Munich Personal RePEc Archive

Measuring viability of pacs during reform period in Maharashtra: A case study

Shah, Deepak (2007): Measuring viability of pacs during reform period in Maharashtra: A case study. Published in: Journal of Rural Development , Vol. Volume, No. October - December, No. 4 (10 December 2004): pp. 435-450.

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The study showed a reduction in the operational efficiency of the selected PACS during the post-economic reform period as against the pre-economic reform period. The operational efficiency was measured in respect of various liquidity ratio, profitability ratios and financial leverage ratios. Not only the selected societies showed a decline in their current ratio, rate of return on assets, return on owner’s equity and Marginal Efficiency of Capital (MEC) but also showed higher dependency on lender’s capital for their finances. This dependency was seen to be higher in the case of ‘A’ graded society. Nonetheless, ‘A’ graded society showed an improvement in its permanent capital. Further, as for ‘A’ graded society, there was not much improvement in the net worth, and in fact the share of net worth in its total liability had declined in the post-economic reform period. The declining share of net worth had caused an increase in debt-asset ratio of this society during the latter period. The return on owner’s equity of the selected societies were seen to fall sharply during the post-economic reform period. Since the return on owner’s equity is a function of as to how efficiently a firm manages its assets, the net profit margin on sales and the degree of financial leverage, a reduction in this equity could, therefore, be considered as a sign of reduction in the efficiency of the societies in managing their assets and liabilities, and also income and expenditure pattern during the latter period as against the former period. The reform initiatives could be held responsible for this moribund state of cooperative credit sector. Due to unfavourable policy framework, much of the rural finances extended through cooperatives are now going into investment rather then extending loans to farming sector. The need of the hour is not to rely on the financial sector reforms but tackling issues such as sustainability of and viability of these credit cooperatives.

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