CHAPTER 5

VAIDYANATHAN COMMITTEE:
OBJECTIVES AND RECOMMENDATIONS

5.1 INTRODUCTION
India, despite having the agricultural sector as the backbone of its economy had
no established system or mechanism for providing adequate and timely credit to meet its
ever-growing credit needs. Instead, the farmers had to depend for their credit needs on a
feudal credit system dominated by desi-sawkars or moneylenders. The system was not
only highly tilted in favour of the creditors but also ensured perpetual indebtedness of the
farmers often culminating into avoidable tragedies like suicides by the indebted helpless
farmers.
On the other hand, commercial and rural banks were also not very helpful for
variety of reasons such as inadequacy of funds, general apathy for the rural and
agricultural sector, lack of professionalism, bureaucratic hassles, corrupt practices,
inefficiency and nepotism etc.
The ever-growing need for rural credit necessitated a gradual shift to a robust,
effective, efficient and user-friendly network for delivering credit to the rural
population than the commercial and rural banks and more humane and professional
than the desi-moneylenders. This heralded the arrival of the cooperative sector with its
institutional framework on the horizon.

5.2 CO-OPERATIVE SECTOR- FLAWS AND REMEDIES

The co-operative sector had its own drawbacks and flaws that ensured that its
performance was less than satisfactory. A number of committees were appointed from
time to time to study the Rural Cooperative Credit Structure and suggest the ways and
remedies for its effectiveness. Some of the recent committees are as follows:
1. Cooper Committee (1999): to study the functioning of the Cooperative Credit
System and suggest measures for its strengthening.

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2. Vyas Committee (2001): as an expert committee on Rural Credit.
3. Vikhe Patil Committee (2001): as a Joint committee on revitalization support to
Cooperative Credit Structure.
The focus of these committees was towards:
a) Restoring democratic management in the societies by holding free and fair elections
regulatory.
b) Reducing the scope for government interference in their management.
c) Improving the professional ability of the staff.
d) Creating a climate conductive to prudent management of resources and recovery of
dues.
e) Increasing the service area of Primary Cooperatives to make them viable.
Recommendations of these committees were not implemented with enthusiasm
and the reform process did not gather the momentum to yield desired results despite
immediate and concerted action for revitalize and strengthen the cooperatives. The
agricultural credit sector remains dominated by the presence of a large number of
financially fragile PACS across the country craving for rehabilitation and DCCBs and
State Cooperative Banks short of seriousness, commitment and involvement.

5.3 VAIDYANATHAN COMMITTEE: CONSTITUTION AND

OBJECTIVES:
Realising the vital importance of the credit cooperatives in rural credit system
despite their shortcomings and weaknesses, the Union Government felt a strong need to
remove the structural, operational and managerial deficiencies through revival and
revitalisation plans to ensure an effective cooperative credit structure. Accordingly, the
union government constituted a Task Force on Revival of Cooperative Credit Structure,
vide notification dated 05 August, 2004 under the Chairmanship of Prof. A.
Vaidyanathan, Professor Emeritus, Madras Institute of Development Studies, Chennai,
popularly called „The Vaidyanathan Committee‟. The others consisted in the Task Force
are; Shri M Rama Reddy, Prof. M.S. Sriram, Shri A. K. Singh, Shri H. S. Chahar, Shri. L.
M. Chaube, and Shri U. C. Sarangi as committee members; Shri Y. S. P Thorat as
Member Secretary and Shri A. V. Sardesai and K. D. Zacharias as Permanent Invitees.

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 The objectives of the committee were to:
I. Recommend a practicable and implementable plan of action to revive the Short
Term Cooperative Credit Structure (STCCS) taking into consideration the main
recommendations made by the various committees in this regard.
II. Suggest an appropriate regulatory framework and the amendments necessary for
the purpose of changes in the relevant laws.
III. Make an assessment of the financial assistance that the Cooperative Credit
Institutions will require for revival, the mode, sharing pattern and phasing of such
assistance.
IV. Suggest any other measures required for improving the efficiency and viability of
Rural Cooperative Credit Institutions.

5.4 MODUS OPERENDI OF THE COMMITTEE

The Vaidyanathan Committee addressed the task given to it in the right earnest by
taking up a highly comprehensive and inclusive modus operandi, which included:

I. Collection of massive information and inputs from all the possible sources including
the reports of earlier committees; Cooper Committee, Vyas Committee, Vikhe-Pail
Committee et al.
II. Engaging the stakeholders, officials, cooperators, academics and cooperative
bankers from across the country; in a wide ranging discussion, consultation and
interaction process by holding meetings at Mumbai, Chennai, Kolkata, New Delhi,
Bhopal, Kolhapur and Hyderabad between September to December 2004 by
forming sub-group for this purpose under the leadership of Shri U. C. Sarangi;
III. Collection and analysis by the sub-groups constituted for detailed study of
quantitative and qualitative data and information which had a bearing on governance,
management and financial status of cooperative credit institutions from readily
available sources;
IV. Analysis of the existing legal framework undertaken by a sub-group constituted
under the chairmanship of Shri Rama Reddy to suggest a strong legal and
regulatory framework for active and effective implementation of the revival

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 package and recommend appropriate amendments in various laws like the
Banking Regulations Act 1949, State Cooperative Societies Acts and Mutually
Aided Cooperative Societies Act etc. to create a legal environment to enable the
cooperatives to work as autonomous and member driven institutions.

