Govt to create kitty to safeguard depositors in credit societies

Maharashtra mandates cooperative credit societies to contribute 0.1% of profits to a fund protecting depositors up to ₹1 lakh, covering 26.7 million investors.

MUMBAI: In order to protect 26.7 million investors with collective deposits of ₹95,000 crore in over 21,000 cooperative credit societies, the state government has made it compulsory for these societies to contribute 0.1% of their profits to compensate depositors in case they go into liquidation. Depositors will be given a protective cover of up to ₹1 lakh through the kitty jointly set up with societies’ contributions and the corpus contributed by the government.

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The cooperation commissioner has written to credit societies to deposit their contribution of 0.1% of their profit by the end of the financial year. The state government has decided to contribute an initial ₹100 crore in order to get the scheme, which is modelled on one by the Kerala government, going.

“The 21,000 credit societies, which are the backbone of the rural economy, have deposits of ₹95,000 crore, and we expect a contribution of around ₹95 crore from them every year for three years,” said an official from the cooperation department. “The societies have to deposit the first instalment by the end of March 2025, based on their profit in FY 2023-24. The societies have requested us to reduce the three-year period to just one year, but no decision has been taken yet by the government.”

The official said that over 90% of the account-holders in these societies had deposits of less than ₹1 lakh and would thus be covered. “Depositors are attracted to these societies due to the high interest rates they offer, but unlike cooperative banks, they don’t have any security cover in case the societies crumble,” he pointed out. “Depositors in cooperative banks are protected by the Reserve Bank of India’s Deposit Insurance And Credit Guarantee Corporation. Those in credit societies will be given protection by the regulatory board under the cooperation commissioner.”

Another official said that many such credit societies ran into liquidation owing to huge NPAs between 2005 and 2015, leaving depositors in the lurch. “People lost large amounts owing to the bad financial health of the societies,” he said. “Although strict action against the defaulting societies and their directors has helped us reduce the mismanagement in them, we want to safeguard depositors.”