Computerization of PACS –Models, Approaches, Strategy and Issues:

1. Background
2. Introduction
3. Current Scenario & Need for
Computerization
4. Model used
5. Approaches
6. Strategy
7. Issues
8. Conclusion

1. Background:

          India is an agricultural country in which still 54.6 percentage of the total
workforce in the country is still engaged in agriculture. Though there are
difficulties created by COVID-induced lockdowns, there is robust growth in the
agricultural sector. India, a country with a population of more than 1.3 Billion
the agricultural growth rate has crossed 3.4% at constant prices during 2020-
21. This was mainly due to various measures and schemes formulated by the
Government of India and announcements made under Atma Nirbar Bharat
Abhiyan. For the Financial Year 2020-21 agricultural credit flow target was fixed
at Rs.15,00,000/- Crores. The agricultural credit was given by the Commercial
Banks, Co-Operative Banks, etc and the Co-Operative Banks provide agricultural
credit through Primary Agricultural Credit Societies (PACS) which are
predominantly located in villages.

Primary Agricultural Credit Societies (PACS) are the primary level

institutions in Short term Co-Operative Credit Structure which came into
existence as a replacement for money lenders and to curb the evils created by
them. PACS provides loans and other financial services to their members,
develops the habit of savings among members and promotes agricultural
development, Apart from this PACS also acts as an implementation agency for
various welfare measures announced by the government. Crop loans were
issued by the PACS which is very much helpful for the poor farmers to detach
themselves from the clutches of money lenders who charge exorbitant interest
rates. In India, PACS constitutes more than 90 % of the total primary
agricultural societies.

          PACS mostly operate in rural areas where the people have no access to
Banking facilities. Some functions of PACS are furnished below:-

         Collect applications from the members relating to the cropping

pattern and loan amount required by them and disburse Crop loans
to their members who are mostly farmers.
          To prepare the loan application to DCCB on the cumulative loan
amount needed by the members and disbursing the sanctioned loan
to members.
         To borrow the loans from DCCB and disperse other loans like
consumption loans or jewel loans.
         To collect the share capital and deposits from the members and
inculcate saving habits among the rural people
         Provide storage and marketing facilities to the members
         Distribution of essential commodities like rice, sugar, wheat,
kerosene to rural people and act as a government agent, by
implementing public distribution system.
         Provide fertilizers and seeds to the members at the time of
disbursal of crop loans.
         Provide other financial services to their members.
National Bank for Agriculture and Rural Development (NABARD) was
established on July 12, 1982, which has the power to deal with all matters
concerning policy, planning as well as operations in giving credit for agriculture
and other economic activities in the rural areas. It is a refinancing agency for
those institutions that provide investment and production credit for promoting
several developmental programs for rural development. It is improving the
absorptive capacity of the credit delivery system in India, including monitoring,
formulation of rehabilitation schemes, restructuring of credit institutions, and
training of personnel.
Any restructuring made in PACS is done only through NABARD guidelines
and support. Recently Union Home and Co-Operation Minister Shri. Amit shah
announced that the number of primary agriculture cooperatives (PACs) will be
increased to 3 lakh in the next five years. Currently, there are about 65,000
PACs and also emphasized the need for strengthening and technological
modernization in the Co-Operative sector. The government is setting a target to
establish a PACS in every second village in the coming five years to cover almost
every villages in the country.
In order to achieve this PACS should be modernized at par with Banks and
should be computerized to provide priority sector lending to every section of
people especially in rural areas.
2. Introduction:

          Short Term Cooperative Credit Structure comprises of Three Tier

structure and in some states comprises of Two-Tier Structure. In three-tier
structure

