Cooperation Ministry: Cooperatives’ financial heft seen behind Centre’s bid for greater control

There are about 8.5 lakh co-operatives in the country 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 much as Rs 17-18 lakh crore, an official source told FE.

From a tiny wing of the agriculture ministry with less than a dozen employees in a nondescript corner of Krishi Bhawan, the department of cooperation’s morphing into a full-fledged ministry last week, with Amit Shah at its helm, is seen as having not just political but economic ramifications.

There are about 8.5 lakh co-operatives in the country 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 much as Rs 17-18 lakh crore, an official source told FE.

These cooperative banks, both urban and rural, account for an overwhelmingly large share of the cooperative sectors’ finances. While many of them are starved of capital and riddled with management woes, the co-operative banking sector, as a whole, still retains much financial as well as political clout over voters at the critical grassroots level. Against this backdrop, the Centre’s bid to regulate policies governing co-operatives through the new ministry assumes significance.

Some of the large UCBs are cash-rich, and this makes them a potent financial 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 high as Rs 3 lakh crore at the end of FY20, constituting a sizeable share of credit flow in the overall cooperative sector, mainly to agriculture.

Similarly, the UCBs’ cash 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 were in central government securities and another 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 included, the asset size sees a substantial jump. These rural co-operatives make up 65% of the total asset size of all co-operative banks put together, according to an RBI assessment.

Given the financial prowess of many of the co-operatives and the sheer large number of their members, the political parties that exercise considerable control over them potentially have a significant advantage over others in times of elections. For instance, the Congress and the NCP have tremendous clout over them in Maharashtra, the BJP in Gujarat and the Left parties in Kerala.

No wonder, opposition parties have called 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, being a state subject (the Union government’s role is mostly restricted to multi-state co-operative societies), should be overseen by the states and the new ministry must not be used to usurp their power 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 largest cooperative bank with as many as 820 branches. The state’s ministry of cooperation lists as many as 11,892 cooperative societies that function across sectors, including agriculture, dairy, industry and services such as banking and hospitality.

More importantly, many of the cooperatives, thanks to their opaque structure and severe governance issues, are allegedly used to funnel black money. The crisis at the Punjab Maharashtra Co-operative (PMC) Bank and some others in recent 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 under the RBI regulation. While the move aims to protect the interests of depositors and better scrutinise the affairs of these cooperative banks, given the enormity of the task, strict supervision and regulation will take some time to evolve to the desired standards. Moreover, the sphere of the RBI regulation is limited to only those offering banking services and doesn’t cover the entire universe of co-operatives.

According to the notification issued by the government, the new ministry will deal with general policy in the field of cooperation while other relevant ministries will be responsible for cooperatives in their respective fields. For example, 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 remain 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 financial companies were allegedly converted to multi-state cooperatives to evade regulating authorities like RBI and Sebi.

As of December 2020, there were 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 much-neglected co-operative sector will get its due share of attention now following the formation of a dedicated ministry and catalyse a bottom-up growth approach. It will bolster the country’s cooperative movement and deepen its reach at the grassroot level, they add.