUS P R O C E S S
120
Handout No.BDPH-10.1
Slow and Steady Wins the Race
Shri M.L. Brahman popularly known as Raja belongs to Padiv village in Sirohi District in
Rajasthan.
He was the Secretary of the local Padiv Gram Seva Sahakari Samiti Ltd.
However, due to certain developments, he had to take charge of Malleswar Gram Seva
Samiti (Malleswar PACS) which is about 22 Km. away from his native village, Padiv
The Maleswar GSSS Ltd. was not in good shape at that time. Interests on loans were not
properly calculated nor were they recovered. There were no efforts from the PACS end to
recover loan. Since the loans outstanding were not recovered fresh loans could not be
issued. The society had only as small as 150 borrowing members. Most of them defaulted
in their repayment to the society. The Fertilizer depot of the society was not functioning
effectively.
Brahman wanted to put the society back on its wheels. He shared his piece of mind with a
few members. He knew that the only method he had in front of him was to recover the
overdue of the society and regain the confidence of the members in the society to do normal
business with the society. He therefore decided to set the wheel of change in motion by
going more than half way to meet the members. He decided to meet the members in their
residences. Thus, after cycling for about 22 kms from his home to the Society, Raja started
spending most of his time cycling in the new village and meeting farmers. Raja contacted
the village farmer members one by one in their homes and at their time. He, however,
ensured to carry with him a register which he later called The Sampark Register
What really turned around the Malleswar GSSS was the now famous Sampark Register
being maintained by Raja for the society. The strategy followed by Raja was to contact the
farmer members in their houses through courtesy visits and enquire about their Tabiyat
pani (Health and wealth words exchanging pleasantries) and incidentally, their
expectations from the society. He used this opportunity to remind them about their dues to
be paid to the society.
Raja slowly started taking commitment from the members for
repayment of the loan, purchase of fertiliser, availing loans etc. This was entered in the
Sampark Register duly entering the date on which the farmer members promised to repay
the loan or avail other facility. The farmers signed the Sampark Register with their remarks
written in the register by Raja.
121
On the due date as given by the farmer, Raja was promptly in their houses to enquire about
their well being and also to remind about the commitment which the farmer had given. If the
commitment was not fulfilled Raja politely took a new date but never forgot to smile when he
entered the new date in the Sampark register!
This exercise was followed with lot of
conviction, commitment and sensitivity that it started paying dividends. Slowly almost all the
loans got repaid and the farmers started taking fresh loans and avail other facilities from the
society again.
Soon Raja became a Mobile Bank for the 150 odd families in the village.
He is now
popularly known as the Sahakari on Cycle. With the efforts of Raja the society has turned
around making regular profits now. The total business of the society as on 31 March 2007
was Rs. 62.03 lakh and the profit made was Rs.1.45 lakh. The Malleswar PACS is certainly
rolling on its wheels towards better heights.
122
Session 11 and 12 (Day 3)

Session : Preparation and presentation of BDP
A. Objectives:
Prepare BDP of their Society
List out actions required for implementation of BDP
State the method for monitoring mechanism
B. Time:
180 minutes
C. Materials/Aids:
OHP with transparencies or PC with LCD Projector or Chart papers and bold marker
pens
Calculators

Sl.no.
Duration
in minutes
Session Objectives
--
85
Preparation of BDP
Case exercise
85
Topic
Presentation of BDP
Summing up
Methodology
Discussion
Lecture
E. Session Guide
i.
Tell the participants that this session is meant for application of the knowledge and
skills acquired during the last three days. All the participants should be able to
prepare the BDP of their respective societies. The actual data of the respective
societies should be used for preparation of the BDP. However, in trainers training
programme, data given at handout No.BDPH-11.1 may be used. Hints for preparation
of BDP are given at handout No.BDPH.11.2. It must be understood that these are
only hints. Actual projections would vary depending on the environment of the society.
The proforma for the BDP as given in handout No.BDPH-11-03 should be distributed
on the first day of the programme. The trainer should himself be thorough with all the
123
columns of the proforma. Depending on the nature of existing and potential business,
some columns of the proforma may not be relevant to some societies. The
participants should be briefed on the first day itself to start working on the BDP of their
society. With the progress of the training programme, the participants should be able
to complete the exercise by the third day.
ii.
The time allotted for the session should be utilized only for the purpose of fine tuning
of the BDP prepared by the participants. Maximum time should be allocated for
presentation of the BDPs prepared by the participants.
iii.
As it would not be possible to make presentation of the BDPs prepared by all the
participants, at least two BDPs should be presented on random basis and thorough
discussion should be held on the BDPs presented in the class.
124
Handout No. BDPH-11.01

ABC Society, Jaipur
ABC society has been functioning for the last 50 years. There are 649 members in the
society. 422 members had availed loan from the society. During the year 1996 branch of a
RRB started functioning in the area of operation of the society. During the year 2001, a rural
branch of the Punjab National Bank was opened in the area of operation of the society. The
society started a mini bank in the year 2000-01. There are 105 savings bank account, 50
thrift deposit accounts and 25 fixed deposit accounts of the members in the mini bank.
There are some weavers, small businessman, govt servants, employees of private sector,
labourers etc living in the area of operation of the society. There are around 50 persons in
the village who travel daily to nearby Ramnagar for working in shops. Some people are
engaged in construction activities. 10 persons of the village work in a hotel in Ramnagar.
Some people are skilled in wood work and they work in a furniture house. There is an ITI in
Ramnagar where around 30 persons from the village have received training in different
trades and are engaged in different industrial units in and around Ramnagar.
In view of scanty rainfall, the water problem in the area of operation of the society is
becoming acute day by day. There is a dairy society located around 10 km away from the
village which is engaged in collection of milk. 300 out of 649 members of the society have
milch animals but milk is not sent out of the village in view of very low level of production.
There are 6 villages under the area of operation of the society with an approximate
population of 7000. 60% of the population depends on agriculture. Of the farming
community, 90% belong to SF/ MF category. Around 35% of the people live below the
poverty line. There are 6 primary schools, 2 middle schools and one high school. There is a
Primary Health Centre. No veterinary facility is available.
Apart from lending for agriculture, the Society sells seeds, fertilizers and pesticides. It is
engaged in the PDS business as well as sale of consumer goods. The performance of the
society during the last three years is given in Annexure I and II. You are the Secretary of the
society. On the basis of this information you are required to prepare the Business
Development Plan of the society for the next three yeas, viz., 2009-10, 2010-11 and 201112.
125
Annexure I
Financial Position of Society ABC
2006-07
2007-08
2008-09
Share Capital
4.30
4.85
4.90
Reserves
4.20
5.04
6.29
Owned Funds (1+2)
8.50
9.89
11.19
Deposits
Thrift
Savings
Fixed
Total
1.25
4.15
10.60
16.00
1.40
7.10
12.00
20.50
1.40
6.50
11.10
19.00
Borrowings
SAO
MTC
MT(Ag)
MT(Non Ag)
LT
Total
30.00
12.00
5.00
3.00
0.00
50.00
28.00
10.00
7.00
2.50
0.00
47.50
30.50
9.00
7.50
3.00
0.00
50.00
Total Liabilities
74.50
77.89
80.19
Loans outstanding against members

