KOCHI: Cooperative credit societies in Kerala have long operated under a separate, softer regulatory umbrella compared with banks that follow far stricter rules and norms.
But the latest round of relaxations in provisioning norms – announced by the Department of Cooperative Societies – widens the gap even further, raising serious concerns about transparency, financial discipline, and audit accountability.
These relaxations, applicable to societies that come under the Registrar of Cooperative Societies (RCS) but are not governed by the Banking Regulation Act, allow them to set aside far less money for non-performing assets (NPAs) than commercial or cooperative banks regulated by the Reserve Bank of India (RBI).
In comparison…
Take for example loans overdue by one to three years. Under the new circular, cooperative credit societies now need to provide only 7.5 per cent of the outstanding dues if the loan is backed by personal surety.
By contrast, banks are required to provide 25 per cent if the loan is secured and a full 100 per cent if it’s unsecured.
For loans overdue between three and six years, provisioning for cooperative societies has been reduced to 80 per cent (from 100%) in the case of personal surety, and to just 30 per cent (from 50%) in the case of collateral-backed loans.
Interest dues, which are provisioned at 100 per cent in these societies once overdue, have been fully exempted if the loan was disbursed in the last three months of the financial year 2024–25.
Further, loans issued through government-backed consortiums or debt relief schemes, or those with interest subvention, enjoy full exemption from provisioning altogether.
These aren’t small technicalities – they have a direct impact on how the financial health of these societies appears to the public.
If these credit societies were to apply RBI’s provisioning norms, many would be forced to show losses instead of the modest profits currently reported.
Why display ‘Bank’ board?
This distortion is made worse by the fact that many of these credit societies display boards labelling themselves as “banks” – despite repeated instructions from the RBI to stop doing so.
They collect deposits, give out loans, and function in all practical terms like banks.
But they’re not bound by the same set of rules that banks are expected to follow.
Stricter norms
Banks not only set aside far higher provisions against bad loans but are also subject to stringent norms around capital adequacy, liquidity, asset classification, and regulatory reporting.
Another glaring concern is the lack of timely audits. Reports suggest that more than 800 cooperative societies in Kerala are currently in the red, but the real picture could be far worse.
With delayed audits, relaxed provisioning, and selective exemptions, the financials of many societies remain unaudited or under-reported for years.
Had they followed the standards set for banks, their balance sheets would likely tell a much grimmer story.
“The issue is no longer just technical – it’s systemic. Cooperative credit societies handling public funds and presenting themselves as banks must be subject to the same regulatory scrutiny as banks,” a retired cooperative registrar told businessbenchmark.news.
There can’t be one set of rules for RBI-regulated institutions and another for societies merely because they fall under a different department, but operating on public funds and in the same market.
The public deserves clarity, and the system deserves consistency. It’s time to end the illusion of strength and demand real accountability from institutions that call themselves ‘banks’ but operate without the responsibilities that come with the name.