1.   State Cooperative Bank (StCB) at state Level

2.   District Central Cooperative Bank (DCCB) at District level
3.   Primary Agricultural Credit Societies (PACS) at village level
 In two-tier structure, State Cooperative Bank and District Central
Cooperative Banks are combined together as a single entity at the Apex (StCB)
level and Primary Agricultural Credit Societies (PACS) at the village level.
PACS have occupied a prominent position in agriculture credit and they have
been the building blocks of rural cooperative banking in India, for over a
hundred years. Credit cooperatives had a dominant role in purveying agricultural
credit, with a share of more than 60 percent in 1950s  which, over time, declined
sharply to 14 percent due to the increasing share of commercial banks (74
percent) and Regional Rural Banks (12 percent).
Information Technology (IT) is very powerful in today’s world, and financial
institutions are the backbone of the Indian economy. Indian Banking Industry
today is in the midst of an IT revolution. Nearly, all the commercial banks in
India are using information technology-based solutions. The application of IT in
Banks has reduced the scope of traditional or conventional banking with manual
operations and because of that banks in India have witnessed a radical change
from 'conventional banking to convenience banking'. Nowadays banks are using
core banking solutions (CBS) for providing better services to their customers.
Today, they are poised for 'digital banking' at an expeditious pace but such kind
of innovation was not seen in PACS.
The need for the computerization of PACS is in-evitable because the PACS
has a huge membership of over 13 Crores from more than six lakh villages in
India. Due to its vast membership when the PACS are combined together it
forms India's largest rural financial system. The PACS are present at the grass
root level of the country. Apart from this other than PACS there are many other
types of societies which are formed for various sections of people Labour
Contract Co-operative Societies, Barber Co-operative Societies, Physically
Handicapped Co-operative Societies, etc which are created for the benefit of its
members. In order to achieve priority sector lending targets and to monitor rural
credit flow PACS have to be computerized.
In Tamil Nadu co-operative Credit structure Comprises of three Tier
Structure. Though there are 4450 PACS in Tamil Nadu they are not at all fully
computerized and many of them are still following the traditional manual
banking method. This causes many problems in maintaining records and as well
as providing services to the customers. This also causes leakage of Income,
misappropriation of funds, need for more manpower, low productivity, low
profitability, etc.
The following case study emphasizes on Computerization of PACS- its
Models, Approaches, Strategy, and Issues with special mention to Tamil Nadu.
 
3. Current Scenario & Need for Computerization: 
In Tamil Nadu co operative Credit structure Comprises of three Tier federal
Structure.
1.   The Tamil Nadu State Apex Co Operative Bank (TNSC) at Apex
level
 2.   District Central Co Operative Bank at District level
3.   Primary Agricultural Credit Societies (PACS) at village level
These PACS are functioning as per the provisions of Tamil Nadu Co-Operative
Societies Act 1983 and are under the executive control of the Registrar of Co-
Operative Societies. The PACS are formed for the benefit of their members most
of them are farmers and economically weaker people in every section of the
society.
The activities carried out by PACS in Tamil Nadu are as follows:-
1)   Issue Crop loans after getting applications from members who are
mostly small and marginal farmers.
2)   Issue fertilizers along with crop loans to their members.
3)   Runs fair price shops to supply essential commodities and welfare
measures provided by Government to people.
4)   Provide storage and marketing facilities to members.
5)   Provide other financial services to members and promote the habit
of thrift.
6)   In Tamil Nadu Common Service Centres are opened in almost
every PACS to provide various services to people and act as a bridge
between Government and People.
          Though PACS provides a number of services to people many of them are
still following Traditional accounting methods such as usage of ledgers,
daybooks, Chitta, etc. in paper-based records. Accounting of entries is done
manually by Staff. It is also very difficult to gather information in every aspect.
There are no ways to check or validate the details provided by the members.
There are possibilities for unjust enrichment of a single person at the expense of
others / Government funds.
          Without Computerization, the accuracy, data integrity are also very low.
With a smaller share of 11 percent of total agricultural credit, cooperatives are
covering 19 percent of farmers (2.60 crore accounts), reflecting better coverage
of small and marginal farmers. The share of small and marginal farmers in total
loan amount disbursed by cooperatives is 69.7 percent as against 47.3 percent
in respect of commercial banks as of March 31, 2020. What is more significant
is, the number of members from the marginal farmers category supported by
cooperatives has gone up from 5.52 crore to 6.73 crore and borrowers from 2.20
crore to 2.28 crore in 2019 as compared to 2018.
          With the existing system, a target of 3 lakh PACS in the next five years
set by the Government of cannot be achieved without computerization and also
there are possibilities for misappropriation, problems regarding their entire
operations. Now in Tamilnadu, more than 90 percent of PACS use accounting
software, but they are restricted to that use /view details within that society
only. The regulatory authorities have to depend on PACS for getting the required
information and the authenticity and accuracy of the data cannot be verified by
the regulatory authorities.
           For example, In the case of crop loans, the Government provides interest
subvention and interest subsidies for the farmers who repay the loan promptly.
In Tamilnadu, now crop loans are only issued through PACS and for issued KCC
loans, PACS gets refinance from DCCBs. Now For the loans issued through PACS,
DCCBs issue KCC debit cards and credit the loan amount as per the limit
sanctioned. But the recoveries in crop loans are only accounted for in PACS. So
monitoring becomes difficult for Crop loans issued. Loans are issued depending
upon the crop they have cultivated and the survey number of the Land. But
there are no digital records for the survey number to which the loan is provided.
Hence the customer can get loans from PACS and for the same land, he can get
crop loans from other commercial Banks also. So loan documentation and
collateral have to be maintained in the digital ledger and those data should be
shared with other financial institutions to prevent customers from getting
multiple credits for the same land.
          Under this system, cash was used for transactions and thus it deviated
from The Reserve Bank of India's Payment and Settlement Systems in India:
Vision-2018 aimed at building best of class payment and settlement systems for
a ‘less-cash’ India. Such things can be avoided only if the entire PACS records
are computerized.
 