5.5 THE REPORT AND RECOMMENDATIONS

The Vaidyanathan Committee submitted its draft report on 30th December, 2004.
The Committee in its report:
i. made out a broad roadmap for revival of the short-term rural cooperative credit
structure with the aim to make it a well-managed and vibrant medium to serve the
credit needs of rural India, especially the small and marginal farmers, not just the
General Reform Agenda; and
ii. assigned equal importance to all the components as an inter-related and integrated
package to ensure a synergetic impact in improving the health and viability of the
Short Term Cooperative Credit Structure.
iii. grouped the Revival Package under the following headings:-
a. Special Financial Assistance to wipe out accumulated losses and strengthen its
capital base and to bring the Cooperative Credit System to an acceptable level of
health.
b. Introduce legal and institutional reforms necessary for their
democratic, self-reliant and efficient functioning.
c. Qualitative improvement in personnel in all tires and at all levels through
capacity building
iv. Recommended a detailed course of action on the following aspects:-
a. legal and institutional reforms;
b. institutional restructuring;
c. human resources development;
d. computerization;
e. working out the responsibilities and costs and time frame for phasing this tasks;
The Committee submitted its final report to the Government of India in February, 2005.
Aiming at the deep-rooted integration of the cooperative structure within the Indian

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socio-economic system, the Government accepted the recommendations of the
Committee in principle and initiated an extensive discussion and a consultation process
with the states to arrive at a platform for implementation of the revival package. The Revival
Package was finally implemented across the country in January 2006.

5.6 ACTION PLAN FOR REFORMS

The action plan for revival and revitalization of the rural credit cooperative
institutions by the Vaidyanathan Committee aimed at creating a strong, self-reliant and
well-knit network of rural cooperative credit system. It envisaged a combination
ofcapital infusion, technical support for capacity building and legal and institutional
reforms necessary for facilitating this process. The NABARD was the implementing
agency responsible for implementation of the Revival Package, which in turn involved
planning and execution of a series of action plans for:
a. facilitating legal, regulatory and governance framework
b. institutional reforms for sustainability
c. financial package and;
d. eligibility norms

5.7 LEGAL, INSTITUTIONAL AND REGULATORY REFORMS

Having diagnosed poor management, governance and wasteful leakage of funds
as the ills responsible for the poor fiscal state of the cooperative sector, the Vaidyanathan
Committee recommended a systemic approach supported by appropriate legislative
measures. Bringing the cooperative sector about a democratic, self-reliant and vibrant
self-governing sector necessarily requiring a massive exercise to comprehensive overhaul
the existing legal frame work comprising of the state cooperative laws, Banking
Regulations Act, NABARD Act etc. or enactment of altogether new laws. As an interim
measure, this could be achieved by the executive edict by the concerned state till the time
new law is in place. Further, the Committee envisaged a larger role for the RBI to lay
down the regulations and guidelines for the cooperatives at national level and for the
Registrars of Cooperative Societies (RCS) at the state level for implementation and
monitoring these regulations

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 5.7.1 Reforms in the Cooperative Societies Acts:
The Vaidyanathan Committee recommended enactment of a uniform or model
cooperative law throughout the country and convergence of old state laws with the
new law so as to reduce confusion and complexities or incorporation of a separate
chapter on Agricultural and Rural Credit Societies harmonious with the model law,
where the state did not pass the new law . The suggested reforms in the state co-
operation laws relate to the following key areas:
i. Grant of full voting membership rights to all users of financial services including
depositors in cooperatives other than cooperative banks ;
ii. Grant of functional autonomy to the cooperatives by removing state intervention in
financial and internal administrative matters of the cooperatives;
iii. Reduction of the state government‟s participation in the equity in the cooperatives up
to 25% of its capital or even further if the concerned government or the cooperative
so desire ;
iv. Limit participation of the state governments in the boards of cooperative banks to
one nominee ;
v. Allowing and facilitating transition of cooperatives registered under the state laws to
migrate to the parallel law , if so enacted;
vi. Withdrawal of restrictive orders on financial matters;
vii. Grant of freedom to the cooperatives in all the three tiers- upper, middle and
lower to take loans from or placing deposit with any regulated financial
institution of their choice not necessarily from only the upper tier subject to certain
threshold limits determined by the state government/RCS concerned for each
entity or class of entities having regard to the funds required by the entity to
achieve the basic objectives of the Cooperative Credit Structure;
viii. Permitting cooperatives under the parallel law, wherever enacted to be members of
upper tiers under the existing Cooperative Societies Acts and vice versa;
ix. Limiting powers of State governments to supersede the boards;
x. Ensuring timely elections before the expiry of the term of the existing boards;
xi. Facilitating regulatory powers for RBI in the case of cooperative banks; and
xii. Extending applicability of prudential norms including CRAR on all financial

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 cooperatives including PACS, as per the directions of RBI.

5.7.2 Reforms in the Banking Regulations Act, 1949:

Corresponding changes in the Banking Regulations Act, 1949 as contemplated
by the Vaidyanathan Committee include: -

i. Uniform enforceability of regulatory norms to the cooperative banks in the same

manner as the commercial banks.
ii. Vesting of powers in the RBI to prescribe appropriate criteria for election to Boards of
cooperative banks in consonance with the nature of membership of primary
cooperatives which constitute the membership of the DCCBs and SCBs.
iii. Mandate for appointment of persons having professional qualifications or experience
as laid down by the RBI on the boards of the cooperative banks by election or by co-
option with full voting rights if such persons are not elected by normal election
process.
iv. Right of appointment of the CEOs to be with the banks themselves and not the State
government subject to the condition that the proposed appointee satisfies the minimum
qualifications criteria laid down by the RBI and his name is approved by the RBI.
v. Prohibition on cooperatives other than cooperative banks approved by the RBI to
accept deposit from non-voting members and use of words like “bank”, “banking”,
“banker” or any other derivative of the word “bank” in their registered name.

