National Federation of State Cooperative Banks Ltd

NATIONAL FEDERATION OF STATE COOPERATIVE BANKS LTD.

MEETING OF THE BOARD OF DIRECTORS

20 SEPTEMBER 2008 AT BHUBANESHWAR

AGENDA ITEMS

1. To confirm the Proceedings of the meeting of the Board of Directors held at New Delhi on 28 April 2008.

1. To note the action taken on the resolutions and decisions of the meeting of the Board of Directors held on 28 April 2008.

1. To note the Annual Policy Statement for the year 2008-09 as announced by Governor, Reserve Bank of India on 29 April 2008.

1. To note the First Quarter Review of the Annual Statement on Monetary Policy for the year 2008-09.

1. To note the upward revision in the Cash Reserve Ratio (CRR).

1. To assess the status of implementation of the Revised Revival Package of short term cooperative credit structure, as recommend by the Task Force on Revitalisation of Cooperative Credit Institutions set up under the Chairmanship of Prof. A. Vaidyanathan.

1. To note the guidelines and also the status on ‘Agricultural Debt Waiver and Debt Relief Scheme 2008’ and consider the implications on cooperative credit institutions.

1. To note and consider the ‘Action Plan to address Agrarian Distress in India- submitted by independent Expert Panel of NABARD – SDC’ to NABARD.

1. To note the NABARD Circular on ‘Liquidity support to SCBs under section 38 (vii) of NABARD Act, 1981 to tide over the temporary liquidity crunch faced by Cooperative Banks’.

1. To note the sanction of short term credit limits to SCBs for financing Seasonal Agricultural Operations (SAO) against pledge of Government securities.

1. To note the NABARD Policy for the year 2008-09 on Eligibility Criteria for drawal of refinance from NABARD under Schematic Lending.

1. To note the revision in rate of interest on refinance from NABARD.

1. To note the provision of term loans by banks for financing of Handloom Weaver Groups (HWGs).

1. To note the NABARD Policy for the year 2008-09 with regard to Short Term Credit Limits to SCBs/DCCBs for financing the Working Capital Requirements of Primary/Apex/Regional Weavers’ Cooperative Societies.

: 2 :

1. To note and consider the draft Report of the High Level Committee on Financial Package for Handloom Sector appointed by Ministry of Textiles, Government of India.

1. To note the revision of exposure norms and Monitoring & Reporting procedures under Credit Monitoring Arrangements (CMA).

1. To note the customer charges for use of ATMs for cash withdrawal and balance enquiry.

1. To note the amended version of the guidelines prescribed by RBI for ensuring ‘Fit and Proper Criteria’ for Directors on Boards and CEOs of Rural Cooperative Banks.

1. To note the outcome of the first meeting of the Standing Committee on short term cooperative credit and banking institutions convened by NAFSCOB on 28 May 2008 at Kolkata.

1. To note the outcome of the first meeting of the Working Group on Code of Standards and Fair Practices for SCBs and DCCBs convened by NAFSCOB on 28 May 2008 at Kolkata.

1. To note the consultation with DCCBs in Orissa on the issue of NAFSCOB membership to DCCBs.

1. To note and consider the request of Indian Institute of Banking & Finance to continue with/enrol as institutional members.

1. To consider venue, date and time to hold next meeting of the Board of Directors in December 2008.

1. Any other item with the permission of the Chair.

PART - II

1. To note the list of State Cooperative Banks which are yet to remit the Annual Subscription/Arrears of Annual Subscription to NAFSCOB.

1. To note the list of State Cooperative Banks which are either fully or partially yet to remit the Additional Subscription towards the Office premises and Guest House of NAFSCOB.

3.To note the status of Annual Subscription/Arrears of Annual Subscription and other dues payable by the member banks to NAFSCOB under AIMAS.

1. To note the status of contribution/arrears of contribution towards Federation’s Publications and other dues.

1. To note and consider the suggested models for seeking contributions from member State Cooperative Banks to purchase premises in Mumbai to house Guest House/Visiting Officers Flat for NAFSCOB.