SAO
MTC
MT(Ag)
MT(Non Ag)
Consumption loan
Total
30.25
12.50
5.00
3.00
2.75
53.50
29.50
8.50
9.00
2.00
3.00
52.00
35.00
8.00
8.15
2.25
3.20
56.60
Cash
Current Account
Savings Bank Account
Fixed Deposit
Total
0.40
0.30
1.00
14.00
15.70
0.50
0.30
2.18
17.71
20.69
0.60
0.40
1.39
16.35
18.74
Fixed Asets
Other Assets
5.00
0.30
4.80
0.40
4.70
0.15
Total Assets
74.50
77.89
80.19
126
Annexure II
Financial Position of Society ABC
2006-07
1.00
4.00
0.50
2.25
1.00
2007-08
1.25
6.00
0.60
2.50
1.25
2008-09
1.45
7.50
0.60
3.00
1.35
Total Sales
8.75
11.60
13.90
Fertiliser Purchase
Seed Purchase
Pesticides Purchase
Essential Commodities Purchase
Other Consumer Goods Purchase
3.85
0.95
0.45
2.10
0.90
5.65
1.15
0.55
2.35
1.15
7.10
1.10
0.55
2.80
1.30
Total Purchases
8.25
10.85
12.85
Transport charges paid
0.05
0.06
0.07
Unloading charges paid
0.01
0.01
0.02
DD Commission paid
0.01
0.01
0.01
Trading Profit
0.43
0.67
0.95
Interest Income
6.34
6.71
7.09
Interest Expenditure
4.01
4.09
4.15
Establishment charges
1.50
1.60
1.65
Other expenses
0.50
0.60
0.65
Provision for NPA
0.30
0.25
0.34
Profit/ Loss
0.46
0.84
1.25
Audit classification
No. of Committee Meetings held
10
10
Seed Sales
Fertiliser Sales
Pesticides Sales
Fair Price Shop Sales
Other Consumer Goods Sales
Date of General Body Meeting
13/12/2006
127
15/12/2007
12/01/2009
Handout No. BDPH-11.02
Hints for preparation of BDP
Work out the break even level for current viability and sustainable viability.
Whether the society has already attained viability?
If not, what is the level of business required to be undertaken?
On the basis of potential available in the area of operation, what is the scope of
increasing the business?
The business opportunities on the basis of information given in handout No.BDPH.11.01

may be analysed as under:
Enrolment of more members
Total population
= 7000
Assumption: Each family will have 5 members

No. of families living in the area of operation of the society = 7000/5 = 1400
No. of members of the society
= 649
Remaining number of families to be enroled as members
= 1400 - 649 = 751
Propose to cover the remaining families in a span of 5 years

Year 1 = 100
Year 2 = 150
Year 3 = 150
Year 4 = 150
Year 5 = 200
No. of borrowing members
= 422
No. of non borrowing members
= 649 - 422 = 227
Proposed to cover 227 and also new members in the next 5 years
Year 1 = 125
Year 2 = 175
Year 3 = 200
Year 4 = 200
Year 5 = 275
Particulars
Crop Loan outstanding
2008-09
35.00
128
No. Of borrowing members
422
Per member loan outstanding
35/422 = Rs.8,294 say 8,300
Increase in scale of finance is assumed as 10%

Per member loan outstanding for 2009-10 = Rs.9,000
Particulars
2009-10
2010-11
2011-12
No. Of old members

Add: New borrowing members
422
125
-----547
547
175
----722
722
200
----922
Per member outstanding (Rs.)
9000
10000
11000
Total Crop Loan Outstanding (Rs.lakh)
49.23
72.20
101.42
MT conversion (Rs.lakh)
7.50
6.50
5.00
Total Borrowing Members
Issue of MT - Agriculture Loans

There is a dairy society 10 km from the society.
The villagers are having only desi animals.
300 members out of 649 members have milch animals
Plan:
Taking into account the availability of fodder and availability of animal, the society can have
a modest target of financing milch animals. For example
Year 1
= 30 units (1 + 1)
Year 2
= 50 Units
Year 3
= 50 Units
Unit cost for 1 unit is taken as Rs. 30,000/- (Rs.15,000 + Rs. 15,000)
Particulars
2009-10
2010-11
2011-12
No. Of Units to be financed
30
50
50
Dairy Loan outstanding(Rs.lakh)

I year
9.00
II Year
7.2
5.4
15.0
12.0
III Year
Total O/s
15.0
9.00
129
22.2
32.4
Other avenues for Term Loan

