Cooperative Banks - Rural – Operational Excellence and Leadership

 

Cooperative Banks - Rural – Operational Excellence and Leadership

 By                   Dinesh K Kapila, CGM (Retd) NABARD

(written for the HPSTCB, For their souvenir, National Cooperative Conference, Sept 2025). 

Maintaining a viable market share with a sustainable profitable profile has been a challenge for  rural cooperative banks (RCBs). Committees have repeatedly stressed the subject of revival and operational viability in coop banks, through recommendations for regulatory changes, financial re-engineering, digitization and computerization, the SSE for digitized services with improved  credit underwriting standards, fintech collaborations, etc.    

 These are well conceived initiatives and policy decisions. However the actualization in terms of results is often not as envisaged. Can such initiatives drive the growth of business on scale. Can the RCBs re-discover themselves with a focus on agri-business lending, agri value-chain financing, digitalization of KCCs and so on.   The cooperative banks certainly require a restructuring in their ethos, management, organizational structure & culture, operational systems and leadership. These gray areas are often pushed to the background.  

The concept of operational excellence for  RCBs must in addition transcend a pure focus on efficiency metrics. In the cooperative context, excellence in operations is a synergistic approach that balances the pursuit of efficiency, innovation, business orientation and market dynamism with the foundational principles of equity, inclusivity, and social welfare. It’s a member controlled enterprise. Achieving excellence for these institutions implies being financially sustainable and competitive while remaining deeply rooted in their community-oriented mission.

The drive toward operational excellence is by leveraging modern tools and governance practices to empower RCBs to fulfill their unique social mandate. The regulatory or administrative structure has to lay down the parameters but resist the dependency syndrome. Merely tinkering with the structure will not be optimal, reorientation is a prerequisite even at the lowest tiers. The Government or Regulators have to facilitate this drive to re-orient from within the structure. The National Cooperative Policy emphasizes a conducive legal and regulatory environment to promote autonomy, transparency, and good governance.  This is the policy, the practice requires a respect for the policy, the concept and processes. 

The core issue is Good governance, a major impediment is a fragmented governance and regulatory framework.  Flawed governance structure leads to poor management quality and ultimately, to poor financial performance. This dual authority creates significant coordination and management problems, and often allows for political influence to hinder the autonomous growth of these institutions. The absence of strong corporate governance and professional management has been identified as a major factor plaguing the sector. Business and Recovery along with Transaction Costs are the key result areas and this needs to be appreciated by the political leadership and the government. The Cooperative Department may adopt an arms length distance and opt for a  business oriented analytical approach in reviews and in overseeing planning and strategizing.

Leadership in a RCB is driven by a fusion of professional managers and democratically elected representatives. These leaders are tasked with the delicate balancing act of achieving economic performance while upholding the cooperative's core values of social responsibility and inclusivity.

Self confidence in their banking model through the mode of a cooperative  is required amongst the staff. On recruitment it should be clear they work for a Bank which is a cooperative institution and not the State Government. That divide from the State Government and its mode of functioning has to be enforced. And the staff must understand across all hierarchies that banking is a service and a business and carries a certain risk. Responsibility to their members and customers in terms of financial returns, duly benchmarked, even by targets, should be accepted.

      Brand Equity has to be built up, this is a prerequisite for any business and cooperative banks are no exception. Cooperative Banks have to evolve as a strong favoured brand, have a compelling logo, mission and vision, work on the perception of customers. Build that circle of trust with the community. Be present on the visual and social media, with local success stories. This strengthens the human resources by way of motivation too.  

      The Government Departments have tended to dominate the manpower at the leadership level in most cooperative banks. This brings in the bureaucratic mode of functioning. Most cooperative banks have a structure and the pay scales as in the State Government and an equivalence in decision making and work culture. The ethos this brings does not suit the requirements of a professional cooperative banking culture. The staff has to be of professionals across hierarchies and even officials on deputation should be screened for adapting to the organizational culture and ethos. A system which rewards achievers and encourages a drive for business needs to be embedded.  And incidentally the frequent shifting of the CEOs and Branch Heads is a barrier in effective working.

