Hindu Editorial Anlaysis : 5-October-2023
Cooperative societies in India have a rich history, dating back to the time of independence. These societies aim to serve the economic interests of individuals with common needs through self-help and mutual assistance. One crucial aspect of this cooperative movement is the cooperative banking sector. Recently, the Karuvannur Service Cooperative Bank of Kerala came under the scrutiny of the Enforcement Directorate (ED) due to financial irregularities. This essay will explore the significance of cooperative banks, the 97th Constitutional Amendment Act of 2011, and the challenges faced by India’s cooperative banking sector.
Cooperative Banks in India
Ownership and Purpose
Cooperative banks are small financial institutions established by groups of individuals to cater to the capital requirements of their specific communities. These banks are owned and controlled by their members, ensuring a focus on local needs and interests.
Role in Development
Cooperative banks play a pivotal role in implementing development plans and contribute significantly to the efficient functioning of India’s banking system. They provide an alternative source of credit to rural populations, protecting them from the exploitation of moneylenders. Additionally, these banks encourage savings and investment, leading to better money management among rural communities and fostering improvements in farming methods.
97th Constitutional Amendment Act 2011
Fundamental Right and Directive Principle
This amendment established the right to form cooperative societies as a fundamental right (Article 19) and introduced a new Directive Principle of State Policy on the Promotion of Cooperative Societies (Article 43-B).
Part IX-B in the Constitution
Part IX-B, titled “The Co-operative Societies” (Articles 243-ZH to 243-ZT), was added to the Constitution. It empowers Parliament to enact laws concerning multi-state cooperative societies (MSCS) and authorizes state legislatures to legislate on other cooperative societies.
Recent Issues in the Cooperative Sector in Kerala
Two-Tier Structure
Kerala’s cooperative sector operates with a two-tier structure: the Kerala Bank at the apex level, formed by merging 14 district cooperative banks, and numerous primary agriculture cooperative societies and urban cooperative banks at the second tier.
Karuvannur Loan Scam
The Karuvannur Bank loan scam exposed the exploitation of customers who were ensnared in a debt trap by middlemen. The ED investigation revealed that the middleman involved had also laundered money through other cooperative banks.
Financial Irregularities
The government’s disclosure of financial irregularities in 399 cooperative institutions over six years highlighted a broader issue in the sector. Local politicians often control these institutions without professional expertise, leading to backdoor appointments and a lack of auditing mechanisms and transparency.
Challenges Faced by India’s Cooperative Banks
Financial Decline
Urban Cooperative Banks (UCBs) have witnessed a decline in loans and deposits in recent years. Overdue loans have been on the rise, affecting the sector’s stability.
Lack of Modern Banking Practices
Cooperative banks lag behind in adopting modern banking practices, such as net banking, mobile banking, and ATM services, which puts them at a disadvantage in the modern banking industry.
Limited Resources
Most cooperative banks operate in a limited geographic area, with a small number of members. This limits their resources, hindering expansion and growth.
Dual Regulations
Cooperative banks must comply with regulations from both the Reserve Bank of India (RBI) and their respective registrar of societies, leading to coordination challenges.
Inadequate Coverage
The membership of rural populations in cooperative banking is only at 45%, and the sector’s coverage is limited to a few states, including Gujarat, Maharashtra, and Punjab.
Why In News
The Enforcement Directorate (ED) investigation, recently constituted citing financial irregularities in the Karuvannur Service Cooperative Bank of Kerala, aims to ensure transparency and accountability in the banking sector while safeguarding the interests of the stakeholders.
MCQs about Challenges and Reforms in India’s Cooperative Banking Sector
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What is the primary objective of cooperative banks in India?
A. To maximize profits for shareholders
B. To serve the economic interests of members and local communities
C. To compete with commercial banks
D. To cater exclusively to urban populations
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What significant change did the 97th Constitutional Amendment Act 2011 bring about in India’s cooperative sector?
A. Allowed foreign investment in cooperative banks
B. Established cooperative societies as a fundamental right
C. Enabled cooperative banks to merge with commercial banks
D. Mandated cooperative banks to operate nationally
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What key challenge do cooperative banks face in terms of modern banking practices?
A. Limited availability of branches
B. Lack of online banking services
C. Inadequate customer service
D. Low interest rates on loans
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Why did the recent issues in Kerala’s cooperative sector, such as the Karuvannur Loan Scam, erode the sector’s credibility?
A. Political interference and lack of professional expertise
B. High interest rates on loans
C. Strict government regulations
D. Excessive focus on profit maximization
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