Maharashtra State Co-operative Bank fraud: Rot in co-op sector exposed, pinning blame will be tough

Since the BJP came to power in 2014, it has been tightening screws on the co-operative sector to keep the Congress-NCP clout under check.

In many ways, the dissolution of the board of the Maharashtra State Co-operative Bank, by the Reserve Bank of India, in 2011, proved to be the beginning of the end of the co-operative politics dominance in the state.

The RBI action to suspend the board of the apex bank made up of 76 directors, mostly belonging to Congress-NCP, came after the bank, had acquired a negative worth of ₹144 crore. (Reuters Photo)

For decades, state’s politics (Congress and Nationalist Congress Party) has been linked to its co-operative sector with doyens of these powerful institutions – banks, sugar-co-operatives, cotton spinning mills – doubling up as politicians and calling the shots on the state’s agrarian policies and rural economy.

Since the BJP came to power in 2014, it has been tightening screws on the co-operative sector to keep the Congress-NCP clout under check.

But, even before the BJP came to power, a majority of the co-operatives had been on a decline after years of mismanagement, by political office-bearers, who ran the units they were elected to as personal fiefdoms more than community enterprises.

Fattened on government subsidies and loans, many of the sugar co-operative mills controlled by politicians were ailing and sick by this time.

MSC bank as the state’s apex co-op bank was the central credit agency for the 31 district co-operative banks as well as sugar co-operatives, spinning mills, dairies etc. Nothing exposed the extent of the rot in this sector more than the Nabard inquiry report and the audit report by third party auditors of the state apex bank, which became the basis for the RBI action and now the FIR against some of the leading politicians in the state.

The RBI action to suspend the board of the apex bank made up of 76 directors, mostly belonging to Congress-NCP, came after the bank, had acquired a negative worth of ₹144 crore.

As irony would have it, it was the Congress-NCP rivalry, most highlighted during former chief minister Prithviraj
Chavan’s tenure that the MSC bank “scam” was thus outed much like the more notorious irrigation scam. Chavan had followed up on the RBI action by setting up an inquiry under the co-operation department into the working and finances of the bank.

The inquiry reports showed the arrogance with which the leading politicians, who served as directors of the bank, had
disbursed loans to many of
their own and their colleagues’ co-operative units with a blatant disregard to banking norms.

Loans were offered to sugar co-operative mills with even negative worth, fully aware that those loans could not be paid back. Loans were utilized for purposes not mentioned in the loan application. In some cases, office bearers of the apex bank doled out loans to their
kin’s unrelated business ventures.

As the apex bank’s non-performing assets started ballooning, sick units were devalued and then were purchased in auctions for nominal costs by several leading politicians. In 2013, activists Anna Hazare and Medha Patkar, who highlighted sale of nearly 26 sick co-operative mills to private companies controlled by leading politicians, said this scam was to the tune of ₹10,000 crore.

Despite this and the Economic Offences Wing FIR on Monday, it’s not going to be easy to pin responsibility of the
scam on the bank’s political directors.

(The anti-corruption bureau hasn’t been able to pin the responsibility on politicians
in the irrigation scam for the past five years, even though there is direct evidence of
wrongdoing)

“It’s childish to allege that directors of the bank (from across political parties), who were elected to that post, handed out loans to their own mills. These were co-operative units made up of thousands of farmers not private firms of politicians. The bank was meant to support the co-operative sector and the farmers. How can there be a case of corruption or
quid pro quo here,” asked Maharashtra NCP chief Jayant
Patil.

While things may not be as straight forward as Patil would like us to believe, this defence will come to the aid of majority of the bank’s directors unless they have personally benefited from the decisions taken as bank directors.