       The professionalization of management is non-negotiable for the future success of RCBs. Weak corporate governance must be addressed by implementing robust management practices. One approach, as suggested by past committees, is to create a new organizational structure that segregates the ownership of the bank (as a cooperative society) from its functions as a bank.      The Board must have a sense of ownership and for driving business . They require training and sensitization.

While we often get focused on governance, we overlook inculcating a commercial orientation. A product orientation, a process orientation, a sales cum marketing orientation, as also a customer and competitor orientation. This is the fulcrum. The lever.  We have to create this business orientation, else initiatives such as multi purpose PACS can again face challenges in the long term. An orientation for data, including of  customer feedback, preferences, and trends is also to be embedded. Business growth has to be led by the internalized acceptance for the optimal use of technology.

The reluctance to adopt new technology is not solely due to financial constraints or the complexity of implementation; it is a deep rooted cultural and institutional issue. It’s a "resistance to change" and a general lack of digital literacy among both bank staff and their customer base in rural areas.

Recruitment and retention of skilled personnel are inconsistent. This absence of a standardized framework and HR policies tailored for RCBs  affects critical areas such as manpower planning, training, and career progression. Some simply adopt the State Government rules. Attracting and retaining talented young professionals is crucial to revitalize the sector, as they bring fresh perspectives and a readiness to embrace technology. Recruit the talent specifically sought for as per the functions and products and train accordingly. Mix the new talent rationally with the existing manpower specially to reduce the friction of the old guard with the new. Professionalise Human Resources as a Service Department. 

The Boards are often wary of drilling down on market share, be it State or District level, assessing the growth rate of varied products and services in the region / sub region and particularly in the rural and semi urban areas versus  their own achievements, or the scope and potential for improving market share or margins. That sense of ownership and driving a business based on the trust of members for mutual benefit is often missing.  Extensive awareness sessions should be the norm post elections. Including for professional directors.  

Hierarchy levels are to be redefined as per the competitive scenario with a product oriented organizational structure and a professional working culture. Introduce new products only after a clear understanding of its commercial aspects. A multi purpose society does not imply a menu of products and services, unless the market is there or can be seeded. 

Banking is evolving and a multitude of Fintechs, start ups, SFBs, NBFCs and MFIs focus on rural areas and semi urban areas for expanding their market share. This shall only be at the cost of the cooperative credit system which has already ceded major share.. A comprehensive training roadmap is necessary to equip the bank staff with the quantitative and technical skills required for a digital-first environment. This includes a strong communication and change management plan to create a conducive culture receptive to new processes and technologies. Incentives for upgrading professional knowledge with the Board considering professional training as an assessment tool for career advancement could be an option.

Member Apathy is a reality. The cooperative character of RCBs needs strengthening, evident by  low attendance at AGMs and low voter turnout for elections. The lack of active member participation can lead to a lack of accountability and a disconnect between the leadership and the needs of its members. The customers or rather members must be trained and then the training reinforced on the essence of the spirit of cooperatives, the mode of functioning, the need for active participation. DCCBs and  PACS should organise training of members of half a day at least twice a year. On the  services and business, repayments, recovery,  diversification, productivity, credit, inputs, extension and financial products. To overcome the challenge of digital illiteracy among customers in rural areas, banks must engage in awareness campaigns and training programs that help members effectively use digital payment systems and other new services.

Relationship building is the key. Often neglected. Farmers and artisans require the comfort of a physical interaction to enable trust and mutual faith. The RCBs and PACS are their own should be the thought by default.   The pathway, incremental, to reorient, needs a nuanced understanding of the business and the market and the need for effective policies, cultural, human resources, commercial, marketing and financial.

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