One and a half years after demonetisation, DCCBs still reeling from its aftershockshttps://indianexpress.com/article/business/banking-and-finance/one-and-a-half-years-after-demonetisation-dccb-district-cooperative-central-bank-nabard-5128632/

One and a half years after demonetisation, DCCBs still reeling from its aftershocks

DCCBs (district cooperative central banks) — there are a total of 31 in Maharashtra — sit at the apex of the cooperative credit structure and disburse crop loan directly to village level credit societies.

district cooperative bank
District Central Cooperative Banks (File Photo)

More than 16 months after the Narendra Modi-led central government withdrew the old Rs 500 and Rs 1,000 notes from circulation, a group of district cooperative central banks (DCCBs) in Maharashtra are still fighting to exchange some of the demonetised currency in their possession. In the last week of March, one of them, the Pune District Central Cooperative Bank (PDCCB), received a major relief from the Supreme Court, which provisionally allowed it to show the Rs 22.25 crore in demonetised notes as ‘cash in hand’ and not as losses, as had been instructed by the National Bank for Agriculture and Rural Development (NABARD). But the fight is far from over.

The DCCBs

DCCBs — there are a total of 31 in Maharashtra — sit at the apex of the cooperative credit structure and disburse crop loan directly to village level credit societies. Of the nearly Rs 54,000-crore crop loan that is disbursed in Maharashtra almost every year, about 40 per cent is extended by these banks. A majority of their beneficiaries are small and medium farmers, who find it difficult to obtain credit from regular commercial banks.

The board of directors of DCCBs are elected from village-level societies. In Maharashtra, Congress and NCP have control over majority of these banks.

Other than crop loans, these institutions also serve as bankers to rural industries like dairies and sugar mills. Teachers of primary schools, workers of sugar mills and other industries have their salary accounts with these banks.

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Demonetisation woes

Eleven DCCBs, including eight in Maharashtra, have been claiming that they together are in possession of about Rs 147 crore in old demonetised currency which the Reserve Bank of India has refused to exchange. These banks are claiming that this money was deposited to them before the November 8, 2016 decision to demonetise high-value notes.

The genesis of the problem lies in a November 14, 2016 circular issued by the RBI which barred the DCCBs from exchanging or depositing old currency notes. The terse circular did not give any reasons for this decision, which came as major setback to most of the DCCBs. Given their extensive rural footprint, these banks were obviously the first preference of rural populations to exchange their currency.

It was estimated that by November 14, the DCCBs in Maharashtra had already seen a deposit of over Rs 2,000 crore. The Pune bank itself had reported around Rs 600 crore in demonetised currency.

While the RBI had not explained the rationale for its decision, during the hearing of the court cases, it said that accounts in these banks did not adhere to the KYC (Know Your Customer) norms set by it. KYC, which is established through various identity documents, is required to ascertain that the account holder is bona fide.

The demonetisation decision was followed by a stringent scrutiny of accounts in all the banks to identify fictitious or suspect accounts. The district cooperative banks had faced the most stringent checks during this time, with multiple central investigating agencies like the CBI, Enforcement Directorate, and Income Tax department conducting search operations at these banks. The management of DCCBs say not more than two per cent of their accounts would have KYC issues. Most of such accounts had been non-functional for a long time, they claimed.

Legal reprieve

In January last year, the Supreme Court allowed these banks to exchange their demonetised currency, but only after a rigorous scrutiny of their accounts. The green signal from the RBI, to exchange the old currency, did not come before June last year. In the intervening time, NABARD had conducted at least four inspections of these banks, and did not find any major defalcation or fraud in the monies deposited.

RBI’s green signal for the money exchange came with a rider, though. It said old currency deposited with these banks before November 8, 2016 would not be eligible for exchange. This is the money that is currently lying with them. In January this year, NABARD sent a letter to these banks, asking them to show the demonetised currency in their possession as losses for the current financial year. The banks refused to do so, saying it was not their fault. PDCCB chairman Ramesh Thorat said his bank had taken about Rs 20 crore to deposit in the currency chest but was refused as the chest did not have space.

The banks knocked on the doors of the court once again, and as of now, the Supreme Court has stayed the directive of NABARD. The matter will come up for hearing soon and banks are hopeful of a positive decision. In the meanwhile, most banks are ruing the business losses they have suffered, including the extra interest they have to pay to their customers.