PACS - AGRICULTURE
News: Union
Budget announces Rs 2,516 crore for computerization of 63,000 Primary
Agricultural Credit Societies
What's in the news?
● The
Union Budget has announced Rs 2,516
crore for computerization of 63,000 Primary Agricultural Credit Societies
(PACS) over the next five years, with the aim of bringing greater transparency and accountability
in their operations and enabling them to diversify
their business and undertake more activities.
Primary Agricultural Credit Societies (PACS):
● PACS
are village level cooperative credit
societies that serve as the last link in a three-tier cooperative credit
structure headed by the State Cooperative Banks (SCB) at the state level.
● Credit
from the SCBs is transferred to the district central cooperative banks, or
DCCBs, that operate at the district level. The DCCBs work with PACS, which deal directly with farmers.
Legal Mandate:
● PACS
are governed by the RBI and registered under the Co-operative Societies Act.
● The
“Banking Regulation Act-1949” and the “Banking Laws (Co-operative societies)
Act 1965” are in charge of them.
Objectives of PACS:
● To
raise capital for the purpose of
making loans and supporting member's essential activities.
● To
collect deposits from members with
the goal of improving their savings habit.
● To
supply agricultural inputs and
services to members at reasonable prices,
● To
arrange for the supply and development
of improved breeds of livestock for members.
● To
make all necessary arrangements for improving
irrigation on land owned by members.
● To
encourage various income-generating
activities through supply of necessary inputs and services.
Members of PACS:
● A
primary agricultural credit society can be formed by a group of ten or more
people from a village. The society’s management is overseen by an elected body.
● The
membership fee is low enough that
even the poorest agriculturist can join.
● Members
of the society have unlimited liability, which means that each member assumes
full responsibility for the society’s entire loss in the event of its failure.
Funds for PACS:
● The
primary credit societies working capital is derived from their own funds, deposits, borrowings, and other
sources.
○ Share
capital, membership fees, and reserve funds are all part of the company’s own
funds.
○ Deposits
are made by both members and non-members.
○ Borrowings
are primarily made from central cooperative banks.
Functions of PACS:
● PACS
are involved in short term lending (crop
loan) for agricultural operations.
● The
farmers avail credit to finance their requirement of seeds, fertilizers etc. at
the start of the cropping cycle.
● PACS
also offers the following services to their members:
○ Input facilities
in the form of a monetary or in-kind component.
○ Agriculture implements
for hire.
○ Storage space.
Interest Rate:
● Banks
extend this credit at 7 percent interest, of which 3 percent is subsidized by
the Centre, and 2 percent by the state government. Effectively, farmers avail the crop loans only at 2 percent interest.
Significance of PACS:
● The
importance of the PACS lies in the last
mile connectivity they offer.
● It
provides timely access to capital to
farmers at the start of their agricultural activities.
● PACS
have the capacity to extend credit with minimal
paperwork within a short time.
● Primary
agriculture co-operative credit societies are financial institutions that play
a critical role in the socio-economic
development of local communities at the
grass roots level.
● They
are multifunctional organizations
that provide a variety of services such as banking, on-site supplies, marketing
produce, and consumer goods trading.
● These
societies also provide warehousing
services to farmers in order to preserve and store their food grains.
● Within
the federal structure of the cooperative financing system, PACs are to be
provided with adequate assistance in the form of subscriptions and grants by
higher level institutions such as Central Cooperative Bank and State
Cooperative Bank.
Concerns in PACS:
1. Organizational weakness:
● At
the primary level, the cooperative credit structure has twofold weaknesses
such as
○ Inadequate
coverage and
○ Weak
units
2. Lack of resources:
● The
resources of the PACS are much too inadequate in relation to the short-and
medium-term credit needs of the rural economy.
3. Over-dues:
● Large
over-dues have become a big problem for the PACS.
● A
report published by the Reserve Bank of India on December 27, 2022 put the
number of PACS at 1.02 lakh. At the end of March 2021, only 47,297 of them were
in profit. The same report said PACS had reported lending worth Rs 1,43,044
crore and NPAs of Rs 72,550 crore. Maharashtra has 20,897 PACS of which 11,326
are in losses.
4. Management issues:
● Indifferent
management or mismanagement of societies.
● Unsound lending policies
leading to over financing, or financing unrelated to actual needs, diversion of
loans for other purposes.
● Vested interests and
group politics in societies and willful defaults.
● Lack
of adequate supervision over the use of loans by the borrowers and poor recovery
effort.
● Lack of adequate control
of banks (CCBs) over the primary societies.
● Lack
of appropriate link between credit and marketing institutions.
● Failure
to take prompt action against willful defaulters.
Why Computerization of PACS?
● PACS
account for 41% of the KCC loans
given by all entities in the country and 95% of these KCC loans through PACS
are to the small and marginal farmers.
● The
other two tiers viz. State Cooperative Banks (StCBs) and District Central
Cooperative Banks (DCCBs) have already been automated by the NABARD and brought
on Common Banking Software (CBS) and Core Banking Solutions (CBS).
● Some
PACS use their own software, but a compatible platform is necessary to bring
about uniformity in the system.
● Majority
of PACS have so far been not computerized and still functioning manually
resulting in inefficiency and trust deficit.
Significance of Computerization:
● Computerization
of PACS will increase their transparency,
reliability and efficiency, and will also facilitate the accounting of
multipurpose PACS.
● It
will enable them to diversify their business and undertake more activities.
● It
will also help PACS to become a nodal center for providing services such as
direct benefit transfer (DBT), Interest subvention scheme (ISS), crop insurance
scheme (PMFBY), and inputs like fertilizers and seeds.
PACS
are more than a century-old institutions that deserve another policy push and
can occupy a prominent space in the vision of Atmanirbhar Bharat as well as
Vocal for Local of the Government of India, as they have the potential to be
the building blocks of an Atma Nirbhar
village economy.