RBI's restriction on receiving investment likely to affect cooperative sector in Kerala

Biju Paravath

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File picture | Photo: AFP

Thiruvananthapuram: In a move which affect around 1,625 primary cooperative banks and around 15,000 cooperative societies in Kerala, the Reserve Bank of India (RBI) has come up with a new guideline. Reiterating the term 'bank' should not be used, the RBI has also put restrictions in receiving investments. The restriction is for accepting investments from members without voting power.

The word bank should not be used

Based on Banking Regulation (Amendment) Act, 2020, RBI has issued a new order about the use of the word 'bank'. According to this, words like banks, banking, banker should not be appended with the names of cooperative societies which do not have license of RBI. Though the Act came into force on September 29, 2020, it has not been implemented in the state. The move comes at this juncture.

No definition of members

As cooperative sector comes under the control of the state, Banking Regulation (Amendment) Act, 2020, cannot define members in cooperative unions. Notably, the RBI’s new order says nominal, associate members cannot be considered as members of cooperative societies.

There are allegations that the cooperative unions are appending the word 'bank' along with its names, despite absence of license. RBI has received complaints in this regard. The RBI has publicized that those investing in cooperative banks should ensure they have authorisation from RBI.

According to RBI’s order, only those with voting power can make investment to cooperative societies. Even nominal and associate members are barred from investments as they don’t have voting power. However, most of the members in cooperative societies and banks in Kerala are nominal and associate members. Also, according to state’s cooperative law, they are defined as members itself. Though they are restricted from voting, their presence is inevitable.

Meanwhile, it is learnt that state government will move against the order as it may critically impair cooperative sector.

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