5.7.3 Accounting Parameters:

The Vaidyanathan Committee suggested the formation of an expert group to
examine the accounting practice of adjusting interest first and then the principal
presently followed by the banks including the cooperative banks with multiple tiers
of Committee. This is because the income of the upper-tier banks is based on the
interest collected by them from the lower tiers and some states wanted partial modification
of this practice to allow adjustment of some portion of interest collected towards the
principal amount due thereby reducing the income of the upper tiers in that particular
year.

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5.7.4 Deposit Guarantee Scheme:
The Deposit Guarantee Scheme will be applicable to the PACS for ensuring
the safety of the deposits in accordance with a Deposit Protection Scheme designed by
the NABARD.

5.8 FINANCIAL RESTRUCTURING

The committee recommended an action plan for financial restructuring of these
cooperatives, which included:
i. Criteria for determining the eligible purposes and institutions,
ii. Quantum of assistance required,
iii. Pattern of sharing the liability,
iv. Conditionality attached and
v. Time frame for restructuring

5.9 FINANCIAL ASSISTANCE AND REVIVAL PACKAGE

The Vaidyanathan Committee recommended the Financial Assistance Package
only as a one-time measure. Release of Financial assistance under the package was
linked with the implementation of the recommended legal and institutional reforms.
The states were given the option, exercisable within a period of two years; whether to
participate or not participate in the package. The option could be exercised by signing of
a Memorandum of Understanding (MoU) or Exchange of Letter of intent with the Central
Government with a provision its implementation in a phased manner within a period of 3
years.

5.9.1 Revival from bottom to top:

The Committee noted that bad governance of the PACS at the root level
of the STCCS is the main cause for poor financial health and deficiency at the upper
tiers. Hence, it recommended to bring financial health of PACS at an acceptable level
through cleansing of their balance sheets and strengthening their capital base before
moving on to the upper tiers as the PACS will be able to clear their dues to the upper

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tiers and thereby reduce the accumulated losses of District Central Cooperative Banks
(DCCBs). The DCCBs will thereafter be provided assistance to clear the balance of
accumulated losses, if any, and to reach a minimum norm of capital adequacy. The same
process will apply to the State Cooperative Banks (SCBs).

5.9.2 Areas covered in package:

The financial Assistance Package included the following purposes:
a. Wiping out accumulated losses as on 31 March 2004,
b. Covering invoked but unpaid and un-invoked guarantees given by the State
governments and other dues to the STCCS from them
c. Increasing the capital to a specified minimum level i. e. raising the CRAR,
d. Refunding the share capital to State Governments
e. Providing technical assistance to cover computerization, installation of standard
accounting system and MIS and for training and capacity building.
The revival package specifically excluded the writing off the loans defaulted by the
borrowers and the PACS were to continue to make efforts to recover these loans to
improve their financial health further.

5.9.3 Accumulated Losses:

Below table is showing the accumulated losses as on 31st March, 2003:
Table 5.1
ACCUMULATED LOSSES AMOUNT AS ON 31/03/2003
[in Crores Rupees]
On account of credit business 3,170

Attributed to non-credit business 1,425

Total Accumulated Losses of PACS. 4,595

Source: NABARD and NAFSCOB

Table 5.1 is representing the data relating to the accumulated losses for the
prescribed period. The Committee also analysed the reasons for such accumulated
losses in the STCCS, which are:

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 a. Non-repayment of loans for agricultural and other businesses given by the
cooperatives,
b. Non-repayment of loans to individuals for other purposes like consumer goods,
housing, gold loans etc.,
c. Losses on account of non-credit businesses like Public Distribution System (PDS),
procurement of food grains on behalf of government, sale of fertilisers etc.,
d. Non-repayment of loans issued under government guarantees where the State
government has failed to honour the guarantees after the loans have been defaulted,
e. Non-payment of dues from governments on account of waivers of loans and
interest or subsidies announced by them.
The Committee recommended that the state governments must ensure immediately:
a. Payment to the concerned institutions of the outstanding amounts of:-
i Guarantees
ii outstanding amount of loan and interest waivers and
iii other subsidy schemes announced by them from time to time
iv accumulated interest or
b. Sanction of soft loan to any state government unable to meet these commitments
immediately by making a specific application to the implementing agencies.
c. End of such practices altogether in future.

5.9.4 Cost of Special Audit / Pre-Capitalisation Audit

The Committee recommended a special audit based on uniform accounting
criteria and standards under the supervision of the implementing agency NABARD, of
accounts for all the PACS, DCCBs and SCBs to determine the amount of
accumulated losses as on 31st March 2004 and to make sure that the STCCS do not
get undercapitalized for insufficient provisioning. Financial Assistance Package
accordingly included:
a. Cost of special Audit and vetting by Chartered Accountants
b. Designing of special balance sheet and training manuals, training of trainers for the
special audit.
c. Training of auditors for conduct of special audit.

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5.9.5 Capital to Risk Weighted Assets Ratio (CRAR)
The Committee recommended bringing the STCCS under the RBI norms for
maintaining a minimum CRAR of 7% to be progressively raised to 9% in next 3 years
and 12 % in 5 years. The amount required to bring CRAR to 7% was included in the
revival package but the subsequent increases were to be mobilized by the STCCS
from their own resources.

