FINANCE

CO-OPERATIVE SOCIETIES AND BANKS.

These consists of (1) Agricultural Co-operative Credit Societies; (2) Multi-purpose Societies; (3) Primary Land Mort- gage Banks; (4) Non-agricultural Credit Societies and (5) District Central Co-operative Banks.

Agricultural Co-operative Credit Societies.

Constitution.

Any ten persons can apply for the registration of a rural society. The maximum strength of a society does not ordinarily exceed a thousand. The area of operation of a society is, as far as possible, restricted to a village. Hamlets and small villages for which separate societies are not feasible can be included in the jurisdiction of a society in the neighbouring village. Membership is open to every resident of that area, subject to the condition that he satisfies the requirements laid down in the bye-laws of the society. The liability of a member used to be generally speaking, unlimited.

The societies raise the necessary funds through (i) issue of shares, (ii) acceptance of fixed and savings deposits from their members and non-members, and (iii) loans from the Central Financing Agencies in the district. The last one, namely, loans from the Central Financing Agencies constitute the main source of funds. These loans are both short-term and medium-term loans and carry 4½ per cent. rate of interest per annum.

Nature of loans.

These societies provide short-term and intermediate-term finance to agriculturists. Most of the loans are granted mainly for productive purposes and seldom for non-productive ones. Usually they are granted for a period of less than a year and in a few cases for a longer period. Short-term loans are generally advanced for the purposes of seasonal agricultural requirements and current farm operations, whereas the medium term credit is granted for the purchase of oil engines and other implements, purchase of bullocks, digging of wells etc.

The limit upto which a member can borrow is fixed at ten times the amount of shares standing at his credit in the society. Loans are given mostly on personal security of the borrower and two members. The society may also take mortgage of immovable property or crops as collateral security. The general practice is to give loans in cash. However, they are given in kind where the purpose of the loan permits and where there exists a suitable organization.

Rate of interest.

The rate of interest charged by the societies varies according to their financial position and on the rate at which they borrow from other financial agencies. However, Government has helped societies to lower it by giving subsidies to meet their expenses.

Members, Membership and Working Capital.

In 1950-51 there were 384 societies in Kolhapur district with a membership of 39,089 and a working capital of Rs. 36,24,211. In 1955-56 there were 690 societies with a membership of 88,752 and a working capital of Rs. 1,44,57,034.

The following tables show the working of agricultural co-operative credit societies (limited and unlimited) in Kolhapur district for the years 1950-51 to 1955-56:-

TABLE No. 5.

OPERATIONS OF AGRICULTURAL CREDIT SOCIETIES (LIMITED).

TABLE No. 5-contd.

continued

TABLE No. 6.

OPERATIONS OF AGRICULTURAL CREDIT SOCIETIES (UNLIMITED).

TABLE No. 6-contd.

continued

Multi-purpose Societies.

These societies mark a further stage of evolution of agricultural credit societies. These societies are also essentially credit societies but their objects are wider in so far as they combine marketing of agricultural produce with the provision of short-term credit.

Organization of these societies was recommended in the joint report submitted in 1939 by the Registrar of Co-operative Societies and Shri V. L. Mehta. They further suggested that where market facilities are available, multi-purpose societies should be registered with the object of supplying normal cultivation needs of its members, who, in their turn were to execute an agreement binding themselves to bring all marketable produce for sale to the society.

A multi-purpose-society undertakes business of a more varied and responsible nature than an agricultural credit society. Besides supplying short-term and intermediate-term finance, it aims at supplying such agricultural requisites as seeds, manures, fodder and arranging for joint sale of members' produce.

Government aid.

Government has authorised the Registrar of Co-operative Societies to sanction loans at 4 per cent. to a multi-purpose society undertaking construction of a godown for storing agricultural produce and other requisites. The amount of loans should not exceed two-thirds of the cost of construction, subject to a maximum of Rs. 2,000. A loan exceeding this amount may be granted with the prior permission of Government. In the year 1957-58, two societies received Rs. 15,000 as loans and Rs. 5,000 as subsidies for construction of godowns. Realising the importance of efficient and trained staff, Government has undertaken to give grants to the newly started multi-purpose societies and to newly opened branches of the existing sales societies for meeting management expenses. Government contributed Rs. 3,14,900 to 33 societies and 37 societies were given subsidies amounting to Rs. 22,200 in 1957-58 for meeting managerial expenses.

