Double Blow to Kerala Cooperative Sector: ED Probe and RBI Circular
Double Blow to Kerala Cooperative Sector: ED Probe and RBI Circular

Next ED round probe, RBI circular may deliver double blow to Kerala cooperative sector

The ED is gearing up for the next round of probe into the Karuvannur Cooperative Bank scam this week where senior CPM leaders are expected to be quizzed. This, combined with the recent RBI circular against cooperative societies using the word bank has the potential to expose Kerala's cooperative


Kochi | With the Diwali holidays over, the Enforcement Directorate probing the around Rs 500-crore Karuvannur Cooperative Bank scam is poised to issue summons to more CPM leaders in the course of its investigation. Already, party Thrissur district secretary MM Varghese is slated for interrogation on November 25, with allegations suggesting his awareness of the malfeasance and purported inaction in addressing the issue. Besides, the likelihood of summoning more leaders, including Kerala Bank vice-president MK Kannan and former Minister and now legislator AC Moideen, for further questioning looms large. The cumulative effect of these developments can exert heightened pressure on the CPM, possibly pushing it into a more precarious position.

In tandem comes the significant setback through the recent RBI circular stipulating that cooperative societies are prohibited from employing the term 'bank.' This regulatory directive casts a shadow over the more than 1,600 cooperative entities in Kerala that now are recognized as "banks," constituting a formidable economic backbone for the State.

According to the Kerala Economic Review, until March of the previous year, the 998 branches of cooperative banks disbursed just over Rs 54,000 crore. Intriguingly, only a modest 14 per cent of this went to the agriculture sector, when a substantial portion was allocated for purposes such as vehicle and land acquisitions. This is noteworthy, given that these banks were originally established with the primary objective of aiding farmers in the region.

It had earlier announced that such societies did not have any banking licence under the Banking Regulation Act and hence were not authorized to engage in banking business.

Despite the State Government's legal challenges against this regulatory constraint, the most recent circular only exacerbates the challenges faced by the cooperative sector.

As per the RBI, insurance cover from the Deposit Insurance and Credit Guarantee Corporation will not be available for deposits in these societies. It also cautioned the public in dealing with such cooperative societies.

Insiders within the government have indicated that the issue will be contested in court once again. Nevertheless, legal experts acknowledge the formidable challenge faced by the government in achieving a favorable outcome, given the explicit stance of the Reserve Bank of India that such societies fall outside the purview of the Banking Regulation Act.

In the context of the Karuvannur scam, the Enforcement Directorate has already filed an extensive chargesheet running into thousands of pages. This comprehensive document lists a total of 55 accused, encompassing both individuals and companies deemed beneficiaries of the purported funds. Among those implicated are members of the bank committee and four individuals who have already been arrested.

The Enforcement Directorate asserts in the chargesheet that it has already seized over 120 assets with an estimated value of approximately Rs 100 crore. The agency has indicated its intention to pursue further actions, with a supplementary chargesheet anticipated after the upcoming round of interrogations. This is a critical juncture where CPM leaders may find themselves entangled in the unfolding legal proceedings.

Beyond the Karuvannur bank and numerous others in Thrissur district, the ED is anticipated to broaden its scope to several additional cooperative entities. Notably, Pulpally, Kandala and Maylappara have already come under its scrutiny, signaling a widening investigative net in the cooperative sector, a domain where the CPM holds substantial influence.

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