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Kochi | The scope and depth of the Enforcement Directorate probe into the infamous Karuvannur Service Cooperative Bank could bring chit funds of similar cooperative banks within its scrutiny.
Thrissur, once a hub of chit funds which ingeniously circumvented legal tangles through establishing head offices in far-flung northern regions of the country. has seen this business decline precipitously. In its place now, cooperative banks have made it big in this domain. However, law circles admit that under the chit fund regulations, such banks are not allowed to engage in this business.
Similar to the manner in which chit fund companies in Kerala, notably in Thrissur, found their way out of legal tangles by having head offices in remote areas like Jammu or Faridabad, cooperative banks run such chitties under guise of ‘monthly deposit schemes’.
Even legally run chit funds by the Kerala State Financial Enterprises may find themselves scrutinized as part of the ongoing probe. This is because the principal accused in the Karuvannur scam is believed to have had tickets in such chit funds managed by the State-controlled entity.
The ongoing ED probe into the Karuvannur bank fraud has unveiled a disconcerting pattern. Certain individuals living outside the bank jurisdiction, even subscribed to all the tickets in a chit fund without ever meeting repayment obligations.
A striking case is that of a real estate broker who subscribed to all the 100 tickets in a monthly Rs 10-lakh chit fund of Karuvannur bank. Pledging his initial instalments as collateral, he took loans worth Rs 6 crore. Neither was any repayment made, nor did the bank report the arrears of the chit fund till the end of the scheme. This saw a massive erosion of the bank assets later. The ED report says that his overall mortgage and loans ballooned to nearly Rs 19 crore by the end of 2022, underscoring the magnitude of financial irregularities.
Another subscriber to a chit fund adopted a similar strategy. This jeweller subscribed to half of the 100 tickets of the scheme, secured loans using these subscriptions as collateral and ended up owing the bank over Rs 12 crore. According to the ED report, all these frauds were committed with the complicity of the CPM-controlled bank board.
According to law experts, cooperative banks do not have licence to run such chit funds and circumvent the rules by terming them as monthly deposit schemes.
In a seemingly pre-emptive move, CPM leader and one-time KSFE chairman AK Balan while addressing union members of the entity, made a cautionary note. He underscored that fraudulent activities were taking place in KSFE chit funds, and in the absence of immediate corrective steps were not taken, they would be inviting ED to probe matters in the State-controlled entity too.