Money laundering rbi must tame urban cooperative credit societies’ account

Money laundering rbi must tame urban cooperative credit societies’ account

A report in ET by Sugata Ghosh shows how income-tax sleuths have unearthed a case of large-scale money laundering through a multi-state urban cooperative credit society’s account. The modus operandi — anonymous people deposited and swiftly transferred crores of rupees in the society’s accounts in the names of slum dwellers — reflects poor regulatory oversight. Multi-state cooperative credit societies, which accept deposits only from, and give loans to, members, are regulated by the central registrar under the agriculture ministry. The civil servant in charge, typically a joint secretary-level officer, is ill-equipped and does not have the wherewithal to handle supervision. It makes sense for the RBI to be a joint regulator, as with cooperative banks, or to convert all credit societies into cooperative banks.
A parliamentary panel, too, had raised concerns over multi-state cooperatives becoming a conduit for transferring dubious money. It recommended enforcement by the department of economic affairs. That’s a sub-optimal solution. RBI should be roped in to have a firm legal framework for supervision. Mandate Aadhaar, which would create audit trails, for all transactions. Direct credit societies to file information returns with tax authorities real-time. Errant ones that fail to comply with the regulation should be banned. Cooperative credit structures, the world over, combine thrift and credit, based on mutuality. However, in India, the structure has been focused on credit. These institutions have played a useful role, when the reach of formal finance had been stunted. Their salience grows in inverse proportion to that of formal banking, which is seeing a radical transformation. If these credit societies cannot be properly regulated, they can be culled, without much reduction in social welfare.