India is home to more than 1,500 urban and more than 97,000 rural cooperative banks, and play a key role in delivering credit to villages and smaller towns. But despite tighter regulation, hundreds of cooperative lenders in the country are hit by scams every year.
Recently, the Income Tax department has unearthed financial irregularities worth Rs 1,000 crore at cooperative banks in Karnataka, including fake expenses.
Tax evasion under the garb of cooperative societies
The tax authorities raided 16 locations of cooperative banks in the poll-bound state, to look for possible tax evasion by routing funds of businesses belonging to customers.
The scam involved discounting bearer cheques issued by businesses in the name of fake entities.
After discounting, the money was deposited into accounts of cooperative societies that took out the amount in cash and gave them back to the business owners.
This process was carried out to hide the real source of the cash withdrawal and help businesses show non-existent expenses on its books.
The basis of this scam was turning cooperative societies into conduits for business entities owned by the bank's clients.
Fake loans also involved
These lenders also opened Fixed Deposit Receipts without any verification and later gave out loans using those FDRs as collateral.
These were reflected as unaccounted cash loans worth Rs 15 crore during the Income Tax department's probe.
The search also led to the discovery of more than Rs 3 crore in cash and Rs 2 crore in jewellery.