5.9.6 Reduction in the Equity Participation:

In a reversal of the state policy for equity-participation in the cooperatives introduced in
1954 by the All India Rural Credit Survey Committee to enhance the borrowing
power of the credit cooperatives the Vaidyanathan Committee felt the need for
the cooperatives in all three tiers, to be member-driven, member centric, autonomous,
self-reliant and democratic institutions by reducing of the equity participating by the
state government. It was collectively estimated at Rs. 1,243 crores at the end of
March 2003 to a level below 25% of the total subscribed capital of each institution
within three years. By converting the excess capital into soft loan to the STCCS entity
so as to ensure that the liability or cash outflow on account of reducing the
state-equity participation is not devolved upon the cooperatives.

5.9.7 Assistance for Accounting and Technical Support

Financial assistance also covers the costs incurred for designing and development of:-
a. Common Accounting System (CAS) and accounting manual including its translation
into local languages and printing, training of trainers
b. Standardised common accounting software base helpful for appropriate Management
Information System (MIS) to facilitate proper and timely decisions at all levels.
c. Hardware configurations i.e. personal computers, dot-matrix printer, modem,
networking arrangements, UPS etc, and installation charges.

5.9.8 Assistance for Human Resources Development:

The Committee recommended a desirable training strategy through standardized
training programmes and curricula for training and skills development of the staff, elected

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representatives and membersof the cooperatives. A joint group was to be set up under the
aegis of NABARD and representatives of RBI for framing appropriate training
programmes and selection of training institutions, by June 2005. Also the financial
assistance by way of grant from the central government included the cost of:
a. Designing standardized training manual, training material, translation and printing
cost.
b. Training of trainers.
c. Conduct of training programmes for Board members, staff, and members of PACS,
DCCBs, and SCBs.
The assistance was to be phased over a period of two to three years depending upon the
need and the completion of implementation in each State.

5.10 ELIGIBLE INSTITUTIONS:

The committee recommended a methodology to identifying the institutions
eligible for resource support. The methodology has the following attributes:
I. All the societies in all the three tiers of the CCS were eligible for capitalisation
without any need to satisfy the eligibility criteria.
a. For eligible PACS, capitalization was direct ,
b. For others, it was to happen in the next upper tier.
c. The capitalisation was based on the independent special audit and sequential in
nature.
d. Each higher tier was to be capitalised only after the beneficial impact of the
lower tire had been factored in.
II. Recovery level of the demand on 30/06/2004 was fixed as the benchmark criteria to
determine the eligibility of the PACS:
a. Full Capitalisation was granted to the PACS with recovery levels of 50%
and above
b. The PACS with recovery levels between 30% to 50% would receive financial
assistance in three annual back-ended installments at the beginning of each
succeeding year if such PACS achieved an incremental increase in recovery rate
by:

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 i. At least 10% points on 30/06/2006 against the benchmark recovery achieved
on 30/06/2004 and an annual increase of 10 percentage points thereafter.
ii. Entire assistance was to be released without waiting for the year to year recovery
benchmarks when a PACS achieves 50% recovery level.
c. The PACS with a recovery level of at least 30% of the demand as on
30/06/2004 were qualified for being covered under the revival package and to
receive financial assistance.
d. PACS with recovery levels of less than 30% were not qualified for the
assistance but the onus was cast on the state governments to determine the future
set up of such PACS and take appropriate steps to ensure the flow of agricultural
credit to farmers in their operational areas.
III. The eligibility criteria was in addition to the conditions of fulfillment of legal and
institutional reforms and other conditions laid down in the report of Committee and
in the MoUs / Exchange of Letters executed by these agencies with their upper tiers
spelling out the Action Plans for Revival (APR).
IV. Although, the benchmark eligibility, criteria was limited to achieving 50% recovery
level, the Committee felt the CCS could not be financially viable institutions on a
sustainable basis unless recovery levels were achieved at least 85% level over the
next 5 years through a stricter recovery protocol.
V. For the North Eastern States, scheduled areas and tribal districts, the Central
Government was authorized to relax the eligibility levels for PACS and DCCBs.

5.11 SHARING PATTERN

5.11.1 Backdrop:
Noting the need of a vibrant and strong STCCS to act as a catalyst for rapid
expansion in agricultural credit and to boost the productivity of the agricultural sector
and also mindful of the fact that agriculture being a subject falling in the State List, the
Union Government was not constitutionally responsible for participation in the
recapitalization and Revival process of the STCCS the Committee recommended that in
the national interest a sharing pattern should be based on empirically verifiable and
transparent formula which was relatively simple to implement.

