Why in News?
- The Union Cabinet has approved the Multi-State Cooperative Societies Amendment Bill, 2022, which aims to amend the Multi-State Cooperative Societies Act, 2002.
- A new Ministry of Cooperation was created in July 2021 with an objective to provide renewed push to the growth of Cooperative Sector.
Changes Proposed in the Bill-
- The amendments seek to enhance ease of doing business, bring greater transparency and improve governance.
- It has incorporated provisions relating to representation of women and Scheduled Caste (SC) and Scheduled Tribe (ST) members on the board of multi-state cooperative societies.
- The amendments have been brought to reform the electoral process, reinforce monitoring mechanisms and improve accountability.
- It will enlarge the composition of board and ensure financial discipline, besides enabling the multi-state cooperative societies to raise funds.
- To enhance the governance of multi-state cooperative societies, the Bill has specific provisions for establishing Cooperative Election Authority, Cooperative Information Officer and Cooperative Ombudsman.
- Provision for issuing non-voting shares will also be included in multi-state co-operative societies to support them raise funds.
- Further, the newly proposed Rehabilitation, Reconstruction & Development Fund will assist in revitalising sick or underperformance co-operative societies.
- The Bill will include the provisions of the 97th Constitutional Amendment.
- Furthermore, the provision for stipulating prudential norms will introduce financial discipline. The amendments relating to auditing mechanism will ensure more accountability.
About Cooperative Banks-
- It is an institution founded on a cooperative basis to deal with the ordinary banking business. Cooperative banks are created by collecting funds through shares, accepting deposits, and granting loans.
- They are Cooperative credit societies where members from a community group together to offer loans to each other, at favorable terms.
- Cooperative banks are registered under the Cooperative Societies Act of the State concerned or the Multi-State Cooperative Societies Act, 2002.
- These Cooperative banks are governed by the,
- Banking Regulations Act, 1949.
- Banking Laws (Co-operative Societies) Act, 1955.
- They are usually divided into Urban and Rural cooperative banks.
- Features-
- Customer Owned Entities- The Co-operative bank members are both customer and owner of the bank.
- Democratic Member Control- These banks are owned and controlled/managed by the members, who democratically elect a board of directors. Members generally have equal voting rights, as per the co-operative principle of “one person, one vote”.
- Profit distribution- A significant part of the yearly profit, benefits or surplus is generally allocated to constitute reserves and some part of this profit can also be distributed to the co-operative members, with legal and statutory limitations.
- Financial Inclusion- They have played a major role in the financial inclusion of unbanked rural masses. They deliver cheap credit to masses in rural areas.
- Urban Cooperative banks (UCB)-The term Urban Cooperative Banks is not formally defined but specifies the primary cooperative banks located in urban and semi-urban areas.
- The Urban Cooperative Banks, the Primary Agricultural Credit Societies (PACSs), the Regional Rural Banks (RRBs), and Local Area Banks (LABs) could be regarded as differentiated banks as they operate in localized areas.
- Till 1996, these banks were permitted to lend money only for non-agricultural purposes. Today, this distinction does not hold.
- UCBs were traditionally centred on communities and local workgroups as they essentially lent to small borrowers and businesses. Presently, their scope of operations has expanded considerably.
- Constitutional Provisions- The Constitution (97th Amendment) Act, 2011 added a new Part IXB regarding the cooperatives in India.
- The word “cooperatives” was added after “unions and associations” in Article 19(1)(c) under Part III of the Constitution.
- This enables all the citizens to form cooperatives by providing it the status of fundamental right of citizens.
- A new Article 43B was added in the Directive Principles of State Policy (Part IV) with regard to the “promotion of cooperative societies”.
- Some examples of Successful Cooperatives in India-
- Indian Farmers Fertilisers Cooperative Limited (IFFCO).
- National Agricultural Cooperative Marketing Federation of India (NAFED).
- AMUL.
Key Points of MSCS Act, 2002-
- Multi State Cooperative Societies- Although Cooperatives is a state subject, there are various societies like those for sugar and milk, banks, milk unions etc whose members and areas of operation are spread across more than one state.
- For instance, most sugar mills along the districts on the Karnataka-Maharashtra border buy cane from both states.
- Maharashtra has the highest number of such cooperative societies at 567, followed by Uttar Pradesh (147) and New Delhi (133).
- The MSCS Act was passed to govern such cooperatives.
- Legal Jurisdiction- Their board of directors has representation from all states they operate in.
- Central registrar is responsible for Administrative and financial control of these societies, with the law making it clear that no state government official can wield any control on them.
- The exclusive control of the central registrar was meant to permit smooth functioning of these societies, without any interference of state authorities.
Some Associated Concerns-
- Lack of Checks and Balances- While the system for state-registered societies involves checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multi state societies.
- The central registrar can only permit inspection of the societies under special conditions.
- Additionally, inspections can occur only after prior intimation to societies.
- Weak Institutional Infrastructure of Central Registrar- The on-ground infrastructure for central registrar is thin, there are no officers or offices at state level, with most work being performed either online or through correspondence. Due to this, the grievance redressal mechanism has become inefficient.
- This has led to various instances when credit societies have introduced ponzi schemes taking advantage of these loopholes.