Co-operative banks in Kerala have reported high levels of non performing assets at the end of December 2021. Figures released by the State Level Bankers’ Committee (SLBC) suggest that as much as 88 per cent of advances of the Kerala State Cooperative Agricultural and Rural Development Bank Ltd were NPAs, while the corresponding figure for the Kerala Bank or Kerala State Cooperative Bank (KSCB), which has 13 district cooperative banks under it, is 30 per cent. These numbers are disturbing. The agriculture sector in Kerala, reeling under consecutive years of devastating floods, reported negative growth in 2019-20 and ’20-21. This and the pandemic may have contributed to the rising NPAs.
But two other factors are also key: One, political control and patronage; and two, absence of regulation. In fact, both are connected. Much of the activity of the Kerala State Cooperative Agricultural and Rural Development Bank Ltd, with primary agricultural credit societies as basic units, escapes the oversight of regulators such as the RBI and the income tax department. Light regulation and lax supervison has benefited various stakeholders, including customers, promoters and underwriters, in this case the state government. Unlike public and private sector banks, cooperative institutions have the leeway to extend credit to local consumers, often on the basis of trust or compassion or due to pressure from local social or political groups. In the best scenario, they provide a protective…
