Haripad, Kerala: The Kerala Bank has clarified that 'One-Time Settlement (OTS)' benefits will not apply to cases where primary cooperative banks in the state default on loan payments. 

The cooperative societies provide loans to members based on funds borrowed from Kerala Bank. When members default on repayment, these cooperatives typically rely on OTS to resolve the issue. However, in a recent circular, Kerala Bank stated that OTS benefits will not be extended to cover dues owed by cooperative banks to the bank itself.

In contrast, those who borrow directly from Kerala Bank will still be eligible for the OTS benefit, even if they default on repayments.

As a result, Cooperative societies are bound to repay their loans even if their members default on repayments. This requirement has raised concerns among societies, as Kerala Bank deducts loan amounts and interest from the savings and current accounts each month.

Concern among Societies over OTS 

Earlier, cooperative societies could access the OTS benefit for loans obtained from district cooperative banks before the formation of Kerala Bank. However, the Kerala Bank's latest stance has caused anxiety, particularly since it is common for members to default due to personal reasons such as illness or family tragedies. 

The latest circular issued by the Chief Executive Officer of Kerala Bank emphasized that there will be no relaxation in repayment terms for primary cooperative banks. Kerala Bank fears that the unprecedented increase in loans issued to cooperatives could negatively impact the bank's profitability.

It is argued that while the formation of Kerala Bank was intended to strengthen primary cooperative societies, the bank's current policies are seen as detrimental to the cooperatives in the state.