Multiple co-operative banks in the State have reported a slowdown in growth of deposits since demonetisation, and this is having an adverse impact on lending. But opinion is divided on whether this slump can be attributed entirely to demonetisation.
“The co-operative banking sector has registered an average deposit growth rate of 18-20% in the past few years. But this time, the growth rate has severely declined. For instance, the deposits in our bank only grew by 2.29%,” said G.S. Ramana Reddy, managing director of the Karnataka State Co-operative Apex Bank.
M.N. Rajendra Kumar, president of the South Canara District Central Cooperative (SCDCC) Bank and of the Karnataka State Cooperative Marketing Federation, said the total deposits at SCDCC Bank have fallen even in absolute numbers. “It was down from ₹3,201.64 crore as on March 31, 2017 to ₹3,164 crore as on September 30, 2017,” he said.
“Farmers, who are the backbone of the co-operative sector, are not making deposits for fear of notice and inquiry following demonetisation,” Mr. Kumar said.
However, Mr. Ramana Reddy refused to attribute all this to demonetisation alone. “There have been several changes to RBI norms that have diverted co-operative society deposits from our banks. But if people have money in their hands, they are expected to put it in the banking sector. That doesn’t seem to be happening,” he said, pointing to a larger slump in the economy.
Agriculture affected
Sources said crop loans, which are partially funded by NABARD, were also affected by demonetisation. Rajanna Reddy, MD of Shivamogga District Cooperative Central Bank, said that owing to paucity of cash, they have disbursed crop loans in instalments.
Tankachan Andrews, a farmer from Ripponpet village, Shivamogga, said though loans were credited to their accounts at once in June, banks imposed restrictions on withdrawal, and the full amount could be withdrawn only by July-end, causing delays in sowing and thereby, the yield.
The only relief the sector has had is that following a long legal battle in the Supreme Court, the RBI has accepted credit of ₹474 crore demonetised currency that co-operative banks in the State had collected before November 14, 2016. The RBI barred the banks from exchanging demonetised currency for new notes on November 14, a week after demonetisation.
“For a start, ₹474 crore was lying idle with us for over 10 months, and this caused a loss of interest to the tune of over ₹20 crore. But more than that, we couldn’t channel these funds for lending, causing a severe liquidity crunch in the first few months after November,” said Mr. Ramana Reddy.