Maharashtra (Part 3)

Pawar showing his true colours in Cooperative sector: In 2016, Maharashtra chief minister Devendra Fadnavis’ attempt to clean up the cooperative banking system set him on a collision course with Sharad Pawar's Nationalist Congress Party (NCP), along with the Congress party. At an event in Pune, Sharad Pawar warned Fadnavis to not sabotage the cooperative movement. Fadnavis retorted that the cooperative sector needed drastic reforms simply to rid it of corruption and malpractices. The state would be following RBI's mandate in this matter.

Since the 1960s, first the Congress and then NCP after its formation in 1999, had expanded their catchment of political influence through the network of cooperative societies and banks that form the backbone of Maharashtra’s rural economy. “Even the hint of a threat to this empire sends alarm bells ringing,” said an unnamed BJP minister.

As part of RBI's mandate, Fadnavis's govt passed two ordinances to curb the power of Coop bank directors. These barred directors held guilty of malpractice and barred directors of Coop banks put under administration from contesting elections. These reforms should ensure that the same set of corrupt directors do not continue on the boards of cooperative banks.

“The RBI has frequently asked the state government to put in place a legal mechanism that disqualifies the people who have caused losses to the bank and sheltered malpractices from contesting elections and getting elected to the board of directors again. Investigations into the irregularities of almost all district cooperative banks have revealed that the very directors who indulged in financial irregularities have come back re-elected. This has virtually stalled the implementation of reforms and judicial process to carry out changes,” the official said, asking not to be identified.

The ordinance will apply to all cooperative institutions registered under the Maharashtra Cooperative Societies Act, 1960.

The cooperative sector has deep roots in the state. Maharashtra has 31 district central cooperative banks affiliated to the Mumbai-based Maharashtra State Cooperative Bank. These banks together have more than 3,700 branches and more than 21,000 agriculture credit societies. Through this wide network, the banks have more than 10.1 million members, nearly half of whom are active borrowers. Maharashtra also has 520 urban cooperative banks.

“This network is the primary source of banking for a majority of 10.3 million farmers in Maharashtra and it plays a major role in the political economy of rural Maharashtra,” said the minister quoted earlier.

He conceded that the state’s Congress leaders in 1960s deserved credit for establishing the cooperative movement, but pointed out that the Congress-NCP had also corrupted the sector for political gains.

Over the years, these banks have been misused for arbitrary and preferential lending, nepotism and expansion of influence through patronage.

This has led to several district branches accumulating huge bad loans owing to inefficient recovery. Many of them have been put under administrators as per RBI guidelines.

A former bureaucrat who is familiar with the state’s cooperative sector said that Fadnavis is in a unique political position to carry out these reforms.

“Unlike many of the former chief ministers and some of his BJP colleagues, Fadnavis has no cooperative sector background nor does he have stakes in the sector,” he said, requesting anonymity. “On the other hand, there is an incentive to carry out these reforms since a large number of members of these banks who are farmers have for long resented the fact that the banks have become more of political fiefdoms than institutions of formal agriculture credit, which they were supposed to be.”

Devendra Fadnavis faces hurdles in cooperative banks reform