Kerala govt to move SC against new RBI guidelines prohibiting banking services in cooperative banks

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The Kerala government on Tuesday announced its decision to approach the Supreme Court over the Reserve Bank of India (RBI) new guidelines that prohibit cooperatives societies from operating banking services, said state co-operation minister T N Vasavan.

The state government is also planning to talk to other opposition-ruled states such as Maharashtra, Tamil Nadu and West Bengal to have a coordinated approach on the issue. The state government has asked finance minister KN Balagopal and TN Vasavan to co-ordinate with other non-BJP ruled state governments, he added.

Vasavan announced this while starting a statewide agitation against the latest regulatory RBI measures to rein in primary co-operative societies and banks and the Union government’s “indifferent attitude” towards developmental projects.

Chief minister Pinaray Vijayan on Tuesday sat on a dharna outside the Raj Bhawan protesting the Centre’s attitude towards its big projects like K Rail (high-speed rails project) and move against the cooperative sector.

In Kerala, at least 70% of the cooperative societies and banks are controlled by the CPI(M). In 2019, the Kerala state cooperative bank and 13 district cooperative banks were merged to float the Kerala Bank and it has 769 branches now. New regulations won’t affect the Kerala Bank but there are 1,692 primary agricultural societies, 1,200 rural co-operative banks and 16 urban co-operative banks.

Besides this, the party runs many hospitals, infotainment parks, small-scale units and other firms under the co-operative sector. It has created wealth to employ the party workers gain, ensuring their loyalty even when the party is not in power. So it acquired stakes in amusement parks, television channels, super-speciality hospitals, furniture manufacturing, a chain of co-operative banks and labour co-operative societies.

What angered the ruling party is the latest directive of the RBI that cooperative societies should not use the term banks and restrained them from taking deposits from those who do not have voting rights. It also asked them not to use locker facilities and other banking norms.

“The RBI’s latest move is aimed at crippling the cooperative sector. Since the cooperative sector is a state subject it is another attack on the federal structure of the country. We will not allow this to happen,” said the CM. He said the government will talk to other opposition-ruled states to evolve a common strategy towards this. He said the cooperative sector is the first point of the common man in banking solutions and any attempt to weaken it will affect the poor and marginalized sections.

The central bank came up with provisions to regulate primary cooperative banks based on the Banking Regulation Amendment Act passed by Parliament in September last year. “Co-operative sector is a state subject. The Supreme Court had made it clear that cooperative banks have the right to receive deposits and grant loans. The Centre’s move to interfere with cooperative sector was stalled by the court in a plea related to the 97th constitutional amendment,” said the cooperative department minister.

In July 2020, the Supreme Court had struck down a portion of the 97th constitutional amendment which took away the exclusive authority of states over cooperative banks. The three-judge bench headed by Justice Nariman ruled that cooperative societies come under the legislative power of the state assemblies and it also took exception to the fact that the amendment was passed without ratification from states.

“The latest RBI announcement has created enough confusion among customers. Such measures will cripple the cooperative sector. During the Covid-19 lockdown, we disbursed enough funds to the needy. Since we are facing enough competition from micro-finance institutions, these steps will annihilate the cooperative sector eventually,” said Kadirur Service Co-operative bank Ltd (Kannur district) president Sreejith Choyan. The award-winning bank has 11 branches and a total annual turnover of 750 crore.

“Many banks have started dishonouring cheques and transactions of the co-operative banks. Customers have started raising questions after the RBI publicized its guidelines in major newspapers. Such steps will cripple co-operative banks,” said a manager of another bank who did not want to be named.

Opposition Congress said it will oppose any move to weaken the cooperative sector. “We will give issue-based support to the government,” said state president K Sudhakaran. But the BJP justified the RBI directives. “Recently the state witnessed several misappropriations in co-operative banks. In Karuvannur cooperative bank in Thrissur alone fraud worth 500 crore came to light. There is no proper auditing and supervision and most of them turned extended offices of the ruling party,” said party state president K Surendran.

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