KOCHI: From Karuvannur to a growing list of co-operative credit societies across Kerala, repayment crises are increasingly testing depositors' faith in the sector in the state.
As concerns spread, attention is shifting to the State's Rs10 lakh deposit guarantee scheme and whether it can protect savers if more societies fail. The key question is whether the fund has the financial capacity - and the legal framework - to protect depositors if more societies become unable to return their money.
The issue assumes significance as a series of co-operative credit societies, including the high-profile Karuvannur Service Co-operative Bank, have in recent years come under severe financial strain, leaving thousands of depositors struggling to recover their savings.
Several other societies across the State have also reported repayment difficulties, triggering anxious depositors to seek premature withdrawals or approach managements for assurances that their deposits remain safe.
In some cases, the crisis has been linked to extreme distress among depositors and office-bearers, underlining the erosion of confidence in parts of the co-operative credit sector.
Kerala co-operative deposit guarantee scheme
Against this backdrop, the Kerala Co-operative Deposit Guarantee (Amendment) Scheme, 2026 has assumed fresh relevance. The scheme provides deposit protection of up to Rs5 lakh for depositors of participating societies under the standard contribution structure and up to Rs10 lakh where societies opt for the enhanced contribution mechanism.\
The enhanced scheme offers higher than the Rs5 lakh insurance cover available to bank depositors under the RBI-backed Deposit Insurance and Credit Guarantee Corporation (DICGC).
It also empowers the Kerala Co-operative Deposit Guarantee Fund Board to extend financial assistance to eligible societies facing liquidity stress to enable them to repay depositors.
Enhanced deposit guarantee scheme
Yet, despite the growing number of co-operative societies that have faced repayment crises over the years, there has been little public discussion on whether the State's deposit guarantee mechanism has ever been invoked to compensate depositors on a significant scale.
Nor is it widely known how many societies have opted for the enhanced Rs10 lakh cover, the size of the guarantee fund, or whether any depositor has actually received compensation under the scheme.
Practical questions
The amendment also leaves several practical questions in focus. While it provides for settlement of guaranteed claims and enables financial assistance to societies, it does not spell out in the notification when a depositor becomes entitled to receive compensation in the event of a society's failure.
If payments are linked to liquidation or winding-up proceedings, depositors could face prolonged uncertainty before accessing the guaranteed amount, especially since such proceedings often take years to conclude.
The questions assume greater importance as concerns persist over the financial health of several co-operative credit societies across Kerala.
If repayment difficulties spread to more institutions, the State's enhanced deposit guarantee scheme could face its most significant test since its inception - not merely in terms of the amount of protection promised, but in its ability to restore confidence by delivering timely relief to depositors.
