RBI Clears District Banks’ Dirty Underbelly, But Is It Too Late?

To tackle the dirty underbelly, RBI has barred DCC Banks from exchanging old notes. However, not everyone is happy.

Representational image of a security guard standing before a half-shut bank. (Picture: Reuters)

The Reserve Bank of India has identified and closed the first major loophole which could have been exploited to exchange tonnes of black money stashed in the form of old currency notes. Five days after PM Narendra Modi’s dramatic announcement, the RBI hurriedly issued a circular on Sunday, clarifying that no District Central Cooperative (DCC) Bank in India can exchange or deposit old notes of Rs 500 and Rs 1000 denominations.

The circular sent political leaders with monopoly in these local banks into a tizzy. Maharashtra, which has a long tradition and seen a deep penetration of the cooperative sector, has reacted sharply. Pravin Darekar, who is the Chairman of Mumbai DCC bank, has called a meeting of chairpersons and CEOs of all 31 DCC banks in Maharashtra on Wednesday. He’s also planning to challenge the RBI circular in the court.

DCC banks are banks of the common people. Rich people have accounts in bigger banks. So, we’ve decided to file a writ petition against the decision. I’ve also spoken with the CM and he is going to speak with Jaitely <i>saheb. </i>I’m sure we will get a positive response from him (Jaitley).

Pravin Darekar, Chairman, Mumbai DCC Bank

Darekar was a part of Raj Thackeray’s Maharashtra Navanirman Sena. He later joined the ruling BJP and was elected to state’s Upper House. He was booked in 2015 for allegedly causing a loss of Rs 123 crore to Mumbai DCC Bank as a result of fraud and embezzlement of funds.

Like Mumbai DCC Bank, almost all banks across every district in India are monopolised by powerful local leaders. These banks were set up to serve cooperatives and rural areas. The members, directors and president of these banks are elected by various agricultural and non-agricultural cooperative units. In short, the one who rules the DCC bank, rules the district.

No More Politician’s Piggy Bank

• Recent RBI circular prohibiting District Central Cooperative banks from exchanging old notes comes as a shocker for Maharashtra politicians.
  
• Leaders have often used these local banks to further their own financial interest and RBI suspects that netas use them to deposit benami cash.
  
• Despite the mandatory requirement of PAN and Aadhar cards, it’s difficult for RBI to scrutinise lakhs of transaction in local banks.
  
• RBI’s decision is a blow to farmers who were looking to pay off loans after selling their produce.
  

80% DCC Banks Are Mismanaged

(Courtesy: RBI)

A number of instances have proven that local politicians have misused these banks for furthering their financial or political interests. A highly placed source in a cooperative bank spilled the beans to the The Quint, on the condition of anonymity.

The RBI suspects that local leaders are putting in their benami cash in poor farmers’ names. If a neta has 1 crore rupees, he will get 100 of his poor, loyal men and ask them to deposit 1 lakh each. Or he can get the old notes exchanged through his crony managers. Around 80 percent DCC banks are mismanaged like this.

He also smells politics behind this move.

If you take into account Maharashtra’s case, most cooperative banks are ruled by the Opposition. Once you control the supply of cash, party workers working in the entire system get frustrated. It’s also a way to block and replace your political enemies.

Although RBI has not given any reason for barring these banks from carrying out the two crucial transactions, another manager working in an urban cooperative bank endorsed the view that large scale corruption exists in DCC banks.

There were major loopholes left by the RBI. It was very easy for these banks to convert one man’s old notes worth 25 lakh rupees and then put on record the account numbers of a hundred people. Although the RBI asks for PAN and Aadhar cards for these transactions, will it be possible for the RBI to look into lakhs of transactions?

Why Punish the Common Depositor?

Villagers pose with their identity cards outside a bank in Rajasthan. (File Picture by Reuters)

While the RBI may have done it with an intention to keep a check on local politicians with black money, the common clients, most of whom are farmers or agricultural labourers, are going to bear the brunt.

The RBI move goes against the assurance given by the PM. These are scheduled banks; the RBI cannot keep them deprived of cash. If the RBI says that the DCC banks are corrupt, is there no corruption in RBI and nationalised banks? This logic won’t stand in court.

Vishwas Utagi, GS, Cooperative Banks Depositors’ Association

A top officer in the Cooperatives Ministry of Maharashtra told The Quint that the decision is discriminatory.

This is going to cause a lot of inconvenience to lakhs of depositors. I don’t buy this corruption talk. On behalf of the RBI, NABARD (National Bank for Agriculture and Rural Development) inspects all DCCs every year. If some DCCs are corrupt, why punish those who’ve kept impeccable record?

The immediate problem is going to be for Kharif farmers, who were looking to pay off crop loans after selling their produce. The total Kharif produce is worth Rs 12,000 crore across Maharashtra alone.

There are 31 DCC banks with an extensive network of 3800 branches and deposits worth Rs 65,000 crore in Maharashtra. Most depositors in DCC banks now have Jan Dhan accounts in nationalised banks as well. So, they can deposit old notes in their nationalised bank accounts and withdraw old deposits from DCC bank accounts.

In neighbouring Gujarat, Chairman of Ahmedabad District Co-operative Bank, Ajay Patel is going to meet BJP president Amit Shah tomorrow. Shah is going to Bharuch for a Bharuch District Central Cooperative Bank function. Meanwhile, the National Federation of State Cooperative Banks Ltd has submitted a memorandum to Finance Minister Arun Jaitley.

What About Transactions in the Last 5 Days?

Irrespective of what happens in court, the most important questions is: what about the transactions made in the 5 working days in DCC banks across India? Now that the RBI has smelled a rat, will it set up an inquiry? Does the RBI/NABARD have the infrastructure to check all these transactions?

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