From a tiny wing of the agriculture ministry with significantly less than a dozen staff in a nondescript corner of Krishi Bhawan, the division of cooperation’s morphing into a complete-fledged ministry last week, with Amit Shah at its helm, is seen as obtaining not just political but financial ramifications.
There are about 8.5 lakh co-operatives in the nation with roughly 38 crore members. Of these, 1,539 are urban cooperative banks (UCBs) and 97,006 rural ones with a combined asset size of as considerably as Rs 17-18 lakh crore, an official supply told FE.
These cooperative banks, each urban and rural, account for an overwhelmingly significant share of the cooperative sectors’ finances. While numerous of them are starved of capital and riddled with management woes, the co-operative banking sector, as a entire, nevertheless retains considerably economic as nicely as political clout more than voters at the important grassroots level. Against this backdrop, the Centre’s bid to regulate policies governing co-operatives by way of the new ministry assumes significance.
Some of the significant UCBs are money-wealthy, and this tends to make them a potent economic force. The deposit base of UCBs stood at Rs 5 lakh crore as of March 2020 (deposits constitute about 90% of the cooperatives’ resource base). Their loan portfolio was as higher as Rs 3 lakh crore at the finish of FY20, constituting a sizeable share of credit flow in the all round cooperative sector, mostly to agriculture.
Similarly, the UCBs’ money reserves grew 7.9% on year to Rs 5,812 crore in FY20 and balances with banks rose 8.6% to Rs 66,212 crore. Their investments stood at Rs 1.62 lakh crore in FY20, 60% of which have been in central government securities and a different 27% in state government papers. Their asset size stood at Rs 6.2 lakh crore as of March 2020.
Once the financials of rural co-operative banks are integrated, the asset size sees a substantial jump. These rural co-operatives make up 65% of the total asset size of all co-operative banks place with each other, according to an RBI assessment.
Given the economic prowess of numerous of the co-operatives and the sheer significant quantity of their members, the political parties that physical exercise considerable handle more than them potentially have a important benefit more than other folks in occasions of elections. For instance, the Congress and the NCP have tremendous clout more than them in Maharashtra, the BJP in Gujarat and the Left parties in Kerala.
No wonder, opposition parties have named the move to carve out the ministry of cooperation from the agriculture ministry a “political mischief” and an onslaught on the country’s federal structure. Co-operatives, getting a state topic (the Union government’s function is largely restricted to multi-state co-operative societies), really should be overseen by the states and the new ministry will have to not be used to usurp their energy or curb their innovation, they say.
For instance, to fund development activities and ease credit flow to farmers, Kerala formed the Kerala Cooperative Bank (KCB) (branded Kerala Bank) by merging district cooperative banks. The KCB is now the country’s biggest cooperative bank with as numerous as 820 branches. The state’s ministry of cooperation lists as numerous as 11,892 cooperative societies that function across sectors, such as agriculture, dairy, sector and services such as banking and hospitality.
More importantly, numerous of the cooperatives, thanks to their opaque structure and serious governance challenges, are allegedly used to funnel black revenue. The crisis at the Punjab Maharashtra Co-operative (PMC) Bank and some other folks in current years are a testament to it.
Of course, the government last year amended the Banking Regulation Act to bring urban and multi-state co-operative banks below the RBI regulation. While the move aims to guard the interests of depositors and improved scrutinise the affairs of these cooperative banks, provided the enormity of the process, strict supervision and regulation will take some time to evolve to the preferred requirements. Moreover, the sphere of the RBI regulation is restricted to only these providing banking services and does not cover the whole universe of co-operatives.
According to the notification issued by the government, the new ministry will deal with basic policy in the field of cooperation whilst other relevant ministries will be accountable for cooperatives in their respective fields. For instance, IFFCO will continue to be driven by the policies of the fertiliser ministry and Gujarat Cooperative Milk Marketing Federation (Amul) by the dairy ministry. Agri cooperative Nafed, which undertakes the procurement of oilseeds and pulses, will stay with the agriculture ministry.
So, the new ministry will get to oversee the central registrar of cooperative societies that regulate and govern all multi-state cooperative societies, a function that was earlier undertaken by the agriculture ministry.
The step assumes significance as some of the economic providers have been allegedly converted to multi-state cooperatives to evade regulating authorities like RBI and Sebi.
As of December 2020, there have been 1,469 registered multi-state co-operative societies. Maharashtra led the pack of states with 622 of them, followed by Delhi (153), Uttar Pradesh (149), Tamil Nadu (124) and Rajasthan (74).
Rejecting criticism of the move, government officials say the considerably-neglected co-operative sector will get its due share of consideration now following the formation of a committed ministry and catalyse a bottom-up development method. It will bolster the country’s cooperative movement and deepen its attain at the grassroot level, they add.