Kottayam: Starting from the audit of this financial year, strict measures will be implemented to ensure that a proportional amount should be set aside as a reserve fund for the bad debts of primary cooperative societies. This move is expected to push small-profit societies into the loss category. The directive also recommends controlling measures to be taken regarding the excessive reserve fund allocation by highly profitable societies to prepare for potential future financial crises.

Out of the 16,329 societies in the state, only 4,500 operate with substantial profits, while the majority remain in the red, incurring losses. Legal proceedings have already commenced to recover ₹47,000 crore in bad debts. If the unrecovered debts that have not yet entered legal proceedings are added, the total outstanding debt will increase further.

The tightening of audit guidelines aims to enhance the responsibility of societies in recovering bad debts. These measures, suggested by the audit department to ensure transparent transactions, were endorsed by Minister V.N. Vasavan.

Meanwhile, the Co-operative Employees Union (CITU-affiliated) has approached the minister and the registrar to oppose the directive to set aside reserve funds proportional to bad debts. They argue that while stricter audits are welcome, increasing reserve fund allocations will create liquidity issues, hampering daily operations.

Previously, a loan amount was declared as a bad debt if repayment was overdue by a year after the due date. However, under the new guidelines, loans will be classified as bad debts if repayments are delayed for three years. This revision is expected to result in a sharp increase in the total bad debt amount.

Reserve fund requirements (for profitable societies):

  • Arrears of 1 to 3 years: 10% of the loan amount.

  • Arrears of 3 to 6 years: 50% of the loan amount.

  • Loans with personal guarantees overdue by 3 to 6 years: 100% of the loan amount.

  • Arrears exceeding 6 years: 100% of the loan amount.

Reserve fund requirements (for loss-making societies):

  • Arrears of 1 to 3 years: 7.5% of the loan amount.

  • Arrears of 3 to 6 years: 30% of the loan amount.

  • Arrears exceeding 6 years: 80% of the loan amount.