Kerala CPI(M) makes damage control bid to protect cooperative banking sector

With instances of Kerala’s cooperative banks failing to return investors’ funds making headlines, the Left Democratic Front government must initiate damage control to keep the public's favour, as most of the cooperative banks are under the CPI(M)’s control.

Financial crises being reported by many of the state’s 16,000-odd cooperative societies in Kerala has given the party reasons to worry, as over the last few years, many of these banks failed to return individuals’ deposits.

Kerala has 16,112 cooperative societies listed with the registrar of cooperative societies, of which as many as 690 are under liquidation and 3,157 are dormant as of March 2021. The total investments in the state’s cooperative sector are estimated to be around Rs 2.5 lakh crore.

The failure to return deposits by these banks has led to strong protests and emotional scenes. Recently, the situation got aggravated with the news that a 70-year-old woman died, because she couldn’t afford specialised medical care as a cooperative bank, in Thrissur district, failed to release a portion of the family’s deposit of Rs 30 lakh.

As per a reply recently given by Kerala cooperation minister V N Vasavan in the state assembly, 164 cooperative societies in the state were unable to return funds to investors because of financial crunch.

These developments have triggered concerns among thousands of depositors in these banks, forcing the state government to initiate a slew of confidence-building steps. The matters haven’t been made easy with allegations that cooperative banks are misused by politicians—to stash unaccounted money, as well as to influence voters by offering them monetary benefits.

These banks also came under the scanner during demonetisation because of the steep increase in the deposits. The Centre then imposed restrictions on currency exchange by the state’s cooperative banks.

The CPI(M) and the Congress had jointly staged demonstrations against it.

One of the damage control measures, as informed by Vasavan, was protection of the deposits in cooperative banks registered with Kerala Cooperative Deposit Guarantee Fund Board. He said that protection of the deposits was increased to Rs 5 lakh from Rs 2 lakh. He also said that amendments would be made in the cooperative laws to make governing bodies of the cooperative societies legally liable for any malpractice.

At present, legal actions are limited only to secretaries and officials. The auditing systems of the cooperative banks are also being strengthened, said the minister.

Although the Reserve Bank of India barred cooperative societies from using the term “bank”, most cooperative societies—especially the primary credit societies—continue to refer to themselves as “banks”.

Cooperative societies attract more deposits by offering higher interest rates, unlike that of nationalised and scheduled banks. These societies also offer loans and credits more easily, when compared with other banks. Thus, they attract more creditors, even though their credit rates would be higher when compared to other banks.