Scams take sheen out of Kerala's cooperative sector

Representational image.

Thiruvananthapuram: The cooperative sector in Kerala is facing a vast trust deficit after being rocked by a series of scams like the recent financial frauds involving the Thrissur Karuvannur Co-operative Bank and the Palakkad Kannambra Service Cooperative Bank.

What is disheartening is that fraudsters are looting the hard-earned money of the masses who live on a shoestring budget to eke out some savings for the future. For that, the scammers plot conspiracies, forge fake documents, abuse power and position, and whatnot. Yet the officials tasked with tracking and preventing such irregularities feign ignorance to such happenings while the Department of Cooperation remains a mute spectator.

There are over 15,000 cooperative societies in the state, and the financial irregularities were reported only in a few of them. However, the sector in total is facing a considerable trust deficit.

The cooperative societies are struggling to keep afloat, managing challenges one after the other -- may it be the note ban, flash floods, Covid, or recession.

Yet, the sector was instrumental in rolling out flood rehabilitation projects, Care Home projects, Covid compensation, and the like, providing succor to people in trying times. Their role in making the government initiatives like KSRTC and welfare pension schemes a success is beyond doubt. However, the recent scams have taken the sheen out of the sector.

The situation demands an urgent intervention of the government, which should come out with stringent measures to stop the mafia, or else the damage to the state’s rural economy will be beyond repair. It should not remain a mute spectator to a handful of persons attempting to destroy the sector, defeating the sincere efforts of many popular individuals holding responsible positions in societies and that of hard-working employees.

The misuse of influence

It happened when the UPA government was in power at the centre. Then, the Reserve Bank of India restricted a Kerala-based Urban Bank, under the control of a Congress MP from the state, from granting or renewing loans. Despite having political clout, the bank could do nothing against the penal action. The restriction continued for months.

Think what would happen if the same was imposed on a cooperative bank in Kerala? Let the Cooperative Registrar, the highest authority of power with regard to Cooperative banks, issue such a directive. Due to high political pressure, the registrar will probably be forced to withdraw the order the following day. The example answers queries about why financial irregularities are happening in the state's cooperative sector. If one has political influence, they can even over-ride the directions of the highest authority in the sector.

A close analysis will reveal that all financial frauds in cooperative societies are similar, where the governing body members and the employees collude to commit the acts. Those who attempted to bring out the wrong-doings were cornered. The Cooperative Department, vested with powers to act in such situations, chose to ignore them.

The frauds have happened in the cooperative societies controlled by the LDF, UDF, and BJP factions.

The common people mainly depend on Service Cooperative Banks or Primary Agricultural Cooperative Banks (PACB). The state has over 1,600 PACBs. What is alarming is the fraud happening in a few PACBs and certain branches of the Kerala Bank.

Lakhs for 'non-existent' gold; crores against wasteland

What happened in the Karuvannur bank scam, termed the "biggest bank robbery” in the state, is a mix of the models of all small and big frauds that occurred elsewhere in the sector. Funds worth over Rs 300 crore were swindled by fraudulent practices such as extending loans in the name of non-existing persons, loans in the name of depositors without their knowledge, siphoning off money from customers’ inactive accounts, and passing loans to dear and near without pledging anything as collateral security.

Other fraudulent practices

  • The Narakathara branch of Kumarapuram cooperative bank in Harippad, Alappuzha, sanctioned a loan of Rs 1 crore against the names of 15 persons. Much of the loan amount, suspected to be taken through 'binami' dealing, was not repaid. An audit was undertaken, and suddenly the loan accounts got closed. When the authorities scrutinized financial transactions of the past two years, it was found the loan was passed in 32 cases without pledging any jewellery as collateral, resulting in a loss of Rs 85 lakh.
  • Allotting loans against properties with far less market value was what happened in the cases of Ettumanoor and Karappuzha service cooperative banks. When the Ettumanoor fraud came to light, the officials who went to seal the pledged land found it to be a wasteland.
  • A native of Aayavana took a loan of Rs 10 lakh from the Muvattupuzha Agricultural Rural Development Service Cooperative bank and repaid the loan installments on time. However, he was shocked to learn that Rs 20 lakh was passed against his name without his knowledge. A ruling member of the society had siphoned off the remaining Rs 10 lakh.
  • The loan beneficiaries of the Palakkad Elapully Service Cooperative bank made timely repayments. However, the amount was not accounted for.
  • Misappropriation of funds to the tune of Rs 5.76 crore was detected at the Kannambra Service Cooperative Bank in Palakkad. An inquiry revealed that the bank’s governing council run by CPM members even extended an advance of Rs 1 crore to the Uralungal Labour Contract Cooperative Society (ULCCS) to carry out construction activities.
  • An employee attached with the Kozhikode Kerala Bank Regional office siphoned off Rs 25 lakh from the account of the depositors without their knowledge and transferred the amount to her daughter's account.

Cooperation Minister V N Vasavan revealed in the assembly (in his reply to a query on July 18) that a total of 399 cooperative banks and societies across the state have reported financial irregularities. The fraudulent practices include sanctioning loans without following government norms, allotting loans against receipts of fake fixed deposits, the illegal appointment of staff, malpractice in calculating interest on deposits, releasing loan amounts without security, gold loan scams, and irregularities in the auction of collateral securities. As many as 164 cooperative institutions across the state have failed to refund deposits to customers even after their maturity period, the minister said while replying to another question.