4. Model used:
          In Tamilnadu, TNSC Bank and all 27 DCCBs use TCS BaNCS core banking
software suite developed by Tata Consultancy Services. The TNSC Bank also
coordinates all the core banking software support to DCCBs. The TNSC Bank
provides refinance facilities to PACS through DCCBs and also directly to DCCBs.
The TNSC Bank also provides financial aid to nonviable PACS and DCCBs and
help them. In Tamilnadu, TNSC Bank stands as the backbone for the entire Co-
Operative Credit structure. It provides instant support for the sick PACS and
DCCBs and try to make them viable.
          In the proposed model for PACS computerization, the entire fund flow
from Government to People through PACS is monitored through Apex Institution.

Apex Bank

DCCB DCCB DCCB

PACS PACS PACS PACS PACS PACS

 In this model, the Master Data of the PACS have to be stored in a cloud
server. Each PACS has to record transactions and can make modifications in
Master Data only through proper authentication on a real-time basis. After
making End of the Day all the consolidated data can be viewed by DCCBs and
Apex Bank which in turn can be monitored by NABARD.
The PACS has to record every transaction with proper compliance from
members. The PACS can provide credit/deposit facilities to their members only.
All the PACS members can be made as associate members of DCCBs and the
PACS' customers can be provided with banking services such as Debit cards, UPI
services, etc through DCCBs. If any credit facilities such as Jewel loans,
Mortgage loans, etc are provided by PACS to its members, the funds can be
transferred directly to the borrower's account electronically (RTGS, NEFT, etc)
and hence it reduces cash operations. In case of loan recovery also, the PACS
can request money through UPI from members and can transfer the same to
loan accounts.
When the PACS can adopt funds transfer through digital methods it can save
itself from the deduction of TDS under section 194 N of the Income Tax Act. This
will enable the PACS to provide quick services to their members and hence it is
very much helpful in the process of financial inclusion.
The PACS should undertake transactions after getting proper KYC from
members. For every Government sponsored subsidy scheme the PACS has to
record transactions very carefully to obtain subsidies without hindrance.
For example, In the case of crop loans, the PACS should provide loans after
getting details from farmers such as survey number, Patta number, etc. along
with Aadhar details. While providing interest subvention for prompt repayment
the amount can be transferred directly to the beneficiaries after verification. If a
beneficiary availed loan for the same land in any other Bank the Government
can reject interest subvention for the other loan.
The PACS should be computerized in such a way that details of every loan
issued through them should be shared with credit rating agencies. Since the
PACS does not have a Banking license it may use the DCCBs to provide seamless
banking services to their members. Interest subvention can be given be
provided directly to the eligible farmer's account.
    In this model of integration, the position of PACS can be monitored by
every financing / regulatory authority. TDS and other Income Tax-related
provisions can comply efficiently under this model. The PACS can also provide
facilities for the payment of EB Bills, water charges, property tax, etc through
digital means. Various welfare measures such as PM-Kisan Samman Nidhi,
Insurance claims, etc can be settled very efficiently if the same was followed.
For KCC loans, the insurance can be collected and remitted at the time of
loan issue and the claims can be settled very easily under this model. The
software modules are to be designed in such a way that there should be
