Health of rural financial institutions

WHILE MUCH attention has been paid to the deteriorating financial position of the public sector banks in India, the state of financial institutions catering to rural India also remained equally precarious.

According to the recently released data by the Reserve Bank of India (RBI), non-performing assets (NPAs) of primary co-operative agricultural and rural development banks rose to 37 per cent at the end of FY16, up from 36.2 per cent before (Chart 1). In the case of state co-operative agriculture and rural development banks, while NPAs dropped in FY16, they continued to remain elevated (Chart 2).

Marked variation existed across regions. As shown in Charts 1 and 2, bad loans were higher in western and central regions of the country, while the southern states were better off.

Co-operatives and Regional Rural Banks account for a significant share of rural credit, with Nabard providing support to these institutions.

The RBI data also shows that primary agricultural credit societies (PACS), too, were in bad shape. As shown in Chart 3, at the end of FY16, the combined losses of societies that were in the red far exceeded the profits. In fact, only two-thirds of these PACS were viable, as shown in Chart 4. Another 20 per cent were potentially viable, while the remaining weren’t.

In the case of district central co-operative banks (DCCBs), as shown in Chart 5, NPAs remained elevated. The silver lining was that their losses halved in 2015-16 (Chart 6). For state co-operative banks, while NPAs registered a mild decline, profits collapsed (Chart 7).