Karela Fry

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The cooperators

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On April 20, Livemint reported a statement from the agriculture minister that might not have prompted some speculation if the minister in question had been anyone else:

Terming cooperatives as one of the strongest pillars of Indian agriculture, farm minister Sharad Pawar on Wednesday said he has asked finance minister Pranab Mukherjee to consider income tax exemption to Indian cooperatives.

“I have written a letter to the finance minister to look into the issue of I-T exemption to cooperative societies,” Pawar said at a national level meeting with the state cooperative ministers here.

With about 6 lakh cooperative societies covering about 250 million members, Pawar said the Indian cooperative sector takes pride in calling itself one of the largest cooperative movement in the world.

National Cooperative Union of India (NCUI), the apex organization of the cooperatives in the country, has been demanding to keep cooperative societies out of the purview of the direct tax code that is to be operationalized in 2012.

Eighteen days later surprising news broke, here reported (two days after the event) by the Hindu:

Ajit Pawar

On the directive of the Reserve Bank of India (RBI), the State government superseded the 44-member board and appointed two administrators for the next five years: Dr. S.K. Goyal, Principal Secretary, Agriculture, and Sudhir Shrivastav, Principal Secretary, Planning. The bank, beset with many problems, was controlled by the NCP. Manikrao Patil was its chairperson, with Deputy Chief Minister Ajit Pawar, among other politicians of all hues, on the board of directors.

The Opposition has been demanding action against the directors, including Mr. Pawar. It raised the issue in the budget session of the legislature. NCP president Sharad Pawar and his nephew have reacted adversely to the government’s action, and the younger Pawar who feels he is the target, has blamed the move on the Congress’ central leadership. Words have flowed thick and fast once again between the two coalition partners, and it was only last week that the two parties had a coordination meeting to sort out their differences.

However, a look at some documents indicates that the RBI directive came after much perseverance with the Bank, with net non-performing assets (NPA) pegged at 7.5 per cent. The annual inspection report by the National Bank for Agriculture and Rural Development (NABARD) has found several shortcomings in the bank’s functioning, which was not helped by a negative net worth of minus Rs.144.22 crore on March 31, 2010, down from Rs 44.2 crore in 2009. Eknath Khadse of the Bharatiya Janata Party (BJP) points out that even today, the bank does not have a licence under the Banking Regulation Act, 1949. He says the NABARD report has charged the bank with misuse of power, fudging of accounts, and fiscal and administrative irregularities.

The bank gave loans to units with negative net worth and stacked up losses amounting to Rs. 775.98 crore. The managing director’s Honda Accord number plate cost Rs.7,500, and for the chairperson’s Skoda’s number plate, the cost was higher — Rs.75,000. Despite the NABARD recommending that the number of directors be reduced to 28, a 44-member board was elected in 2010. The maximum number of NPAs stemmed from exposure to sugar cooperatives followed by cotton mills, he said.

A statutory audit report for the financial year 2009-2010 points to issues raised in the past audits — the high level of NPAs, deficiencies in credit proposals, inordinate delay in loan recovery and non-introduction of audit, stock audit and concurrent audit, among other serious things. The report found that the bank had violated rules and regulations of the Banking Regulation Act and the Maharashtra State Cooperative Societies Act. For all its flaws, the bank secured a D grade on the audit classification scale.

The RBI had issued eleven modified directions to the bank in a May 29, 2001 letter, but it has not complied with six of them so far. The bank’s system of credit appraisal is inadequate as also its monitoring, and follow-up of the credit portfolio is below average. This has led to the high level of NPAs and higher credit risk, the report said.

In addition, the audit found that Vishwajit Patil, son of the bank’s chairperson, Manikrao Patil, was given a housing loan in 2006, of which the outstanding on March 31, 2010, was Rs.11,74,166. Mr. Patil’s wife and daughter are directors of another private company to which a term loan and cash credit facility was advanced. Nrupal Jayantrao, son of another director Jayantrao Patil, was granted a counter guarantee limit of Rs. 75 lakh and Rs. 2376.02 lakhs for two private limited companies. The bank has also granted loans and advance to units in which directors or their relatives had a stake.

IE named the politicians involved in the bank:

The NCP’s Manikrao Patil is the chairman of the MSCB, which was founded in 1911, and Deputy Chief Minister and Finance Minister Ajit Pawar is one of the directors. Balasaheb Sarnaik of the Congress is the vice-chairman and the bank also has directors from across political parties like former deputy chief minister Vijaysinh Mohite Patil, former MLA Rajwardhan Kadambande, former MLC Yashwantrao Gadakh, Rajya Sabha MP Ishwarlal Jain, MLC Rajendra Jain (NCP), former minister Vijay Vadettiwar, Manikrao Kokate, former MP Rajni Patil (Congress), leader of the Opposition in the Legislative Council Pandurang Phundkar, former MLA Amarsinh Pandit (BJP), MP Anandrao Adsul (Shiv Sena), MLC Jayant Patil and MLA Meenakshi Patil (Peasants and Workers Party).

Ever the wily strategist, Sharad Pawar is even now trying to turn this around to his pecuniary and political advantage, as BS reports:

BS: Do you think it is the handiwork of your electoral ally, the Congress, to put Pawars, and the NCP in general, on the wrong-foot?

Sharad Pawar

Pawar: The state government’s irresponsible behaviour led to this situation. This issue has been going on for the last three- four years, and I had met former chief minister Ashok Chavan and current CM Prithviraj Chavan regarding this. I had argued that the government needed to release funds without any delay to save the bank. Besides, I had suggested the government take initiatives to get a banking licence for the MSC Bank. The only solution is that the government should at the earliest release the necessary fund. It is not acceptable that the release of funds has been opposed only because a majority of the bank’s 77 directors belong to the NCP. The government should have acted responsibly.

HT analyzes why this is a core issue for the NCP:

Why is the MSC Bank — the principal funding agency for all cooperative banks in the state — so important? The answer lies in the importance of the cooperative sector in state politics.

In most parts of Maharashtra, the network of cooperative bodies – sugar factories, dairies, credit societies and banks – form the backbone of the rural economy and hence the politics of that area. Those who control this network dominate local politics. Control over financial institutions in the cooperative sector also gives leverage to ruling members when it comes to contesting elections.

The cooperative sector plays a significant role in local politics across the state except in Mumbai, the Konkan and most of Vidarbha. The ruling class in this sector is mostly with the Sharad Pawar-led NCP, even though the Congress has a considerable share. And, the NCP derives most of its strength from the cooperative sector. Little wonder then that the RBI action has angered the party that suspects the Congress is out to corner its chief.

“It seems the action is aimed at weakening our grip on cooperative credit societies and banks. The timing is crucial. The elections to zilla parishads are due in a few months and there would be efforts to prevent us from using our strength in the cooperative sector,” said a key NCP minister.

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