Co-operative banking system in Kerala gets flexible

Rural borrowers in Kerala can now heave a sign of relief with the co-operative banking system in the State shedding the rigidity in its lending process.

This is to take on illegal companies that charge unacceptably high rates of interest from hapless borrowers.

The co-operative sector introduced several changes recently. These include: interest rate cuts, relaxing the lending formalities, and a sharp rise in the loan limit. Primary co-operative credit societies that work at the village level will now function from 8 a.m. to 8 p.m. and remain open for half-day on Sundays.

The norms for gold loans also have also been relaxed with a reduction in interest rates. These changes are also expected to give commercial banks a run for their money. The government has launched Operation Kubera to stand up to the challenges posed by companies that charge cut-throat interest rates (known in local parlance as ‘blade companies’ or ‘blades’ for short).

“The main objective of cutting interest rates and relaxing lending norms is to loosen the ‘blade’ companies’ stranglehold on the poor rural borrowers,” KV Suresh Babu, Additional Registrar in the Co-operation Department of the Kerala Government, told Business Line . The changes dovetailed the Operation Kubera, he said.

Though Kerala is one of the best-banked States, there exists a strong parallel illegal credit system, too. These ‘blade companies’ charge extremely high rates of interest, often ranging from 120 per cent to 300 per cent a year. These companies often employ goondas to recover money from the borrowers. Many murders, lynching and suicides are linked to these companies.

Following the suicide of a five-member family two months ago, the Oommen Chandy Government launched Operation Kubera. The family, unable to repay their debts to a blade company and fearing attack, ended their lives.

Raids Scores of raids have been carried out on illegal money lenders and credit firms by the police, and hundreds have been arrested so far. Home Minister, Ramesh Chennithala, has said the government would wipe out the ‘blade mafia’. He has asked the Reserve Bank of India to strictly enforce its regulatory role over registered NBFCs as many registered NBFCs are also charging high interest rates. Though the interest rates charged by the co-operative societies are low, the long delay and procedural hardships make the co-operative credit unattractive. For example, for a loan of ₹50,000, the borrower has to wait for two weeks to three months.

The changes now being put in place are meant to wean borrowers away from the ‘blades’.

The government has asked the co-operatives to enforce a time limit: loans up to ₹10,000 should be sanctioned within two days and bigger ones within 15 days. There is no need for personal guarantee for loans of ₹5,000. The maximum interest rate is 15 per cent instead of the 16.5 per cent earlier. Interest rates on gold loans have been slashed to 12 per cent.

“The changes in the lending norms and the cut in interest rates will encourage borrowers to come to co-operative banks for loans and dump the blade companies,” Kurian Joy, President of the Kerala State Co-operative Bank, told Business Line.

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