MT loan for setting up of animal feed shop
MT loan for SRTO since some of the villagers are working in the nearby towns
Scope for two wheelers to teachers
Loans for rural artisans - Unit cost may be taken as Rs. 15,000 to Rs. 25,000 or issue of
Swarozgar Credit card for a limit of Rs.25,000.
Consumption loans as a component of KCC - asumption Rs. 1,000/- per member
Formation of SHGs - 90% of the farming community is SF/MF which works out to 756
(1400 families X 60% depends on agriculture X 90% SF/MF ). Assuming 15 members in a
group, number of SHGs that can b promoted - 50
Some of the groups can be covered under SGSY.
Trading Activity
Particulars
2008-09
2009-10
2010-11
2011-12
Seed Sales (Rs.lakh)
1.45
1.91
2.53
3.23
No. Of members availed
422
547
722
922
Per member sales(Rs.)
350
350
350
350
Similarly we can work out fertiliser sales, pesticide sales etc., and also seed purchases,
fertiliser purchases and pesticide purchases.
130
Hand out no.BDPH-11.03
BUSINESS DEVELOPMENT PLAN FOR PACS

LAND HOLDINGS: No of members
Below 1 acre:
1-2 acres :
2-5 acres :
5-10 acres :
More than 10 acres:
area in acres
TOTAL AREA OF THE LAND:

No of members
Of which :
Irrigated area:
Un-irrigated area :
Fallow land :
IRRIGATION FACILITIES:
No of members
Canals:
Wells :
Tanks :
Lift irrigation:
Total :
area in acres
area in acres
LAND COVERED BY HORTICULTURAL CROPS:

Details of crop
No of members
area in acres
MEMBERSHIP :
No of members
deposits
Male :
Female :
131
borrowings
Business Development Plan (-2009-10 to 2011-12)

1) Name of the Society
2) Regd. No. & Address
Pincode : Phone No.
3) Name of the Branch
4) Name of the Mandal
I.
PROFILE OF THE AREA OF OPERATION:
1.
VILLAGES AND POPULATION
Sl.
No.
Name
of the
Village
Distance
from
Hqrs.
No. of
Families
Total
Population
Members
of PACS
Borrowing Members
MF/SF BIG Others Total
1.
2.
3.
4.
5.
TOTAL
2.
CULTIVATED AREA AND CROPS
Sl.
No.
1.
(In acres)
KHARIF
Name of the Village

Paddy
RABI
Paddy
2.
3.
4.
5.
TOTAL
3.
BUSINESS POTENTIAL AND SALES OF PACS DURING 2008-09 (VILLAGE

WISE)
ACTIVITIES
NAME OF THE VILLAGE
A. Fertilisers (M.Ts)
i) Total Demand
ii) PACS Sales
132
TOTAL
iii) Others
Nearest Dealer
(Distance/KM)
B. SEEDS (Qtls.)
i) Total Demand
ii) PACS Sales
iii) Others
Nearest Dealer
(Distance/KM)
C. PESTICIDES (Value in lakhs)
i) Total Demand
ii) PACS Sales
iii) Others
Nearest Dealer (Km.)
D. FEED (Qtls)
i) Prawn
ii) Fish
iii) Total Demand
iv) PACS Sales
v) Others
Nearest Dealer (Km.)
E. FAIR PRICE SHOPS (Nos.)
i) Total (No.)
ii) PACS (No.)
iii) Others (No.)
F. CONSUMER BUSINESS
(Value in Lakhs)
Total Demand
PACS Sales
Others
Nearest Market Centre (Km.)
G. BANKING CENTRE (Yes/No)
PACS Counter
Commercial Bank / Co-operative
Bank / RRB
Nearest Bank
Name/Place/Distance
H. ECONOMIC PROFILE
i) No. of persons in salaried
employment
ii) Inward remittance
iii)
No.
of
commercial
establishments and turnover
I. INFRASTRUCTURE/ NATURAL
RESOURCES
i) Cold storages/ Godowns
ii) Forest area (ha)
iii) Water bodies (ha)
J. OTHERS
133
i) No. of Farmers clubs

ii) No. of SHGs
iii) KVK (distance from Society)
II.
FINANCIAL POSITION
2006-07
1. SHARE CAPITAL
i) Govt. (except godown)
ii) Members
2. RESERVES
i) Reserve Fund
ii) Building Fund
iii) Education Fund
iv) Other Reserves
3. OWN FUNDES (1+2)
4. DEPOSITS (Members)
i) Thrift
ii) Savings
iii) Fixed
TOTAL
5. UNDISTRIBUTED PROFITS:
6. borrowings outstanding from:
DCC Bank
i) SAO
ii) MTC
iii) MTA
iv) L.T.
TOTAL
7. WORKING CAPITAL
(3+4+5+6)
8.
LOANS OUTSTANDING AT
MEMBER LEVEL:
SAO
MTC
MTA
L.T.
Consumption
TOTAL
9. Any imbalance between loans

outstanding and borrowings
from DCCBs if yes, Amount &
reasons
134
2007-08
(Rs. in lakhs)
2008-09
III.
NON-CREDIT BUSINESS
2006-07
2007-08
(Rs. in lakhs)
2008-09
1. SEED Sales
2. FERTILISER Sales
3. PESTICIDES Sales
4. FAIR PRICE SHOP Sales
5. OTHER CONSUMER GOODS Sales
A. Total of Sales
1. Sales Purchases
2. Fertiliser Purchases
3. pesticide purchases
4. essential commodities purchases
5. other consumer goods purchases
B. Total purchases
c. TRADING PROFIT (A-B)
7. Transport Charges
8. Unloading Charges
9. D.D. Commissions
IV. MANAGEMENT
a) No. of Committee Meetings held
b) Date of General Body
V. COST OF MANAGEMENT:
1) Establishment Charges
2) Other Expenditure
Total
VI. PROFIT/LOSS (+/-)
VII. ACCUMULATED LOSS:
VIII. AUDIT CLASSIFICATION:
IX. DEMAND COLLECTION AND BALANCE (Member Level)

LOAN
SHORT TERM
Demand
Collection
Balance
Recovery (%)
2006-07
2007-08
135
(Rs. in Lakhs)
2008-09
LONG TERM
Demand
Collection
Balance
Recovery (%)
B. BANKING COUNTER:
1. Whether Society has banking Counter: YES/NO
2. If Yes, the details:
Village
C.
1.
Year of
Starting
Iron Safe
(own)
YES/NO
Deposits
(Rs.)
Rate of
Interest
SB
FD
CONSUMER BUSINESS/MINI-SUPER BAZAR:

Do you have mini-super bazar in PACS? If yes
Village
XIII.
Building
Room
Year of
Starting
Own furniture (Yes/No)

Racks
Oil
Balances
Drums
Sales Persons Table
Investments by Society
ITEM
1. Deposits in DCC Bank
Current
Saving
Fixed
TOTAL
2. National Saving Certificate
3. Shares in co-operatives
4. Others (Specify)
2006-07
136
2007-08
(Rs. in lakhs)
2008-09
CONSOLIDATED BUSINESS PLAN PROPOSED FOR....................................................................

