Government to tighten rules for credit cooperatives to protect investors

chika ebuzor

January 4, 2016 5:14 AM

This follows an investigation that revealed an expansion in fund-raising by embattled conglomerate Sahara India Pariwar using four credit cooperatives in different parts of the country.

Narendra Damodardas Modi-Prime Minister of India.

India will crack down on errant financial firms that raise funds, mainly from millions of rural poor customers, through loosely regulated credit cooperative societies, a senior official in the agriculture ministry said.

This follows a Reuters investigation that revealed an expansion in fund-raising by embattled conglomerate Sahara India Pariwar using four credit cooperatives in different parts of the country.

Reuters spoke to dozens of savers who said Sahara had not given them their money when their deposits matured. Instead, they complained, Sahara's agents and branch officials tried to persuade them to switch their matured savings deposits to new schemes offered through credit cooperatives run by Sahara.

Sahara has not responded to requests for comment by Reuters.

The federal government plans to penalise cooperatives that fail to repay investors when deposits come due or engage in other violations of regulations, a senior official from the Ministry of Agriculture's credit cooperatives division told Reuters.

The official, who has direct knowledge of the matter, did not want to be named as he was not authorised to speak to the media. Agriculture Minister Radha Mohan Singh and Secretary Siraj Hussain, the top bureaucrats in the ministry, did not immediately respond to emails seeking comment.

One measure under discussion is to either have an independent regulator supervise credit cooperatives or bring them under the purview of an existing regulator, such as the Securities and Exchange Board of India, which oversees India's stock markets, the official said.

"The idea is to make it more stringent by giving more teeth so that we are able to effectively protect investors' interest," the cooperatives division official said. "Various suggestions have been made and the top brass is very serious about this."

Credit cooperatives are widely used by the rural poor. A lack of banking services in India - nearly two-fifths of its 1.27 billion people have no bank accounts - has helped shadow banks such as the credit cooperatives thrive for decades in Asia's third-largest economy.

chika ebuzor