Rural banking

Bankless, cashless

Print edition : December 23, 2016

A banking correspondent helping a resident of Basendua village in Bulandshahr in northern Uttar Pradesh on November 16. Farmer Zakir Khan feels he has been "robbed" of his hard-earned money. Photo: CHANDAN KHANNA/AFP

Women waiting outside a bank at Mugaiyur in Villupuram district, Tamil Nadu, for their wages under the employment guarantee scheme on November 30. They have been doing the rounds for days but to no avail. Photo: Ilangovan Rajasekaran

Banking operations in rural areas have come to a grinding halt, and even three weeks after the demonetisation announcement there seemed to be no respite in sight.

When 40 per cent of the 1.2-billion population does not have access to banking facilities, Prime Minister Narendra Modi’s move to abruptly launch India into an era of cashless economy can only be termed ambitious, to say the least. Especially so when 68.84 per cent of the population, that is 833.1 million people, lives in the country’s 640,867 villages (according to the 2011 Census). It was wishful thinking that 47,445 rural and 37,168 semi-urban branches of the scheduled commercial banks (as of September 2016) would service all these people. It is also next to impossible for such a large number of people to use mobile banking facilities or ATMs.

The number of ATMs in the country makes the entire proposition sound incredulous. Together, the public sector banks in the country have 1,43,795 ATMs; of these, only 29,885 are in rural areas and 40,756 in semi-urban areas, says Reserve Bank of India figures. Urban areas account for 42,610 ATMs and metro cities have 30,544 ATMs (figures as of June 2016). Private sector banks have a minor presence in rural areas, with 4,764 ATMs, while in semi-urban areas they have 13,110 ATMs. (In all, there are 2,00,157 ATMs in the country.)

The business correspondents’ network which the RBI has allowed to fill the last-mile gap in banking connectivity is also not enough to realistically meet the financial needs in rural areas. Figures say that until December 2012 there were 1,52,000 business correspondents, who facilitated just 18.38 crore transactions valued at Rs.16,533 crore. Against this backdrop, it is no wonder that the rural economy in India has come to a grinding halt. Some 20 days after the demonetisation announcement was made, farmers complained about wasting precious time in queues day after day in the sowing season. With life becoming an unending wait in queues for cash, the initial enthusiasm of sacrificing for a greater cause has given way to frayed tempers.

Barely 100 kilometres from Delhi, a crowd of some 500 people laid siege to the Syndicate Bank branch in the posh Shastri Nagar locality of Meerut, Uttar Pradesh, held the bank staff hostage inside the bank, blocked the Delhi-Hapur highway and started throwing stones. The harried bank staff called the police, but the crowd pelted stones at them too, injuring a Circle Officer and other policemen. It also damaged an ambulance. The anger erupted after the bank displayed a “no cash” sign immediately after opening the branch in the morning; most people in the crowd had been coming to the bank daily for cash but in vain.

In neighbouring Greater Noida, angry villagers laid siege to an Oriental Bank of Commerce branch in Dankaur village and blocked the road for hours. Here, too, the police came to the rescue of the bank officials.

Elsewhere in the country, especially in rural areas, ugly incidents occurred after banks were unable to dispense enough cash. In the suburbs of Ludhiana, Punjab, people locked the staff inside a Bank of India branch and sat outside in dharna. The branch, managed by an all-woman team, remained in a hostage-like situation for a couple of hours as the local police failed to respond to their frantic calls. The police acted only after the branch manager appealed to the District Magistrate via a WhatsApp group.

According to a senior State Bank of India official in Vellore, Tamil Nadu, banks were facing a severe cash crunch. “The situation is especially bad in villages because the banks are not getting any cash. Some branches are not even opening. People are panicking. To date we have not received any 500-rupee note; there is hardly any supply of 100- or 2,000-rupee notes either. We are finding it very difficult to meet the cash demand of our own customers, let alone cater to those of other banks through our ATMs, which too have been lying closed for many days. People are now starting to get angry and are getting into arguments and fights with the staff,” he said.

A woman manager of an SBI branch in Madurai found a novel way to deal with the crisis. “We have made seating arrangements for women and elderly customers. We have put every single chair available in the branch at the disposal of our customers who have to stand in a queue for a long time. We are also offering them water, juice, etc., and try and talk to them with a smile. Since I have more women staff members, we are generally able to placate the angry customers, but I don’t know how long we will be able to manage like this because the cash crisis is actually bad. We feel bad at not being able to meet our customers’ demand because, after all, they are only asking for their own money. Sometimes my staff and I have pooled in our own money to help those in dire need,” said the officer, who did not want to be named. According to her, it was painful to see old people queuing up for their pension and return empty-handed. “This month I have not been able to pay them their old-age pension. I promised them I would give two months of their pension together. I shudder to think how we will manage because there is still no cash. I can’t even imagine how these poor people are managing,” she said.