Depositors denied justice, probes heading nowhere

The story of Karalam Theykanakath Philomena, who deposited money in Karuvannoor Bank but did not get it for treatment, is not an isolated one. There are several people who lost their hard-earned money of a lifetime forever. Most of them saved the money for the marriage of their daughter or to build a house, or lead an independent retirement life. But the money didn't come to their rescue in their hour of need.

When a fraud takes place, the depositor doesn't get the money back completely. They will be lucky if they are able to get it back in installments of Rs 10,000-20,000. Sometimes they will have to agitate for years. If the police or crime branch takes up a probe, some of the culprits will be arrested. After a few days, they will be out on bail, and slowly the probe will vanish into thin air.

The deposit embezzlement to the tune of Rs 13 crore in Thamarakkudi Cooperative Bank at Kottarakkara in Kollam came out through bank auditing in 2012. But, Rs 7 crore disappeared without a trace. The officials, former board members whom depositors believe to have swindled the money, live comfortably under political patronage. The vigilance inquiry that was launched following complaints also was frozen under political influence. Ten years after unearthing the fraud, not even a single person has been arrested in the case. The bank is now under governmental control. Meetings are called occasionally to call the bluff of the depositors, and promises to give them money without any further delay are rolled out.

The key reason for all the frauds is just one: Excessive political interference in the cooperative sector. The biggest curse of the sector is the huge political interference in granting loans and accepting deposits, transfers, and even auditing.

Whatever fraud happens, partymen will get cover. Due to political slavery, the officials will not point out the corruption and fraud indulged in by board members of their parties. If they dare to reveal it, they will find them being transferred to another district. The state of affairs is such that the administrative wing functions to conceal the lapses pointed out by the audit wing.

'Amendment will come, everything will be alright'

The minister repeatedly makes it clear that an amendment to the Cooperative Act is being planned to prevent fraud in the sector. If he is confronted with any query on any issue in the sector, he answers that once the law is in place, everything will be settled. The draft law recommends charging criminal cases parallel to departmental inquiry when fraud occurs in a cooperative institution.

The key question then is: It is not the absence of a law that creates the problem. The problem is some people sabotaging the existing law. When the amendment comes, will this change?

Because of the restrictions imposed by the Reserve Bank of India and the Union Government, the cooperative societies in the state are finding their going tough. The controls imposed by the Income Tax Department exist on one hand. The challenges posed by asset companies, multi-state cooperative societies, and the three lakh societies that are set to come up across the country under the Central Cooperative Ministry are there on the other.

When four societies function in a panchayat, success will hinge on credibility. When frauds are perpetrated, credibility goes for a toss.

Do you have answers for these?

The lapses on the part of the Cooperative Department that is mandated to control the cooperative societies lead to fraud.

  • Why are frauds not detected in banks where the Cooperative Department conducts audits annually? Why are the frauds out in the open only when the depositors sound the alarm?
  • Why was professionalism not infused into societies that once transacted lakhs and began to deal with millions and billions? Who torpedoed the common software project for the societies?
  • Many auditors in the Cooperative Department do not have computer knowledge. On the other hand, most of the frauds are committed using software. How can an auditor who doesn't know how to operate a computer prevent fraud in the modern day?
  • Another farce is the vigilance wing formed to prevent corruption in the cooperative sector. The law mandates that a police officer not less than a DIG should head the wing. However, this person needs the permission of the cooperative registrar to probe the case. The junior-most IAS officer in the state would be in that position. Which officer will come to the DIG post to secure the permission of the junior-most to probe a case?
  • Though the RTI Act is applicable in the Cooperative Department, the societies are not covered by it. Why are societies not subjected to audits by the people? It was declared that the details of the audit of the cooperative societies would be published on a separate website. Nobody knows what has happened since.

What needs to be done to save cooperative societies?

Experts suggest:

  • The dominance of politics should be done away with, and a professional approach needs to be brought in. This is required for giving loans on a large scale and accepting deposits in the same manner.
  • All sections of staff should be given training in tune with emerging scenarios and needs.
  • All fraud perpetrators should be brought to book.
  • In situations where the depositors lose their money, money should be transferred immediately to them from the deposit guarantee scheme, and the credibility of the society should be intact. By taking over the society's assets, the money should later be transferred back to the guarantee scheme.
  • When issues crop up in the cooperative sector, the government should come forward with steps that instill confidence.

C N Vijayakrishnan, Cooperative Federation Chairman, says: "The cooperative sector in the state is robust. Now care has to go into managing it. The minister says that a total of 164 societies are not in a position to return deposits. There are more than 12,000 cooperative societies in the state. If they decide to step in, the issues in a handful of societies can be easily solved."

"In each district, only five-six societies face a crisis. If thousand societies in each district decide to loan a particular sum to these societies, their problems will be solved. Without properly addressing this minor issue, attempts are being made to make a mountain out of a molehill. At the Karuvannoor Bank, the depositors need to get back Rs 102 crore. On the other hand, the bank has to get back Rs 302 crore. If the cooperative banks and robust societies in Thrissur join to give a loan for five years, we can rescue Karuvannoor Bank.

The comments posted here/below/in the given space are not on behalf of Onmanorama. The person posting the comment will be in sole ownership of its responsibility. According to the central government's IT rules, obscene or offensive statement made against a person, religion, community or nation is a punishable offense, and legal action would be taken against people who indulge in such activities.