Audit, monitor Kerala’s co-op banks
The massive loan fraud in the Karuvannur Service Cooperative Bank in Kerala’s Thrissur district is an example of how such institutions, spread across the length and breadth of the country, have become tools of financial malpractice in the hands of a few. It emerged that the bank employees formed a cartel and availed loans to the tune of Rs 300 crore by illegal means. While a preliminary audit confirmed a `104-crore scam and an investigation is underway, the state government has suspended 16 employees of the cooperation department for lapses in monitoring the bank’s activities. These banks cater mainly to their members and deal in small amounts. However, many have expanded their business over the years and now compete with public sector and private banks. With political control and vested interests coming into play, most are no longer under the control of their genuine members.
They are registered as Primary Agriculture Cooperative Societies in the state as per the Kerala Cooperative Societies Act of 1969, and hence don’t come under the RBI’s ambit. More than 15,000 such cooperative societies are active in Kerala and they collectively service deposits worth Rs 72,000 crore and loans over Rs 50,000 crore. The Registrar of Cooperative Societies, the regulatory body here, has a network of officials tasked with conducting regular audits for checking malpractices. But the whole system reports to the state cooperation minister and hence is susceptible to political manipulation. In the Karuvannur case, the officials sat on an internal probe report that exposed the fraud for over nine months.
On its part, the state government has decided to amend the Cooperative Societies Act to add more teeth to check financial malpractices. But what is needed is an independent regulator on the lines of the RBI. The proposed amendment should redefine the registrar’s role as an independent regulator and auditor. Instead of appointing government officers for the post, eminent banking professionals need to be roped in. Frauds like these have the potential to erode people’s faith in the cooperation sector. Professional mentoring and flawless auditing will help make them more trustworthy and re-emphasise their constructive role in society.