Rural cooperative banks’ grouse at RBI fiat on old currency notes
With the Reserve Bank of India (RBI) restraining District Central Cooperative Banks (DCCBs) from accepting demonetised notes, the rural cooperative sector has taken a hit.
In a recent letter to the government, the All India Cooperative Bank Employees Association had written that around 90 per cent of the DCCBs were in profit (total ~2,100 crore), with only 40 reporting a loss, of around ~340 crore in all. However, primary agricultural credit societies (PACS), base of the structure, are under stress.
Cooperative credit institutions are divided into urban and rural. The latter category is further divided into short-term (and medium-term) and long-term. Short-term rural credit has a three-tier structure of state cooperative banks, DCCBs and PACS. While long-term credit is divided into State Cooperative Agriculture and Rural Development Banks (SCARDBs) and Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).
According to data from The National Federation of State Cooperative Banks, as on March 31, 2015, of 92,789 PACS, only 67,016 were viable. Around 37,440 PACS reported a combined loss of ~4,377 crore, and 43,653 societies reported a combined profit of a little more.
The financial health of the long-term rural credit institutions, SCARDBs and PCARDBs is worse. According to Reserve Bank data, at the end of March 2014, while 372 PCARDBs reported a total profit of ~265 crore, another 340 reported a total loss at ~508 crore. The proportion of non-performing assets (NPAs) to loans was a high 37.3 per cent; that of SCARDBs was at 35.6 per cent.
Along with DCCBs, the PACS, SCARDBs and PCARDBs have also been restrained from collecting deposits or exchanging of the demonetised notes. In an affidavit to the Supreme Court, the central government has said the DCCBs were banks of low-order professionalism in their staff and low levels of automation. It questioned their capability to detect fake currency notes.
Employees of rural cooperative banks agree that technological backwardness and political intervention have added to the woes of the sector. “The PACS are not a part of core banking solution or CBS system and the government is unable to get data on who is depositing the cash. Except for a few states, almost all have a high degree of political intervention in cooperative banks,” said a senior employee of one in West Bengal.
However, rural cooperative banks also provide loans to 80 per cent of rural farmers, mostly small and marginal, though the volume is relatively small. “Cooperative banks have unnecessarily been downgraded by the government. DCCBs are the backbone of the entire cooperative sector. Around 85 per cent of small and marginal farmers are covered by cooperative banks,” said P Balakrishnan, general secretary, All India Coop Bank Employees Federation.
Several cooperative banks have moved the courts on the order which restrains DCCBs from collecting demonetised deposits. Cash in the old currency which was collected prior to the RBI order is still with these entities; in Bengal, the DCCBs had collected about ~1,200 crore for either exchange or as deposits. Close to ~500 crore is still with them, to be lifted. The cooperatives are required to pay interest on these deposits, without being able to deploy it.
“The cash in demonetised notes are adding cost to the cooperatives but since the matter is now in the courts, the cash cannot be lifted from the branches either,” said a senior official of the West Bengal State Cooperative Bank.