Banking on cooperatives is better business

Cooperatives are wealth creators:

The need for cooperatives in wealth creation arises mainly due to the reason that a cooperative can create more value or surplus than the individual can. Conceptually, if a cooperative is well run, it will bring more benefits to its members. The organization and management of a cooperative enterprise, however, is complex. It is more complex in the case of rural cooperative credit structure as (1) this structure is part of the overall financial structure and has a contributory responsibility to the financial stability (2) it has to abide by the regulatory policy and procedures and (3) its capital structure demands continuing infusion of capital under Basel III.

Crude Shocks keep India in Smiles

B. Yerram Raju  & Nitin Gupta*

“The economics of oil have changed. Some businesses will go bust, but the market will be healthier,” says the Economist (December 6, ’14). Is this the beginning of cheap oil regime or just an interlude between two big bumps?

2013, in retrospect,  had turned out to be the strongest year of recovery, with growing US Economy and stabilizing Chinese economy. Commodity prices were projected to remain flat with an up-side risk due to unexpected supply-side shocks.

Enter December 2014 and all the projections seem little more than wishful thinking. IMF went on record recently: “the global economic growth may never return to pre-crisis levels” ! All the Quantitative Easing (QE) from the US (3 till now – totaling over $ 4 trillion or, twice that of the entire Indian economy) which was supposed to push cash to banks ended up just in increased valuations and stock indices accompanied by higher prices of gold and other commodities. Emerging economies like India had to contend with high inflation. Some even said: it is ‘US Fed exported inflation’!

Rural Cooperatives

Rural Cooperative Credit Structure beg for urgent reforms

Cooperatives with their spread are the best means for reaching the goals of financial inclusion and Jan-Dhan.

Their form and content needs change. Meaningful recommendations of Vaidyanathan Committee have been implemented more in breach. The States that received the reform package have breached on the MOUs and misspent the grant released and NABARD also did not put its heart in the monitoring of the grant assistance.

GOI should recall the grant assistance from all these states or should give them an year's time to re-engineer the rural cooperative credit structure to the promised health. 

The vast potential of cooperatives can be fully utilised only through de-bonding them from the politicians and vested interests and by ushering in legal and governance reforms. 

SBI should keep its eyes and ears open

Efficiency of banks does not go by the size of capital but by the performance and perception of the customer. SBI chairman, Arundhati Bhattacharya at the Delhi Economic Conclave sidelines has been arguing for freedom to decide on mergers and acquisitions be left to the banks themselves. Yes, it is the banks concerned and their boards that should take a responsible call on the issue. Has SBI taken stock of the issues that came up in its acquisition of the two of its Associates and the HR problems it had to handle and perhaps continuing to handle? Does it have a discussion forum where the customers and clients of the merged banks would also have a say? SBIs' ATMs are most times inefficient delivery points. They bask under the glory of their associate bank ATMs. Their attention to the customers has much to comment. Their corporate loans are the big ticket NPAs because of unperceived credit risks and poor due diligence. They are living by legacy.

Fast Tracking Financial inclusion

Jan-Dhan has been announced from the ramparts of Red Fort on August 15, 2014 and quickly made inroads into the field on no-holds barred approach the first ever, since the announcement of Financial Inclusion by Y. V. Reddy, the former Governor, RBI in 2005. The Committee on Financial Inclusion under the Chairmanship of Dr Rangarajan said: ‘Financial Inclusion is no longer an option, but a necessity.’ NABARD Report in 2008 gave a working definition later: “Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.” Had the Banks implemented the Differential Rate of Interest Scheme[1] (still in the RBI statutes) been implemented by the banks, monitored and regulated by the RBI, the Prime Minister Modi would not have had the good luck of taking this lame duck of financial inclusion under the new garb with such gusto. The credit limit for the Jan-Dhan scheme second dose is incidentally the same as the revised DRI limit of Rs.15,000 in 2010. What R.K. Hazare proposed in 1970s has been disposed by M.V. Nair in 2012.

Politician promises and Regulator disposes

Politician promises and Regulator disposes

There is an old adage that a farmer is born in debt, lives in debt and dies in debt. No farmer has liquidity when he wants cash in hand, for it lies either in land or stock. Farmer is today a part of the rule book, both with Governments and the financial institutions and the regulator.

AP and Telangana both the States, after formation, did not lose a minute in negotiating with the RBI the way forward to realising their hasty loan waiver promises. The States tried to bargain hard for restructuring the loans till they could find resources to fully credit the promised waiver amount into farmers’ loan accounts. The logic for waiver could be disputable but the request for restructuring on the sovereign guarantee has less reason to be faulted. This cannot be dubbed away as ’crony socialism’ – the meaning of which the creator of the phrase alone has much to explain.

The history of farm loan waivers – a sad one—politically motivated could have been resisted by the regulator even during the years 1990 and 2008. When the commercial banks were writing off loans of various other sectors but failed to respond to the farmers’ requests even amidst a do-or-die situation, the governments took law into their hands and claimed equity in debt treatment. In a political economy, howsoever puritan the economists are, the will of the politician prevails, particularly in democracy.

SMEs in Union Budget 2014-15 – Implementation Challenges

This path-breaking Union Budget providing discontinuing continuity on several fronts has concretized all the promises in the BJP manifesto unfolding the vision of the Modi Government. Its allocations reflect pragmatism in that some projects got funds for Detailed Project Reports while others of long term nature that can only make a beginning got symbolic outlays.

Manufacturing sector that is just showing signs of revival with its growth rate touching 4.7% in May 2014 reversing the negative trend of growth till the end of March 2014 got a shot in the arm. Of particular relevance is the attention paid to the MSME sector.

Emerging Economies, Free Trade and Poverty

Poverty alleviation has been on the global agenda for the last seven and half decades. The World Bank, Asian Development Bank, United Nations, several developing nations and Developed Nations have made it as an important agenda. But the US, Japan, Germany and even China that registered consistent high growth during the last two decades could not be free of the poor. Asian Development Bank that has been spending billions on the agenda of poverty alleviation has poverty dancing right in front of its huge mansion in Manila. It could not show case even a small nation rid of poverty. Poverty can at best be reduced and not eliminated – this is one lesson that the economic history teaches us.

All the conferences on poverty alleviation throughout the World are held in Five Star or Seven Star Hotels and in Air-conditioned Conference Halls for hours and days together. Intellectuals gather to discuss their poverty and other’s poverty. Goals in one name or other and common agenda across the nations – e.g., Millennium Development Goals – are discussed and settled. Several researchers, bureaucrats, government and non-government organizations, donor institutions etc., decide to spend billions of dollars on the agenda. So much is the scope for employment provided by the poor across the world. Poor are the biggest employers in the world. Interest keeps renewing on poverty alleviation agenda – and now with focus on emerging economies and free trade. This paper is divided into two parts: part 1, dealing with free trade and emerging economies and Part 2, dealing with poverty with specific reference to India.