Fiscal support for RRBs, co-ops urgent, says Reddy

Hyderabad: The Reserve Bank of India governor, YV Reddy, has favoured a comprehensive overhauling of rural co-operative structure and the regional rural banks (RRBs) which act as critical instruments for rural credit.

Expressing serious concerns over non-performing loans and erosion of deposits in both cooperatives and RRBs, he favoured their early restructuring and recapitalisation.

Reddy was addressing the two-day international seminar on 'India's Economic and Social Development: National and International Perspective' at the Administrative Staff College of India here on Tuesday, which was organised in the honour of renowned economist, Professor CH Hanumantha Rao.

The key concerns Reddy expressed included inadequacy in credit supply, constraints on timely availability, high cost, neglect of small and marginal farmers, low credit-deposit ratios in several States and continued presence of informal markets.

While immediate measures were undertaken to increase the flow of credit to agriculture, there was a need to review the policy of rural credit in a comprehensive and thorough manner, he said.
On the agenda for future, the RBI Governor said there was a need for legal and institutional changes relating to governance, regulation and functioning of rural cooperative structure and RRBs.

Reddy added that these changes warranted in cooperatives and RRBs involved the deep commitment of state governments and would have a significant bearing on political economy, he said the current thrust to improve credit delivery might soon face limits unless the legal and institutional changes were agreed and acted upon in good faith and in a timely fashion.
Justifying the recapitalisation of cooperatives and RRBs, he said that such a one-time fiscal support was urgent and essential for several reasons. According to Dr Reddy, delayed response to the problem could even end up being more expensive.