(Rs. in lakhs)
2006-07
Actuals
2007-08
2008-09
2009-10
Projections
2010-11
2011-12
2006-07
Actuals
2007-08
2008-09
2009-10
Projections
2010-11
2011-12
Description of Activity
A. CREDIT PLAN
S.A.O. Loans
M.T. Loans
L.T. Loans
Others
Total
B. NON-CREDIT PLAN
i) Fertilizer
a) B-Component (Value)
b) Cash Sales (Value)
Total fertiliser sale =
((a)+(b))
ii) Seeds (Value)
iii) Pesticides (Value)
(credit+cash)
C. Consumer Business (Value)

a) Fair Price Shop Sales
b) General Goods Sales
D. Others (specify)
Description of Activity
E. Hire charges on Agrl. Implements
F. HIRE charges on GODOWN
G. DEPOSIT MOBILISATION:
a) Savings
137
b) Fixed
TOTAL
H. INCOME & EXPENDITURE PLAN
a) Gross Income
b) Gross Expenditure
c) Net Surplus
Resolution No.:
DATE:
Society Seal:
SECRETARY
138
Business Development Plan 2009-10

Name of the Society:
Name of the taluka:
Name of the Branch:

I.
CONSOLIDATED BUSINESS PLAN FOR THE YEAR 2009-10

PROJECTION OF BUSINESS AND MARGINS
(Rs. in lakhs)
Business Activity
Base
Year
2008-09
Target for
2009-10
Income
Expenditure
Net Surplus
A. CREDIT PLAN
i) SAO Loans
ii) M.T. Loans
iii) L.T. Loans
iv) Other Loans
TOTAL
B. INPUT PLAN
i) Fertilisers
ii) Seeds
iii) Pesticides
TOTAL
C. CONSUMERS
BUSINESS
i) F.P. Shop
ii) Other Goods
TOTAL
D. FEED
A) Prawn
B) Fish
TOTAL
E. Hire on Agrl.
Implements
F. Hire of Godowns
G. DEPOSIT
MOBILISATION
i) S.B.
ii) F.D.
TOTAL
139
II.
CAPITAL REQUIREMENT AND SOURCE OF FUNDS FOR 2009-10
(Rs. in Lakhs)
Business Activity
Base
Year
200809
Target for
2009-10
Rate of
expected
turnover
Capital
required
Periodicity
Source of
funds
1) CREDIT
2) INPUTS
3) CONSUMERS
III.
Estimate Income and Expenditure for 2009-10
EXPENDITURE
Interest Paid on borrowing
Rs.
INCOME
Interest received on loans
(Rs. in lakhs)
Rs.
Interest on cash credit
Income on Non-credit Business (Agrl.

Input)
Income on consumers business
Income on Feed Sales
Contingent Charges
Income on Deposit Mobilisation
Transport and other charges
Income on Hire on Agrl. Implements
Instalments on Godowns
Income on Hire on Godowns
Newt Surplus
Miscellaneous Income
TOTAL
TOTAL
140
Business Development Plan 2010-11

Name of the Society:
Name of the Taluka:
Name of the Branch:

II.
CONSOLIDATED BUSINESS PLAN FOR THE YEAR 2010-11

PROJECTION OF BUSINESS AND MARGINS
(Rs. in lakhs)
Business Activity
Base
Year
2009-10
Target for
2010-11
Income
Expenditure
Net Surplus
A. CREDIT PLAN
v) SAO Loans
vi) M.T. Loans
vii) L.T. Loans
viii) Other Loans
TOTAL
B. INPUT PLAN
iv) Fertilisers
v) Seeds
vi) Pesticides
TOTAL
C. CONSUMERS
BUSINESS
iii) F.P. Shop
iv) Other Goods
TOTAL
D. FEED
A) Prawn
B) Fish
TOTAL
E. Hire on Agrl.
Implements
F. Hire of Godowns
G. DEPOSIT
MOBILISATION
iii) S.B.
iv) F.D.
TOTAL
141
II.
CAPITAL REQUIREMENT AND SOURCE OF FUNDS FOR 2010-11
(Rs. in Lakhs)
Business Activity
Base
Year
200910
Target for
2010-11
Rate of
expected
turnover
Capital
required
Periodicity
Source of
funds
1) CREDIT
2) INPUTS
3) CONSUMERS
III.
Estimate Income and Expenditure for 2010-11
EXPENDITURE
Interest Paid on borrowing
Rs.
INCOME
Interest received on loans
(Rs. in lakhs)
Rs.
Interest on cash credit
Income on Non-credit Business (Agrl.