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 5.11.2 Pattern:
The Committee formulated the following pattern for sharing the assistance package
between the central and state governments and the STCCS:
i. Origin of loss and existing commitments should be the basic principle to share the
liability for funding the financial package by the Central Government, State
governments, and the concerned STCCS. Based on this principle:
a. Losses arising out of direct agricultural credit business, of PACS, DCCBs and
SCBs shall be borne by the central government.
b. Losses on account of non-credit businesses such as the PDS, sale of fertilizers,
procurements, etc. largely driven by the state governments shall be borne by
them.
c. Losses arising on account personal other loans given for non-agricultural business
or for purchase of consumer goods as per the decisions taken by any institute in
the STCCS itself shall be borne by that particular institute.
ii. Accumulated losses from the loans given by DCCBs and SCBs to other cooperatives
like marketing, handloom, and consumer societies etc., with or without government
guarantee will be proportionately shared by the state governments.
iii. Resources for raising CRAR to 7%, and the full cost of technical assistance for
human resource development, computerisation and improving accounting systems
shall be provided by the union government
iv. Losses arising out of activities like direct advances taken up by the STCCS on
their own and losses due to frauds etc. shall be borne by the STCCS as determined
on the basis of the findings of the special audit.
v. While, share of the central government would be by way of grants, the states were
expected to meet their share from their budget or by open market borrowing.
vi. The Centre would also consider assistance on more liberal terms for special category
states and for specified scheduled areas and tribal areas to meet their liability under
the package.
The aggregate size of the revival package based on the available data was worked
out at Rs. 13,596 crores inclusive of a contingency of Rs. 4,000 crores to factor in for data

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in accuracies at PACS level. Since the package has been revised to Rs.19, 330 crores (Rs.
193 Billion) from the originally estimated Rs.13, 596 crores (Rs. 136 Billion).

5.11.3 Mode of Financing:

Central Governments contribution will be by way of grants to the institutions and
by giving soft loans to the state governments and STCCS Units, if needed, to defray their
contribution.

5.12 IMPLEMENTATION MECHANISM

An elaborate implementation mechanism has been created with the NABRAD as
the Nodal agency supported by independent Implementing and Monitoring Committees of
the stakeholders constituted with defined responsibilities to monitor the progress at the
national, state and district level. The implementation mechanism in detail is as follow:

5.12.1 NABARD
NABARD has been designed as a Nodal Implementing and Pass through Agency
(NIPTA) to coordinate and monitor the progress of the plan and represent the
Government of India for guidance and instructions to the concerned cooperative credit
institutions for proper implementation of the plan. NABARD was authorized to enter into
an agreement with individual banks or societies and operate funds earmarked by the
government.

5.12.2 National Level Implementing and Monitoring Committee (NLIMC)

At the national level, a “National Level Implementing and Monitoring Committee
(NLIMC) would be constituted which will comprise of the Secretary or Additional
Secretary Finance, Secretary–Cooperation, Union Minister of Agriculture, Chairman
NABARD, representative from RBI and State Government(s), and two eminent co-
operators. The Committee would be chaired by the Secretary Finance and report to the
Finance Minister on a quarterly basis. NABARD would provide the secretariat and a
dedicated team in NABARD headquarter to support the NLIMC.

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5.12.3 State Level Implementation and Monitoring Committee (SLIMC)
5.12.3.1 Backdrop:
At the state level SLIMC would be constituted. It would comprise of the
Secretary (Finance), as the chairman, Secretary (Cooperation) and RCS, representatives
of NABARD, SCBs and a Chartered Accountant, Executive Director, NABARD, as a
special invitee. The State may make specific changes in the composition of SLIMC if
necessary. The Committee may co-opt subject specialists, for such periods as considered
necessary. NABARD would provide to the SLIMC a secretariat, a dedicated support
team and other logistic support. SLIMC would hold its meetings as often as required but
at least once in a month during the first year of implementation and at least once in two
months thereafter.

5.12.3.2 Role and Responsibilities of SLIMC

The SLIMC is vested with the responsibility for planning, facilitating, problem-
solving and monitoring overall implementation of the programme in the state in addition to
the following specific and exclusive functions:
a. To draw up a Comprehensive Action Programme and Flow-Chart of activities for the
implementation of the package for the STCCS in the State, based on the covenants of
the MoU with definite time-schedule for every activity and sub-activity;
b. To facilitate formation of DLICs in respect of all DCCBs with due representation
from State Government, DCCBs and Chartered Accountant, and review their
functioning and offer guidance;
c. To facilitate signing of Letter of Undertaking between SLIMC and SCB, and
among DLIC, DCCBs and PACS;
d. To ensure identification of Master Trainers and Auditors for the purpose of
special audit and training of Auditors by the Master Trainers in a time-bound manner;
e. To plan and ensure conduct of special audit in the districts through DLIC, arrange test
checking of the prescribed proportion and completion of special audit in a time-
bound manner, ensuring correctness of the audit;
f. To pursue with the state government, about promulgation of ordinance and passing of
amendments to the State Cooperative Societies Act as per MoU and also for

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 contributions of the share of the State Government and the CCS;
g. To recommend the appointment of Chartered Accountants for DLIC from the panel of
CAs prepared for the State;
h. To vet and finalise the financial assistance recommended for PACS and DCCBs by
the respective DLIC and recommend the same to SLIMC for sanction and release;
i. To examine, finalise and recommend sanction of recapitalisation assistance for
SCB;
j. To examine the training needs and arrangement for the different tiers of STCCS in
the State, and suggest an appropriate training plan and calendar;
k. To guide and monitor the progress in the implementation of the Common
Accounting System and MIS in the PACS, DCCBs and SCB;
l. To guide and monitor the progress in the computerisation of the PACS, DCCBs and
SCB in respect of their CAS and MIS;
m. To facilitate the preparation of the action plans for revitalisation by PACS, DCCBs
and SCBs and monitor their implementation;
n. To examine and suggest guidelines for number of staff, their qualifications and
annual limit of establishment expenditure for the PACS;
o. To sort out field-level operational issues based on the guidance provided by
NLIMC and clarifications issued by RBI and NABARD;
p. To coordinate with State Govt., RBI and NABARD and monitor the progress of the
implementation on a continuous basis and apprise the progress to NLIMC from
time to time; and
q. To take all necessary action, as are deemed imperative for realising the overall
objectives of the Revival Package.

