Dr M Ramanunny is a management professional with expertise in banking and the co-operative sector. In the last three and half decades, he has donned diverse hats including that of the Managing Director of Consumerfed and General Manager of Thrissur District Co-operative Bank. He had been part of popular science movements in Kerala including the Left-leaning Kerala Shastra Sahitya Parishad (KSSP)  and Library Movement.  In this interview with Abhish K Bose he discusses the Karuvannur bank corruption and its impact.   

Excerpts from the interview:

Could you explain the constitution of the cooperative banks in India with reference to the state of Kerala. What influence does the cooperative sector wield in the state's economy?

In India, all banks having valid banking licences are controlled by the Reserve bank of India. The Banking Regulation Act gives enormous power and responsibility to the RBI for ensuring day-to-day monitoring. Policy decisions are taken by the RBI to control and ensure smooth functioning of the banks in particular and in the financial sector in general. In the short term credit structure, cooperatives function in a three-tier system with Primary Agricultural Societies (PACS) at the at the grass root level, District cooperative banks or District Central Cooperative Banks (DCCB) at the middle tier, and the State Cooperative Banks (SCB) at the apex level. Through this system NABARD gives financial assistance to the primary cooperative banks and they in turn to the farmers.

In the long-term credit system Two-tier system is followed, with the State Agricultural and Rural Development Banks (SCARDBs) working at the apex level and Primary Agricultural and Rural Development Banks (PCARDBs) at the Taluk level.They are extending long-term credit to farmers for taking up cultivation of plantation crops, construction of bunds, Infrastructure developments etc. RBI approves and issues banking licences to SCB’S and DCCB’s. In addition to these banks licence is provided to Urban Cooperative Banks (UCBs) in urban areas. The primary cooperative banks do not have banking licenses, but RBI is monitoring their activities and conducting inspections at Regular intervals through the NABARD.

In Kerala cooperative societies are registered under Registrar of Cooperative Societies (RCS), Diary Department, Industries Department and other controlling departments. Credit societies are registered with the RCS. In this category 1600 and odd PACS got federated to DCCB’S which in turn was federated to the State Cooperative Bank. In Kerala, from 1970 onwards the primary agricultural societies are using the term bank along  with their names. They are allowed to mobilise deposits from their members. There are two types of members, those who have voting rights and those who do not have voting rights(nominal members). They can deposit money but they are not eligible for taking normal loans other than gold loans from that particular bank.These activities are also closely monitored by NABARD.

What happened in Karuvannur cooperative bank, where the Enforcement Directorate is probing a Rs 100 crore scam? Is there a hidden nexus behind the recently exposed huge scams in cooperative banks controlled by the CPI(M) in the state?

I don’t think there is any hidden nexus. The Karuvannur cooperative bank scam was an aberration. It was a good working bank, it was working on profit. Till 2018 the real estate business was booming. With the support of the secretary of the bank, a group of staff members including from an outsourced agency took loans in the name of pledged documents and used it for real estate business creating liability. (This was done without the knowledge of original loanees and owners of the property).Initially, it went well and they got very good profit, but due to demonetisation, the 2018 flood and Covid-19 the real estate business crashed. This led to large scale default in all loan cases. When the bank started efforts to recollect overdue amounts the  anomaly in the demands became known. As the misappropriation was done by a senior group of people who controlled the bank it was not found out during inspection or audit. Had this been noted during audit or inspection, the rectification would be possible then and there. Now it is too late and correction is impossible.

You are blaming the officials for the scam but not the political leadership. Several leaders connected to the Communist Party of India (Mraxist) including PR Aravindakshan, an area committee member and Sunil Kumar, former bank secretary and former secretary of the party's Karuvannur local committee are accused in the crime. How can the political leadership be absolved from the scam?

I never said so. The president and board members have 100% trust in the secretary and his team. I don’t believe that board members are involved in the process. There is a supervisory lapse. The leadership of any party will not get time to attend to routine issues connected with day to day operation of the bank and it would be solely attended by the Board and bank staff.

You called the scam an aberration and the result of a supervisory lapse. Isn't it a blatant fraud?  

