With the objective to increase lending to the agriculture sector ahead of 2019 Lok sabha poll, the state government has embarked on a proposal of merging all 50 District Co-operative Banks (DCB) with the apex Cooperative banking body, UP Co-operative Bank (UPCB) to create one large bank.
The state government has already decided to infuse Rs 800 crore fresh capital in the 16 DCBs for recapitalising. States like Kerala, Chhattisgarh, Punjab and Jharkhand have already implemented this process and merged all DCBs with the apex Cooperative bank of the state.
The UP government was forced to expedite the proposal of merger of DCBs with the UPCB as demonetisation of high value currency notes in November, 2017 followed by loan waiver in April, 2017, impacted recovery of agricultural loans, plunging the DCBs into liquidity crisis.
With the deterioration of financial position of DCBs, many were restrained by the Reserve Bank of India (RBI) from conducting banking business. The woes of DCBs were further aggravated as they restrained from adopting coercive measures for recovery since the state government banned the practice in 2004.
The state government has set up a committee headed by an associate professor of Indian Institute of Management, Lucknow to work out the merger mechanism. The committee also includes former MD of UPCB, former CGM of National Bank of Agriculture and Rural Development (NABARD) and the present MD of UPCB.
The committee will look into merger and analyse its strength, weakness and opportunities. It has been asked to submit a report within the next two months.
Of the 50 DCBs functioning in UP, only a dozen have sound financial position while the rest are either making losses or are lying defunct or have been restrained by the RBI under Banking Regulation Act from conducting business.
In 2018-19, the government will inject almost Rs 800 crore in 16 DCBs operating in Faizabad, Shravasti, Allahabad, Sitapur, Hardoi, Azamgarh, Fatehpur, Gorakhpur, Basti, Ballia, Siddharthnagar, Deoria, Sultanpur, Jaunpur, Ghazipur and Bahraich districts.
These DCBs have more than 1,260 branches operating in their respective regions. Each DCB would be infused with fresh capital of Rs 40-80 crore, depending on the need, to help them restart normal banking operations.
The state government has made a budgetary provision of Rs 1,200 for a turnaround in these institutions, which are currently bogged down by liquidity crunch, non-performing assets (NPAs), lack of resources etc.
The DCBs provide soft loans to 7,479 primary agricultural credit societies (PACS) across the state. The PACS is the smallest co-operative credit institution in the country’s hinterland. These banks support short term farm and crop loans to farmers and also provide long term loans directly to farmers using their discretion. Together, these DCBs employ about 8,000 people.
Apart from DCBs, there are 323 branches of UP Sahkari Gram Vikas Bank Limited (UPSGVBL) and its 1,352 branches are operating across the state.
The DCBs are important agricultural credit institutions as they serve over 15 lakh farmers in UP through PACS and during 2018-19, these institutions are expected to sanction Rs 7,500 crore as crop loans. The per capita loan provided by DCBs is Rs 41,165 in 2018-19.