5.12.4 District Level Implementation Committee (DLIC):

5.12.4.1 Backdrop:
DLIC would be set up for each district for working under the guidance and
supervision of the State Level Committee comprising of the District Collector or other
representative from the District Administration, Deputy Manager, or an officer of
NABARD, CEO of District Central Cooperative Bank (DCCB), Joint Registrar, Deputy

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Registrar of Cooperative Societies and a Chartered Accountant with NABARD
Regional Office representative as special invitee. Besides, the DLIC may co-opt subject
specialists including a senior officer of the Audit Department as special invitee for such
period as it deems fit. State may make specific changes in the composition of DLIC if
necessary. Meetings of the DLIC will be held as often as required, but at least once in a
month. A dedicated team of officers from NABARD would support each of these
committees to help in the implementation of the scheme. Expenditure incurred for holding
the meetings, for establishment of support team and such other related expenses will be
borne by NABARD under the package as per the mutually agreed arrangements.

5.12.4.2 Role and Responsibilities of DLIC:

The role of DLIC is planning, coordinating and guiding in the implementation of
the Revival Package in the districts. Its main responsibilities are:
a. Drawing up of a Comprehensive Action Programme and Flow-Chart of activities for
implementation of the Package in the district and indicate definite time-schedule for
all activities and sub-activities;
b. Ensuring signing of the Letters of Undertakings by DCCBs and PACSs to DLIC;
c. Facilitating preparation of a time-bound action plan for revitalization and
business development by each PAC S and DCCB and review their
implementation from time to time;
d. Ensuring identification of the Master Trainers and Auditors in the district for special
audit, organize their training, arrange special audit and ensure sample test-
checking of a specified number of PACSs by the Chartered Account;
e. Certifying contribution of the share of the DCCB and PACS to the Revitalization
Package;
f. Examining, finalising, certifying and recommending sanction of financial
assistance to the PACSs and DCCBs for further recommendation by The SLIMC
and NABARD;
g. Monitoring and certifying compliance of all conditionality‟s of the Letters of
Undertakings by PACSs and DCCB in regard to the amendment of bye-laws and
their approval, election in PACs, rewriting of the balance-sheets after

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 recapitalization of PACSs, appointment of CEO of the DCCB, election to the
board of the DCCB, co-option, etc.;
h. Reviewing the training needs and arrangements for training of staff, board
members and ordinary members of PACSs and DCCB, an appropriate training
calendar and facilitating conduct of training programmes in consultation with
NABARD;
i. Reviewing the progress of implementation of CAS and MIS in the PACS and the
DCCB;
j. Reviewing the progress in the computerization of PACSs and DCCB;
k. Sorting out field level operational issues within the ambit of the
instructions/clarifications issued by NABARD, RBI and NLIMC/SLIMC and
bring persistent and unresolved issues to the knowledge of SLIMC/NABARD for
clarifications;
l. Reviewing the overall progress in the implementing the Revival Package ,
m. Sending monthly reports to SLIMC / NABARD in the specified formats and
n. Taking any other necessary action as may be deemed imperative for realizing the
overall objectives of the Revival Package.

5.13 BENCHMARK ACTIVITIES:

5.13.1 Backdrop:
Participation of the states in Revival Scheme was optional and the Scheme
was kept open for two years from its original announcement in 2006 to enable the
State Governments to decide about the participation latest by 31st March, 2008. Moreover,
release of financial assistance under the financial package was back-ended and linked to
achievement of predefined benchmarks in respect of legal, institutional and regulatory
reforms and was per force phased over a period. A summary of benchmark activities
and degree of financial assistance by various agenciesis given below:

5.13.2 Benchmark Activities and financial Assistance:

a. Acceptance of the package by the state government by issuing consent letter,
signing of MoU or exchange letters with Government of India. On this stage

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 financial assistance will be provided for Conducting special audits,
Computerisation of STCCS and HRD initiatives.
b. Signing of MoU by the PACS/DCCB/SCB with implementation committees, issuing
of executive orders amending necessary provisions in Cooperative Societies Act
(CSA) by state government and after special audits are completed, state government
releases committed liabilities. Here 75% of financial assistance for funding the
accumulated losses is released.
c. Conduct of Elections wherever due, either electing or co-opting
professionals,appointment of professional CEOs, Amendment of CSA amended or
incorporation of special chapter,Adoption of a sound system of internal checks
and controls by SCBs/DCCBs and signing of Development Action
Plans/MOUs. After completion of these activities balance 25% of financial
assistance for funding accumulated losses is released.

5.14 STATUS OF IMPLEMENTATION OF THE REVIVAL PACKAGE

The committee periodically reviews the performance of the SCBs and DCCBs in
the State in matters of good governance, compliance with the statutory requirements of
regulatory and supervisory norms and actions of RBI/NABARD in that regard, and
suggests improvements in their functioning including human resources development.

5.14.1 Status Report of Implementation at National Level:

Following points explains the implementation status of the Revival Package for
STCCS as on 31st March 2013.
1. Execution of Memorandum of Understanding (MoU):
25 States signed the MoU with GoI and NABARD, viz. Andhra Pradesh, Arunachal
Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Haryana, Jammu Kashmir , Jharkhand,
Karnataka, Madhya Pradesh , Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland,
Rajasthan, Orissa, Punjab, Sikkim, Tamil Nadu (TN), Tripura, Uttarakhand, Uttar
Pradesh (UP), and West Bengal (WB).
2. Special Audit of the entities in the STCCS:
a. Special Audit has been completed in 80,883 PACS.