Input)
Income on consumers business
Income on Feed Sales
Contingent Charges
Income on Deposit Mobilisation
Transport and other charges
Income on Hire on Agrl. Implements
Instalments on Godowns
Income on Hire on Godowns
Net Surplus
Miscellaneous Income
TOTAL
TOTAL
142
DETAILS OF NDR CALCULATION ANALYSIS OF THE EXPENDITURE

AND INCOME AND SOME IMPORTANT RATIO
I.
CACULATION OF NDR CASH CREDIT LIMITS

Share Capital
Reserves & Other Funds
Undistributed Profit (if any)
Own Funds (1+2+3)
Deposits
Accumulated Losses (if any)
Long term investments made from own fund
Net disposable Reserves (4+5) (6+7)
Cash Credit Eligibility time of N.D.R
II.
INCOME & EXPENDITURE ANALYSIS

1. Interest earned on
a) ST Loans
b) LT Loans
TOTAL
2. Interest Paid on
a) ST Loans
b) LT Loans
TOTAL
3. Income from Credit Business (1-2)
4. Income from non-Credit Business
5. Cost of Management
(Esst + Contingencies)
III.
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
:
IMPORTANT RATIO
1. Percentage of Cost of Management to Working
:
Capital
2. Salaries as Percentage % to Total Expenditure
3. Salaries as % to income
143
IV.
Date:
Brief note on the financial soundness of the PACS.
Signature of Chief Executive of PACS
144
Caselets
1. Sale of Drip Irrigation Spare Parts
Drip irrigation is quite popular in the Kommugudum village as the farmers endeavour to
make maximum use of the available water resources. There are branded companies
selling the drip irrigation system. The farmers install the system at a fairly high cost.
Most of these companies supplying the drip irrigation system operate only from the state
capital or big towns as a result of which farmers have to travel long distances for repair
and maintenance and purchase of spare parts. At times the farmers end up in traveling
long distance to cities like Hyderabad and Visakhapatnam for purchase certain spare
parts which hardly cost a few rupees.
Realizing the problems faced by the farmers the Kommugudum LSCCS started stocking
and sale of the spare parts of Drip System. The society now stocks more than 100
spare parts of drip system. Most of these are very low priced and hence does not give a
big margin of profit to the society. However, the comfort it gives to the farmers through
sale of these spare parts is immeasurable.
By experience the society staff selling the various spare parts has also become
conversant with the way the same is fitted in the drip system. The society also had
discussions with one or two dealers who had agreed to give hands on training to the
staff of the society or any progressive farmer on minor repair and services. During the
year 2006-07 the society earned a profit of Rs. 10279 out of sale of spare parts of drip
system. Even though the society has not made big profit in the business, it has earned a
very good name for the society. This has provided one more line of contact to the
society to be in touch with the farmers. The society could inform the members about
their new schemes and facilities as also other information like recovery drive, deposit
mobilization drive etc. during their visit to the society.
Similar efforts could be made by PACS for sale of spare parts of other agricultural
implements as per the need and potentials of the local area.
145
2. Profit through sale of fertilizers
Kadiadra PACS is located in Sabarkantha district of Gujarat State. Crop loan

disbursement is predominant and other loans are less.
The society has a total
membership of 526 out of whom 361 are borrowing members. The society made a
marginal profit of Rs. 1.87 lakh during 2006-07. However in the long term, the society
wanted to improve its net income and attain sustainable viability. As the borrowing
members of the society were only 361 the society felt it has to think of alternate areas of
business to improve its financial position. This enabled the society to discuss the matter
in its board meeting. The board of directors observed that some PACS are taking up
sale of fertilisers and making reasonable income out of it. The secretary of the society
was directed to collect more details.
The Secretary on enquiry with the DCB and a few fertilizer dealers came to know that
there is good scope for sale of fertilisers. The fact that the society is disbursing crop
loan was observed to be an added advantage of the society over other agencies as the
society could cover the price of the fertiliser as loan to its members. This way the
society could also think of increasing its loan portfolio. The society also knew that it
could get a line of credit for purchase of fertilizers from the DCB in case of need.
After detailed study of the land use and cropping pattern of the villages the society
concluded that fertilizer usage could also be increased through proper awareness
programmes for its members which in turn will enhance the income level of the
members.
The matter was further discussed in the board and the society decided to undertake
fertilizer business to improve its profitability and give better service to its members. The
society also assessed that a mini godown was already available with the society which
could be used for stocking the fertilizer. The society therefore decided to commence
fertilizer business with the existing staff and facilities presently available in its premises.
Mainly NPK and Potash (factomphos) and Urea were intended to be sold by the PACS
as they had demand in the area. The net income received from sale of fertilizers was as
indicated in the statement below.
146
Fertiliser Sales - Income and Expenditure for one year

Income
Expenditure
Item
Volume
Unit Price
Total
Rs
Rs.
Unit Price
Total
Rs
Rs
NPK
700 bags
350
245000
435
304500
Potash
600 bags
205
123000
270
162000
15
19500
Transportation
7950
Unloading
3975
Insurance
11925
2500
30000
Salesman
Per Month
Salary
Sale of Gunny
Bags
Total
421850
486000
Net Surplus
64150
3. Agricultural Consultant Service

Kommugudum Large Sized Cooperative Credit Society has always been looking for
opportunities to serve its farmer clients.
The government of Andhra Pradesh had
mooted a programme for opening an Agriculture Consultancy in the PACS.
The
Government originally proposed to give a subsidy of Rs. 3000 per month per PACS for
appointment of an Agriculture Consultant in the PACS. However, the scheme did not
get grounded. Taking the clue, the Kommugudum LSCCS approached Shri
P.Satyanarayana, a retired Agricultural Officer from Government of Andhra Pradesh who
had settled in Kommugudum village after his retirement.
Shri Satyanarayana attends office in the KLSCCS every day from 10 AM to 4 PM. The
society has provided seating arrangements including telephone facilities to the
Consultant. Farmers visit the society to take advice regarding quality and quantity of
fertilisers to be applied, pesticides to be used as also other agricultural practices. They
bring disease affected plant samples to the consultant for consultation.
Based on
147
requirement, the consultant also visits their farm on request.
During the months of
February, March, etc. about 20-25 farmers visit the society everyday to take advice on
various farming methods. The consultant arranges for soil testing and also suggests
remedies for betterment of the soil.
It is interesting to note that the agricultural consultant maintains a whiteboard in the

PACS premises where a thought on agriculture is written everyday. Farmers visiting the
society for any work take benefit of the agricultural thought. While many farmers are
directly benefited by the advice given by the consultant, the system also provides
indirect benefits to the society as also the village. The society is benefited as the better
income derived by the farmers results in better repayment of loan.
Farmers buy
fertilizers, pesticides, etc. from the society itself as the society stocks the brands they
need. The society purchases and stocks only those fertilizers, pesticides, etc. which are
needed in the local area according to the advice of the consultant. The consultant
provides technical advice to the society too.
The society makes a payment of Rs. 3000/- per month from its own funds to Shri
P.Satyanarayana for the consultancy services he is providing. The society also has
discussed the matter with many farmers and the farmers have expressed their
willingness to pay small sum as fees for the professional advice being given to them. If
this works out probably this could be a sustainable activity for the society as also could
result in good benefit to the village.
4. Local Cattle Feed Mix

