THE demonetisation initiative, with the withdrawal of Rs.500 and Rs.1,000 notes, has pushed the vibrant cooperative sector in Kerala, including the wide network of primary credit cooperatives and district banks, into one of the worst crises in its history.
It has also triggered a sensitive political battle, with Chief Minister Pinarayi Vijayan and his Cabinet colleagues launching an agitation on November 18 in front of the regional office of the Reserve Bank of India (RBI) in Thiruvananthapuram, and joining hands with the Congress-led opposition against what they described as attempts by the Bharatiya Janata Party (BJP) government at the Centre to destroy the cooperative sector, “the lifeline of Kerala economy”.
The strong cooperative movement in the State, whose origins can be traced back to the years before Independence when commercial banks were not so popular, has played a crucial role not only in liberating the rural poor from the clutches of moneylenders and extending banking services to them but also in addressing the various social needs of ordinary people throughout the State. Today, profits from these cooperatives not only reach the government but are also used to provide low-cost essential services and in a variety of socially useful activities, including the public distribution of essential commodities and medicines, marketing, housing and construction, women’s welfare, and in the fields of education and health.
Perhaps more than in other States, the cooperative movement in Kerala has established very close links with the lives of ordinary people. While commercial banks together have 6,213 branches in the State, and accounted for a total deposit of Rs.3.7 lakh crore, the district and primary cooperative societies, though still backward in technology adaptation and in the provision of many services, have 4,800 branches and have accumulated a total deposit of Rs.1.8 lakh crore. Unofficial estimates say that every day nearly Rs.25,000 crore worth of transactions take place through cooperative banking channels in Kerala.
The three-tier system, with its wide network of State, district and urban banks, and primary agricultural credit societies and other primary societies, came to a halt from November 10 when the RBI barred all but the State and urban banks from exchanging the Rs.500 and Rs.1,000 notes that had ceased to be legal tender or from accepting such notes as deposits or receiving fresh cash in exchange for its own reserves.
The apex State Cooperative Bank, with its 20 branches, and the nearly 60 urban banks in the State, accounted for only 10 per cent or so of the total banking business in the cooperative sector. In other words, over 80 per cent of the total transactions in the sector took place through the district/primary banks that were barred by the RBI from exchanging money or accepting deposits. As the cooperative banking system lay immobilised, the Income Tax Department began its long-pending hunt for alleged tax evaders in it, giving notice to many cooperative banks and societies to throw open their books for scrutiny. Thousands of depositors who had invested their savings in these cooperative banks were left in the lurch, with no clarity on when normal transactions would resume.
The chaos that followed led to widespread protests, and after repeated requests by the State government for a rollback on the freeze on exchange of currency by the primary cooperatives and district banks were ignored by the Union Finance Ministry, the State’s Ministers led by Pinarayi Vijayan staged the day-long agitation on November 18. The Congress-led opposition too announced it would join hands with the ruling front in the fight against the BJP government’s moves to destroy the cooperative sector and called for a special session of the State Assembly to discuss the issue.
According to the Minister for Cooperation, A.C. Moitheen, there are total deposits worth Rs.1,83,435.90 crore in Kerala’s cooperative sector. This includes the deposits in primary cooperative societies/banks (Rs.1,20,905.71 crore), district cooperative banks (Rs.57,404.52 crore) and the State Cooperative Bank (Rs.5,125.67 crore). Given the facts that some of the funds of primary banks are deposited in the district banks and that of the latter in the State Cooperative Bank, the net total deposits would be Rs.1,37,813.85 crore, the Minister informed the Assembly in October.
In addition to the money used for disbursing loans and that required to be kept as statutory deposits, the State’s cooperative banks hold a surplus fund of Rs.1,161.36 crore in various banks, securities and bonds. There are also unclaimed deposits lying idle in these banks, of a total of Rs.80.86 crore, the Minister said.
