Karnataka to mandate ‘liquid reserve’ at Souharda co-op institutions

Bengaluru: The state government is amending the Souharda cooperatives law to make it mandatory for those institutions to set aside 20% of their total deposits at the end of every quarter to maintain liquidity. 

This is being positioned as a move to protect the interest of depositors given that cooperative institutions are scam-prone. 

The scrutiny committee headed by the law & parliamentary affairs minister has approved the Karnataka Souharda Sahakari (Amendment) Bill, which is expected to come up before the Cabinet. 

Souharda cooperative institutions function under the apex body Karnataka State Souharda Federal Cooperative Ltd, which is a democratically elected, self-regulatory organisation of cooperatives registered under the Karnataka Souharda Sahakari Act, 1997. 

The government has proposed introducing a new Section 17B in the law for "maintenance of Statutory Liquid Reserve". 

The amendment states: "Every Souharda cooperative shall mandatorily maintain 20% of the total deposits held by it at the end of each quarter of the cooperative year as Statutory Liquid State Reserve."

According to the Karnataka State Souharda Federal Cooperative Ltd, there are 6,500 Souharda institutions in Karnataka. Of them, 1,001 have defaulted, 1,148 are not working and 296 are under liquidation. 

In December 2023, Cooperation Minister KN Rajanna told the Assembly that he planned to do away with the federation of the self-regulated Souharda institutions due to regulatory concerns. Rajanna said the government had limited control over the Souhardas, unlike the other cooperatives. "We have powers for registration and cancellation only," he had said. 

The likes of Sri Guru Sarvabhauma Souharda Credit Cooperative Ltd, Sri Kanva Souharda Cooperative Credit Ltd and Sri Vasista Credit Souharda Sahakari Ltd have seen scams in which depositors lost money. 

In 2021, the then BJP government amended the Souharda law to restrict a cooperative member from holding more than 5% of the total share capital. The government then also introduced a clause to disqualify defaulting members.