Govt remains mute spectator as co-ops strip people of their wealth
RUPAK D SHARMA
KATHMANDU, Dec 13: News about liquidity crisis faced by Guna Cooperative has lately been making headlines. The Lalitpur Division Cooperative Office, which oversees Guna, is also well aware of the problem at the institution, as several depositors have arrived at its doorsteps to complain about the cooperative´s inability to return their deposits.
Yet no government authority has bothered to take stock of the situation at the institution, which so far has reportedly collected around Rs 800 million in deposits from the public.
“We cannot do much at the moment. And even if we visited the cooperative´s office to look over its transaction records we wouldn´t be able to achieve much, as we are not accounting experts,” Sashi Lamsal, chief of Lalitpur Division Cooperative Office, told Republica.
Such an apathetic response from Lamsal is definitely appalling. But there is also an ounce of truth in his statement as most of the officials recruited in division cooperatives offices cannot analyze balance sheets of cooperatives - especially savings and credit cooperatives that operate like banks.
For instance, Guna´s audited balance sheet of the fiscal year 2010/11 - which is the latest data available so far - shows that the cooperative had a paid-up capital of Rs 20 million till that time. As per the rule, savings and credit cooperatives cannot mobilize deposits in excess of 10 times the amount of paid-up capital. This means Guna´s deposit collection ceiling should have been Rs 200 million. But the balance sheet of 2010/11 shows deposits of the cooperative standing at Rs 321.99 million - Rs 121.99 million more than permitted level.
What is even more surprising is that its loan portfolio stood at Rs 346 million during that period, which is Rs 24.01 million more than deposits.
These mismatches should have rang alarm bell long ago because the cooperative had failed to maintain enough stock of deposits prior to extending loans and meet the minimum capital requirement for deposit collection. But no action was taken.
Officials at the division office, however, defended, saying these shortcomings had been detected during an inspection conducted by a team comprising officials of Nepal Rastra Bank (NRB) and the Department of Cooperatives (DoC), which oversees savings and credit cooperatives with annual transaction of over Rs 50 million.
“During the inspection, the cooperative´s excess exposure to the real estate sector was also revealed, following which instructions to take corrective measures were issued,” an official said. “But the cooperative never complied.” And for the last seven months Guna has not even sent its monthly financial report to the office.
“So we are not in the loop about its financial health,” the official said. “We also do not know whether collateral pledged by its promoters to retrieve loans are of any use as the same assets may have been pawned in other institutions.”
The situation is almost the same at Kathmandu-based Oriental Cooperative and Exim Cooperative that are also facing liquidity crisis due to imprudent lending practice, inefficient management and negligent board of directors.
Like Guna, Oriental, which has mobilized deposits of around Rs 3.5 billion, and Exim, which has collected around Rs 470 million in deposits, have also flouted norm on capital-deposit ratio, according to Krishna Prasad Sharma, senior official at Kathmandu Division Cooperative Office. And like Guna, these two cooperatives also have significant exposure to real estate sector.
“These facts came to light when a joint team of NRB and DoC conducted inspection more than a year ago,” Sharma said. “Since then we have been asking them to cover the holes on balance sheets, yet they failed to heed our calls.”
But unlike in Guna´s case, police reports have been filed against the main promoters of the two cooperatives after depositors filed complaints against them.
According to officials, division cooperative offices cannot take legal recourse on their own unless members of cooperatives file written complaint against the promoters. And this is the reason that is preventing Lalitpur division office from initiating legal action against the promoters of Guna, Lamsal said.
“To give immediate respite to victims, amendments first have to be made to the law as it assumes only people of high moral character will participate in cooperatives movement,” Bishnu Ghimire, spokesperson of the Department of Cooperatives, said.
“Since the law has not envisaged incidents of foul play, it does not have provisions for huge fines and harsh punishments to those who flout law.”
An example of this is maximum fine of Rs 1,500 that authorities can slap on cooperatives for failing to abide by the sector´s law. “We do have the power to dissolve the cooperative. But this won´t give relief to victims if the cooperative does not have valuable assets,” Ghimire said.
Once changes are made to the law, the government, according to Ghimire, should also enhance capacity of employees working in division cooperative offices so that they can smell suspicious acts after taking a look at their financial reports.