KOCHI: If one were to pinpoint a sector in Kerala which had the most devastating effect of demonetisation, it is the vibrant cooperative banking domain. In one swoop, it found itself sitting on Rs 1.25 lakh crore of useless money and came to a screeching halt.Demonetisation saw the RBI banning the District Cooperative Banks (DCBs) from accepting the withdrawn notes of Rs 500 and Rs 1,000 at its branches as these banks do not follow the Know Your Customer (KYC) norms. The state's cooperative banking sector has a three-tier structure with Kerala State Cooperative Bank (KSCB) at the top, followed by 14 DCBs and 1,587 Primary Agricultural Cooperative Societies (PACS) below them. Following the note ban, PACBs and close to 11,000 agriculture, milk and other employees' societies under them were not in a position to conduct business through DCBs. The result was catastrophic.
The customers approached the public and the private sector banks to exchange the withdrawn notes. And a large number even opened accounts or started to conduct business through their accounts in PSU and private banks."While there was no inflow of money into the DCBs, there was a run on the deposits at the 14 DCBs across the state," K P Baby, director, National Federation of State Cooperative Societies (NAFSCOB), told Express.
As per the data, the deposit base of the cooperative banking sector fell by Rs 9,054 crore in the quarter after demonetisation. But the damage was deeper. On an average, one PACS has 10,000 members. Some have 1,500 members while others have more than 25,000 members. The PACS were not allowed to withdraw more than Rs 24,000 per week from the DCBs. This resulted in a sudden cash crunch affecting thousands of farmers - mostly in the rubber, dairy, poultry sectors- who are members of PACS.
"A rubber farmer could not get payment for his latex; the dairy farmer for his milk supply. It caused unmitigated damage," said a PACS officer. Damage was done to reputation too. “Cooperative banks were branded as a haven for black money. But, when you look back, hardly any black money or fake currency was unearthed from the cooperative banks, except maybe one or two minor cases,” said a DCB officer.
One year down the line, there are some positive changes though. The KYC norms are now more or less adhered to while opening new accounts; customers are unable to open accounts at different DCBs under separate address, and those who had different accounts under different names or addresses are weeded out. PACS have been asked to provide the additional information of Aadhaar and the identification proof of all their members as well. Earlier, a PACS could get away by furnishing basic information such as the address of communication as part of the KYC.
Total deposits before demonetisation in coop banks - E67,534.43 crore
One month after demonetisation (Dec 2016) - E58,484.88 crore
Total outflow -E9,000 crore
Total at the end of March 2017 -E64,134.25 crore