According to reports from Business Standard, the cooperative sector has gained policy attention in recent years with initiatives like the Bharat Taxi aiming to disrupt cab aggregator duopolies. While national-level cooperatives have been launched, primary agricultural credit and milk cooperatives are being established at the grassroots level. However, the structure of rural cooperatives requires fundamental rethinking given the changed ecosystem and players in the financial landscape.
As reported by Business Standard, the first formalisation of rural credit occurred through primary cooperatives after the All-India Rural Credit Survey Committee report in 1956. The structure evolved through nationalised banks with branch-licensing policies, regional rural banks (RRBs), and eventually district cooperative central banks. Currently, there are 40,000 to 50,000 active primary cooperatives out of possibly more than 100,000 that existed at their peak, with approximately 60% being active today.
According to the analysis in Business Standard, rural cooperatives face significant structural challenges including leverage dependency on district cooperative central banks, portfolio concentration risks focused excessively on agriculture, and geographic concentration creating covariance risks from force majeure events. The governance structure contains members who are also borrowers, which creates conflicts of interest similar to banking institutions.
As outlined in the Business Standard report, key reforms include integrating middle-tier district banks with state cooperative banks to create specialized regional banks (SRBs) with mandates focused on cooperatives. The proposal suggests reducing refinance from current levels to about six times member share-capital and non-withdrawable deposits. Primary cooperatives should be encouraged to seek local deposits while undertaking non-credit functions, with strong balance sheet primaries accessing banking facilities through SRBs.
According to the expert analysis in Business Standard, the reforms aim to create vibrant self-governed, responsible grassroots financial institutions that can serve remote villages effectively. The proposal suggests that one-time grants may be provided to active cooperatives to revive them, while promoting cooperatives involving people and linking them to local financial activities including primary milk-producer cooperatives and payment systems.