Cooperatives: A scam-ridden cooperative ‘bank’ in Kerala and the state government’s proposed ‘bailout’ is undermining public trust

The state government is reportedly exploring two active proposals to realise the Chief Minister's vision and restore the viability of the bank. (Representative image)

Cooperative societies in Kerala have played an undeniable role in fortifying the financial stability of the common populace. In comparison to scheduled banks and other financial institutions, these societies have provided increased flexibility for individuals seeking smaller, expedited monetary assistance, coupled with appealing interest rates on deposits – the very positive aspects that are now overshadowed by scandals within certain institutions, most notably the Karuvannur Service Cooperative Bank in Thrissur.

While the proportion of banks involved in financial misconduct remains relatively small compared to the overall number of societies, the consequential financial strain on the cooperative sector has the potential to destabilise the entire system. Notably, some of these societies persist in using the term “bank” in their name, despite not adhering to the banking regulations set by the Reserve Bank of India (RBI) and operating independently of its governance.

Superficial Probes

Most cooperative societies in the state, including the Karuvannur Bank, are under the control of the ruling Communist Party of India (Marxist). When the involvement of party leaders in the embezzlement came to light, the party’s swift dismissal that it was a fabricated narrative by the Opposition and media did not go down well with the public.

The ruling party conveniently overlooked an earlier admission by Minister for Cooperation VN Vasavan that an investigation had identified the unethical practices followed in the bank. Strikingly, the state's investigation sidestepped probing into party leaders and instead placed the blame entirely on certain staff members, which has been exposed by the ongoing inquiry by the Enforcement Directorate (ED).

CPI(M) secretary M V Govindan's cautionary message, urging party members not to betray their fellow cadres, foreshadowed a feeble but defensive stance. Chief Minister Pinarayi Vijayan acknowledged the presence of “black grains in a plate of white rice”, a metaphor that hinted at irregularities within the party.

Even as the leadership attempts to maintain a united front, the depositors who have entrusted their funds to the bank feel cheated due to the imposition of severe restrictions on cash withdrawal. This situation could potentially prompt customers of other cooperative banks also to reassess their investment priorities. This sense of uncertainty has added to the cloud of distrust surrounding the integrity of these institutions.

Bailout Funded By Taxpayers

Amidst all the chaos, Chief Minister Vijayan pledged to safeguard the interests of depositors and assured that not a single paisa would be lost. But where will the funds come from? Party leaders have allegedly misused the personal information of individuals to secure fake loans and diverted funds into their own personal accounts.

This would mean that many debtors listed in the bank’s records are not actual debtors at all. This misconduct eliminates the possibility of legally recovering loans issued by the bank, posing a substantial obstacle to the restitution of funds.

The government is reportedly exploring two active proposals to realise the Chief Minister's vision and restore the viability of the bank. The first option involves borrowing money from the Kerala Bank, which may not be a straightforward task under the current circumstances, and the second option entails utilising funds from the state's special package for the cooperative sector.

Robbing Peter To Pay Paul

While the special package aims to rejuvenate financially weaker societies, the current crisis in Karuvannur Bank stems from non-banking factors. If the government chooses to support such an institution, they will have to answer if similar measures will be taken for other banks facing comparable plights and whether there are adequate funds to support them all.

In essence, providing financial assistance to Karuvannur Bank will be tantamount to settling the liabilities accrued due to unethical banking practices, which will bring up the question of appropriateness in utilising public funds for such purposes.

Lack of public trust is not solely attributable to the misappropriation of funds but is equally influenced by the manner in which the state conducted its inquiries and protected its loyalists. The state’s mishandling of the issue has diminished the credibility and trust that the public had hitherto placed in cooperative societies across the state.

It's reasonable to assume that the destiny of Karuvannur Bank will create a ripple effect on other financial institutions in the cooperative sector. It will cast doubts on the work ethics of all institutions in the sector and contribute significantly to the public's scepticism regarding the fairness and impartiality of their administration.

In simpler terms, the orchestrated efforts of a few individuals have undone all the positive work accomplished by these societies over more than a hundred years.

Sreejith Panickar is a political commentator and an independent researcher. Views are personal, and do not represent the stand of this publication.