The cattle rearing is perhaps the most common economic activity taken up in the rural
India. Our country accounts for the highest milk production in the world, of course,
through the large number of cattle the farmers of the country maintain. It is common for
any rural family to maintain two-three cattle either for milk or as work bullock. The high
cost of branded cattle feed is adversely affecting the economics of the cattle rearing
activity. The price of milk being regulated by Government and the price of cattle feed not
being regulated has created a precarious situation in continuing with cattle rearing for
148
milk. Locally mixing cattle feed is a solution that the Kommugudum village LSCCS found
out to face this situation.
The Kommugudum LSCCS started making cattle feed in the society itself. The society
buys all the ingredients from the market and gets them ground through grinding
machines available in the village. This is then properly mixed and sold. The society
sells around 10 tons of cattle feed per month giving a profit of Rs. 3000 to 4000 to the
society per month. The details of the cattle feed mix being made by the society and the
economics of the activity is given below.
CATTLE FEED
Ingredients for making 10 tons of Cattle Feed
S.No.
Name of material
Quantity
Cost per kg
Kgs
Rs.
Amount
1.
Maize
4000
7.50
30,000
2.
Wheat Bran
2200
6.50
14,300
3.
Sunflower
1000
6.45
06,450
4.
Groundnut
700
12.00
08,400
5.
De-oiled Bran
1000
4.40
04,400
6.
Soybean
800
12.00
09,600
7.
Mineral Mixture
200
25.00
05,000
8.
Salt
100
2.50
00,250
Total
10,000
78,400
Other Expenses
Grinding , Transport, Bags, etc.
5200
Feed Mixing
1000
Distribution
2400
Total Cost for 10 Tons
87000
Selling price per 1 kg - 9 x 10000
Rs. 90,000/-
Profit per 10 ton
Rs. 3000
149
5. Chaff Cutters a Boon to Dairy Farmers

The cattle rearing is perhaps the most common activity taken up in the rural India. Our
country accounts for the highest milk production in the world, of course, through the
large number of cattle the farmers of the country maintain. It is common for any rural
family to maintain two-three cattle for milk or as work bullock. The country also accounts
for large areas under wheat and paddy.
Paddy is one the major crop cultivated in Kommugudam village in Andhra Pradesh. The
local society disburses crop loan for paddy. The society also gives loan for purchase of
cattle. In a farmers meet of the society it was suggested that most of the farmers follow
the practice of cutting the chaff given to cattle to avoid wastage. In fact the cattle are
being fed chaff of wheat and paddy as a staple food. Chaff getting costlier, more and
more farmers cut the chaff into small pieces before feeding. This is mostly being done
manually by the farmers. This puts lot of pressure of the available labour in the farmers
house. Taking the clue and also taking the advice of the agricultural consultant in the
PACS thought of studying the effectiveness of the chaff cutting machine available in
Nagpur in Mharashtra. The Secretary of the society first visited dealer and saw the
machine for himself. The society then purchased one machine on trial basis. This was
sold to one farmer and the use of the same was observed by the society. AS the society
felt that the Chaff Cutting Machine is a well-designed, work reducing mechanism which
will be of help the farmers it decided to buy more of the machine for sale to needy
farmers.
Chaff cutters of different capacity and design are available in the market. Kommugudam
Large Sized Cooperative Credit Society has entered into a working arrangement with
one dealer for supply of Chaff Cutters. The Kommugudam LSCCS has arrangement
with the Sardar Chaff Cutters in Shende Nagar, Kamptee Road, Nagpur-26 (Phone No.
0712-2640328). The dealers supply different models of chaff cutters. For small farmer
rearing a few cattle the basic model, which is available at a price of Rs. 11000/-, would
suffice. Similar other makes of Chaff Cutters also are available in the market.
150
The Kommugudum LSCCS sells Chaff Cutters on regular basis, its annual sales being
around 20 chaff cutters in a year. These gives the society net profits of Rs. 20,000/- per
annum. The supply is ensured by the dealers to the society premises and farmers will
have to take delivery from the society. The basic model of the Chaff Cutter will suffice
the requirement of a farmer rearing even 10-15 cattle.
Higher models of chaff cutters which are capable of heavy work as also Tractor-mounted
chaff cutters which could be shifted from place to place are available. The society has
supplied tractor-mounted Chaff Cutters to the NG Ranga Agricultural University and
Buffalo Research Centre for Rs. 75,000/- as also to the Venkateswara Veterinary
University of Livestock Research Station, Kurnoor.
Chaff cutting machines could also be fed with half HP Motor to reduce the drudgery of
operations.
The society is also now contemplating supply of chaff cutters to SHGs
promoted and financed by the society so that the SHG could use it as a common service
for the benefit of the neighbor hood members.
6. Diversification the only Mantra