Unorganised sector

Johnsily, president of the Kanyakumari-based Malar Organisation, a federation of 2,000 self-help groups (SHGs), says the situation is critical for workers, such as weavers, masons and beedi workers, in the unorganised sector. Her organisation has 33,000 members and all of them are finding the going tough. “I myself have gone to 12 ATMs on a single day to get cash, in vain. The condition of the poor, who have to depend on their daily wages for survival, is pitiable. It is a sad state of affairs. Now it is the time for salaries and old-age pensions to be disbursed. How are we going to manage that?” she asked.

Explaining the rural crisis, D. Thomas Franco, general secretary of the State Bank of India Officers Association and president of Tamil Nadu unit of the All India Bank Officers Confederation, said the cash position was bad all over India, particularly in rural areas. “The RBI sends some cash to banks in the cities, but villages are totally neglected. Some branches don’t even open for days. Branches are located far away from one another, and there are hardly any ATMs. People in the villages have no facilities to swipe their cards either. So all they have is cash in hand and even that is now not available.”

The situation is grimmer with the ban on district cooperative banks, the backbone of rural economy, from accepting or exchanging demonetised currency. According to the National Bank of Agriculture and Rural Development (NABARD), there are 370 district cooperative banks managing 93,042 primary agriculture credit societies. Cutting off this crucial banking institution from the entire process has meant keeping Rs.3.5 lakh crore blocked from circulation. Villagers, who predominantly depend on these cooperative banks, are left in the lurch because they cannot deposit their old notes in their own accounts, nor can they withdraw money because of the cash crunch. Farmers who are members of these agriculture credit societies have no cash to repay their old loans, and hence cannot get fresh loan to buy seeds or fertilizers for the ongoing sowing season. For them, it is a catch-22 situation.

Crisis of credibility

For cooperative banks, it has also been a crisis of credibility after the freeze on transactions since November 14. “The RBI has totally destroyed our credibility. People are asking questions now. We are not able to give them loans or cash or even take their old notes. Our cash crunch is so severe that we are finding it difficult to meet our daily requirements,” said Dr Alok Kumar Srivastava, the CEO of Bahraich District Cooperative Bank Ltd, Uttar Pradesh. According to him, farmers, who are their primary customers, have been ruined.

What makes it worse for these banks is the fact that the RBI is not even accepting the old notes that they had collected before the ban was imposed on November 14. “It is difficult to understand why the RBI is bent upon destroying our credibility. Until the ban on November 14 we were legally entitled to accept old notes but now the RBI is not getting even these notes lifted. There is nobody to listen to us. We have been operating under RBI guidelines because we have been given licence by the RBI itself, but now they are making us feel like criminals,” said Mahesh Singh Yadav, the CEO of Ghaziabad District Cooperative Bank Limited. According to him, the RBI is not giving them any cash to meet even the small requirements of their customers; they cannot accept old notes so farmers cannot repay their old loans and get a fresh one. The entire banking system in the villages has been destroyed and there is nobody to think of these problems, he said.

Franco sees a conspiracy in the entire exercise: to destroy public sector and cooperative banks and push them towards privatisation and hand them over to pro-government corporate cronies. According to him, the government has shown a discriminatory approach towards public sector banks all through the crisis. For example, he said, from day one, private banks were given more currency by the RBI.

Even State Bank of India, which maintains the highest number of currency chests (137), was asked to collect cash from ICICI Bank in Madurai and HDFC Bank in Coimbatore. State Bank of India, Indian Overseas Bank, Indian Bank and Canara Bank have the highest number of branches. But after November 8, ICICI Bank was given Rs.4,500 crore, HDFC Bank Rs.900 crore, Axis Bank Rs.700 crore and all the other banks together Rs.7,800 crore.

“Is it a conscious move to shift customers to private banks? Already the government has announced through Gyan Sangam and Indradhanush that it wants to privatise public sector banks. The present move also appears to be in that direction,” he said. A couple of dishonest bank officials who were caught exchanging old notes for a commission, he said, were being used to discredit the entire banking system.