1. To note and consider the appointments in pursuance of the decision by Search Committee of NAFSCOB.

1. To ratify the action taken by the Chairman, NAFSCOB in appointing a Personal Secretary to Chairman, NAFSCOB to assist him at New Delhi.

1. To ratify the decision of Executive Committee in nominating Dr. Bijender Singh, Chairman, NAFSCOB for participation in the Study Mission to Israel & Egypt from 16-24 August 2008 organised by NCUI and also the expenditure incurred.

1. To consider nomination to 8th Meeting of ICA-AP Regional Assembly and 5th Asia-Pacific Cooperative Forum and other related events to be held from 1st to 6th December 2008 at Hanoi, Vietnam.

1. To consider the proposal to organise an international study tour to Australia and New Zeland under IEEF during January – March 2009.

11.To consider and recommend to the General Body the Auditor’s Report and Statement of Accounts of the Federation for the year 2007-08 and approve Compliance Report on the Observations made by the Auditors.

12.To consider and adopt the 45th Annual Report of the Federation for the year 2007-08 and recommend to the General Body for adoption.

13.To consider and approve the programme of activities for the year 2008-09.

1. To consider and approve the Annual Budget of Income and Expenditure of the Federation for the year 2008-09.

1. Any other item with the permission of the Chair.

1. To conduct election for the vacant position of Vice-Chairman, NAFSCOB representing Northern Zone.

NATIONAL FEDERATION OF STATE COOPERATIVE BANKS LTD.

MUMBAI

MEETING OF THE BOARD OF DIRECTORS

20 SEPTEMBER 2008 AT BHUBANESHWAR

NOTES ON AGENDA

The Proceedings of the meeting of the Board of Directors of the Federation held at New Delhi on 28 April 2008 have been circulated vide our letter No. NAFSCOB/B-4(125)/2008-09/ 132 dated 19-06-2008, which may kindly be confirmed.

Action has been initiated on all the resolutions of the meeting of the Board of Directors held at New Delhi on 28 April 2008. Action taken on some of the important resolutions is given in Annexure to this note, which may kindly be noted.

As the members of the Board are kindly aware, Governor, RBI announced the Annual Policy Statement for the year 2008-09 on 29 April 2008. The Annual Policy Statement, as usual, consists of two parts: Part I. Annual Statement on Monetary Policy for the year 2008-09 and Part II. Annual Statement on Developmental and Regulatory Policies for the year 2008-09. While the highlights of the Annual Policy Statement for the year 2008-09 are given as Annexure to this item, the most important highlights of the Annual Policy Statement are given below for the kind perusal of the members of the Board:

• Bank Rate kept unchanged at 6.0 per cent.

• Reverse Repo Rate and Repo Rate kept unchanged at 6.00 per cent and 7.75 per cent respectively.

• Scheduled Banks have been required to maintain Cash Reserve Ratio (CRR) of 8.25 per cent with effect from the fortnight beginning May 24, 2008. As the members are aware, CRR was 7.75 per cent as on 26-04-2008, which was revised to 8.00 pr cent with effect from 10-05-2008.

• GDP growth projection for 2008-09 in the range of 8.0 – 8.5 per cent.

• Loans granted to RRBs for on-lending to agriculture and allied activities to be classified as indirect finance to agriculture.

• The shortfall in lending to weaker sections would be taken into account for contribution to RIDF with effect from April 2009.

• RRBs allowed to sell loan assets to other banks in excess of their prescribed priority sector exposure.

• The limit of bank loans to individuals for housing having lower risk weight of 50 per cent enhanced from Rs.20 lakh to Rs.30 lakh.

• A concept paper on Financial Literacy and Counselling Centres has been prepared and placed on the Reserve Bank’s website on April 3, 2008 for public feedback.

• A High Level Committee to review the Lead Bank Scheme expected to submit its report by July 2008.

• In order to promote an incentive system for greater flow and efficient allocation of credit, an Internal Working Group to be set up to look at issues relating to credit delivery, credit pricing and credit culture in a holistic manner.

• The Reserve Bank has constituted an Internal Technical Group to propose criteria for the applicability of Basel norms to State Cooperative Banks/District Central Cooperative Banks/Regional Rural Banks that is expected to submit its report by June 30, 2008.

