Alappuzha: Kerala Bank's sharp cut in fixed deposit interest rates is a blow to cooperative societies. The new rules, which put cooperatives that rely on Kerala Bank for deposits and loans in a difficult situation, came into effect on June 30.

Earlier, the deposits of cooperative societies in Kerala Bank used to earn an additional interest of half a per cent. On November 19, the bank increased the interest rate on all deposits, including that of the societies, on par with these societies. With this, the benefit of the additional interest that the cooperatives were getting was gone. Later, the interest rate on some types of deposits was reduced depending on the duration. Now, the interest rate on all fixed deposits has been reduced.

The majority of the investment in the societies is for a period of one to two years. Senior citizens constitute the majority of the investors in this category. They are accepted for deposits at an interest rate of 8.50 per cent. At present, if the groups deposit this money in Kerala Bank, they will get only 7.10 per cent interest.

The deposits received by the cooperatives are usually distributed as loans to the members. The government has directed that the remaining deposits after disbursing the loans should be deposited in Kerala Bank. 70 per cent of the deposits in the bank are from primary cooperatives. The cooperatives are concerned that depositing this money in Kerala Bank at low interest rates while paying high interest to the depositors will create a huge backlog.

With the permission of the Cooperative Registrar, the societies can invest additional funds in cooperative institutions including the Housing Board. This will earn higher interest. However, since the daily transactions are handled by Kerala Bank, it will be difficult to make such investments. However, the cooperatives are exploring the possibility of this type of investment.

Individuals, institutions and groups receive the same interest rate on deposits in Kerala Bank. Despite the reduction in interest rates, the rate at Kerala Bank is still higher than that of public sector banks.