Ahead of Gujarat polls, political parties cash in on the vast rural banking network

The impact of demonetisation was felt across sectors last year but the rural economy probably suffered the longest in Gujarat owing to its over-dependence on the cooperative banking system.

It was only in this June that district cooperative banks (DCBs) were allowed by the finance ministry to deposit the banned currency notes lying with them since the November 8 demonetisation.

What crippled the functioning of DCBs further was the RBI’s decision to bar these banks from receiving and exchanging banned Rs 500 and Rs 1,000 notes within five days of the demonetisation announcement.

Concerns that these banks being politically connected might be used for money laundering had led the central bank to impose the ban.

The decision hit the state hard as DCBs play a major role in its economy, particularly the rural one. Almost 20% of the state’s over six crore population is connected to these banks.

As Gujarat goes to polls by this year-end, the vast network of rural and urban cooperative banks and their lakhs of customers will count as a crucial vote bank for the political parties to tap into.

About one crore farmers associated with dairy and agriculture cooperatives and village-based credit societies are connected with 18 district cooperative banks. Plus the urban cooperative banks (UCBs) have around one crore customers.

“Though things have stabilized now, many rural folks are back home after losing their jobs in small and medium sectors. This will adversely affect the BJP’s prospects,” says Saagar Rabari, a farmers’ welfare leader.

“For seven months, around Rs 600 crore in old notes remained idle at DCBs. It was a difficult period, but we did not let this affect our customers beyond a point,” says Mahesh Patel, chairman of the Sabarkantha DCB.

Almost 80% of the18 DCBs are directly or indirectly connected to the BJP. Only two of the 24 directors in the Gujarat State Co-operative Bank (GSCB), the apex body of all DCBs are not directly connected to the BJP. Among the directors is also BJP chief Amit Shah.

“The DCBs till the 1990s were Congress-dominated and now the BJP rules them,” says Narhari Amin, former deputy CM and vice-chairman of the state planning commission.

The tide turned in the BJP’s favour in 2009 when Ajay Patel, a close aide of Shah, was elected GSCB chairman despite Congress having 11 directors on the 21-member board. The Congress-backed directors too had voted for Patel.

The following year the BJP wrested control of the Gujarat State Cooperative and Rural Development Bank Limited due to infighting in the Congress.

In the aftermath, Amin who was then the Congress’ tallest cooperative sector leader switched loyalty to the BJP in 2012.

Amin’s departure triggered an exodus from Congress as soon Mahesh Patel and others followed suit. Saurashtra strongman and Porbandar MP Vithal Radadiya, who is also the Rajkot DCB chairman, was the last to don the saffron colour in 2014, soon after the NDA came to power at the Centre.

Grassroots Congress leaders during late PM Morarji Desai’s time strengthened the cooperative sector in Gujarat. For them, farmers’ interest was uppermost, says Mahesh Patel, whose father was also associated with the Congress.

“But the party could not maintain its dominance. The kind of eagerness the BJP has shown in controlling the sector was totally missing in the Congress,” says Amin.

The party accuses the BJP of adopting a “divide and rule” policy. “Be it ADC or GSCB, the BJP came to power through money and muscle power,” says Mohan Patel, Congress’ cooperative cell president.

With the BJP in power in the state and at the Centre, the party is focused on addressing the banking sector’s concerns after the demonetisation heartburn. Of the 7% interest rate that banks charge for farmers’ loans, the central and state governments contribute 2% each. The farmer, in effect, pays back only 3% interest.

“Often it takes two years for the 2% to come from the central government. In the wake of this, the state government has decided to set up a corpus of Rs 200 crore to meet the demands of DCBs. This will help us have enough liquidity,” says Mahesh Patel.

Like Patel, UCB Federation chairman Jyotindra Mehta, too, rules out that demonetisation will be an issue in the forthcoming assembly elections.