Cooperative Sector Change Management

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Cooperative Sector Change Management:

8/24/2011 yerramraju@ECCB, GoAP 1 Cooperative Sector Change Management Dr.B. Yerram Raju Member, Expert Committee on Cooperative Banking, GoAP

The Changes:

2 8/24/2011 yerramraju@ECCB, GoAP The Changes Accounting Changes Technology Changes Legal Changes Management Changes Human Resource Management Regulatory Changes

Coping Mechanisms:

3 8/24/2011 yerramraju@ECCB, GoAP Coping Mechanisms Highly Inadequate Resource Starved Rising demands for diversified services Lowly skilled Responsiveness to demand not responsible Shrinking State participation and facilitation

Cooperative Credit:

4 8/24/2011 yerramraju@ECCB, GoAP Cooperative Credit Best instrument of Financial Inclusion because of the widest reach even amidst the sea of inadequacy Ignored in ‘Swabhiman’ strategic initiative Prudential norms and Risk Management in Concentration Risk syndrome different perception and treatment Commercial Banks would be in the wholesale banking leaving the large retail banking space to the Cooperative Banks – both urban and rural and Regional Rural Banks in the next decade Technology risks are bound to be on the rise Huge investments in technology and human resources require a project approach from NABARD Since they are part of the payment and settlement systems, inadequate and untimely attention will pose systemic risks.

Comparative Picture of PACS (2005) Vs Com Bks (1994):

5 8/24/2011 yerramraju@ECCB, GoAP Comparative Picture of PACS (2005) Vs Com Bks (1994) Cooperatives (2005) Commercial Banks Lack of diversification Risk Management non-pervasive Low volume of business Capital inadequacy Declining % of borrowing membership Income Accounting standards poor High Cost of management Wrong Asset Classification Imbalances in loan outstanding Burdened with NPAs due to implementation of Government Sponsored Programmes and priority sector programmes Unskilled staff Loss making Branches mostly in rural and semi-urban areas and staff inadequacies Manual Operations Poor Technology – Manual Operations Lack of professionalism Professionalism required improvements Lack of management information system MIS – inefficient and inaccurate Low interest margins Uneven Spread Improper Accounting practices Non-transparent Balance Sheets

Relief Packages:

6 8/24/2011 yerramraju@ECCB, GoAP Relief Packages Narasimham Committee (Com Banks) Around 33000 rural branches Vaidyanathan Committee (RCCS) 108500 PACS located in Villages IRAC Norms MOUs with State Govts for reducing State role and increasing member participation – legislative changes imperative Balance Sheet Transparency & Disclosure norms introduced State equity restricted to 25% Structural Changes Imbalances to be brought down Changes in Accounting Standards Accounting practices to improve & Disclosure norms introduced Timelines for Change effect HR Practices to improve Capital injection by the Govt PACS to expand the operations Capital Adequacy Standards Relief Package Rs.15000cr – announced in 2004 released after 2007 in stages.

Non-Credit Cooperatives:

7 8/24/2011 yerramraju@ECCB, GoAP Non-Credit Cooperatives Require free space – Minimalistic Regulation Areas like Housing require sunset clause Integration between marketing and credit makes a win-win situation for both. Insurance mechanisms require rehash Technology should be the driver of change

Where should Change begin?:

8 8/24/2011 yerramraju@ECCB, GoAP Where should Change begin? Regulator and Government Approach of regulator Thinking of Government Organizational Development Interventions The Effort is huge considering the spread of Cooperatives to a host of activities touching every segment of population.

COLLABORATION BETWEEN BANKS, FUTURE MANAGERS, AND PROSPECTIVE ENTREPRENUERS:

9 8/24/2011 yerramraju@ECCB, GoAP COLLABORATION BETWEEN BANKS, FUTURE MANAGERS, AND PROSPECTIVE ENTREPRENUERS Professional Bank(er)s Unbanked prospective entrepreneurs Future Managers

Collaboration from Banks & Bankers:

10 8/24/2011 yerramraju@ECCB, GoAP Collaboration from Banks & Bankers Professional Bankers / Banks Permit project works by management students on topics related to financial inclusion Conduct orientation programmes to management students Place mandates on management schools for research oriented field studies Recruit management graduates who have worked on the similar projects for related assignments / jobs Sponsor programmes at management schools to strengthen banks-management schools relationship

COLLABORATION FROM FUTURE MANAGERS:

11 8/24/2011 yerramraju@ECCB, GoAP COLLABORATION FROM FUTURE MANAGERS Future Managers Undertake projects actively in the areas related to financial inclusion / micro credit / angel funding / MSME sector etc Conduct awareness programmes for unbanked Develop potentiality rating tools and voluntarily assist bankers to pre-rate the potential prospective entrepreneurs Act as voluntary shadow relationship managers on behalf of bankers Pursue career in SME / Micro / Angel funding sectors

COLLABORATION FROM UNBANKED BUT PROSPECTIVE ENTREPRENEURS:

12 8/24/2011 yerramraju@ECCB, GoAP COLLABORATION FROM UNBANKED BUT PROSPECTIVE ENTREPRENEURS Unbanked but prospective entrepreneurs Avail of the facilities offered by Bankers Achieve to be eligible borrower under CGF scheme Be true and prompt to the banker; maintain financial discipline and positive credit culture Be a responsible account holder and stand as a model for other unbanked persons Entertain and encourage future managers to undertake projects on tiny, SME, micro finance etc topics and share the required information with them.

Financial Inclusion demands….:

13 8/24/2011 yerramraju@ECCB, GoAP Financial Inclusion demands…. Investment of a huge order in Cooperatives of all hues – most important: Credit Cooperative Structure Project Approach needed Change Management Training at all levels PERT charts and implementation management takes the front seat Politicians should change their gear and move to partnering development with self-imposed transparent goals from micro to macro.

Slide 14:

14 8/24/2011 yerramraju@ECCB, GoAP Thank You

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