Institutional Credit through Cooperatives in Maharashtra: A Region-wise Analysis

In the era of financial sector reforms, sustainability, viability and operational efficiency of rural financial institutions (RFIs) are the major issues that need to be taken cognizance of in ensuring effective rural credit delivery system. However, the major problems plaguing the efficiency of rural credit delivery system are the mounting overdue and Non Performing Assets (NPAs) of RFIs. In the state of Maharashtra, the credit cooperatives have not only shown slower growth in their institutional finance coupled with much slower growth in their membership but also faster growth in outstanding loans as against their loan advances during the reform period. The reason for this dismal scenario can be associated with adverse environment created by the financial sector reforms, which have reduced the entire rural credit delivery through cooperatives to a moribund state. The financial sector reforms have accorded greater flexibility to cooperatives to invest in non-target avenues like shares and debentures of corporates, units of mutual funds, bonds of public sector undertakings, etc. This has affected credit flow from these major institutions operating in rural Maharashtra as most of their loans meant for farm finance are diverted to investments. The estimates of this study also show not only wide variation in total and crop loan advances of PACS but also their outstanding loans, overdue and per member borrowing across different regions of Maharashtra. The outstanding loan of PACS based on per hectare GCA is seen to have exceeded loan advances with a comfortable margin in all the regions of the state. Although increase in outstanding loan with rise in loan advances and GCA is another issue, the most important one among all is the mounting overdue and NPAs of cooperatives that sets a path where from there is no return and, which ultimately leads to inefficiency in cooperative credit delivery. In order to rejuvenate rural credit delivery system through cooperatives, the major problems facing the system, viz., high transaction cost, poor repayment performance, mounting NPAs, distributional aspect of credit, coverage of various social groups, etc., need to be tackled with more fiscal jurisprudence reserving exemplary punishment for willful defaults, particularly large farmers. In fact, insofar as the rural credit delivery system is concerned, the focus should be on strategies that are required for tackling issues such as sustainability and viability, operational efficiency, recovery performance, small farmer coverage and balanced sectoral development.