KOCHI: The demonetisation drive announced on November 8 by Prime Minister Naredra Modi has squarely hit the bull’s-eye of the cooperative banking sector in the country. Courts have been, and are still, continuosly flooded with cases against the move and even hartals have been called in some states.
But fingers are pointed at the sector as a launderer of blackmoney for three main reasons - non-transparency (these banks are headed by politicians), non-adaptation of technology and finally non-payment of tax to the government.
On a rough estimate, the total deposits in cooperative banks is at least Rs 3 lakh crore.
The Indian cooperative bank system is one of the largest in the world with more than 20 crore members. It has about 67 per cent penetration in villages and funds 46 per cent of total rural credit.
But a RBI circular on November 14 banned District Cooperative Banks (DCB) from accepting deposits and exchanging notes.
Even though many channels from petrol pumps to post officers were allowed to carry out these functions, 14,060 strong DCBs across the country were omitted, deliberately.
“As many as 368 DCBs in India have license from RBI, which means they are equal to banks. But the government and RBI have not allowed them to implement demonetisation of Rs 500 and Rs 1,000 notes.
“The customers of Primary Cooperative Credit Societies are farmers and these societies are their primary source for credit and they form the back bone of rural economy,” pointed out Dilip Sanghani, chairman, National Federation of State Cooperative Banks Ltd.
“There are lakhs of such societies in the country. If there are KYC or compliance issues we are ready to address those. We should be allowed to function as we were in the past,” he added.
However, even with the critical situation of rural credit post demonetisation, even those in the banking sector admit that cooperative banking is not as technologically advanced as rest.
Manipulations are rampant and political parties control most of them.
In its latest annual report, NABARD said that there were 14 supervisory concerns regarding cooperative banking structure including poor corporate governance and non-compliance of KYC/anti-money laundering standards. Besides, almost 18 per cent of the DCBs fall short of the minimum share capital requirement of holding at least 7 per cent capital adequacy ratio as set by RBI.
“There is no transparency in the operations of cooperative banks. In most of these, banks accounts are maintained manually, which allow them to make pre-dated entries. These banks are headed by politicians and take-overs by one party from another is often. Because of non-compliance of KYC norms, they usually split deposits of same person as below Rs 50,000 amounts and keep in different names,” said Professor V K Vijayakumar, Investment Strategist at finance firm Geojit BNP Paribas.
“Technological inefficiency is not a big deal when compared to the social cause they are serving. It is a fact that they have to improve in technology. But it does not justify RBI decision not to permit them doing banking activities. We demand immediate roll back of the decision,” argued C H Venkatachalam, general secretary, All India Bank Employees Association.
But he did add that by imparting transparency these banks should be revived as these are vital for rural economy.
However, terming the government and RBI’s action ‘discriminatory’, Kallettumkara Service Cooperative Bank Limited, President, N K Joseph said that they are ready to adore technology and are open to any inspection. The bank has moved the supreme court against the decision.
“The government in a midnight announced that all our deposits are unaccounted money. It has negated all over goodwill over the years. This is unacceptable and is an insult. We have been in this country decades before independence,” he said.