The figures about the working of multi-purpose societies are included in the foregoing tables which show the working of agricultural co-operative credit societies.

Out of a total of 1,079 villages in the Kolhapur district as many as 825 villages were under the co-operative fold by June 1958 i.e. nearly 76 per cent. of the villages were covered by the agricultural credit and multi-purpose societies. The total rural population of the district was 10,31,000 and the total membership of all the agricultural credit and multi-purpose societies was 1,06,000 as on 30th June 1958. Assuming that one member represents a family of five persons on an average, the total rural population under the co-operative fold came to 5,30,000. On percentage basis this works out to be 52 per cent.

Primary Land Mortgage Banks.

Neither co-operative societies nor commercial banks can provide funds for the cultivator's long-term requirements such as purchase of implements, improvement of land, repayment of old debts contracted by him or by his ancestors. Co-operative societies, with their limited resources cannot afford to lock- up their funds for a long period. Moreover, long-term lending is a specialised business requiring the services of expert valuers of landed property. Land Mortgage Banks are specially organized and equipped to perform the essential function of providing long-term credit to the cultivator on the security of land.

There was no land mortgage bank in the district till 1957. The need for having such a bank is, however, keenly felt and it is realised that the progress of co-operative movement will be further accelerated after its formation.

Non-Agricultural Credit Societies.

These are mostly urban societies whose members are traders, artisans, factory workers etc. residing in towns. These societies include urban banks, salary earners' societies etc.

Constitution.

The area of operation is restricted to a town or its part or even a department of any institution private or Government. Membership is open to all persons residing within the area of operation. The liability of members is limited. A person cannot be a member of more than one society without prior sanction of the Registrar or the Assistant Registrar.

Funds.

Capital is raised by issuing shares, accepting deposits-current, savings and fixed-and by borrowing from the central financing agency. Borrowing from outside is limited to eight times the paid-up share capital plus the accumulated reserves and building fund minus the accumulated losses.

Functions.

The main function of such societies is to advance loans to members either on personal security or on mortgage of property or on the security of valuables pledged. Cash credits are allowed and overdrafts sanctioned on any of these securities. These societies and more particularly the urban co-operative banks also carry on modern banking operations.

Number, Membership and Working Capital.

In 1950-51 there were 43 societies in Kolhapur district with a membership of 21,661 and working capital of Rs. 51,28,259. By 1955-56 the number of societies rose to 47, membership to 26,788 and working capital to Rs. 86,87,646.

The following tables show the working of these societies during 1950-51 and 1955-56:-

TABLE No. 7.

OPERATIONS OF NON-AGRICULTURAL CREDIT SOCIETIES (LIMITED).

TABLE No. 7-contd.

continued

TABLE No. 8.

OPERATIONS OF URBAN CO-OPERATIVE BANKS.

TABLE No. 8-contd.

continued

District Central Co-operative Bank.

This is an agency that draws surplus funds from private investors and passes them on to primary societies which cannot raise locally all the capital required by their members. Besides. it also serves as a balancing centre accepting at a reasonable rate of interest the surplus funds of one society and transferring them to those who need them.

Constitution.

The liability of members is limited. Strictly from a theoretical point of view, such a bank ought to be a federation of primary co-operative societies. This has, however, been modified to admit private investors, who can help the movement by their contributions but cannot be members of primary societies on account of their unlimited liability.

Funds.

The funds consist of (1) share capital; (2) reserve and other funds; (3) deposits-current, savings and fixed-from societies and the general public and (4) loans or overdrafts from banks.

Share capital and reserve funds constitute a major portion of the owned capital. As the banks are based on limited liability they raise initial capital by floating shares, generally fully paid up on allotment. It is binding on societies and individuals who borrow from the central bank to be members by purchasing shares; sometimes in proportion to their borrowings.

A major portion of the working capital of the bank is derived from deposits-current, savings and fixed. It is also permitted, subject to certain restrictions, to accept deposits from local bodies, to supplement the resources obtained by means of deposits. The central bank can raise loans from the apex bank.

