ANALYSIS. Banning DCCBs from accepting demonetised notes unjustified

The ban on depositing the demonetised ₹1,000 and ₹500 notes in district central cooperative banks (DCCBs) may have been “a trifle unjustified”.

Activists in the cooperative sector argue that out of the 370 DCCBs in 20 States, as many as 367 are licensed under the Banking Regulation Act, 1949.

Only three from Jammu and Kashmir have not fulfilled the licensing criteria prescribed by the RBI. All the licensed 367 make themselves available for inclusion in the post-demonetisation phase.

The DCCBs are supervised by the National Bank for Agriculture and Rural Development (Nabard ) and regulated by the RBI. They also submit regulatory returns to the RBI.

Given this, there is a strong case to allow them to participate in the demonetisation scheme, especially when the relatively small-sized urban cooperative banks are.

A perusal of the data in public domain indicates that the old notes held by the DCCBs all over the country was ₹7,946.9 crore during November 8-14.

This forms less than 1 per cent (0.96 per cent) of the total specified bank notes (SBNs) of ₹8.25 lakh crore collected by all banks as on November 14 and 2.7 per cent of the total deposit base of ₹2.9 lakh crore, data sourced from the RBI reveal.

And since cash at DCCBs is considered for the purpose of calculating cash reserve ratio, the effective cash level with these banks ranges between 1 and 2 per cent.

This should go to rule out any ‘alarming or disproportionate’ collections of the banned notes by the DCCBs during the five days leading up to November 14.

On the contrary, the DCCBs are being made to bear the cost of carrying these deposits at 4 per cent on savings bank accounts and 6-7.25 per cent on fixeddeposits.

Available data also suggest that the DCCBs are familiar with a computerised environment. Core banking facility is available in more than 95 per cent of these banks.

Fake note detecting machines are available in 10,339 branches of DCCBs which constitute at least 75 per cent of a total of 13,339 branches, data maintained by DCCBs and Nabard show.

Jose T Abraham, President, All-India Nabard Employees Association, said borrowers of primary agriculture credit societies have not been able to repay their loans on account of the RBI restrictions on cooperatives.

Cash disbursement of loans to farmers has almost come to a standstill during a time when rabi crop sowing is apace. They find it increasingly tough to carry out day-to-day operations.

They could even lose the standing crops due to non-payment of harvest charges to labourers. This might force them to increasingly access money-lenders and unscrupulous middlemen for hard cash.