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Cooperative Bank frauds can never stop in India?

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Bank frauds, banking fraud, city coporation bank
Image: BusinessToday

In a City Cooperative Bank fraud case the former CEO of City Cooperative Bank Ramesh Shirgaonkar (79), and a businessman Rajan Sawant (41) who allegedly connived with him were arrested by police. The former chief executive officer (CEO) of City Cooperative Bank allegedly caused a loss of around Rs 96 crore to the bank by sanctioning credit to ineligible people and companies. Police suspect Shirgaonkar to have fraudulently disbursed loans to 56 people without having followed due procedure in allotting these.

In the case of Sawant, Shirgaonkar allegedly did not conduct a proper inspection of his outstanding loans before providing the credit facility. Apart from this, the loan file submitted by Sawant did not include several necessary documents like the share certificates of the cooperative society, no-objection certificate (NOC) for a mortgage and sanctioned building plans among other things. During an investigation, it came to light that Shirgaonkar approved loans of Sawant and 55 others without proper documents.

The number of frauds in urban and state cooperative banks dropped in FY21 from a year ago with tighter oversight by the central bank. Finance minister Nirmala Sitharaman announced that the urban cooperative banks reported 323 frauds in FY21 as against 568 in the previous year and 1,193 in FY19. Similarly, state cooperative banks witnessed 482 frauds in FY21, down from 508 in the previous fiscal but much higher than the FY19 level of 290, she said in a written reply to a question. While Maharashtra, home to the highest number of cooperatives, accounted for 67% of the fraud cases in urban cooperative banks in FY21, Kerala made up for 44% of the fraud in-state cooperative banks.

The finances of cooperative banks came under heightened scrutiny recently after the government carved out the department of cooperation from the agriculture ministry to make it a full-fledged ministry under Amit Shah. Before that, affairs of the cooperative sector came under focus following the crisis at the Punjab Maharashtra Cooperative (PMC) Bank in 2019. This prompted the government to amend the Banking Regulation Act to empower the RBI for more effective regulation of cooperative banks. The idea was to better protect the interests of depositors and avoid a PMC Bank-like crisis in future.

The amendment was also aimed to ensure that the affairs of the cooperative banks are conducted in a manner that protects the interest of depositors by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through RBI. Sitaraman also told the Rajya Sabha that gross bad loans of district central cooperative banks (DCCBs) were among the highest in the banking system, at 12.6% (Rs 35,298 crore) of their advances as of March 2020.

The gross non-performing assets (NPAs) of urban cooperative banks (UCBs), too, remained elevated at 11.3% (Rs 35,528 crore) at the end of March 2021. However, the gross NPAs of state cooperative banks were 6.7% (Rs 13,477 crore) as of March 2020, Sitharaman had said in a statement in the Upper House.

In contrast, the bad loan ratio of scheduled commercial banks stood at 7.5% as of March 2021, having eased from 8.4% a year before, the RBI said in its latest report in July. There are 34 state cooperative banks, 351 DCCBs and 1,534 UCBs in the country. Many of the cooperatives, thanks to their opaque structure and severe governance issues, have been allegedly used to funnel black money for a long.

Last year Kerala police’s economic offences wing arrested four functionaries of a CPI(M)-controlled co-operative bank in Thrissur district, where a loan scam of at least Rs 104 crore was detected last week. The arrested include the secretary, manager, chief accountant and a commission agent of Karuvannur Co-operative Bank. The police also conducted searches at the premises of those arrested as well as at the properties of two absconding staff of the Karuvannur-based bank and seized documents pertaining to the illegal loans.

All the accused are CPI (M) members, who were sacked from the party after the scam was unearthed on July 19. The opposition Congress and BJP, which have targeted the ruling party in the state over the issue, have alleged that the loan scam is to the tune of Rs 300 crore. State Cooperation Minister V N Vasavan, however, said that an internal inquiry has revealed financial fraud of Rs 104.37 crore. But since then, there is no follow up on this issue and now another cooperative bank scam has made the news. In the recent past, there have been several scams but investors have no relief or life.

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Vaidehi Taman
Vaidehi Taman
Vaidehi Taman an Accredited Journalist from Maharashtra is bestowed with three Honourary Doctorate in Journalism. Vaidehi has been an active journalist for the past 21 years, and is also the founding editor of an English daily tabloid – Afternoon Voice, a Marathi web portal – Mumbai Manoos, and The Democracy digital video news portal is her brain child. Vaidehi has three books in her name, "Sikhism vs Sickism", "Life Beyond Complications" and "Vedanti". She is an EC Council Certified Ethical Hacker, OSCP offensive securities, Certified Security Analyst and Licensed Penetration Tester that caters to her freelance jobs.
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