One of the most pressing challenges facing Kerala’s cooperatives, apart from corruption and irregularities, is the steady rise in bad debts.
Published Jan 11, 2026 | 9:00 AM ⚊ Updated Jan 11, 2026 | 9:00 AM
Synopsis: Structural flaws, audit failures and weak vigilance have pushed Kerala’s vast cooperative sector, a backbone of the State’s economy, into financial unsustainability and a crisis of trust, a review by the Personnel and Administrative Reforms Department has found. The report said rising bad debts, poor risk management, delayed recoveries and a largely reactive inspection system have allowed corruption and mismanagement to go unchecked across thousands of societies in Kerala.
In 1956, at the time of Kerala’s formation, there were around 3,111 cooperative societies in the State. Today, cooperative societies touch every aspect of rural life and form the backbone of the State’s economy, having grown into a vast network of 23,263 societies.
With that growth, however, have come years of alleged corruption and irregularities, making the sector one of the State’s most politically sensitive domains.
At a time when the Union government has been making repeated attempts, amid the State’s objections, to expand its presence in the sector, despite the sector figuring as the 32nd item in the State List of the Constitution, the Kerala government last year decided that decisive intervention could no longer be delayed.
To give teeth to the move to strengthen vigilance in the cooperative sector, Chief Minister Pinarayi Vijayan ordered an urgent study by the Personnel and Administrative Reforms Department to reorganise the Cooperative Department.
The study, published on 26 December 2025, laid bare the fact that the cooperative sector today finds itself grappling with deep-rooted structural and regulatory weaknesses that threaten its very sustainability.
The study points out that one of the most pressing challenges facing Kerala’s cooperatives, apart from corruption and irregularities, is the steady rise in bad debts. This has been exacerbated by successive floods, the Covid-19 pandemic and prolonged economic distress, which have eroded borrowers’ repayment capacity.
It said that lengthy arbitration and execution processes, though designed to ensure fairness, often delay recovery and push societies into financial crisis.
Equally alarming is the trend of aggressively mobilising deposits through attractive schemes without proportionate loan disbursal. This has resulted in idle funds being diverted into ill-conceived projects that lack clear plans or risk assessments.
Defective valuation of properties, failure to classify societies on time and poor investment decisions further weaken balance sheets and amplify financial risk. These vulnerabilities are compounded by an inspection and audit mechanism that has failed to function as an effective early warning system.
The study also highlighted that serious irregularities detected during audits are often not reported to regulatory officers in a timely manner, allowing mismanagement to fester unchecked.
Taken together, these lapses point to a systemic failure in governance, oversight and accountability.
The report warned that, if left unaddressed, they could undermine public trust in cooperatives, a sector built on confidence and collective responsibility.
Strengthening inspection systems, ensuring prompt regulatory intervention, improving risk management and adapting recovery mechanisms to post-disaster realities are no longer optional reforms but urgent imperatives to safeguard the future of the cooperative movement, it underscored.
The study has flagged serious structural weaknesses in the existing inspection and vigilance mechanisms, warning that rising corruption and financial irregularities pose a threat to the very credibility of cooperatives.
While the Cooperative Vigilance System has been constituted to probe embezzlement and grave irregularities on the recommendation of the registrar of cooperative societies, the study finds that its functioning remains largely reactive and insufficient.
Headquartered in Thiruvananthapuram, with regional offices in Alappuzha, Thrissur and Kannur led by deputy superintendents of police, the vigilance wing investigates complaints routed through the registrar.
However, it lacks the authority to initiate cases suo motu, even as the number of societies handling large-scale financial transactions continues to grow.
The study also points out that inspections are largely confined to the taluk level, limiting their deterrent value.
Though an Inspection Section functions under two deputy registrars in the registrar’s office, the arrangement has failed to bring about qualitative change amid increasing irregularities.
Random inspections, which could act as an early warning system, are rare.
The absence of a robust, decentralised inspection architecture, the study notes, has allowed irregularities to accumulate unchecked, eroding public trust in cooperatives that were once seen as community-owned financial lifelines.
