Will there be light at the end of the tunnel for the crisis-ridden cooperative banks in the State? Close on the heels of Mapusa Urban Cooperative Bank coming under Reserve Bank of India curbs, Madgaum Urban Cooperative Bank have been slapped with stringent restrictions on its operations. For the thousands of account holders who kept their trust in these banks despite the sinking feeling, this has come as a rude shock.
However, this are not the first signs of stress felt by Madgaum Urban. RBI had earlier imposed curbs on the bank way back in 2014-15 for its poor Capital to Risk Asset Ratio (CRAR) which declined from 9.33 per cent to 3.83 per cent. The CRAR is the capital needed for a bank in terms of assets (mostly loans) disbursed by the banks. In August last year, the RBI had imposed a similar embargo on Mapusa Urban Cooperative Bank. It is still grappling with the embargo and is desperately looking for a bailout in the form of merger. The apex bank Goa State Cooperative Bank itself is running into rough weather with a leadership and financial crises of its own.
Till now cooperative banks were lifelines for the common man, small traders and salaried class across the state. They facilitated quick disbursal of finance to support businesses and allied activities besides easy personal loans. Cooperative banks shot into prominence during the mining boom and several budding entrepreneurs and locals availed hefty loans lured by the money the ore industry had to offer. With mining at a standstill, the banks faced an uphill task of recovering these loans, adversely resulting in a sharp increase in Non-Performing Assets of these banks.
A freeze on accounts is the last thing depositors would want in a crippled economic situation. It appears that a death knell has been sounded for the cooperative banks. Banks cannot continue to do business under these strictures and in the absence of a capital push they will have to look out for a merger.
While merger plans are being worked out in the background by Margao and Mapusa banks, government cannot be a mute spectator to the developments where innocent depositors are made to suffer for no fault of theirs. These embargos will have serious socio-economic implications from the people’s standpoint. Cooperative banks may be under the purview of the RBI, but it doesn’t absolve the State government of all responsibility since it has under its ambit the Registrar of Cooperative Society, a state watchdog of cooperative administration.
It is common knowledge that senior leaders in the government have a very influential role in banks’ administration, including appointment of the chairman and even the board of directors. Political stalwarts have been heading the board and in several cases loans have been sanctioned under these influences, bypassing procedures. The financial situation of the State is in a precarious situation and understandably the government may not be in a position to pump in huge capital needed to bail out these ailing banks. But at the same time people trapped in this predicament can’t be ignored. The government needs to step in.
