Calcutta, Sept. 16: The Birbhum District Central Cooperative Bank, which had been barred from carrying out business in May 2014 because of alleged mismanagement, has secured the permission to resume activities.

The Bengal government played an active role in helping the bank stand on its feet again, pumping in funds along with the Centre and requesting the Reserve Bank of India to re-issue a licence.

Nabanna sources said the reopening of the bank was a "major success" for the state government because the RBI exercised extreme caution while reissuing revoked licences.

"There are two reasons why this is a major success. First, it will help the 2.7 lakh depositors and 2.1 lakh farmer members associated with the bank. Second, the revival is good news for the cooperative banking sector, which is struggling in Bengal," an official said.

As the main objective of cooperative banks, run by groups of local people with help from the state government and financial institutions such as Nabard, is to offer cheap loans to farmers, fishermen, artisans and other small borrowers, rural economies are heavily dependant on these institutions.

Rural economies in India face lack of credit options as scheduled commercial banks prefer urban and semi-urban areas, where the scope of business is higher. Cooperative banks were conceived to ensure credit flow to rural areas.

Against this backdrop, the reopening of the Birbhum bank is significant as at least 100 cooperative banks across Bengal have either shut shop or are fighting to stay afloat, sources in the cooperation department said.

The sources said the Forward Bloc used to control the managements of many cooperative banks between 1980 and 2011. They said attempts to control local politics by running the show in the bank boards had weakened the institutions.

"Because of the political interference, the Birbhum cooperative bank had amassed huge bad loans, which could not be recovered. In most cases, people owing allegiance to the Bloc would get loans. Supporters of other parties were turned away. As basic banking principles were being violated and the solvency of the bank had come under doubt, the RBI was forced to cancel its banking licence in May 2014," a cooperation department official said.

In October 2015, the bank was reopened after the state government got in touch with the Centre and the RBI. But the bank could not restart operations as the RBI had not issued the licence because of huge non-performing assets.

"Finally, the state convinced the Centre to infuse funds into the bank so that it could secure the licence. The Centre and the state together gave Rs 111.5 crore to the bank, making it eligible for the return of the licence," a source said.

According to a minister, the RBI's decision to reissue the licence had come as a relief for Trinamul as the party had promised to reopen the bank ahead of the Assembly polls this year.

Sources said the reopening of the bank would also be a litmus test for the state government.

"The cooperative banks are the lifeline of the rural populace in Bengal as more than 800 gram panchayat areas don't have scheduled commercial bank branches. Moreover, the cooperative banks could be used as a weapon to keep ponzy companies such as Saradha at bay as these institutions have daily-deposit schemes that allow small savers to deposit their money against assured returns," a government official said.

The official said the objectives of the cooperative banks would be fulfilled only if efficient running was ensured.

"The complaints of mismanagement keep pouring in from various areas as the boards of many cooperative banks are now controlled by Trinamul leaders," an official said.

According to him, the recapitalisation of all cooperative banks would be an expensive affair and the amount needed would be in excess of Rs 5,000 crore.

"So, the best way is to allow the banks to run efficiently by freeing them of political interference," the official said.

Arup Roy, the cooperation minister, said the government was committed to the cause of keeping the cooperative banks financially solvent.