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 b. Eight States in North Eastern region do not have CCBs, as they have a two tier
structure. Out of the remaining states, Special Audit of DCCBs is completed
in fifteen States have been completed viz. Andhra Pradesh, Bihar,
Chhattisgarh, Gujarat, Haryana, J & K, Jharkhand, Karnataka, MP,
Maharashtra, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal.
c. Special Audit of SCBs completed in 22 States viz., Andhra Pradesh,
Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Haryana, J&K,
Karnataka, Meghalaya, MP, Maharashtra, Manipur, Mizoram, Nagaland,
Orissa, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttar Pradesh and W. Bengal.
3. Amendments to State Cooperative Societies Act (SCSA):
a. Twenty three States have amended their respective CSA through Legislative
Process. The states are Andhra Pradesh, Arunachal Pradesh, Assam, Bihar,
Chhattisgarh, Gujarat, Haryana, Jammu & Kashmir, Jharkhand, Karnataka,
Madhya Pradesh, Maharashtra, Manipur, Mizoram, Meghalaya, Nagaland,
Orissa, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttar Pradesh and West
Bengal.
b. Draft amendments to Punjab and Uttarakhand CSAs have been vetted by
NABARD and are under consideration of the respective State Governments.
Punjab and Uttarakhand have not amended their respective Cooperative
Societies Acts despite repeated follow up.
4. Amendments of Rules and Adoption of Bye-laws:
a. Consequent amendment to the SCSA in 13 states viz., Andhra Pradesh, Bihar,
Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Mizoram, Orissa,
Rajasthan, Sikkim, Tamil Nadu, Uttar Pradesh and West Bengal have amended
the respective State Cooperative Societies Rules in tune with the amended
Acts.
b. Amendment of Rules is under progress in 9 States, viz. Arunachal Pradesh,
Chhattisgarh, Haryana, J & K, Jharkhand, Manipur, Meghalaya, Nagaland
and Tripura.
c. Of the 24 States which have SCB, bye laws of SCB have been amended in 16
States

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 viz., Andhra Pradesh, Arunachal Pradesh, Bihar, Gujarat, Haryana, Karnataka,
Maharashtra, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Rajasthan, Sikkim,
Tamil Nadu, Tripura, and UP.
d. It is in progress in 5 States, viz., Chhattisgarh, J & K, Nagaland, Orissa and
West Bengal.
e. Of the 17 States that have CCBs, bye laws of CCBs have been amended in 9
States, viz., Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Maharashtra,
Madhya Pradesh, Rajasthan and Tamil Nadu in progress in 6 States viz.,
Chhattisgarh, J & K, Jharkhand, Orissa, UP and West Bengal.
f. The bye laws of PACS have been amended in 14 States, viz., Andhra Pradesh,
Arunachal Pradesh, Bihar, Gujarat, Haryana, Jharkhand, Karnataka, Madhya
Pradesh, Maharashtra, Mizoram, Rajasthan, Tamil Nadu, Tripura and UP.
g. Amendment of bye laws of PACS is in progress in 8 States, viz., Chhattisgarh,
J & K, Manipur, Meghalaya, Nagaland, Orissa, Sikkim and West Bengal.
5. Status of Elected Board in STCCS:
Out of 25 states 23 states have the elected boards on DCCBs and PACS. 70,812
out of 77,139 PACS and 265 out of 314 DCCBs have the elected boards.
6. HRD Training:
HRD Training was made available to the 83,452 PACS secretaries in 21 States. 1,
27,350 elected members of PACS in 18 States.
7. CAS and MIS for PACS:
Training Module on CAS and MIS completed in 76,237 PACS functionaries in 19
States.
8. Release of Recapitalization Assistance (RA):
a. To the Eligible PACS in seventeen States:
Eligible 52,902 PACSs received the RA. The share of GOI, State Government and PACS
is Rs. 8521.40 crores, Rs. 824.90 crores and Rs. 1518.07 crores respectively.
b. To the PACS that do not meet the eligibility criteria:
The RA has been released to 30 CCBs in three States viz. Gujarat, Maharashtra and
Orissa, for 1510 ineligible PACS affiliated to them. The share of GoI and State
Government in RA is Rs. 412.45 crores and 18.33 crores respectively.

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5.14.2 Status Report of Implementation in Maharashtra as on 31st March, 2013
Following points explains the Status of implementation of the Revival Package in
Maharashtra:
1. Signing of MoU:
MoU executed on 13/11/2006 at Pune in presence of the then Minister for Cooperation,
Chairman NABARD, Principal Secretary (Cooperation and Marketing), Commissioner
for Cooperation and Registrar of Cooperative Societies, Chairman MSCB, MD MSCB,
GM NABARD, Maharashtra.
2. Monitoring through SLIMC/DLIC:
For implementation and Monitoring purpose of the Revival Package State Level
Implementing and Monitoring Committee (SLIMC) notified and held 23 meetings and
at district level District Level Implementing and Monitoring Committee (DLIC) also
notified and held 509 meetings.
3. Special Audit of PACSs and DCCBs:
Special Audit conducted in 20,805 PACSs out of 20,914 PACSs affiliated to 30 DCCBs
excluding Mumbai.
4. Release of Recapitalization Assistance (RA) to:
a. Eligible PACSs: Following table explains how the RA has been released to the
eligible PACSs;

Table 5.2
RELEASE OF RECAPITALIZATION ASSISTANCE
Category No. of Share Total
PACSs GoI State Govt. PACS Cr Rs
A 8039 389.63 9.51 94.73 493.87
B 5471 644.31 16.46 108.43 769.20
C 7303 1310.96 30.67 167.04 1508.67
Total 20813 2344.90 56.64 370.20 2771.74
Source: NABARD [http://nabard.org/departments/highlights.asp]

b. PACS categorized based on Recovery as on 30 June 2004 i.e. Catagory A- above

50%; Catagory B- 30% to 50%; Catagory C- below 30%.

