Everything was fine for the family of Philomena Devassy, until 2022, a loving family around and a son to take care of the turbulence for both husband and wife while they were approaching geriatric age. They had small savings—just enough to take care of their family emergencies. The husband, Devassy, who is an autoriksha driver, was not much worried when doctors from Trissur Medical College suggested an emergency lifesaving surgery for his wife Philomena.
But everything changed in a glimpse when he approached Karuvannur Cooperative Bank, run by the State ruling party, Communist Party of India (Marxist). The bank denied any withdrawal from his 28 lakhs saving deposits. He pleaded, but the scam hit. Bank directors were heartless to hear his pleas, as they were busy looting the balance left over in the bank. Finally, Philomena passed away on July 27, 2022, as she could not pay for the surgery.
Cooperative banking system in Kerala
Kerala’s cooperative banking story started well before the formation of the State itself. First Bank was founded in 1915 at Trivandrum, along with the start of the cooperative societies movement in India. The sector was brought under the regulatory control of the government through the implementation of the Kerala Co-operative Societies Act, 1969. Earlier days, it was more of cooperative societies which ensured adequate credit supplies to local framers and artisans, through the work of well-mannered “Sahakaris”, these societies were able to gain the trust of the common man. This led to the flourishing of cooperative banks and societies, by the early decade of the 21st century, these banks had become more credible due to the challenges faced by Indian PSU banks.
Cooperative banks as Tax Heaven
As most of these cooperative banks are run by political parties and the regulations are not very strict for depositing money, lately a few of these banks have started acting like tax heaven. As the data was not shared with the core banking system, income tax filings for these transactions were out of the question. Slowly, all kinds of illegal money also got infused into the system. When demonetisation was announced in India, illegal money got pumped into the cooperative banks, No questions were asked if you were well connected to the banking system, and this set the stage for upcoming scams.
The Karuvannur service Cooperative Bank story
Karuvannur Bank has 5 branches, over 5400 depositors, and above 290 Cr deposits. It is not a small bank, big enough for the controllers of the scam to act on. Most of the bank’s money was diverted to private accounts by scammers controlled by the State ruling party, CPIM, An internal estimate by the State Government confirmed a fraud of 125 Cr, but the total scam is estimated at around 200–250 crores by the local police and crime branch. All the board members of the bank got sacked and removed from their responsibilities; however, later probes by the Enforcement Directorate shed light on the involvement of high-level politicians of the ruling party.
The cooperative banking system in Kerala is largely controlled by the CPIM and its members, out of 365 banks, a rough number of around 160+ banks are now in financial turmoil due to scams and fraud. Like in the case of Karuvannur Bank, which even operated on Sundays and late nights to facilitate fraudulent transactions, many witnesses testified that a large chunk of money was brought outside of the bank in sacks. Most of this money was used for illegal activities and real estate funding. The government remains hesitant to act on any scamsters due to their political connections within the ruling party. It is also obvious that scams of this scale will not be possible without the know-how of CPIM, which operates as a very close and tight unit under the current chief minister.
Cooperative banks which handle the money of common village man and farmers are very important structure in the rural economy, which act as the nervous system of credit and financial stability or rural India.
Need of reforms to prevent Cooperative society scams
Cooperative model is a time-tested and well-established financial tool in modern finance. The system has helped in the revival of rural agriculture. Rural cooperative societies will play a pivotal role in Bharath’s journey towards a $5 trillion economy by supporting rural credit availability and improving rural household saving habits.
But the current State system has a lot of drawbacks, as it is largely run by underqualified politicians with vested interests. More regulations from the Reserve Bank are the need of the hour to protect the interests of investors and the common man.
Comments