One of the study’s more startling findings is that, contrary to the perception that audits and inspections are infrequent, most cooperative societies are audited regularly.
However, a significant number of irregularities identified during these audits never reach regulatory or vigilance authorities in time, nor do they prompt follow-up action by controlling officers.
Many of the lapses attributed to a particular financial year, the study points out, may have occurred much earlier but remained unreported due to non-cooperation by societies, non-submission of documents or pressure on auditors.
As a result, problems surface only when they become unmanageable, causing financial distress and public outrage.
The findings also highlight the underutilisation of the Cooperative Vigilance Department.
Since its inception in 2008 till 9 September 2024, the department received only 713 complaints, an average of 44 a year, translating to about three complaints per district annually.
This is despite audits and inspections flagging over 6.8 lakh irregularities during the period. The study argues that had even a fraction of these audit findings been formally referred to vigilance in a timely manner, systemic correction could have begun much earlier.
Equally concerning is the procedural delay.
Complaints and investigation reports pass through multiple administrative layers, from regional offices to Vigilance Headquarters, the registrar and back, diluting urgency.
While recent circulars prescribe timelines for parts of this process, the study notes the absence of deadlines for action after investigation reports reach the registrar.
To plug this gap, it recommends mandatory quarterly disclosure of Action Taken Statements to the government, and accountability, including disciplinary action, against officials who suppress or delay reporting of serious irregularities.
The study calls for a comprehensive strengthening of the inspection and vigilance framework to arrest the cooperative sector’s continuing decline.
A key recommendation is the creation of dedicated Inspection Sections at three levels: the office of the Cooperative Registrar, district-level Joint Registrars and taluk-level Assistant Registrars, with clearly defined responsibilities.
Such a multi-tiered system, the study argues, would enable regular and random inspections, reduce over-reliance on complaint-driven probes and prevent irregularities before they snowball into scams.
On vigilance, the study highlights a critical institutional flaw.
Though Section 68(A) of the Cooperative Societies Act provides for a Cooperative Vigilance Officer of DIG rank, officers of that level are reluctant to take up the post as it requires working administratively under a junior officer.
As a result, the post often remains vacant, seriously undermining the efficiency and legal robustness of investigations.
Delays in submitting investigation reports to the registrar further weaken enforcement, while appointing officers below the statutory rank risks legal challenges in court.
To address this, the study recommends amending the Cooperative Societies Act to mandate the appointment of an IPS officer not below the rank of Superintendent of Police as the Cooperative Vigilance Officer.
According to the study team, this change would ensure continuity, legal defensibility and timely action, key steps, it says, to reclaim the lost credibility of Kerala’s cooperative sector.
However, while the exercise laid bare several hard-to-ignore realities, one major flaw stood out: it stopped short of examining the role of political influence in the day-to-day functioning of cooperatives and whether such interference has been breeding corruption and irregularities.
With the formation of Kerala in 1956, the need for a unified cooperative law became imperative to integrate diverse regional practices.
This led to the establishment of the Cooperative Department in 1958, a decisive step that shaped one of the most vibrant cooperative movements in the country.
The defining strength of Kerala’s cooperative movement lies in its inclusive character. Cutting across caste, class and social divisions, it embraces all sections of society and is firmly rooted in the principle of self-reliance. This self-reliance is collective rather than individualistic, driven by mutual support and shared responsibility, making cooperation a powerful tool for social and economic transformation.
Cooperative societies form the foundation of development within the sector.
Under the Registrar of Cooperative Societies, 16,352 societies function across areas such as credit, agriculture, production, marketing, public distribution, traditional industries, housing, education, health, SC/ST welfare, women empowerment, technology training and infrastructure.
Another 6,911 societies operate under various functional registrars.
From just 3,111 societies in 1956, the sector has grown to 23,263 today, reflecting Kerala’s development journey.
Guided by a vision of social and economic resilience, cooperatives, despite allegations of widespread corruption and irregularities, continue to uplift rural and marginalised communities and remain a driving force of the State’s economy.
(Edited by Dese Gowda)