The Central Co-operative Bank of the district had availed itself of an additional source of funds namely, the capital raised by floating debentures. It raised Rs. 97,500 by way of debentures in the former Kolhapur State in the year 1945-46. The debentures carried an interest of 3 per cent. per annum and the principal and interest thereon was guaranteed by the ex-Kolhapur State. These have, however, been duly redeemed by the Bank in the year 1956.

Functions.

The main function of the central bank is to finance primary societies within the area of operation. Societies are financed on the basis of the detailed statements of normal credits of members prepared by them. The statement shows, among other things, the deposits of each member with the society, the value of lands held and other details giving a comprehensive picture of his economic position. The upper limit to the loan to be granted to each individual is fixed by the central bank on the basis of this statement. Provision of nominal membership is made in bye-laws, to enable the central bank to provide finance to members of primary societies, other than urban banks and sales societies, against the security of agricultural produce and other valuables.

In places where multi-purpose societies or sale societies cannot be organized, the district central bank may undertake to make arrangements for the sale of agricultural produce, particularly of those who would come within the purview of the Bombay Agricultural Debtors' Relief Act, and who are allowed to become nominal members.

History.

The history of the development of the central financing agency in the district is a chequered one. Prior to the merger of the Kolhapur State with the Bombay State there were two small central financing agencies in the district, one each at Ichalkaranji and Kagal, in addition to the Kolhapur State Cooperative Bank. At the time of the merger, there were about 800 co-operative societies in the district, of which agricultural co-operatives alone numbered 548. The resources of the central financing agencies were very meagre and they mostly catered to the needs of their individual members, instead of attempting the development of their affiliated primaries. Even the Kolhapur State Co-operative Bank could finance only 144 agricultural co-operatives in the district and that too inadequately. Besides, the arrangements for supervision and inspection were totally unsatisfactory. Hence, bulk of the progressive agriculturists of the district, who were mostly sugarcane growers, as also their 'Phads' (groups) were being financed by commission agents in the Shahupuri market.

Following the merger, the Bombay Agricultural Debtors' Relief Act and the Bombay Money-lenders' Act were made applicable to the Kolhapur district. As a result of this, the commission agents considerably curtailed their lendings and credit facilities to the agriculturists in the district. Due to this, the necessity for a well-organised central financing agency for developing and financing the co-operatives, especially agricultural, was felt. The weak central financing agencies were therefore, converted into Urban Co-operative Banks and the Kolhapur State Co-operative Bank was converted into a District Central Co-operative Bank. But, even the latter did not have enough resources to adequately cater to the needs of all the co-operatives in the district. It had a share capital of Rs. 1,60,000 and its reserves amounted to Rs. 21,000. Its deposits were to the extent of Rs. 10,00,000, while its working capital, inclusive of a loan of Rs. 5,00,000 from the Kolhapur Darbar, amounted to Rs. 17,91,000. As against the estimated requirements of about Rs. 1,00,00,000 its lendings to co-operatives were less than Rs. 6,00,000. It was, therefore, decided after discussions among the Registrar, the Apex Bank and the District Central Bank to restrict the area of operations of the Central Bank to four talukas, till it strengthened itself, both financially and administratively and to entrust the remaining seven talukas to the Bombay State Co-operative Bank. To discharge its responsibility, the State Co-operative Bank had to open six branches in the district during the period 1950 to 1955 namely at Laxmipuri-Kolhapur, Shahupuri-Kolhapur, Gandhing-laj, Murgud, Gargoti and Ajra. Under the States' Reorganisation Act, 1956, the Chandgad taluka of the Belgaum district in Mysore State was added to the Kolhapur district and one more branch of the State Co-operative Bank was opened at Chandgad early in 1957. From an humble beginning of advancing loans to the tune of Rs. 18 lakhs only, in the year 1951, the bank in the year 1958 advanced loans amounting to Rs. 153 lakhs-a phenomenal rise of eight times in the advances of the Bank.

Bombay state Co-operative Bank.

