A recent press report said that the National Bank for Agriculture and Rural Development (NABARD) has planned to implement a new scheme of improving share capital and ensuring safety of deposit, which has been obtained from two European countries viz. Germany and Hungary.
The idea behind the scheme is to encourage the country’s primary agriculture credit societies (PACSs). This scheme of Institutional Protection and Deposit Safety Scheme (IPDSS) is being devised by the apex development bank because the members of PACSs are uncertain about the safety of their deposits within their own PACSs.
The IPDSS scheme is drafted in such a way that such deposits are not being covered under Deposit Insurance and Credit Guarantee Corporation (DICGC) and it noted that the deposit insurance schemes are only on paper.
In a statement by NABARD official it is seen that the Government – run institution as a part of financial literacy and counseling initiatives wanted to go on a campaign to inculcate the habit of careful spending of money among the farmers as self help groups (SHGs) do.
The membership fee for PACSs has a face value of Rs. 10 and maximum it would be Rs. 100 and not beyond that as it is formed out of poor farmers. But such a low share capital would not serve the purpose as the amounts of loans are linked to the share capital and hence it is necessary to increase the capital base. Yet if the share capital has to be increased the dividend should also be increased if not the cost of credit of the cooperative would go up than the competing banks, including Regional Rural Banks and commercial banks.