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The Hindu
The Hindu
Comment
T. Nandakumar

Fixing the rot in the cooperative sector

The financial irregularities in the Karuvannur Service Cooperative Bank in Thrissur and the allegations of money laundering, now under investigation by the Enforcement Directorate, have blown the lid off a scandal that has struck at the very roots of the cooperative sector in Kerala. The crisis has left the Communist Party of India (Marxist)-led government floundering for a solution.

The scale of the problem became apparent when reports trickled in that several cooperative institutions had failed to return deposits on maturity, and depositors had begun queueing up for their hard-earned money. The loan scam at the Karuvannur Bank that triggered the mess came to light when customers began complaining that they were lured into a debt trap by middlemen. The ED investigation later found that the middleman named as the main accused in the Karuvannur loan scam had laundered money through other cooperative banks too, mostly controlled by the CPI(M). The agency recovered unaccounted money worth several crores that the middleman had deposited in other banks and froze his accounts.

The CPI(M) found itself on the defensive when the ED arrested a local party strongman in connection with the money laundering case. The party responded by unleashing a scathing attack on the agency, accusing it of plotting to discredit the cooperative movement in Kerala for political objectives. The ED’s repeated questioning of former minister A.C. Moideen and the vice president of the Kerala Bank, M.K. Kannan, has had the CPI(M) with its back to the wall. Chief Minister Pinarayi Vijayan blamed the ED for amplifying the Karuvannur scam to malign the cooperative sector in the State.

The Opposition United Democratic Front expressed solidarity with the investors and launched a broadside against the CPI(M), accusing it of coddling scamsters to shield tainted party leaders. But allegations of financial misappropriation in other cooperative institutions controlled by the Congress, the Indian Union Muslim League, and the CPI have only served to muddy the waters.

The rot in the cooperative sector became apparent last year when the government informed the Assembly that financial irregularities had been detected in 399 cooperative institutions over a period of six years. But the failure to act on this red flag and repair the damage has now made the situation more problematic.

The cooperative sector in the State has a two-tier structure. At the apex level is the Kerala Bank, which was formed with the merger of 14 district cooperative banks. Hundreds of primary agriculture cooperative societies and urban cooperative banks make up the second tier. The Kerala Bank has deposits to the tune of ₹70,000 crore. The deposits in the primary societies are estimated to be more than ₹1,00,000 crore, which points to the magnitude of the crisis.

With the parliamentary elections fast approaching, the government has repeatedly sought to allay the fears of depositors and promised that their investments would be protected. But the fact remains that precious little has been done to address the main issues plaguing the sector. All the societies and urban banks are controlled by local politicians with no professional expertise, and backdoor appointments are common. The lack of a proper auditing mechanism and the absence of transparency in the functioning of cooperatives are other major failures responsible for the current crisis that has severely eroded the credibility of the sector.

The government and the CPI(M) have launched a damage-control exercise focussed on finding the resources to return money to depositors. But with panic setting in among thousands of investors in cooperative institutions, quick-fix solutions cannot address the deepening crisis in the sector.

The government has to fix responsibility for the scam and ensure that the culprits are brought to book regardless of their political affiliation. The system needs to be thoroughly overhauled. Professionalism and a proper auditing system will have to be put in place to restore public confidence in the sector. In the absence of such measures, the Kerala government’s opposition to the Central government’s interventions in the state cooperative sector will be seen as mere political rhetoric.

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