Bengaluru: Mounting financial stress among primary agriculture cooperative societies (PACS) has pushed the govt to reconsider its decision to cut their loan profit margins, with a proposal now on the table to raise it from 1.75% to 3%. The move comes amid declining financial support from National Bank for Agriculture and Rural Development (NABARD) and growing concerns over the viability of grassroots cooperative institutions that play a key role in farm credit delivery. The reduction in margins was introduced in 2024-25, but officials say the decision has strained PACS finances and many now face an “existential crisis” due to shrinking income streams. Many societies are struggling to meet basic operational costs such as salaries, office rent and even stationery purchases. “Karnataka has about 50,000 PACS but about 14,000 are defunct,” a senior cooperation department official said. “PACS are demanding an increase in interest share on govt-funded loans given to farmers at 0%. The cooperation department is seeking finance department approval to hike it back to 3%.” Responding during the recent budget session, chief minister Siddaramaiah said the state was reviewing the margin structure and is studying practices in other states. “Considering profit margins of 0.75%, 1.25%, 1.8% and 2% in PACs in Telangana, Andhra Pradesh, Tamil Nadu and Maharashtra respectively, officials have sought more information to increase investments in local PACs,” he said in a written reply. Siddaramaiah also acknowledged operational challenges faced by PACS but indicated that diversification could provide some relief. “As per Prof Vaidynanathan Committee recommendations, PACs that fall under NABARD have been asked to introduce ‘capacity to pay’ norms and set aside 0.5% of profit margins for human resources,” he said. “However, with profit margin reduced to 0.25% there has been a slight reduction in available resources. But this cannot result in PACS closing down.” To strengthen revenue streams, the govt is encouraging PACS to expand into allied activities such as running Jan Aushadhi centres, multi-service outlets, Kisan Samriddhi Kendras, warehousing and fuel distribution. The financial strain has been compounded by a sharp fall in NABARD assistance. Funding dropped from Rs 5,600 crore in 2023-24 to Rs 3,236 crore in 2024-25, impacting the interest subsidy pipeline to the cooperative sector. Allocations for 2025-26 are yet to be finalised. “NABARD has again not given any indication on the extent of funds it will release to the state this year,” officials said. “It appears the state will have to step in to provide financial assistance to farmers and farming cooperatives.” The proposed revision in margins is now seen as a key step to stabilise the cooperative credit system as the state weighs a larger role in rural finance.
