The Maharashtra State Cooperative (MSC) Bank, the apex cooperative bank of the state, has been in the limelight since the Bombay High Court directed the Economic Offences Wing to file FIRs against 44 of its erstwhile directors, including former deputy chief minister Ajit Pawar. At the same time, the bank has reported a profit of Rs 250 crore for the last financial year. Vidyadhar Anaskar, the chairman of board of administrators of MSC Bank and the chairman of The Maharashtra Federation of Urban Cooperative Banks (MUCBF), speaks about the potential of the cooperative banking sector and explains the challenges before it. Excerpts from the conversation:
With a few exceptions, cooperative banks are in the limelight for the wrong reasons. Why do cooperative banks fail to do business in a professional manner?
Cooperative banks have immense potential. But the trick is to run them professionally — while politicians can run banks they should not be used to fund or play politics with. Often, politicians use banks to increase their clout among their followers. Fiscal prudence is thrown out of the window when it comes to disbursal of loans and loan recovery is overlooked. There have been cases in cooperative banks where loans were not properly supervised. If loans are not translated into assets, action should be taken — but this is overlooked as directors might not want to ruffle their followers’ feathers. Sometimes, when there are two or more groups, politics arise over petty issues. So, if banks are given grade A by regulators, the faction opposing the present board of directors is sure to challenge it. Politicians should keep banks outside politics. The bank should be run in a professional manner and not to foster one’s political ambitions.
What is the biggest drawback of cooperative banks? Can these banks be run without politicians?
Staff recruitment happens to be the Achilles’ heel of cooperative banks. The bank’s employees should be professionally qualified to hold their positions. In many cases, people get employment in banks due to recommendations by directors. There have been instances when banks have at least 600 employees as each of the 15 directors insisted that their people get employment.
People who come through a director’s recommendations will be loyal to that director and their duties will suffer. So if the director’s loan defaults, it will be foolish to expect the employee who was employed at the insistence of that director to take action against him. We have seen people who know nothing about banking taking home a fat salary. The result can well be imagined — how can such a bank survive? So, staff recruitment is the backbone to the survival of these banks — they should be done in the utmost professional manner. There should be some criterion for election of directors — they should not just be paper pushers. The Vidya Sahakari Bank has made a graduate degree mandatory for people who want to fight elections for the board of directors. Such people would understand the basics of banking.
Obviously, politicians can be excluded from the board of directors of banks if the bylaws so dictate. Bylaws are supreme for cooperative banks and if the general body decides politicians should be debarred, they can be prevented from contesting elections. Recently, I helped a bank in Pune frame bylaws that debarred elected representatives from running for elections.
You said cooperative banks have immense potential. Where do you see the business coming from for such banks? We hear about banks failing because of bad loans. What basic checks should be done before loans are disbursed?
The potential for cooperative banks is immense — provided they are ready to harness it. To begin with, cooperative banks are for the common person — the customer who will not be entertained by public sector or private banks. These banks do not entertain the very small customer, say, the autorickhsaw driver or the vegetable seller. They are our customers as our banks develop a personal relationship with them. The quantum of business brought by them might be small but the volume will be large. And chances of loan default are low in such cases.
Cooperative banks should refrain from giving loans to big businesses, like builders — the bigger banks are there for them. Instead, they should concentrate on giving loans that can be easily realised. Banks should monitor loans given by them in a professional manner. There have been cases where banks had given loans for construction of sugar mills, which did not come up. In such cases, the banks had failed to monitor whether loans were being used for the purpose they were disbursed. The banks failed in the end.
What is the RBI’s outlook towards these banks and do cooperative banks require better training for their staff?
The RBI feels banks should be run more professionally. There is a negative image of such banks. The RBI feels that banks lack vision. Ample training is available for cooperative banks but as I said, if the staff recruitment is not done professionally, what will be the use of such training?