Distress messages go out from cooperative banks in rural India

Operations at 370 district central cooperative banks (DCCBs) and over 93,000 primary agricultural credit societies (PACS) have been severely hit with the Reserve Bank of India (RBI) slapping restrictions following the demonetisation of Rs 500 and Rs 1,000 notes.

Urban cooperative banks (UCBs) too have complained to the RBI that commercial banks are refusing to provide them currency support, affecting their operations.

The RBI has not given any reason for the curbs on DCCBs and PACS – these are considered the lifeline of the rural economy, especially for farmers in states like Maharashtra, Kerala, Uttar Pradesh, Gujarat, Tamil Nadu and Karnataka – but banking sources said it could be related to lax KYC (know your customer) norms and money laundering in some cooperative banks.

RBI data says 370 DCCBs held deposits of Rs 236,890 crore as of 2014 while PACS had Rs 81,900 crore deposits.

The RBI has stipulated that DCCBs and PACS can allow existing customers to withdraw money from their accounts up to Rs 24,000 per week until November 24. It has said no exchange facility against the specified bank notes (Rs 500 and Rs 1000) or deposit of such notes should be entertained by DCCBs. It has advised all banks to permit withdrawal of cash by DCCBs from their accounts based on need.

According to Pramod Karnad, Managing Director, Maharashtra State Cooperative Bank (MSCB), only UCBs and SCBs are allowed to exchange and deposit notes.

The Mumbai District Cooperative Bank, chaired by BJP member Pravin Darekar, has filed a petition in the Bombay High Court against the RBI circular preventing cooperative banks from accepting deposits in demonetised currency notes.

The petition states that the circular is discriminatory and arbitrary besides violating fundamental rights. “No reason has been given for singling out cooperative banks like this. We act as bankers to other cooperative societies within Mumbai district. If the circular is followed, cooperative societies will not be able to deposit the discontinued currency notes with their banker. This would cause loss to members of such societies,” it stated.

The petition points out that several hospitals, petrol pumps, medical stores have their accounts with the bank and they too will be affected. It states that there are 103,873 saving accounts being operated by individuals and 12,285 saving accounts of housing societies.

Although over 1,500 UCBs in the country are allowed to exchange and deposit demonetised notes, they said they have been at the receiving end of the demonetisation scheme following inadequate remittances from the central bank.
“While the apex bank has been making all efforts to provide liquidity for the nationalised and private sector banks, the common man’s cooperative banking sector has been ignored with close to 52 cooperative banks being left out with empty hands over the past two days,” the UCBs said in a letter.

The Maharashtra State Cooperative Banks Federation Ltd, in a letter to RBI Deputy Governor R Gandhi, said, “after the announcement of the scheme of withdrawal of legal tender character of existing Rs 500 and Rs 1000 bank notes, commercial banks refused to provide currency support to our UCBs on November 10, 2016, treating us as ‘general customers’. Later, in spite of issuance of circular by the RBI that the limit of Rs 10,000 is applicable to general customers and not applicable to cash withdrawal from a bank account by one bank from another bank, these public sector banks, especially SBI and Bank of India refused to adhere to the request of UCBs.”

“While the RBI did offer some remittances in the first few days, the approach in the past two days are far from encouraging for the fraternity, which has been fighting shoulder to shoulder with other bankers to make the national cause of demonetisation a great success,” the letter said.

As many as 1,579 cooperative banks have over 10,000 branches and close to 3,000 operational ATMs across the country and constitute nearly four per cent market share in the banking business mix of the country.

UCBs have to depend on local currency chests of public/private sector banks to withdraw or deposit the currency, while many others have partnership of payment systems with the National Payments Corporation of India (NPCI).

Most of these UCBs, the letter stated, are direct members of the RBI for CTS (cheque truncation system) and, therefore, expect good cooperation from the SBI as well as from the other public/private sector banks. “While there are huge queues lined up with public and private sector banks, the cooperative banks have been left out for want of legal tender adding to the chaos,” the letter stated.

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