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Audit by professionals in place of state govt officials mooted

BS Banking Bureau

The expert committee on rural credit commissioned by the National Bank for Agriculture and Rural Development (Nabard) has recommended the audit of co-operative credit institutions by professional auditors instead of state government officials.

It has also called for fuller application of the Banking Regulation Act to co-operative banks, professional chief executives for co-operative banks in place of state government officials, clear demarcation of functions and responsibilities between chief executive officers of banks and boards of directors, etc.

These changes are recommended "as essential for the health of the co-operative credit system and its effective role in rural development". The report has said that delays will inevitably lead to further weakening of the institutions and cause greater harm to rural development.

The report said state governments should replace their existing co-operative societies acts by the model act recommended by the Choudhary Brahm Perkash committee.

The report said the Reserve Bank of India should announce a rural credit policy and review achievements in the year past at an annual rural credit conference.

The report said Nabard should incorporate more disclosures in balance sheets of co-operative banks and RRBs (regional rural banks) by asking the RBI to amend the proforma of balance sheets and profit and loss accounts.

According to the committee, the Central government -- as the ultimate supervising and funding authority -- should support the revitalisation of co-operatives and RRBs.

The government should select the two nominee directors on the boards of directors of each RRB "carefully". It has said that the recommendations of sponsor banks and Nabard may be given due weightage and persons with professional competence and specialisation in areas of relevance to RRBs should only be nominated.

The report also called for greater coordination between the government, the RBI and Nabard.

Some steps to be taken by the RBI include:
1. Advocate revitalisation of co-operatives.
2. Advocate extension of Banking Regulation Act to co-operative banks.
3. Include information on co-operative banks in banking statistics.
4. Extend greater credit support to Nabard, with an increase of 10 to 15 per cent annually in its general line of credit to Nabard for another five years and allow it access to national industrial credit.

Nabard, according to the panel, should play a more active role in financing critical sub-sectors of agriculture, sharing the credit risk along with refinance. It should also form a venture capital subsidiary to provide assistance for innovative high risk, hi-tech agricultural ventures.

It must incorporate greater disclosures in balance sheets of co-operative banks and RRBs, by asking RBI to amend proforma of balance sheets and profit and loss accounts and start publishing 'Trends and Progress in Co-operative Banks and RRBs'.

The report said the government should:
1. Support revitalisation of co-operatives and RRBs.
2. Professionalise RRB boards through careful selection of its nominees
3. Legislate enabling measures (extension of B R Act to co-operatives, amendments to RRB Act, and other acts relating to mortgages, law of limitations etc;
4. Use annual rural credit conferences to discuss credit requirements of central sector schemes which receive budgetary support from central and state governments.

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