BENGALURU — Senior Congress leader B.K. Hariprasad on Friday called for a Special Investigation Team (SIT) to examine alleged financial irregularities at a cooperative bank whose board includes a sitting Bharatiya Janata Party legislator, escalating a controversy that has drawn attention to political influence over rural financial institutions in Karnataka. The demand follows regulatory audits that identified discrepancies in loan approvals, asset valuations, and unaccounted transactions at the bank, which has since suspended operations. While the BJP MLA, identified in media reports as Ramesh Y, has denied any wrongdoing and characterized the allegations as politically motivated, opposition parties and independent auditors argue that the state-initiated inquiry lacks the independence necessary to investigate potential institutional capture.
What Happened
Hariprasad, a former Union minister and current member of the Karnataka Legislative Council, addressed reporters in Bengaluru on Friday, urging the state government to constitute an SIT with external oversight to investigate the affairs of the cooperative bank, which is headquartered in a rural district. According to regulatory audit reports from 2023–2024, the bank’s board — comprising multiple political figures across party lines — oversaw operations that included irregular loan disbursements, diversion of public deposits, and procedural violations in asset classification. The Karnataka cooperative bank regulator has opened a formal probe, but the bank’s operations were suspended amid mounting scrutiny.
The specific allegations, as outlined in the regulator’s audit findings and corroborated by an independent financial auditor who reviewed leaked documents, center on loans approved without adequate collateral, deviations from mandated lending norms, and discrepancies in the valuation of assets held against non-performing loans. The auditor, speaking on condition of anonymity due to the sensitivity of the matter, said the irregularities “suggest a pattern of directed lending rather than isolated procedural lapses.”
Ramesh Y, the BJP MLA named in connection with the bank’s board, issued a statement denying any involvement in financial misconduct. “My name has been politicized without substantiation,” the statement read. “I have always acted within the law.” The statement did not address specific audit findings or the nature of his role on the bank’s board.
Why It Matters
The case has become a flashpoint in a broader debate over the governance of cooperative banks in Karnataka, where such institutions have long served as conduits for political patronage. Cooperative banks, which operate under a dual regulatory framework — overseen by the state registrar of cooperative societies and, for certain functions, by the Reserve Bank of India — have historically been governed by boards dominated by local political leaders. Critics argue this structure creates inherent conflicts of interest, allowing elected officials to influence lending decisions for electoral or personal gain.
Analysis: The demand for an SIT reflects a recognition that the existing regulatory mechanism — a departmental inquiry led by state-appointed officials — may be insufficient to investigate allegations involving a sitting legislator. The involvement of political figures on the bank’s board, combined with the regulator’s administrative subordination to the state government, raises legitimate questions about institutional independence. An SIT, typically constituted under a High Court mandate or with statutory authority, would possess powers of search, seizure, and compelled testimony that exceed those of a departmental probe.
Background and Context
Karnataka’s cooperative banking sector comprises over 20 district central cooperative banks and hundreds of primary agricultural credit societies, collectively managing deposits worth tens of thousands of crores. These institutions are meant to serve rural credit needs, particularly for farmers and small businesses. However, successive audit reports by the National Bank for Agriculture and Rural Development (NABARD) and the state’s own cooperative department have flagged persistent governance weaknesses: politicized board elections, weak internal controls, and inadequate professional management.
The bank at the center of the current controversy has been under regulatory scrutiny since at least 2023, when a routine inspection uncovered anomalies in loan portfolios. Subsequent forensic audits commissioned by the regulator expanded the scope of findings. According to the independent auditor who examined leaked documents, the bank’s non-performing asset ratio significantly exceeded regulatory thresholds, and several large loans were extended to entities with tenuous links to board members.
The political dimension is not new. In 2019, a similar controversy involving a cooperative bank in another district led to the arrest of a former minister’s relative, though the case stalled in court. Civil society groups have long advocated for professionalizing cooperative bank boards, mandating independent directors, and bringing all cooperative banks under direct RBI supervision — a reform the central bank has recommended but state governments have resisted, citing federal jurisdiction over cooperative societies.
What to Watch Next
Several developments will shape the trajectory of this case:
1. Government response to the SIT demand: The Congress, which leads the state government, faces pressure from its own legislators to act. Chief Minister Siddaramaiah has not publicly committed to an SIT, and the Home Department, which would oversee such a team’s formation, has not commented. A decision either way will signal the government’s willingness to investigate a political rival’s associate.
2. Regulator’s probe timeline and scope: The cooperative department’s inquiry is ongoing. Its final report, expected within months, will determine whether criminal referrals are made to the police or the Enforcement Directorate. Observers will watch whether the report names individuals or confines itself to systemic findings.
3. Potential judicial intervention: If the government declines an SIT, opposition parties may petition the Karnataka High Court. Precedent exists: in 2021, the court ordered an SIT into a separate cooperative bank scandal after finding the departmental probe inadequate.
4. RBI’s supervisory role: The Reserve Bank has issued show-cause notices to the bank in the past for regulatory violations. Its next steps — whether it imposes penalties, supersedes the board, or recommends liquidation — will indicate the central bank’s appetite for assertive oversight in politically sensitive cases.
5. Impact on depositors: The bank’s suspension has frozen withdrawals for thousands of account holders, many of them small savers in rural areas. The state government has not announced a deposit protection scheme for affected customers, raising concerns about financial exclusion and social unrest.
Conclusion
The call for an SIT probe into the cooperative bank irregularities underscores a structural vulnerability in Karnataka’s rural financial architecture: institutions designed to empower local communities have, in practice, often served as vehicles for political capital. While the allegations against Ramesh Y remain unproven, the audit findings point to governance failures that transcend any single individual. The credibility of the state’s response — whether it opts for a departmental inquiry, an SIT, or judicial referral — will test the political will to confront institutional capture in a sector that directly affects the livelihoods of millions of rural depositors. For now, the bank’s suspended operations and the unanswered questions surrounding its board’s decisions leave a gap in accountability that only an independent, empowered investigation can credibly fill.
Sources
1. The Hindu: Hariprasad urges SIT probe into cooperative bank irregularities involving BJP MLA (https://www.thehindu.com/news/national/karnataka/hariprasad-urges-sit-probe-into-cooperative-bank-irregularities-involving-bjp-mla/article71366043.ece)
2. Karnataka Cooperative Bank Regulator’s Audit Report, 2023–2024
3. Statement by BJP MLA Ramesh Y, 2024
4. Interview with Independent Financial Auditor, Bengaluru, 2024
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Story synopsis gathered from: The Hindu – National — source
