It has been a long wait for investors in Kerala to hear something good about cooperative banks in the state. Horrendous frauds of giving fake collateral using long-term deposits entrusted by the common people have already filled news circles in Kerala. Karuvannur, Kandala and Kannambra were some of the names that turned infamous for such frauds committed.

It finally took the government to compensate the investors directly after these dejected depositors unknowingly fell into the fraud weaved by board members and bank employees. It is amidst this controversy in the cooperative bank sector that news surfaced about Central Government Urban Cooperative Banks coming in every major city in the state.

Despite such a sudden move from the central government, the state-governed cooperative banks remain blasé and exhume confidence about the cooperative sector’s continued success in Kerala. The successful investment mobilization campaign held last month may have instilled hope about incoming success.

Albeit the precedent of Karuvannur and Kandala scams, the investment mobilization campaign held in January, brought in Rs 23,263.73 crore to cooperative banks. It gave signs of restored trust and credibility for the cooperative banks among commoners in Kerala. The total cooperative investment in the state is more than 1,27,000 crores.

The Supreme Court ruling that the cooperative sector should be under the control of the states has made it difficult for the central government to wrest control over this sector in Kerala. To overcome this, the central urban banks are introduced which is a multi-state cooperative that was first brought by the second UPA government.

Whether state or central-owned, the depositors want benefits. Special urban banks under central control can naturally provide loans at lower interest rates and additional benefits on deposits. Central Bank will also see all modern banking facilities including ATMs- and credit cards. It is a certitude that many beneficiaries of the state cooperative banks will soon shift their allegiance to the central government initiative. This potential challenge should be turned into an opportunity to address the loopholes in the cooperative banking sector as soon as possible, strengthen it to make it more fraud-proof, and make it more competitive.

The first thing that needs to be done is to prevent excessive political influence in the cooperative sector. Bank employees often succumb to excessive pressure exerted by the members of the governing body and venture into fraudulent financial transactions and loan approvals.

The sector can also be strengthened by bringing an internal auditing system.