: 3.1 :

• The Reserve Bank has extended the waiver of processing charges for ECS/EFT/NEFT upto March 31, 2009.

Therefore, the members of the Board are requested kindly to note highlights of the Annual Policy Statement for the year 2008-09 as announced by Governor, Reserve Bank of India on 29 April 2008.

As the members of the Board are kindly aware, Governor, Reserve Bank of India presented the First Quarter Review of the Annual Statement on Monetary Policy for the year 2008-09 on July 29, 2008. While the highlights of the details of the highlights have been presented as Annexure to this item, the most important highlights are given below for the kind perusal of the members of the Board:

• Bank Rate has been kept unchanged at 6.00 per cent.

• Reverse Repo Rate under LAF kept unchanged at 6.00 per cent.

• Repo Rate has been increased by 50 basis points from 8.5 per cent to 9.00 per cent.

• Cash Reserve Ratio has been increased by 25 basis points to 9.0 per cent with effect from the fortnight beginning August 30, 2008.

• GDP growth projection for 2008-09 revised from the range of 8.0-8.5 per cent to around 8.0 per cent, baring domestic or external shocks.

• The Reserve Bank will continue with its policy of active demand management of liquidity through appropriate use of the CRR stipulations and open market operations including the MSS and LAF, using all the policy instruments at its disposal flexibly as and when the situation warrants.

• While the policy actions would aim to bring down the current intolerable level of inflation to a tolerable level of below 5.0 per cent as soon as possible and around 3.0 per cent over the medium term, at this juncture a realistic policy endeavour would be to bring down inflation from the current level of about 11.0-12.0 per cent to a level close to 7.0 per cent by March 31, 2009.

Therefore, the members of the Board are requested kindly to note the First Quarter Review of the Annual Statement on Monetary Policy for the year 2008-09 as presented by Governor, RBI on July 29, 2008

Reserve Bank of India as one of anti-inflationary measures has once again made upward revision of Cash Reserve Ratio (CRR) by 50 basis points from 8.25 per cent to 8.75 per cent in two stages as given below:

Effective date (i.e. theCRR on net demand and

Fortnight beginning from time liabilities (Per cent)

July 5, 20088.50

July 19, 20088.75

August 30, 2008-08-18 9.00

Subsequently, CRR has been revised to 9.00 per cent w.e.f. 30 August 2008. Since April 14, 2007, CRR has been increased nine times i.e. from 6.25 per cent to 9.00 per cent. A copy of the statement indicating the revision in the CRR since July 1935 is given as Annexure-I. Further, a copy of the circulars dated June 26, 2008 and July 30, 2008 issued by RBI to all Scheduled State Cooperative Banks along with its notification is given as Annexure-II & III for the kind perusal of the members of the Board.

Therefore, the members of the Board may kindly note the upward revision in the CRR and assess the impact/implications of such a revision on flow of agricultural credit.

The members of the Board in their earlier meetings held on 21 December 2005 at Jaipur, 28 June 2006 at Mumbai, 26 September 2006 at Ahmedabad, 05 January 2007 at Mumbai, 27 April 2007 at Surajkund, Faridabad, 27 July 2007 at New Delhi, 27 November 2007 at New Delhi, 26 February 2008 at Bangalore and 28 April 2008 at New Delhi reviewed the status of implementation of the Revised Revival Package for revitalisation of Cooperative Credit Institutions (CCIs). It has been also noted that NABARD has been designated as the implementing agency for implementing the revival package in all the States. A separate Department for Cooperative Revival and Reforms (DCRR) has been constituted within NABARD for this purpose. It has been reported that NABARD has been providing dedicated manpower at the national, state and district levels for implementing this package. In pursuance of the decision taken by the Board of Directors, a representation has been made to the Ministry of Finance, Chairman of National Implementing and Monitoring Committee (NIMC), RBI and NABARD to address appropriately the following:

i) To appreciate the reasons for slow pace of implementation of the Revised Revival Package for the short term cooperative credit structure, which includes non-acceptance of the Package by the States.

ii) To re-look into the contents/provisions incorporated in the MOU.

iii) To re-consider the specific restrictive provisions and conditionalities stipulated by RBI in the ‘Fit and Proper’ criteria for Directors on the Boards and CEOs of the banks which would have discouraged the majority of States from accepting and signing of MOU.

iv) To ensure the representation to the Cooperators more particularly to NAFSCOB on the composition of NIMC.