Koytha Sahkari Krishi Unnayan Samity (PACS) was set up in the year 1951 and is
affiliated to Birbhum DCCB of West Bengal. The society covers five villages and has
2369 members of which 2200 are borrowing members.
With its long tenure of
experience, the society remains on profit by merely following some of the most common
known practices of management. In particular the society follows the principle of Not
keeping all your eggs in the same basket.
The society conducts election to the Board regularly, conducts the Board meetings
regularly, the Board regularly reviews the normal matters of the society like fixation of
target for deposit mobilization, loan disbursement, recovery, item wise sales turnover,
non-credit activities, achievements in various plans and projections, profitability of
various activities, etc.
The Annual General Body Meeting was being conducted
regularly, to approve the balance sheet, Profit and Loss account, budget for different
activities, expenditure budget, etc. The participation in the annual general body meeting
was almost 100%. The society had 10 staff members including one Manager. The
manager of the society had undergone training in Cooperative Management.
151
Though things were going on without much problem, the society happened to have
accumulated loss of Rs.1.40 lakh by 1997-98. Though this was not an alarming situation
for a society in existence since 1951 the Directors and the staff members felt that they
had to come out of this and put the society in its profit track. After due discussion the
society came to the conclusion that business diversification was the only method of
getting on to profit track.
The main business of the society was confined to issue of crop loan. It decided to
expand its credit business to issue of loans for produce pledged loan, MT for minor
irrigation, loan against deposits, consumption loans to teachers against their salary etc.
The society also diversified into the issue of SHG loans. It formed more than 80 SHGs
of which 50 were credit-linked.
The society even issued consumption loan against old utensils! This was thought of
because many families inherited these utensils which are of high value and emotional
attachment. These families did not want to sell them and at the same time they were
unproductive assets at home. The society was sure that the value of these utensils was
quite high and the borrowers will definitely repay the loans to get back their possession.
The society also followed the deposit mobilization route to improve its financial
resources. It mobilized deposits with the idea of investing the same in DCCB or other
banks to earn income from that. Thus the society invested most of its deposit with
DCCB. However, it ensured to maintain a balance with UTI Bank to earn additional one
percent interest. The society also started issuing at part UTI Cheques. The society
could mobilize deposit without much difficulty because of the confidence it enjoyed
among the villagers through its various activities.
Along with credit activities, the society undertook non-credit business like sale of
agricultural inputs, seeds, pesticides, fertilizers, etc. which gave annual turn over coming
up to Rs. 400 lakh. It also undertook the job of procurement of supply of grain under
Integrated Child Development Scheme. The society started sale of cement and also
participated in the various procurement schemes of the Government. It entered into
custom hiring services of tractors and leased out a part of its go down to IFFCO.
152
One advantage of diversification to a spectrum of activities was that the contact of the
society with the villagers became more intimate. This led to better recovery performance
in all types of loans. The recovery of society was now almost 90% and for SHG it was
nearing 100%. Overall the society was ably guided by the Board members through their
words of wisdom and participation in customer contact programmes.
7. Exploring New Horizons

Nankathi Primary Agricultural Cooperative Society was established in the year 1967-68.
The Society operates in 8 villages inhabited by 3338 agricultural families. The villages
are located in the close proximity of the industrial cities of Durg- Bhilai. A large number
of rice mills and brick kilns have been established in the area of operation of the Society.
The land owners of the area prefer to take up jobs in industrial units often leasing out
their agricultural land. The Society has been able to enroll 50% of the land owners as its
members. The borrowing members constitute only 16% of the farmers of the area. The
borrowing members constitute only 13% in terms of operational land holding.
The location of the operational area of the Society was proving to be a disadvantage for
agricultural lending. The resources required for agricultural operations used to be met by
the people from their income from other sources. Despite concerted efforts by the
Society, the average loaning business was hovering around Rs.40 lakh per annum. The
bulk of the lending (around 97%) was for crop production. Low volume of business
meant low income.
The Society had excellent rapport with the members and recovery was not a problem.
The rate of recovery was more than 90%. The Society had the distinction of zero
imbalance between the borrowing and lending portfolio. It had repaid all its dues to the
DCCB as on 31 March 2009. With practically no term lending the scope for continued
interest income was also very low. In order to sustain its operation and provide
uninterrupted service to its regular borrowing members, the Society had to think of other
sources of income.
Deposit mobilization: Deposit mobilization was an option as quite a few members had
other sources of income. There was a branch of a Regional rural Bank in Nankathi
153
village. Competing with a bank was not an easy job. The Society responded to the
competition and took a vow to build excellent relationship with the members. Deposit
started flowing in and it could mobilize deposits of Rs.207.90 lakh from 1189 members
as on 31 March 2009. It offered only one deposit product in the form of savings bank
account. The reason was obvious. The lending portfolio was low and the resources
mobilized by way of deposit had to be productive. The Society did not forget to meet the
term deposit needs of the members. It made arrangements to help the members open
term deposit accounts with the branch of DCCB at Durg. The Society also arranged to
provide cheque collection facility to its members.
Paddy procurement operation: As per the directives of the State Government, the PACS
in the State are engaged in paddy procurement activity from borrowing/ non borrowing
farmers on behalf of the MARDFED at the minimum support price. The MARKFED is
compensating the Society by paying for operational expenses (payment of daily wages
to labourers, cost of material used, security cost), administrative expenses for
supervision and commission on the basis of quantum of procurement. The entire
operation is funded by MARKFED by making advance payment and therefore, there is
no involvement of the funds of the Society. The Society had procured 13275 quintals of
paddy valued at Rs.100.78 lakh during 2007-08 which increased to 34790 quintals
valued at Rs.316.54 lakh during 2008-09. The commission earned from this activity was
Rs.1.98 lakh and Rs.6.22 lakh during 2007-08 and 2008-09 respectively.
IFFCO Kisan Sanchar Ltd: The revolution in communication technology is playing a

major role not only in instant connectivity but also in the bottom line of enterprises. The
Society entered into an agreement with the IFFCO Kisan Sanchar Ltd. in the year 200809 and started selling communication devices like mobile phones, sim cards and
recharge coupons to the people in the village on a commission basis. It earned a
commission of Rs.0.98 lakh during 2008-09. The Society has assessed very high
potential for this business in its area of operation.
Profitability: Diversification coupled with prudent funds management has paid rich
dividends to the Society. The low level of credit business has been more than made up
by other activities. The deposits mobilized by the Society has been kept in the term
deposit of the DCCB. Interest liability to the DCCB has been reduced by prepayment of
154
dues to the DCCB. The Society had earned a profit of 11.87 lakh during 2007-08 and
Rs.15.20 lakh during 2008-09.
The Society has planned for the following activities to be undertaken.
Insurance Agent of IFFCO- TOKIO general

