Almost every month, the RBI puts out a brief press release announcing the closure of one cooperative bank or the other. Deposit insurance payment data show that Maharashtra has the highest number of cooperative banks going bust. According to one petition, 165 cooperative banks have been shut down in Maharashtra in the past 30 years. These small banks fail with monotonous regularity because of they are under the dual regulation—that of the RBI and the Registrar of Cooperatives.
Cooperative banks are usually set up by politicians or their cohorts and RBI does not bother to block their dodgy advances until it is too late for a rescue.
Over the past two decades, the only insurance claims paid out by the Deposit Guarantee Insurance Corporation of India (DGICI), a subsidiary of RBI, are on account of cooperative banks. Their hapless depositors get only Rs1 lakh each paid out after the bank is actually liquidated which can take a few years.
Now consider the case of the Bombay Mercantile Cooperative Bank (BMCB). One of the oldest, multi-state minority cooperative banks, BMCB was considered on par with, or better than, the Saraswat Cooperative Bank, at one time. BMCB has been systematically looted and mismanaged, despite every effort by a few dedicated whistle-blowers to draw the attention of RBI and the Central Registrar of Cooperative Societies (CRCS) since 1986. At a time when RBI claims to have initiated corrective action against some nationalised banks, what will shake it up and force it to take decisive action to save BMCB? The Bank continues to sink; the fate of 1,500 employees and innumerable depositors hangs in the balance. Remember, the Bombay Mercantile case is not an exception; it is the norm.
This is just an example of how cooperative banks remain in the tentacles of shady politicians, while both the regulators—RBI and the CRCS—continue to remain unconcerned to the shock and frustration of insiders and whistleblowers.
Co-op bank employee fed blames politicians www.indiancooperative.com, 21.12.15
P Balakrishnan, general secretary, All India Co-operative Bank Employees Federation says cooperative banks are facing existential problems because the country’s politicians are cynically using them for their narrow political benefits.
Bad loans hit cooperative banking sector in state Indian Express, 17.7.14
With 106 cooperative banks facing liquidation and 10 under administrators, the financial health of cooperative banks in Maharashtra has suffered. The state, which has 526 cooperative banks, might see 50 banks being added to the list for liquidation, reports from the office of the cooperative commissioner indicate.
Cooperatives officers say financial mismanagement, lack of professional handling and political interference have hurt cooperative banking in the state. Bad loans, unsecured loans and corruption, senior officials point out, are major reasons why cooperative banks have been failing. “Instead of scrutiny, loans are given on recommendations of political bosses. As banks are led by senior politicians, appeasing followers takes precedence,” the officers pointed out.
RBI Cracks down on violations by Co-operative banks Mint, 18.1.12
Every four-and-a-half days during this fiscal, at least one cooperative bank has been either penalized or stripped of its licence to operate, as the RBI cracks down on rule violations by these banks. Overall, 73 such banks have either been penalized or asked to shut by the banking regulator so far this fiscal, signalling its lack of tolerance for breach of norms by the institutions. The comparable figure in the last fiscal was 44 banks and in 2010, 31 banks. RBI’s unease over cooperative banks follows many instances of misgovernance by politically powerful bank managements and also after the fall of Madhavpura Bank.
In May last year, the board of Maharashtra State Co-operative Bank Ltd was superseded after sugar cooperatives and cotton spinning mills, controlled by politicians, did not repay loans. Politicians belonging to the ruling Congress- NCP alliance in Maharashtra, as well as others from the Raj Thackeray-led MNS, controlled the cooperative that defaulted on loans worth atleast Rs 680.57 crore, leading to supersession of its board by RBI.
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We strongly recommend to quit from Co-operative banks and have your bank account / fixed deposits in strong nationalized banks like SBI or large private sector banks like HDFC Bank, ICICI Bank, Kotak Bank, Axis Bank.
Check if your society in which you are staying too has all the monies in Co-operative Bank (which usually is the case), ask them to quit before its too late.
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