productive investments benefitting the society in large. lack of hr policies and professionalism 17. the quality of human resources is an important determinant of the success of any organization. this aspect, however, has not received due importance in the cooperative institutions. the cooperative banks are headed by a committee of elected members who are not professionals and do not possess sound knowledge in banking functions. the committee takes crucial business decisions involving sanction of loans, investments, interest rates on deposits and loans, etc. which require a minimum degree of skill and expertise. often, the role of chief executive officers in these areas is minimal. 18. cooperatives do not have well defined capacity building and hr policies in crucial areas like recruitment, placement, training, career progression, succession planning, etc. recruitments are done without any objective and systematic manpower assessment. all these have led to inefficiency and lower productivity. though there is a system of training in place in many cooperative banks, there is no need - assessment to align training with the current and future staff requirements. training programs should be designed to achieve skill upgradation in areas related to audit and expenditure, management and aptitude development. it is also necessary to keep the staff sufficiently motivated through periodic job rotation, job enrichment and recognition of performance. poor recovery performance 19. frequent loan waiver announcements by governments aimed to garner electoral support have vitiated the credit discipline among the borrowers and affected the recovery atmosphere. the resultant weak finances, growing npas and poor resource base have contributed to the declining performance of the cooperatives, particularly at the grass root level. since these grass root institutions depend on liquidity support from higher financing bis central bankers ’ speeches agencies like state and central cooperative banks, non - payment of dues impairs the financial health of the entire chain. inadequate internal control and audit 20. cooperatives do not pay attention to implementation of adequate and foolproof internal checks and control. balancing of books and reconciliation of entries are in arrears for unduly long periods. as a result, there is frequent incidence of frauds involving the staff who game the system. very often, these cases are held up due to protracted litigation in courts of law and the guilty are not brought to book. there is absence of effective audit mechanism. there are delays in the conduct of audits and submission of reports. quality of audit leaves much to be desired in as much as it fails to address the gaps in the systems and processes and

, which posed a systemic risk. in order to protect the interests of the general public and also that of the other co - operative banks, rbi issued directions to the bank restricting certain operations ( acceptance of fresh deposits, restricting payments to any single depositor to rs. 1000 and ban on fresh lending ) and requisitioned the central registrar of co - operative societies, new delhi to supersede the board of directors and appoint an administrator. an order of moratorium was also enforced on the bank by the central government for a short period. the bank was subsequently placed under a scheme of reconstruction with the approval of reserve bank of india. 29. the gujarat episode was followed by another major crisis in the state of andhra pradesh in 2002, when one of the largest co - operative banks in the state faced a run, following a newspaper report regarding an inquiry instituted into the affairs of the bank by the state registrar of cooperative societies. the bank was in a weak position, and ultimately, after attempts for its revival failed, its licence was cancelled by the reserve bank in 2004. 30. the decline in public confidence in the ucb sector, deepened in the aftermath of the crisis in gujarat and andhra pradesh and concomitantly, the position of ucbs generally deteriorated. as on june 30, 2004, 732 out of 1919 ucbs were categorised in grade iii or iv signifying weakness and sickness. with a view to facilitating consolidation and emergence of strong entities and providing an avenue for non - disruptive exit of weak / unviable entities in the co - operative banking sector, rbi had also issued guidelines in february 2005 to the ucbs to encourage merger / amalgamation in the ucb sector. although the banking regulation act, 1949 ( as applicable to the cooperative societies ) does not empower reserve bank to formulate a scheme with regard to merger and amalgamation of co - operative banks, the state governments have incorporated in their respective co - operative societies acts a provision for obtaining prior sanction in writing, of the rbi for an order, inter alia, for sanctioning a scheme of amalgamation or reconstruction. the reserve bank ’ s role in the merger of the cooperative banks is, thus, confined to the examination of only the financial aspects of the scheme of merger and to protect the interests of depositors of the banks concerned as well as ensuring the stability of the financial system while considering such proposals. subsequently, recognising that the ucbs are an important part of the