Bad loans hit cooperative banking sector in state

Maharashtra has a 32 per cent share of co-operative banks in the country.

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. A majority of banks, senior officials point out, have non-performing assets to the tune of 10-15 per cent. Maharashtra has a 32 per cent share of co-operative banks in the country. Of the 1,618 urban cooperative banks, Maharashtra has 526, the highest for a state.

Total deposits in cooperative banks in the state is to the tune of Rs 1,73,800 crore, which accounts for 68 per cent of deposits in such banks in the country.

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Cooperative banks in the state have issued loans to the tune of Rs 1,20,100 crore, which is 65 per cent of loans given by cooperative banks in the country.

With 4,839 branches and 1,576 ATMs, cooperative banks have made their presence felt in every nook and corner of the state. In rural areas, cooperative banks are the only banks available to a large section of population. The Reserve Bank of India (RBI) and commissioner of cooperatives have joint control over banks. RBI can suspend the business of banks and appoint administrators by dismissing the board of directors.

According to Dhanajay Dhoipode, joint registrar of cooperative societies, 10 banks have administrators as the RBI had dismissed their board of directors to save the banks and their depositors as bad loans piled up.

Of them, Lakshmi Vishnu Cooperative Bank in Kolhapur has an administrator since 2006, while Pune-based Lokseva Cooperative Bank is the latest to have an administrator appointed. Rupee Bank had its board dismissed twice by the RBI due to rising bad loans.
Once a bank is under RBI restrictions, transactions including withdrawal of money is stopped. Deposits up to Rs 1 lakh are covered by insurance, which is paid by the insurance company. Bad loans worth Rs 2,500 crores are to be recovered from 106 banks facing liquidation. Of this, around Rs 600 crores have been recovered.

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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. To cite an example, officers pointed out that huge loans are given for weddings by some banks, which they are unable to recover.

Also in one case, loans were given to an educational institute owned by the director of a bank without any collateral.

Parthasarathi Biswas

Partha Sarathi Biwas is an Assistant Editor with The Indian Express with 10+ years of experience in reporting on Agriculture, Commodities and Developmental issues. He has been with The Indian Express since 2011 and earlier worked with DNA. Partha's report about Farmers Producer Companies (FPC) as well long pieces on various agricultural issues have been cited by various academic publications including those published by the Government of India. He is often invited as a visiting faculty to various schools of journalism to talk about development journalism and rural reporting. In his spare time Partha trains for marathons and has participated in multiple marathons and half marathons. ... Read More

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