I would like to clarify that the entire episode at Karuvannur SCB was due to the greedy and unethical behaviour of senior staff members which was not identified at the right time by department officials and the board members.The sudden growth in income of these staff members and their style of living if watched by authorities these mishap can be avoided or curbed then and there.They were taking money by creating additional debt burden to the loanees who have pledged their documents and that too without their permission.Forging of documents are also seen reported. They were involved in Real estate business also .The culprits did it intentionally and willfully but the entire incident when came out through media it was an accident to the entire sector and the particular bank.

Who do you think is directly responsible for the Karuvannur scam?

The Secretary of the bank Sunil Kumar TR, manager Biju Kareem and Bijoy (commission agent of the bank), PP Kiran, an outsider and beneficiary of illegally sanctioned loans, who was involved in money laundering and CK  Jills, the accountant are major culprits. In the case of money laundering Satheesh Kumar aka Satheesan, a native of Velappaya, is also said to be involved.

Can the ongoing ED investigation unearth the extent of corruption in the Karuvannur scam? 

ED is a national level investigation agency with a lot of exposure and experience, power and capability. They would be able to find out culprits If they are taking the enquiry seriously. But if they are after somebody without any reason (or due to political vendetta or they are acting as per the dictum of somebody) then it will not yield results. In this case I have certain apprehensions. I doubt they are not on the right track.

Why do you think the ED investigation is not on the right track?

ED has the authority to investigate any misappropriation in the financial sector. The cooperative department or the Crime Branch doesn’t have that authority. If these agencies are working together, it would be better, But now it seems that a lot of wrong information or fabricated stories are aired through the press or media which will not help them at all. 

Don't you think such instances can sabotage the trust the people have on the cooperative banks in the state?

It can cause an impact but the banks can bounce back with increased vigour. In the last week the Thankamany SCB and Nedumkandam SCB of Idukki district successfully mobilised deposits worth Rs 2.6 cr and Rs 3.2 cr  respectively through campaigns. Arattupuzha SCB and Thirumukkalam SCB of Thrissur district had almost stopped functioning and liquidation procedures were initiated. The District Cooperative Bank brought them under a revival scheme and now they are working efficiently. Numerous such instances can be found  in our state.

So are saying that the blows to credibility sustained by the bank in the eyes of the public is not a problem?

The credibility loss felt by the public is only a transient phenomenon. That will prevail only for a few days. They may be carried away by the positive functioning of a bank at another place. Since these units are having strength at the ground level, they have the ability to raise confidence of the public and since they have an umbilical bondage with the people of that locality they can be revived and the deposit will be returned .This is only a knee jerk reaction and the impact will not last long.  

The RBI intends to get rid of the malaise in the cooperative sector by bringing about new regulations. How effective will these initiatives be?  

I doubt the efficacy of RBIs interventions. The primary cooperative banking system is not controlled by the RBI. Cooperation is a state subject and rules pertaining to cooperatives are formed by respective states. Urban Cooperative Banks are controlled by the RBI. Regular audit is performed by RBI and action IS taken based on the findings. Even then among the 1,236 urban banks in the country almost 230 lost their banking licenses recently. It happened in Maharashtra, Gujarat, Karnataka and even in Kerala. The RBI was claiming that the urban banks are controlled and monitored by them. Then how did such banks become not viable now? I think the system followed in commercial banks is not applicable to cooperative banks. Hence RBI functionaries won’t be able to bring control in PACS where their exposure is limited.

In the Elangulam cooperative bank scam in Kottayam district, the current minister of cooperation had faced allegations. But nothing happened after the charge sheet was filed by the Vigilance. Do you think Karuvannur scam may face such a fate?

I have heard about it but the details are not known to me. There are different factors influencing the final decision such as time taken for investigation, strength of documentary proof, intention and ability of investigating agencies and the role of court etc.. In the Karuvannur case action has already been initiated and property from the accused have been seized with the help of revenue authorities. Many of the accused are in jail. 

Do you have any suggestions to stem the occurrence of similar scams in other banks?

The measures include the strengthening of the auditing. As part of this initiative team audits have been introduced in this sector. A team leader from the Accountant General’s office is heading the audit department. Now they have started process verification instead of  simply vouching the records. Hence societies will be cautious. Disciplinary action including termination of service were taken against the erring societies and employees. The cooperative act and rule got amended and stringent provisions are incorporated for timely default rectification. The amended rules empower auditors to file a police case under CRPC when lapses are reported. I am certain that the cooperative banks will withstand this onslaught and emerge without any damage.