The RBI’s restrictions on primary cooperative societies and district banks literally froze these deposits and brought all transactions in the cooperative sector, which include 1,642 primary agricultural credit societies and over 15,287 other primary cooperatives, to a stop. A large chunk of these transactions were linked to the daily needs of ordinary people who depend on them for credit or for depositing their life savings for essential needs like education and weddings or for parking funds from the sale of property and other such activities.
Target of allegations
However, over the years, cooperative banks were the target of allegations that, especially because of their grass-roots nature and popularity, they were being used by many for stashing ill-gotten wealth and for large-scale tax evasion. In general, many of these banks/societies are known to offer higher interest rates, easy KYC (know your customer) requirements and a general exclusion from tax scrutiny, as the majority of the primary cooperative societies (though not the district banks) were outside the RBI’s direct scrutiny and control. Such a relaxed atmosphere was equally attractive to ordinary people with limited surplus funds as well as to those with immense black wealth.
The cooperative sector has also been an area for political patronage and funding, with the Communist Party of India (Marxist) and its Left Democratic Front (LDF) allies reportedly controlling nearly 70 per cent of the banks and the Congress and its United Democratic Front (UDF) allies controlling the rest. Members of the governing bodies are elected mostly on party lines, and the recruitment of employees is a major area of patronage politics. For historical reasons, the BJP has only a negligible presence in the sector.
It is true that attempts made by the RBI earlier to make cooperative banks/societies to follow many of its guidelines proved unsuccessful because of the concern, among other reasons, that it would drastically alter the character of the cooperatives as the common man’s easy avenue for credit and savings and hinder its role in the service sector. Successive governments led both by the CPI(M) and the Congress had refused to accept the package put forth by the K. Vaidyanathan Commission for reforms in the sector. Earlier attempts made by the Income Tax Department to collect information about the deposits in these banks too were not successful because of non-cooperation from a lot of societies/banks and lack of political support for such moves. All this had added to the unfair impression that the cooperative sector was but a den of black money, eclipsing the crucial role it had in bolstering the State’s economy and as the common man’s neighbourhood banking avenue.
The RBI’s recent moves, including its unexplained action imposing restrictions on the district cooperative banks, even though they followed banking regulations and worked under its supervision, is seen as politically motivated and meant to destroy a people’s movement with a long and reliable history in the State. After a Cabinet meeting on November 17, the Chief Minister said it was a deliberate move and that he suspected a clear political conspiracy behind it. “There is no hindrance to legal inspections being conducted in cooperative banks. Nobody has tried to prevent it. But the current restrictions will only destroy the cooperative sector where thousands of ordinary people keep their money and is the lifeline of the State’s economy.” He also said that the allegation of State BJP leaders that the cooperative banks were centres of black money was “pure nonsense”.
BJP State general secretary K. Surendran had alleged in a memorandum to Union Finance Minister Arun Jaitley that there was an estimated Rs.30,000 crore deposits in the cooperative sector in the State belonging to “politicians, real estate mafias, hawala dealers and terrorists” and that “not a single paisa has been paid as income tax on them”.
State Finance Minister Thomas Isaac said such statements were part of a major conspiracy to destroy the cooperative banks in Kerala, with the State unit of the BJP and some vested interests at the Centre behind it. He said that the background of such moves is Kerala’s refusal to accept the Vaidyanathan Commission reforms which seek “to destroy the cooperative sector”. “Successive LDF and UDF governments in Kerala were against it. But vested interests are using the present crisis to achieve their aim through the destruction of the primary cooperative banks. The State unit of the BJP is in full support of such a move. The people of Kerala will have to go for a major agitation against it,” he said.
Curiously, the current crisis comes at a time when the Kerala government is exploring the possibility of forming a Kerala Cooperative Bank, by merging the State Cooperative Bank with 14 district cooperative banks, with linkages with member primary banks/societies, to make use of the huge deposits and resources of the cooperative sector for the State’s development.
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