Cooperatives

What ails cooperative banks?

G. Srinivasan Cooperative banks suffer from a congeries of maladies ranging from member apathy, duality of control by State governments and the Reserve Bank of India, low recovery rates and weak financial position, besides failure to modernise systems and procedures. It is time both the Centre and the States braced themselves up to institute reform milestones and pursue them vigorously. IN THE aftermath of the outcry raised over the securities scam in cooperative banks and the failure of the Central regulators in May 2002, which also rocked Parliament in the post-Budget session, the focus on cooperative banks and how to beef up their brittle base through corporate governance are but in order. The crux of the controversy relates to the seven cooperative banks in Maharashtra, which had entered into fraudulent deals in government securities. The banks disbursed the amounts to brokers purportedly for acquiring government securities but no such securities were acquired or delivered with the amount involved ranging from Rs 5.40 crore in the case of Raghuvanshi Urban Cooperative Bank to a massive Rs 153.04 crore in the case Nagpur District Central Cooperative Bank. Dispassionate analysts attribute the problems plaguing the cooperative banks to mismanagement, financial impropriety, jejune investment decisions and the burgeoning distance between members and their cooperative banks. Cooperative banks suffer from a congeries of maladies ranging from member apathy, duality of control by State governments and the Reserve Bank of India, lack of quality governance and professionalism among staff, attenuated internal controls and audit, low recovery rates and weak financial position, besides abject failure to modernise systems and procedures. What is particularly salutary is that despite these deficiencies, cooperative banks have been able to expand credit deployment in the rural areas, as their annual growth rate of credit flow was 15.5 per cent in...