Review of Status as on 10-07-2008:

The following update has been presented to the members of the Board of NAFSCOB for appropriate appreciation of the issues involved in implementation of the Revised Revival Package of STCCS.

• Six meetings of the National Implementing and Monitoring Committee (NIMC) appears to have been taken place on 30 May 2006, 07 September 2006, 19 January 2007, 26 March 2007, August 01, 2007 and 13 February 2008. (NAFSCOB is neither a member of NIMC nor an invitee to the meetings of NIMC.)

• The NIMC not only monitors the implementation of the Package regularly but also takes necessary decision on policy and operational matters.

• The programme implementation is guided and monitored within each state by the State Level Implementing and Monitoring Committee (SLIC) and by the DCCB Level Implementing and Monitoring Committee (DLIC). The concerned Regional Office

: 6.1 :

NABARD supports the SLIC where as DLIC is supported by DCCB level support team (DLST) comprising officers from NABARD, DCCB and Cooperation department.

• It has been reported that a State Level Task Force is being set up in each State to periodically review issues of supervisory and regulatory concerns in respect of SCB and CCBs.

• A common draft of the Memorandum of Understanding (MOU) was finalised by the NIMC separately for both three tier cooperative credit structure and two tier cooperative credit structure.

• It has been reported that a number of States extended ‘in principle’ acceptance to the Revised Revival Package as recommended by the Task Force and accepted by Government of India. 25 States reported to have been executed the MOUs with Government of India and NABARD. They are Andhra Pradesh (29 August 2006), Bihar (15 March 2007), Gujarat (21-12-2006), Haryana (20 February 2007), Madhya Pradesh (07 November 2006), Maharashtra (13 November 2006), Orissa (16 November 2006), Rajasthan (14 November 2006), Uttarakhand (30 November 2006), Uttar Pradesh (18 December 2006), Arunachal Pradesh (04 May 2007), West Bengal (21 June 2007) and Chhattisgarh (21-09-2007), Tamil Nadu (03 January 2008), Nagaland (03 January 2008), Tripura ( 21-01-2008) , Punjab (29-01-2008), Karnataka (25-03-2008), Jammu & Kashmir (07-04-2008), Meghalaya (15-04-2008), Jharkhand (12-05-2008), Assam (26-05-2008), Mizoram (27-06-2008), Manipur (30-06-2008) and Sikkim (01-07-2008).

• Cooperative Reforms

1. Acts Amended: Eight States, viz., Andhra Pradesh, Bihar, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Orissa and Uttar Pradesh have amended Cooperative Societies Act through the Legislative Process.
2. Proposed amendments vetted/being vetted by NABARD: Arunachal Pradesh, Chhattisgarh, Karnataka, Meghalaya, Punjab, Rajasthan, Tamil Nadu, Uttarakhand and West Bengal.
3. Special Audits:
4. Guidelines and formats were circulated to all participating States and over 1,180 master-trainers trained by NABARD on these guidelines. These master trainers trained field level departmental auditors.

1. Special Audit has been taken up in 61,936 PACS and fully completed in Andhra Pradesh, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Rajasthan and Orissa and is in progress in the other implementing States, which have signed MoU before January 2008. Training programmes are being conducted for starting special audit in States which have signed MoU after April 2008.

: 6.2 :

Status of special audit of PACS

@ The 2,441 PACS in 2004 were reorganised into 586 in 2006
# includes PACS ceded to Commercial Banks and RRBs
** Regular Audit completed only in 5310 PACS out of which special audit completed in 5275 PACS

• Special audit of CCBs:

Guidelines and formats for Special Audit of CCBs have been circulated along with FAQs on the subject. Special Audit of CCBs has been completed in Haryana, Rajasgthan and Orissa and is in progress in Andhra Pradesh, Maharashtra, Uttarakhand and West Bengal.