Co-op banks: Reforms the way forward

Giving access to funds to a politician has often been compared to handing over whiskey and car keys to teenage boys. A heady feeling and a sense of impunity immediately take over. Something similar happens in urban cooperative banks that are under the control of local level politicians in different states.

Anyonya Cooperative Bank that was established in 1889 in Baroda following the success of the credit movement in Germany and Italy, was India’s first cooperative bank. The culture of cooperative banks spread through the 20th century. But after Independence politicians found cooperative banks as easy prey either by installing their cronies or by taking the reins of the organisations in their own hands. Numerous banks have gone bust – Punjab and Maharashtra Cooperative Bank is the most recent example – after misuse of the funds jeopardising the hard-earned money of lakhs of common people.

It is against this long history of corruption and misappropriation that the recent Reserve Bank move to infuse a semblance of discipline in 1,482 UCBs and 58 multi-state cooperatives should be viewed.

RBI has said that the MD should be a graduate preferably with qualifications in banking, chartered accountancy, or post-graduation in any discipline. A CEO should not be less than 35 years or more than 70 years old and he/she should have at least eight years of experience in the middle or senior level of the banking sector. RBI has also said that none can hold the position of MD or whole-time director for more than 15 years.

The RBI move is bound to take it on a collision course with state governments. Politicians of ruling parties in different states would try to resist regulatory control. However, it would be a retrograde step if the central bank put these reforms on the backburner. Millions of customers of these banks have to be shielded from the vice-like grip of politicians and this is just the beginning.

UCB reforms were long overdue. It should not stop at tokenism.