The State Co-operative Bank played a very leading part in the rehabilitation and reorganisation of the co-operative movement in the district. In particular, its role as the central financing agency catering to the credit needs of the agricultural and marketing co-operatives of the district was noteworthy. The following table (No. 9) shows the extent of finance made available by the bank, a large portion of which was advanced to agricultural and marketing co-operatives:-

TABLE No. 9

OPERATIONS OF THE BOMBAY STATE CO-OPERATIVE BANK, LTD., IN KOLHAPUR DISTRICT.

continued

The loans were given both in cash and in kind (manures, oil, etc.). Recoveries were also effected in cash and through the sale of jaggery. While the finance granted to agricultural co-operatives has helped them to meet the requirements of their members for raising of crops and also to improve their methods and standards of cultivation, the finance granted to the marketing co-operatives has helped them to secure the manurial and other agricultural requisites and to sell their produce. It may be observed that as a result mainly of the attempts that have been made for linking credit with marketing nearly 80 per cent. of the members' produce is marketed through the co-operative marketing agencies. The State Co-operative Bank has achieved a fair measure of success in implementing the crop loan system in the sugarcane growing areas of the district. The Bank has also assisted the members of co-operatives in constructing minor irrigation projects, ensuring permanent and adequate water supply.

In accordance with the approved policy of reorganisation and setting up of one central financing agency for each of the districts in the whole of the Bombay State, it was also decided earlier that the State Co-operative Bank should in course of time withdraw from the district in two or three stages, as and when the District Central Bank developed itself. The Kolhapur District Central Co-operative Bank was re-organised and strengthened in 1958. Its nominated Board, however, decided, in view of the Bank's resources, to take over all co-operative business other than the financing of the three sugar co-operatives, the District Purchase and Sale Union, 10 agricultural societies in Kagal taluka and co-operative societies in Radhanagari taluka. The State Co-operative Bank accordingly closed six of its branches in the district with effect from 1st February 1959 and handed over the business to the District Central Co-operative Bank. Only one branch of Laxmipuri in Kolhapur city of the State Co-operative Bank is now functioning.

District Central Co-operative Bank.

A Further Analysis.

The Bank was established during the year 1938. In the first year of its working it had a total membership of 44 of 17 societies and 27 individuals.

Membership and Working Capital.

In 1950-51, the Kolhapur District Central Co-operative Bank had a membership of 1,276 individuals and 322 societies and banks and a working capital of Rs. 30,10,526. It had in 1955-56 a membership of 2,904 and a working capital of Rs. 35,68,918.

The following table shows the working of the bank for the years 1950-51 to 1955-56:-

TABLE No. 10

OPERATIONS OF KOLHAPUR DISTRICT CENTRAL CO-OPERATIVE BANK, LTD.

continued.

TABLE No. 10-contd.

*Letter G denotes Loans from Government and letter D denotes Debentures.

continued.

With the take over of business from the Bombay State Cooperative Bank Ltd. in the beginning of the year 1959 there has been a considerable expansion in the business of the Kolhapur District Central Co-operative Bank Ltd. Prior to this it operated only in four talukas of the Kolhapur district through its branches at Hatkanangale, Ichalkaranji, Jaisingpur and Malkapur.

Small Savings Banks.

Small Savings Banks.-One of the most important State agencies for mobilisation of savings in the rural sector of our economy is the Postal Savings Bank. These banks are particularly suited to collection of savings in rural areas where banking facilities are not available. As agencies of the Government, they enjoy the confidence of the public which is very valuable in areas where banking habits are not fully developed. The savings bank activity being one of the many functions of the post offices, it can be carried on economically which is not possible in the case of other banking institutions.

There were 26 post offices in the district doing savings bank work in 1957-58. This figure includes a head office at Kolhapur and branch and sub-post offices. The total amount of bank balances in 1954-55 stood at Rs. 73,45,973. The figure for the year 1956-57 stood at Rs. 1,09,20,316. The increase clearly indicates an expansion of savings activity.

The details of its working.

Any citizen who has an amount of Rs. 2 can open a post office savings bank account at any post office which does savings bank work. The maximum limit of investment is Rs. 15,000 for an individual and Rs. 30,000 for a joint account of two individuals. All local authorities and co-operative societies and non-profit making institutions can also open accounts with these banks which are called public accounts. For opening a public account there are no limits to the size of deposits which can be banked.

Interest.

Interest on individual and joint accounts is allowed at the rate of 2½ per cent. for the first Rs. 10,000 and at 2 per cent. on the balance in excess of Rs. 10,000. On public accounts interest is allowed at 2 per cent. (Interest is calculated for each calendar month). The interest earned on these investments is free of income-tax, super-tax and corporation-tax.

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