KASARGOD: The demonetisation of Rs 1,000 and Rs 500 currency notes will not immediately affect the service cooperative banks in Kerala, billed as a haven for unaccounted money by the Income Tax Department, said officials.
The service cooperative banks (SCB) approach the district cooperative banks to exchange high denomination notes, they would not be asked to disclose the source, said Surendran K, concurrent auditor of District Cooperative Bank, and a former cooperation joint registrar.
He pointed out that as per RBI guidelines, service cooperative banks need not demand customers to disclose source of money while accepting deposit. “We deposited Monday’s closing balance with the district cooperative bank using lower denomination notes,” said the manager of a service cooperative bank in Manjeswaram. “We got the money back but are facing a shortage of lower denomination notes, that’s all,” he said.The state government had issued an order in 2013 asking SCBs to strictly comply with the Know Your Client (KYC) norms issued by the RBI.
“According to the KYC norms, banks should keep a copy of the client’s ID card and PAN card and submit the form, duly filled, which enquires about the source of income,” said Surendran. Also, if the interest payout is more than Rs 10,000, the SCBs would deduct 10 per cent tax at source. If the customer does not want to be taxed, he should give a declaration under form 15 G which say: “I have never come under the purview of the Income Tax Act or my annual income does not come under the purview of the Income Tax Act, 1961”.
These declarations are sent to the Income Tax Department, which will verify the claims. Apart from that, service cooperative banks and district cooperative banks have to submit all relevant details of customers who have deposits more than Rs 10 lakh to the IT Department. But in reality, SCBs flout KYC norms. They do not accept Form 15 G or sent details of the customers who deposit more than Rs 10 lakh to the IT Department, said officials. “We are classified as primary agricultural credit society and deposits up to Rs 25 lakh are exempted from tax,” said managers of a SCB. Though the IT Department has challenged it, SCBs got a favourable verdict from the Income Tax Appellate Tribunal, said a manager. When asked about the KYC, the bank managers admitted that the norms were not being followed, because they operate in remote areas, and most of the depositors were small-time traders and real estate players.
“We maintain personal relationship with the customers. Sometimes, they sell their land holdings and deposit the money in our bank. A portion of the money would be untaxed. We know that,” he said, and added that their businesses were important to the banks.
Officials at the Department of Cooperation too admitted that the SCBs were not sticking to KYC norms ‘in a few cases’. “I am not disputing the IT department’s estimate that unaccounted money worth Rs 30,000 crore is stashed in the cooperative sector,” said a top official. “But according to the Department of Cooperation, there is no illegal money in the sector,” he added. The official admitted that the banks were not able to insist on KYC norms due to social and political pressure.Recalling an incident from the past, the official said that he had found during audit that an account holder in Kasargod had Rs 14 crore savings in his account. “I spotted it because the interest outgo was Rs 52 lakh,” he said. The account holder was a resident of Mahe and and he owned a business firm in Dubai.