New Banking Bill deals big blow to Kerala's service cooperatives

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Kozhikode: The Banking Regulation (Amendment) Bill, 2020 passed by the Parliament recently is threatening the survival of the primary agricultural cooperative credit societies in Kerala which function as service cooperative banks.

Even though the state has a mere 1.7 per cent of the primary cooperatives in India, they hold 69.5 per cent of the total deposits in the country.  In fact, the amount lying in Kerala’s primary agricultural cooperatives is around Rs one lakh crore.

In the present situation, the new law would apply only to the 60 urban cooperative banks in Kerala and the Reserve Bank of India (RBI) should have to issue a special notification to bring the 1,624 service cooperative banks, State Cooperative Bank and Malappuram District Bank under its ambit.

Impact on banks, customers

'Bank' title gone: With the passage of the new Bill, service cooperative banks and agricultural-rural development banks can no longer use the term ‘bank’ in their titles. In short, they have to functional solely as cooperative societies.

Deposits from A class only: From now on, these cooperatives can accept deposits from and disburse loans only to their ‘A’-class members having voting rights. Till now, these banks have been accepting deposits from others, considering them as ‘nominal members.’

It is pointed out that deposits amounting to Rs 60,000 crore in the 1,624 service cooperative banks in Kerala belong to such nominal members and all this money would have to be returned to them under the new regulations. Of this amount, Rs 45,000 crore has been deposited by the service cooperative banks in the Kerala Bank. The return of all this money to depositors would hit the Kerala Bank also.

Cannot issue/accept cheques: Another new stipulation states that service cooperatives cannot issue or accept cheques and have to use withdrawal slips. The facility of accepting cheques of other banks and encashing them through District Banks has also been banned.

No 'mirror' accounts: Meanwhile, in yet another setback to cooperatives, the ‘Mirror’ accounts opened in district banks to enable farmers benefit from Central government schemes would no longer be available. Moreover, online money transfer services like RTGS and NEFT offered with the support of commercial banks will be stopped.

Voting rights: Only individuals as defined by the Cooperatives Act, the Government, federal organizations, self-help groups and local bodies can become members with voting rights under the new Bill. Deposits should not be accepted from religious bodies and similar organizations.

Urban banks

At the same time, the new regulations are a boon for customers of urban cooperative banks. People with a criminal record cannot become the chairpersons of the cooperative banks and RBI would have the authority to intervene the appointment of administrative council members.

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