The surprise withdrawal of high denomination notes by Prime Minister Narendra Modi on November 8 has hit Kerala harder than any other state. The shops and establishments in this consumer-driven state are feeling the pinch. It has put the state economy, which is battling the stress in the plantation sector and the issue of people returning from Gulf nations due to slowdown, under immense strife.
But the curbs on its vibrant cooperative banking sector have got Kerala’s goat. In his first interview since the demonetisation, Finance Minister of Kerala Thomas Isaac said “we should evoke the patriotism of Malayalis” to counter the “criminal conspiracy” to destroy the state’s cooperative banking sector. Excerpts from a wide-ranging interview with Rajesh Abraham in Kochi.
Could you explain the impact demonetisation is having on the cooperative banking sector in the state?
It is having a massive impact. There is a shortage of liquid money in the cooperative banking sector after the RBI restrictions. While the advances of the District Cooperative Banks (DCBs) are illiquid, panicky customers are making premature withdrawals of their fixed deposits paying a penalty. This is in addition to other withdrawals by customers for marriage purposes etc. DCBs are also issuing cheque for customers who want to withdraw big amounts. The money is going out but we are not seeing inflow. There is a criminal conspiracy to wreck our vibrant cooperative banking sector. Are we facing a run on the cooperative banking sector?
Let’s not create further panic. The government is committed to protect the cooperative sector. I want to evoke the patriotism of Malayalis and make it our common cause to protect this sector.
Is there any other solution to bring in funds to the cooperative banking sector and remove the liquidity issues?
The Primary Agricultural Cooperative Societies (PACS) do not have core banking facility. This restricts them from transferring funds directly to DCBs. PACS can issue cheque to DCBs, which in turn can issue a cheque to customers, based on needs. Suppose a customer is admitted to a hospital, the DCB can issue a cheque for the medical expenses.
Will this cooperative sector crisis affect the LDF Government’s proposal to create a ‘Kerala Bank’?
The proposal is to form the Kerala Bank merging all the DCBs. This will remain in the cooperative sector, hence, I think there’s no need to get a separate banking license. The current crisis in the cooperative sector will speed up the process of forming the Kerala Bank. A committee has been appointed by the Kerala Government to study this proposal. A final call will be taken after this.
LDF Government has proposed fund raising through Kerala Infrastructure Investment Board (KIIFB) for infrastructure development purposes? Will we see fund raising this year?
As per the plan KIIFB will raise funds through general obligation bonds which can be used as a common pool. KIIFB can come out with other instruments allowed by the RBI for the corporate sector such as infrastructure investment trusts or Invits, infrastructure debt funds etc. These funds are raised for specific projects. We hope to launch the fund raising during the next financial year.