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 5. Indirect RA to Ineligible PACSs:
RA released to 534 PACSs in August 2009, was Rs. 133.88 crores. The share of
Government of India and State Government in RA is Rs.130.45 crores and 3.43 crores
respectively.
6. Financial package assessed to DCCBs:
Special audit completed in 30 DCCBs and financial package assessed Rs.1261.11
crores to them. The share of Government of India and State Government and DCCB
is Rs. 58.6 crores, Rs. 0.05 crores and Rs. 1202.99 crores respectively.
7. Amendments to Cooperative Societies Act and Amendments of Rules and
Adoption of Bye-laws:
Maharashtra Cooperative Societies Act, 1960 amended through Maharashtra
Cooperative Societies (Amendment) Act, 2008 notified 02 May 2008. The bye laws
of SCB, all DCCBs and all PACS have been amended as per the amendments.
8. Status of Elected Board and Management in Cooperative Credit Structure:
Elected Board is put in place in 25 DCCBs and 17234 PACS. Election process is
on in 1032 PACS and 3 DCCBs. Professional Directors are put in place in 25
DCCBs. CEOs' as per Fit & Proper criteria are appointed in 26 DCCBs.
9. Stats of Statutory Audit of SCB/CCB by Common Accounting System:
Statutory Audit of Maharashtra SCB and all the DCCBs as on 31st March
2008, to 31st March 2011 has completed by Chartered Accountants from the approved
panel of NABARD.
10. Common Accounting System (CAS) and Management Information System
(MIS) for PACS:
As on 31st March 2011, 19,833 PACS out of 21,583 PACS are maintaining
registers as per CAS/MIS.
11. Computerisation for CAS and MIS in PACS:
SLIMC has opted for the core software for computerization of CAS/MIS in
PACS. Bilingualisation of the software is in progress. Dry run of the software is
completed.
12. Human Resources Development Initiatives:
In Maharashtra, Maharashtra State Cooperative Board identified as nodal agency to

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 coordinate and organise training programmes for capacity building. Following points
explains the status of HRD training:
a. 20 master trainers trained by BIRD, Lucknow on training modules for PACS
Secretaries and elected members.
b. 206 District Level Trainers (DLTs) trained by the Master Trainers, who, in turn,
imparted training to 14,251 PACS functionaries and 39,823 elected members at
District / Taluka level.
c. Training on CAS/MIS imparted to around 12,676 PACS functionaries at the ground
level. Further 343 Supervisors of DCCBs/ Departmental Auditors have been trained
for providing hand holding support to PACS.
d. Five Master Trainers' have been trained under Business Development Programme
and Orientation Programme for Supervisors/Inspectors of PACS. They have trained
79 DLTs, who have, in turn, trained 6,631 PACS functionaries.
e. Thirty-five CEOs attended the programme on Business Development in order to
recognise the increased business opportunities in the changed scenario.
f. 2195 Branch Managers and Senior Officers of DCCBs/SCB have been trained on
business development/diversification.
g. 248 elected board of directors of DCCBs and SCBs have been trained on the need for
change and issues in governance in the post reform scenario.
13. Business Development Programmes:
BDP have been prepared by 10445 PACS.
14. State Government Share in Equity Capital:
All the entities in the STCCS have reduced the share of equity participation of
State Government to the level 25% or less of the total subscribed capital.

5.15 SUMMARY:
The Vaidyanathan Committee studied the present scenario of the STCCS. It
was noticed that the entities in the STCCS are like the milestones in the agrarian
Indian Economy for agricultural credit, due to its outreach and potential. But they
are facing deep financial straits. For making them self-reliant and Democratic bodies
the Committee sharply focused on the following points:

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a. Complete revamp and overhaul of the STCCS for improving the efficiency of the
agriculture credit delivery system.
b. Need for a comprehensive recapitalization process to unleash and de-clog the
presently chocked channels for agricultural credit.
c. Mandatory legal and institutional reforms as the precondition for recapitalization
d. Converting the cooperatives into democratic and vibrant institutions run on sound
business principles and practices, governance standards
e. Disinvestment of state equity accompanied by non – interference by the state in
governance of the cooperatives, appointment of Key Managerial Personnel etc.
f. Evolution a sound monitoring system as at the upper tires by the RBI / NABARD .

REFERENCES
1. Government of India, Package for Revival of Short Term Credit Cooperative
Structure, Ministry of Finance, Government of India, 2006.
2. NAFSCOB, (National Federation of State Cooperative Banks Limited, India), 2010.
3. Report of the Task Force on Revival of Short Term Cooperative Credit Structure
(Vaidyanathan Committee), Government of India, Ministry of
Finance, New Delhi, 2004.
4. NABARD [http://nabard.org/departments/highlights.asp]

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