Establishment of computerized weigh bridge
Construction of godown for fertilizer and grain storage
Electricity Bills Collection
8. Truly Yours
Sridharpur Cooperative Bank- the name is misleading as it is not a bank but a Primary
Agricultural Cooperative Society. The word Bank forms a part of the name because
Banking Regulation Act, 1949, which prohibits the use of the word Bank, was not
enacted at the time of formation of the Society. Late Haneswar Banerjee, then a junior
lawyer of Burdwan Bar was the founding father of the society. The inspired Lawyer took
the initiative to organize the Society in his native village, Sridharpur in Burdwan district of
West Bengal. He convinced the people of the importance of cooperative movement in
the economic development of people. The Society was registered under the name
Sridharpur Cooperative Bank on 13th April 1918 to cater to the needs of the villagers in
Sridharpur and three adjoining villages (subsequently one village went out of its fold by
forming a separate society).
The founder members of the Society had a clear vision about self help and mutual help
and were determined not to depend on external resources. The Society maintains data
on socio economic conditions of each and every household of the three villages within its
area of operation apart from other relevant details such as cropping pattern, irrigation.
1032 families reside in the three villages with aggregate population of 4709. The Society
has a membership of 1789. Small and marginal farmers constitute 78.26%, landless
labourers 19.9% and medium farmers 1.84% of members. It does not have a single
large farmer as member. Almost all the needs of the members are met by the Society by
offering 19 different products.
1. Deposit
2. Lending
3. Grocery
155
4. Fertiliser
5. Cloth store
6. Cold storage
7. LPG distribution
8. Minideep tube well
9. Micro credit (SHG)
10. Dharmagola
11. Pesticide
12. Seed supply
13. Produce marketing
14. Seed production
15. Social welfare
16. Utensil pledging
17. Pisciculture
18. Fruit garden
19. Self Employment Scheme

The Society has owned funds of more than Rs.9 crore. Deposits and advances exceed
Rs.40 crore and Rs.28 crore. It earns annual profit of more than Rs. 1 crore from its
various business activities. The Society provides incentives to its members by declaring
rebate of 70 to 80%.
The number of credit products available with the Society would put a regular bank into
shame. Apart from loan for crop production activities, it provides loans for procurement
of machinery, house building, cash credit, loans against NSC/ KVP/ LIC policies,
unemployed youth loan, dharmagola,, SHG, loans against utensils, education loans etc.
Risk Management: The Society had initiated risk management practices from 1935 by
creating Bad Debt Fund. Now it makes 100% provisions on overdue accounts
irrespective of nature of asset classification. The Society acquired its building in the year
1947 by utilizing the money available in the Building Fund created in the year 1936.
A unique feature of the Society is that it has been registered as a society with unlimited
liabilities. It has never incurred loss since its inception.
The Society enjoys full autonomy. There is no State participation in the ownership of the
Society. It had started accepting deposits from its members from 1926-27 and it has not
taken any financial support from financial institutions including banks since 1933.
Governance: Small is beautiful is the basis for constitution of the Board. There are only
seven members including one employees representative and a professional engineer.
The Board meets every week. There is an extended committee comprising 32 members
from different walks of life.
156
The decision making process is transparent and participatory. Any new venture to be
undertaken by the Society is required to be approved not only by the Board and the
Extended Committee but also by the General Body. There is very high sense of
belongingness of the members of the Society.
As per the provisions of Cooperative Societies Act, the tenure of the Board is 36 months.
The Society, however, follows a unique practice. The Board Members resign every year
and suggest a panel for the next Board which is required to be approved by the General
Body in the Annual General Meeting. The Board is elected by rising of hands. No secret
ballot is held. The Board usually consists of a mix of young and old members.
Social Responsibility: Concern for the community is the seventh principle of the
cooperatives. The Society has lived the principle by undertaking a plethora of social
activities. Be it construction and maintenance of roads, sinking of tube wells for irrigation
and drinking water, construction of school, library or post office buildings, the Society
has left its imprint on the Society. It has donated generously for payment of stipend,
purchase of books etc. for the needy students. A book bank is also maintained by the
Society.
The Society with strong affiliation of its members is really a different type of organization.
157

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Business Development Programme

for Secretaries of PACS

National Bank for Agriculture and Rural

Business Development Programme for Secretaries of PACS

Business Development Programme for Secretaries of PACS

List the components of business (existing and potential) of their Society

Narrate the external environment

OHP with transparencies or PC with LCD Projector or Flip Chart

D. Conduct of the session:

Analysis of existing business of Societies

Preparation of SWOT of society

List out the responses and explain to them the general

features of PACS with reference to their functioning. Flash SLIDES BDPS- 1. 4

To provide loans to its members in cash and

Component of Business of PACS

Take up processing activities

Analysis of PACS functioning

Poor recovery performance,

Financial assistance for recapitalisation

Environmental Factors (STEP)

The word environment means the outside factors

PACS are to be transformed into self

Session 2 and 3 (Day 1)

Explain the importance of profit planning

List the components of costs and yields

Calculate the cost and margins

Calculate the break even level of business

Identify the components of Business Development Plan

OHP with transparencies or PC with LCD Projector or Flip Chart

D. Conduct of the session:

Profit Planning Need and Importance

Concepts of cost, yield, margin and

Cost of funds, Yield on Assets,

Introduce yourself and do a preliminary scanning of the participants as to what the

that proper planning has to be made. Flash SLIDE -BDPS 02-03.

Strategy formulation and plan preparation

Monitoring & Implementation

Explain the importance of profit planning

Why should a Society earn profit?

Profit & its planning

Components of profit planning

Interest income earned

Breakeven level of business

* This will be in absolute amount

Business Development Plan:

Three stages of BDP

480 Interest on Investments

Provision for NPAs

BALANCE SHEET OF XXX SOCIETY

100 Cash & bank Balances

3000 Loans & Advances

900 Fixed Assets

Calculation of Costs & Margins

Financial Margin = Yield on Asset (-) Cost of Funds

Net Financial Margin = Financial Margin + Misc. Income Risk Cost

= Net Financial Margin Transaction Cost

Calculation of Break-Even Level of Business

TC + RC Miscellaneous Income + Accumulated Loss

270 + 45 (-36) + 591

480 Profit in trading activity

240 Interest on Loans

270 Interest on Investments