separate modules for Government-sponsored schemes and General accounts.
 The PACS will also runs fair price shops and supply essential commodities
and fertilizers. All such transactions are to be computerised and accounted. This
will increases transparency.
The software modules in PACS computerisation shall be created as per
NABARD instructions which consists of
 KCC module
 Deposit Module
 Loan Module
 Audit Module etc
If computerization was done in a proper way the PACS will reach the targets
fixed by the Government and effective monitoring and credit control can be done
easily.
5. Approaches:

Computerization in PACS will require new and innovative approaches. The

modules should be developed in such a way that it should meet up the routine
work of the employees so that the data can be feed up to the computers without
errors. The concept of design and network should be conceptualized based on
the requirements of regulatory agencies such as NABARD, RBI etc. Technologies
should be enhanced to expand the range of PACS working methods with greater
flexibility and design. Each PACS has its own set of operations and business
methods. The software design should act as catalyst to enhance work flows. The
software developed should have provisions for updating to latest technologies in
future. The software developed should be multilingual and it should support at
least one regional language. The user manual should be prepared in such a way
that it should be clear and understandable.

6.Strategy:

The computerization of PACS included a number of strategic components.

The strategic components, includes module designs, managerial concerns,
technological investment and organizational structure are revealed and
evaluated. Various operations of the PACS are to be studied and Based upon the
results of this study, a computerization strategy framework is developed for
PACS to gain competitive advantages. Various risk factors such as Information
Security policy, cyber security policy have to be processed and it should fulfil the
legal and operational requirements.

Various logs/ incidents in real time should be monitored and alert should
be made in case of any breach insecurity. The PACS computerization includes
various risk factors such as

 Physical threats - resulting from physical access or damage to IT

resources such as the servers. These could include theft, damage from
fire or flood, or unauthorised access to confidential data by an employee
or outsider.
 Electronic threats - aiming to compromise your business information - eg
a hacker could get access to your website, your IT system could become
 infected by a computer virus, or you could fall victim to a fraudulent
email or website. These are commonly of a criminal nature.
 Technical failures - such as software bugs, a computer crash or the
complete failure of a computer component. A technical failure can be
catastrophic if, for example, you cannot retrieve data on a failed hard
drive and no backup copy is available.
 Infrastructure failures - such as the loss of your internet connection can
interrupt your business - eg you could miss an important purchase order.
 Human error - is a major threat - eg someone might accidentally delete
important data, or fail to follow security procedures properly.

All the risks have to be mitigated and policies have to be formulated and it
should be approved by the regulators since the Computerization of PACS have
effects in public funds.

The computerization of PACS should have baseline controls such as

 Inventory Management of IT Assets

 Preventing execution of unauthorized software
 Network management and security
 Configuration Management
 User access control / management
 Vendor management
 Secure Mailing System
 Restricting usage of external memory devices
 Log Maintenance

7.Issues:

8. Conclusion: